MEDPAC Calls for Cuts to Hospice Payment Cap

The Medicare Payment Advisory Commission (MEDPAC) has recommended to Congress that Medicare base payment rates for hospice for Fiscal Year 2022 remain at current levels and to cut by 20% the hospice aggregate cap. The commission also recommended that the aggregate cap be wage adjusted.

The payment cap is the upper limit to the amount of funds a hospice can collect from Medicare in a single year. If a hospice exceeds the payment cap, it must refund that amount to CMS. For Fiscal Year 2021, the hospice cap is $30,684 per patient (not wage adjusted). About 16% of hospices exceeded the cap in 2019, according to MEDPAC. On average, hospices exceeding the cap saw margins in the range of 21.9%, which fell to 12.1% following refunds to CMS for cap overages.

“These above-cap hospices had high average lengths of stay and high live-discharge rates and were disproportionately for profit, freestanding, urban, small, and new entrants to the Medicare program,” MEDPAC indicated in its report to legislators. “Unlike wage-adjusted Medicare payments, the hospice aggregate cap is not wage adjusted, resulting in an aggregate cap that is stricter in some areas of the country than others.”


CMS adjusts daily hospice payments to account for differences in wage rates among markets. Each level of care has a labor share and a non-labor share; those amounts differ across each level of care, reflecting the estimated proportion of costs that is attributable to wages, according to the Medicare Payment Advisory Commission.

The labor share of the base payment amount is adjusted by the hospital wage index for the location in which care is furnished and the result is added to the non-labor portion. To calculate the wage index, CMS uses the prior year’s wage data from acute care hospitals.

Because the cap is not wage adjusted, it creates more financial pressure for providers in geographies that see higher labor costs, according to MEDPAC.


The proposed cuts to the payment cap are designed to target hospice providers that see longer lengths of stay and high margins, improve equity of the payment cap among different types of providers, and generate cost savings for taxpayers and the Medicare Part A Trust Fund, MEDPAC has reported.

“On the basis of payment adequacy indicators and analysis of the hospice aggregate cap, the Commission recommends that hospice payment rates for 2022 be held at their 2021 levels and that the aggregate cap be wage adjusted and reduced by 20%,” MEDPAC noted.

For a cap reduction to take place, Congress would have to accept the recommendation and legislate accordingly. Historically lawmakers have not pursued recommended cuts to hospice payments.

MEDPAC also reported that hospice utilization rose during 2019. That year, more than 1.6 million Medicare beneficiaries received hospice care from 4,840 providers. Medicare hospice expenditures reached $20.9 billion. The percentage of Medicare decedents who elected hospice rose to 51.6% in 2019, up from 50.6% in 2018. Median length of stay rose to 92.6 days, compared to 90.3 in 2018.