Hospices Brace for Medicare Sequestration, Return Could Be ​‘Devastating’ for Smaller Operators

Although 2% sounds like a small number, it can mean financial life or death for some hospices, particularly small community-based providers.

These organizations are once again waiting to see if the federal government will extend the current moratorium on Medicare sequestration, uncertain about their programs’ sustainability without such relief.

Established in 2014 by the Budget Control Act, sequestration reduces Medicare payments to hospice and other health care providers by 2% across the board. Congress suspended the practice in 2021 through the CARES Act and has extended it several times since.

Currently, the suspension is due to end March 31.

Along with COVID-19 grant money and regulatory flexibility, sequestration relief has been a lifeline during the past two years, according to hospice leaders.

“Some providers have already reported having to turn away patients seeking hospice care, which means those patients are likely dying in hospitals, without hospice care, and with higher costs,” Edo Banach, president and CEO of the National Hospice and Palliative Care Organization (NHPCO), told Hospice News. “Cuts to Medicare payments to hospice will make those problems worse — forcing more people to die in hospitals instead of at home, reducing access to care, and increasing costs.”

Two years into the pandemic, hospices continue to face higher expenses for personal protective equipment (PPE) and COVID-19 testing kits, in addition to paid leave for staff, contract labor and investments in telehealth. They have also seen declines in institutional referrals and hospice length of stay, further eroding their margins.

Providers of every size have felt the sting, even the industry’s largest stakeholders.

VITAS Healthcare, a subsidiary of Chemed (NYSE: CHEM), brought in net patient revenues of $317 million during the third quarter of 2021, a 5.8% drop compared to the prior year’s quarter. The decline was predominantly due to pandemic headwinds, including labor pressures, rising supply costs, decreasing institutional referrals and lower lengths of stay, the company reported in an earnings call.

Likewise, home health and hospice company The Pennant Group (Nasdaq: PNTG) reported $2.3 million in lost revenue due to the pandemic in Q3.

These are substantial hits, but for small nonprofit or community-based providers the return of sequestration could be “devastating,” Samira Beckwith, CEO of Hope Hospice & Community Services, told Hospice News.

“[Sequestration relief] is really critical to our being able to continue and care for people during this unprecedented pandemic,” Beckwith said. “We had increased costs, and increased stress and activities. To have some relief from sequestration really, really helped us.”

Nationwide, hospices are reporting similar challenges.

HopeWest, a nonprofit, community-based hospice serving five predominantly rural counties in Colorado, typically operates with an annual margin of approximately half a million dollars, according to CEO Christy Whitney. Thus far in the pandemic, the organization has experienced more than $8 million dollars of COVID-related expense and loss of revenue since 2020.

Without the sequestration moratorium and Provider Relief Funds, HopeWest may not have been able to stay open, Whitney said. If the moratorium ends as scheduled, the nonprofit would have to restructure expenses and rely on more philanthropy to make up for the additional $1 million.

“Our community provides support for all of our programs and increasingly we rely on philanthropy for core programs like hospice,” Whitney said. “A continued sequestration will challenge and stress the organization even further while we are still coping with the effects of the pandemic. I suspect all philanthropy programs would be in jeopardy, including the hospice care center.”

Nonprofit and community-based hospices in general tend to see margins in the 3% range, according to the Medicare Payment Advisory Commission (MedPAC), though some of these providers operate on margins as low as 1%.

Even some of the nation’s largest providers have expressed concern about the sustainability of community-based hospices. VITAS CEO Nick Westfall told Hospice News that absent federal relief, including from sequestration, some of those providers could go out of business or have to sell to a larger agency.

“My hope is that it doesn’t create any hospice islands anywhere throughout the country where there’s not a sufficient number of agencies that can serve the population,” Westfall said.

On the other side of the coin, the U.S. Centers for Medicare & Medicaid Services (CMS) is working to ensure the sustainability of its own programs amid surging health care costs. The agency has doubled down in recent years on regulatory enforcement and audits intended to reduce fraud and waste, as well as development of value-based payment models that the agency says could lower the nation’s health care spend.

The National Health Expenditure Accounts (NHEA) last year projected that health care spending in the United States would reach $6.2 trillion by 2028, growing at an average annual rate of 5.4% from 2019. However, these projections did not account for COVID-19 due to the timing of the report.

Additionally, Medicare is among the major payers expected to incur the fastest rise in spending — an annual 7.6% through 2028.

While most agree the nation needs to reduce these costs, hospice community stakeholders argue that cutting the payments to health care providers is not the right method for accomplishing this.

Some have called on legislators and CMS to end sequestration permanently, including NHPCO and the National Association for Home Care & Hospice (NAHC).

“Congress should act to end the practice of Medicare sequestration. From its origin it served as a penalty paid by health care providers for the Congress’s inability to square the federal budget,” NAHC indicated in its legislative blueprint. “Continuing to extend the termination date has proven to be a budgeting gimmick to use provider reimbursements to fund other aspects of the government.”