Conflicting viewpoints about potential changes to the hospice aggregate cap have increasingly come to the forefront in recent years. While the cap for hospice payments is aimed at safeguarding against fraudulent activity, its regulatory limitations can challenge legitimate providers’ financial sustainability.

The cap is designed to prevent overuse of hospice, put controls on Medicare spending and foster greater access to care among patients. Some industry stakeholders contend that annual cap adjustments are often insufficient.

Challenging economic conditions and rising patient demand are fueling discussions around possible changes to the hospice cap, according to Howard Young, health care partner at the law firm Morgan Lewis & Bockius. But careful consideration is needed to avoid unintended consequences for providers and the diverse range of terminally ill patients they serve, Young stated.

“There are people out there who think the cap system should be maybe not reformed, but adjusted. But it’s a pretty controversial thought,” Young said at the Hospice News ELEVATE conference in Florida. “[The cap] is a true governor to make sure that the hospice is serving patients of both short- and long-term needs. The hard, cold reality is for many organizations that are serving patient populations perhaps in assisted living or other populations that tend to have a longer stay, you have to be fiscally responsible.”

Hospice News photo by TBAR Productions

Weighing the hospice cap

The aggregate 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 the U.S. Centers for Medicare & Medicaid Services (CMS). The hospice aggregate cap is also inexorably linked to patient length of stay. To avoid cap liability, providers often try to strike a balance between patients with long stays and those with short stays.

CMS’ annual hospice payment rule has included a cap increase for the past several years. Most recently, the agency in April unveiled its proposed 2026 hospice payment rule, which stipulated a hospice cap amount for FY 2026 is $35,292.51, a slight rise from $34,465.34 this year.

Some providers contend that the increases have not kept pace with rising demand as a swelling aging population puts pressure on their ability to effectively capitation rates and reach a balanced threshold of length of stay.

More Medicare beneficiaries are electing hospice than ever before, and they are generally receiving care for longer periods of time, according to the Medicare Payment Advisory Commission (MedPAC). The commission proposed cuts to the hospice cap every year between2018 and 2024, but Congress never implemented those recommendations.

MedPAC’s historical recommendations included a 20% cut to the aggregate cap for hospice payments, as well as the addition of a wage index adjustment to the cap. The commission’s proposals are based on a complex set of calculations, with two key metrics standing out — margins and length of stay.

MedPAC has argued that national data show that hospices could handle a pay cut based on their margin performance, but — due to wide variations in the financial positions of different providers — cap reductions would make a better approach to cost control.

Potential cuts to the hospice payment cap could pose financial breaking points for a significant portion of providers nationwide, according to St. Croix Hospice President and CFO Stephen Phenneger. Arguments around national data averages do not paint an accurate picture of the challenges of balancing patient demand and revenue streams, Phenneger stated at the ELEVATE conference.

Regulators need a deeper understanding of the complexities that factor into patient stay, access and financial sustainability, he said. A main consideration is hospices’ ability to reduce expensive health care costs at the end of life, according to Phenneger. A decrease in the hospice cap could disincentivize and discourage providers’ efforts to reach patients upstream to avoid financial and regulatory risks, he said.

“The cap is the guardrail that the government put in place to try to manage fraud and abuse,” Phenneger told Hospice News at the conference. “The 20% haircut that MedPAC has put out there over the years, it would probably put one-third of the hospice operators out of business … They simply wouldn’t be able to operate. In a period of time when we see the billions of dollars that hospice care saves the administration and the organization in general, why would you ever want to dissuade utilization of that benefit for a longer period of time?”

Navigating potential changes

The payment cap serves an important role in ensuring program integrity, and any potential changes must be weighed against the impacts to access, Young stated. Providers in certain geographical regions may see greater effects than others based on variances in wage index rates, as well as their proximity to areas with increasing fraud issues, he indicated.

California is among the four fraud hotbed states that has seen rising instances of fraud, waste and abuse, joined by Arizona, Nevada and Texas. Fraudulent operators have in some cases billed for services that were never delivered to patients, provided in limited capacity or without their knowledge. These practices often create payment cap issues when these patients are transferred to legitimate hospices, Young said. Additionally, the wage rate in California is much higher than some other states, making it the “poster child” for providers reaching the cap rates much more quickly than those in other areas, he said.

“With all of the issues going on in California [of] some unscrupulous hospice organizations where patients may not even know they’re on hospice, and when they really need hospice go to another hospice their days on hospice care transfers with them, and that’s part of the hospice aggregate cap,” Young said. “[There’s] a cap tsunami that’s coming in California for hospices, and somehow CMS is going to have to figure that out, because the receiving hospice that’s providing the actual care shouldn’t be responsible for providing free care. If you exceed your cap liability, you’re effectively providing free care. And that’s just not fair, not equitable and something that we hope that they’ll figure out a way to address.”

Mitigating financial and regulatory risks associated with the hospice cap requires a strategy, according to Demetress Harrell, CEO at Texas-based Hospice in the Pines.

Hospice News photo by TBAR Productions

Monitoring annual wage index increases across their geographic service regions is crucial, as is having insight into an organization’s quarterly financial results, Harrell stated. Also important is ensuring ethical principles and compliance around patient eligibility assessment, she added.

Effective cap management requires a deep investment in educating staff on how their role impacts overall sustainability and patient access, Harrell indicated.

“It comes down to when caring for patients, having those plans of care and [ensuring] that all of the disciplines are examining and assessing the qualifications that really measure hospice appropriateness when [patients] come on, as well as throughout the care that is provided,” Harrell told Hospice News at ELEVATE. “It is our responsibility if we’ve exceeded the cap [that] the patient still deserves the care. Mitigating that is through looking at all of the resources that may be available within the community. In those latter days, we are using more of our revenue to care for what is now the expense. It does work. It does make the necessary attempts to control the financial, fiduciary responsibilities of the organization.”