Hospice Aggregate Cap

MedPAC staff presented a new policy option for consideration by the Commission – wage adjusting the hospice aggregate cap and lowering it by 20%.

The hospice aggregate cap was created as part of the original Medicare Hospice Benefit in order to ensure savings. The cap limits aggregate payments a hospice can receive annually and if a provider receives payments in excess of the cap, those excess payments must be re-payed to the Medicare Trust Fund.

The cap is statutorily set at $6,500 dollars and is increased annually for inflation so adjusting the cap amount would to be an Act of Congress. The 2020 cap amount is $29,965 and is not wage adjusted. The aggregate cap is stricter in some areas than in others because it is not wage adjusted; therefore, hospices furnishing care in high wage index areas are more likely to exceed the cap than in lower-wage index areas.

MedPAC focused on the following issues around hospice payment:

  • The aggregate level of payment substantially exceeding the cost to provide care. MedPAC underscored large profitability in for-profit hospice and very small margins in nonprofit hospice.
  • The payment system is out of balance by the level of care. CMS addressed this issue somewhat with its proposal to rebase and increase the general inpatient (GIP), continuous home care (CHC), and respite (IRC) rates while reducing the routine home care (RHC) level of care in 2020, but MedPAC does not see the problem as solved.
  • Margins of hospices with disproportionately long stays that exceed the cap are strong and have been increasing. Additionally, long stays in hospice are more profitable than short stays and MedPAC is concerned about both incentivizing profitability as well as how to deal with the growing number of short-stay patients.

The cap functions as a mechanism to reduce payments to hospices with long stays and high margins.

  • MedPAC found that 12.7% of hospices exceeded the cap in 2016 and overpayments were the equivalent of 1% of total hospice payments to providers.
  • Hospices above the cap had large margins – they had 20.2% margins prior to the return of cap overpayments and still maintained 12.6% margins after returning their cap overpayments.
  • MedPAC also found that above-cap hospices tended to be for-profit, freestanding, urban, small, and recent entrants as well as substantially longer stays and higher live discharges.

In other words, MedPAC is connecting over-cap hospices to characteristics MedPAC has previously associated with bad behavior.

Due to all of these factors, MedPAC proposed wage adjusting the cap in order to improve the equity of the cap across all providers. Additionally, they are proposing to reduce the cap by 20% (this was a modeled amount, MedPAC staff indicated they could model other reductions) with the policy goals of:

  • Improving payment accuracy
  • Reducing overpayments to providers with disproportionately long stays
  • Lessening the attractiveness of a business model focused on long stays
  • Generating savings for taxpayers and the Part A trust fund

MedPAC staff’s work indicated that this policy would be blunt but targeted – the programs impacted would not be nonprofits or facility-based hospice programs that makeup LeadingAge’s membership because these are not the hospice programs that are going over cap and making large margins. The adjustment should target hospices in the top two quintiles by share of stays of 180 days who are majority freestanding and for-profit. The Commissioners approved the staff’s request to shape this option into a potential recommendation.

LeadingAge will discuss this option with hospice members, monitor MedPAC’s work, and provide further updates as there is more information.

Unified Post-Acute Care Benefits and Regulatory Alignment

Commissioners and MedPAC staff discussed the issue of how to align benefits and cost-sharing under a unified payment system for post-acute care (PAC). The discussion started from the premise that if payments and regulatory requirements are going to be aligned under a unified PAC payment system, benefits and cost-sharing should be similarly aligned.

There were two benefit alignment issues discussed in addition to the issue of cost-sharing.

Benefit Alignment: Should a prior hospital stay be required?

Currently, there is a prior hospital stay required (the “3-day rule”) for Medicare coverage of stays in skilled nursing facilities but not for the other settings under consideration to be included in the unified PAC system. The policy options presented were to:

  • Uniformly require a prior hospital stay across all settings;
  • Uniformly not require a prior hospital stay across all settings; or
  • To only have the prior hospital stay requirement in institutional PAC settings (i.e. to exclude home health).

The reason MedPAC staff proposed potential non-alignment is that the data showed only 35% of home health visits had a three-day prior hospital stay in the preceding 30 days and there was concern, which was echoed by the Commissioners’ discussion, that a prior hospital stay requirement for home health would chill access to the service.

On the other hand, the Commissioners’ discussion also underscored concerns about increased spending especially due to transfer of long-stay nursing home patients back to Medicare-covered beds without a prior hospital stay requirement. Suggestions included analysis of the what the prior hospital stay could look like (for example, including observation stays) and looking more closely at what Medicare Advantage and ACOs with 3-day waivers have done to prevent this behavior. LeadingAge made a number of recommendations around this policy, some of which align with the Commissioners’ discussion:

  • Eliminate minimum hospital stay requirements for obtaining needed care or services;
  • Waive the three-day inpatient hospital stay requirement for all integrated service models when a comprehensive care or service plan is in place and a care coordinator or service facilitator is involved; and
  • Eliminate the observation status under Medicare fee-for-service for the purposes of determining nursing home eligibility for post-acute care which is already permitted under Medicare Advantage plans and some alternative payment models.

LeadingAge will continue to closely monitor developments around the proposed unified PAC payment system.