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MedPAC Contemplates Reform of Hospice Aggregate Cap

The original federal statute authorizing the Medicare Hospice Benefit created two caps on payments designed to control overall spending and increase the likelihood of savings through the use of hospice over curative care at the end of life. 

One cap – the Inpatient Cap – limits the overall annual percent of inpatient care days that a hospice may receive payment for up to 20 percent of total days billed. The other cap – the Aggregate Cap — imposes an overall aggregate limit on the amount of Medicare payments that a hospice can receive based on the number of patients it has on service and the length of time that those patients have received hospice care. The Aggregate Cap was initially set at $6,500 and has been increased annually to take inflation into consideration. The fiscal year 2020 Aggregate Cap is $29,965.

Last week at its October meeting, the Medicare Payment Advisory Commission (MedPAC), which advises Congress on reforms to the Medicare program, began discussions around potential recommendations for reform of the Aggregate Cap. MedPAC staff raised concerns about financial margins that accrue to hospices with disproportionately long lengths of stay that exceed the cap. Recent data indicate that 12.7 percent of hospice providers exceeded the cap in 2016, and overpayments were equivalent to about 1 percent of total hospice payments. Above-cap hospices during 2016 had financial margins of 12.6 percent after returning cap overpayments. MedPAC indicated that over-cap hospices are disproportionately for-profit, freestanding, urban and small.

MedPAC staff underscored that the Aggregate Cap is stricter in some parts of the country because it is not wage adjusted; as a result, hospice providers in some areas of the country are able to provide more days of service to beneficiaries before hitting the cap because the costs of a day of care are lower in low-wage areas. Any change to the calculation of the Aggregate Cap would require legislative action by Congress. MedPAC staff suggested that the Commission could consider recommending a policy change under which the Aggregate Cap would be wage-adjusted and the cap value could be reduced by a set percentage.

For purposes of discussion staff simulated wage adjustment and a 20 percent reduction in the Aggregate Cap. Using these factors in their simulation, staff indicated that in 2016, 26 percent of hospices would have exceeded the Aggregate Cap (assuming no behavioral change). Hospices in the top quintile for share of hospice stays greater than 180 days would, on average, have payments reduced by 15 percent, and hospices in the fourth quintile would see an average payment reduction of 4.5 percent. The change would have a very limited impact on the remainder of providers. Under the simulation half of all hospice providers would still be 41 percent or more under the Aggregate Cap in 2016.

MedPAC staff indicated that benefits from reform of the Aggregate Cap along the lines outlined in their presentation would:

  • Improve equity across providers;
  • Increase payment accuracy and reduce excess payments for providers with disproportionately long stays and high margins (potentially lessening attractiveness of the business model); and
  • Likely generate savings for taxpayers and Part A trust fund.

As part of their discussion, some Commissioners expressed strong support for pursuit of reform along the lines outlined by staff while others expressed concerns about the potential impact of a 20 percent reduction in the Aggregate Cap. Based on the discussion, staff was encouraged to continue exploring potential Aggregate Cap reforms, and it is expected that MedPAC may consider including some approach to reform as part of its hospice recommendations for FY2020.

The presentation slides used by MedPAC staff at the meeting are available here. A transcript of each public meeting is generally posted three to five business days following the session; when available the transcript will be posted here, along with other materials for the meeting of October 3 and 4. (National Association for Home Care & Hospice)

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