Hospice Cap: Individual Analysis Needed To Determine Best Calculation Method

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The Medicare hospice benefit has a regulation that requires a hospice to repay excess Medicare reimbursements when its per admission expenditures in a given year exceed a predetermined hospice cap. Traditionally, Medicare has only counted patients admitted to hospice in the chosen time frame. Several hospices challenged Medicare in court about the fairness of this approach and won. In order to forestall further lawsuits, Medicare has proposed a multiyear method of calculating a hospice’s cap performance. Will hospices benefit from a multiyear calculation of the hospice cap? That’s what we analyzed.

The Analysis

Healthcare Market Resources calculated the hospice cap for all hospices in the United States by:

  1. using the current 1-year approach for calendar year 2007
  2. using a 2-year approach for calendar years 2006 and 2007.
The findings of our analysis are summarized below:

  • There were 260 hospices that exceeded the cap using the 1-year approach and 305 using the 2-year approach.
  • The impact at the state level, based on where the “offending” hospices are located varies between the two calculations (see state-by-state chart below).


STATE
Current One-Year Cap Calculation
New Proportionate Cap Calculation
Comparison
ALABAMA
46
44
++
ARIZONA
12
12
ARKANSAS
4
2
++
CALIFORNIA
15
10
+++
COLORADO
1
3
FLORIDA
1
3
GEORGIA
10
13
IDAHO
4
6
ILLINOIS
4
3
++
INDIANA
6
5
++
IOWA
1
1
KANSAS
5
6
LOUISIANA
5
17
—–
MASSACHUSETTS
1
1
MISSISSIPPI
44
48
MISSOURI
1
2
NEW MEXICO
8
2
++++
NORTH CAROLINA
3
6
OHIO
3
4
OKLAHOMA
38
37
++
OREGON
1
0
++
PENNSYLVANIA
2
6
PUERTO RICO
5
8
SOUTH CAROLINA
9
17
—-
TENNESSEE
1
3
TEXAS
17
25
—-
UTAH
9
15
—-
VIRGINIA
2
4
WEST VIRGINIA
0
1
WYOMING
2
1
++
260
305
The comparison column compares the number of hospices impacted by the cap under each method, in addition to indicating whether the impact of the new method was positive or negative on each state’s hospice community, the number of signs indicates the magnitude of the impact, with 2 signs for 1-2 hospices, 3 signs for 3-5 hospices, 4 signs for 6-10 signs and 5 signs for above 10.

Conclusion

Prior to this analysis, industry experts may have predicted that the 2-year calculation would be more beneficial for the industry. This prediction is likely based on the belief that some hospices exceeding the cap are victims of adverse patient selection in a given year. Our results indicate, however, that exceeding the hospice cap is accepted by some as a cost of doing business with a particular hospice, flirting with either side of the line from year to year. This observation is based on Healthcare Market Resources’ research on cap performance for several years that shows between 60% and 65% of hospices exceeding the single-year limit are “repeat offenders.” While some hospices will avoid exceeding the cap using the multiyear calculation, many more will find themselves caught in its grasp than under the previous method.

What to Do?

Healthcare Market Resources cautions against hospices sitting idly and doing nothing, which makes them subject to the patient-proportionate method for 2012 and beyond.  Hospices need to calculate their hospice cap retrospectively and prospectively to see if they will approach it at some time in the future, under different scenarios.  It is incumbent for every hospice to study this situation carefully and make active choices about its cap methodology.