Medicare Hospice Cap: Critical Questions about a Critical Decision

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Hospice Market Research Provider Healthcare Market Resources’ Analysis Holds the Answers

Dresher, PA -The clock is ticking for hospices to decide on what method they want to implement to calculate their annual Medicare cap.

Until recently, the Center for Medicare and Medicaid Services (CMS) reimbursed hospice services according to a cap which calculates the value of the services rendered per newly admitted beneficiary, during a given accounting year.  If hospices exceed the cap, they must repay Medicare.

The Medicare program currently imposes a yearly aggregate payment limit on hospice providers that equals the number of beneficiaries newly enrolled in the benefit each fiscal year, multiplied by an amount that changes each year based on inflation. In FY 2009, that amount was $23,014.50, according to CMS.

Hospices have recently challenged the validity of the current aggregate annual cap for hospice reimbursement, arguing for a “fairer” calculation method.  CMS responded by allowing hospices to have their cap determined by a new proportionate method. This new method proportions the admission based on the patient’s time of service, during the given “cap year”.

Healthcare Market Resources, (HMR) a leading provider of custom market data for hospices and home health agencies, conducted a hospice claims data analysis recently to examine the impact of both the current and proposed calculation methods. Its data offers insight for hospices now charged with the task of deciding which methodology to utilize to calculate their Medicare cap before an October 1 deadline.

“This critical decision could have implications for years to come,” explained Rich Chesney, Healthcare Market Resources’ CEO. “Hospices who elect to use the new patient-proportionate method on any cap year determination are not permitted to return to the current calculation method in subsequent years.”

“Our analysis may have some hospices thinking that the reform they wished for may not be in their best interests,” Chesney said.

HMR used 2006-2008 claims data to simulate the cap year determination for all Medicare certified hospice for calendar year 2007 using the current method and a patient proportionate method for patients who began service in either 2006 or 2007.  Included in the analysis are the hospices who submitted claims prior to Jan 1, 2006 – a total of 2719 hospices.

The analysis revealed that 260 hospices (9.5%) were above the 2007 hospice cap of $2100 per admission using the current method, and 305 hospices (11.2%) were above this figure when admission was portioned between 2006 and 2007.

One hundred and seventy six hospices were over the cap regardless of the calculation method used.  Eighty-five hospices would have benefited from the proportionate calculation, while 129 were “trapped” above the cap with this new approach.  Some states fared much better than others.  For example, 12 more hospices were projected to be subject to the cap under the new method in Louisiana, while 6 more hospices escaped it in New Mexico than before.  For a state-by-state look, visit

“We suspect that, in the case of the later hospices, they have historically been close to the cap –going over it in some years and being under it in others.” Chesney explained.  “The “smoothing” effect of the multi-year method snares those hospices that have been dancing close to the edge and makes them pay for past sins.”

Smaller hospices with less than 25 patients per year may be more vulnerable to get snared by the current method if they have several long-stay patients.

Healthcare Market Resources, cautions against hospices sitting idly and doing nothing, which would make 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,” recommended Chesney.

“While further study over several years is warranted to determine the net financial impact, it is incumbent for every hospice to study this situation carefully and make active choices about its cap methodology.”

About Healthcare Market Resources
Healthcare Market Resources, Inc. is a leading provider of reliable home healthcare market data. The company’s customized local market and industry reports enable home health agencies and
hospices to make market decisions based on data and not perceptions. These reports give healthcare executives a competitive edge for business development and strategic planning initiatives.