MedPAC Calls for Hospice Pay Cap Adjustment, 20% Cut

The Medicare Payments Advisory Commission (MedPAC) has once again recommended a 20% cut in the cumulative cap on hospice payments. The commission also urged Congress to adjust the salary ceiling.

MedPAC has been calling for similar cuts every year since 2018, but to date, Congress has not implemented the cuts. The U.S. Centers for Medicare and Medicaid Services (CMS) set the cap for 2023 at $32,486.92, up from nearly $31,300 per patient in FY 2022.

MedPAC’s proposals are based on a complex set of calculations. But when it comes to the payment cap, two key metrics stand out: length of stay and margin.

In a nutshell, MedPAC argues that national data shows that hospices can handle pay cuts depending on their margins, but—due to the wide variation in provider finances—lowering the caps would be the best approach to cost control.

“Based on generally positive indicators of payment adequacy and high margins, the Commission concludes that the reduction in total payments is justified,” MedPAC said in a report. “However, in this sector, given the varying financial performance of providers and the existence of an aggregate cap for hospices, there is an opportunity to focus payment cuts on providers with disproportionately long stays and high margins.”

MedPAC estimates that in 2020, about 18.6% of hospices were over the limit. This percentage has been steadily increasing over the years. In 2015, for example, the limit was exceeded by 12.5%.

Most over cap hospices had relatively high average length of stay and discharge rates, and margins in the 23% range before the cap was applied. After capping, this margin dropped to around 8%.

If Congress implements this recommendation, MedPAC predicts that the proportion of over-limit hospices will reach 33%, with commercial establishments with an average stay of about 240 days accounting for most of the increase.

The second component of the commission’s recommendation, adjusting the salary cap, may find some support among service providers.

“Wage adjustment” refers to the practice of tying reimbursement to the average wage of healthcare workers in a given market.

For example, in California, hospice daily allowances are higher due to higher labor costs. On the one hand, higher salaries are a boon for these providers. But it also means they’ll reach the cap faster than a supplier in a state like Mississippi, where labor costs tend to be lower.

Some have argued that this may prevent the patient from receiving benefits.

“If you do not adjust your limit geographically, we will be forced to serve fewer patients. [in high-wage markets]. We achieved this earlier because our pricing is geo-adjusted,” said David Clemenz, CEO of Traditions Health, in an interview with Hospice News. “To me, it just doesn’t make sense logically.”

When the Medicare Hospice Benefit program was under development, it originally included a salary-adjusted cap. However, this feature was not included in the permanent allowance established in 1982.

According to National Association of Home Health and Hospice (NAHC) president Bill Dombey, while a wage-adjusted cap would have been a viable option from the start, trying to do it now is likely to be hampered by logistics and politics.

“When it comes to the wage index as a way of accounting for this change in value, there are winners and there are losers. And that brings all sorts of hardships,” Dombey told Hospice News. “And the wage index in general has all sorts of flaws. I mean, there’s no science to it, whether it’s in hospitals, at home, or in a hospice.”

The issue is a “political football” that few politicians want to get into, Dombey said.

First, legislators will be able to vote for a bill that will take something away from their constituents.

“When MedPAC said, ‘We need to fix this aspect of the reimbursement model,’ Congress gave CMS the power to make the changes they see fit,” Dombey explained. “And the CMS was like, ‘Well, thank you, you took this political football and handed it over to us,’ so they themselves were sitting on their hands. What drives the whole issue of cost-based distribution is the policy of applying the constraint at this stage, because it’s impossible to argue that you shouldn’t, except for the devastating effect of doing so. So I think politics will get in the way of that.”

The pay ceiling is essentially a means of regulating the length of stay. The duration of hospice care has become a pressing issue due to societal scrutiny, repression from regulators, auditors, and, in some cases, law enforcement.

Central to the argument is one of the defining parameters of the nursing benefit, the six-month terminal forecast. Stakeholders are increasingly debating whether extended hospital stays are rampant fraud and abuse or changing patient needs.

The Medicare advantage was, after all, designed for cancer patients, but now more people are choosing hospice for diagnoses with a less predictable trajectory.

This has led some to speculate that a review of the benefit structure might be needed, according to MedPAC Commissioner Dave Grabowski, who is also a professor of health policy at Harvard Medical School.

“I understand why they structured the benefits the way they originally did, but that doesn’t really fit,” Grabowski said. “I think when you look at the type of people getting hospice today, it was such a shift. Initially, these were cancer patients. Today it is much wider. Predicting the end of life is much more difficult. And so it’s not surprising that we have this signal that maybe we don’t have the right system.”