MedPAC Calls for Hospice Payment Cap Wage Adjustment, 20% Cut

The Medicare Payment Advisory Commission (MedPAC) has once again recommended a 20% cut to the aggregate cap for hospice payments. The commission also called on Congress to wage adjust the cap.

MedPAC has called for similar cuts annually since 2018, but to date, Congress has not implemented these reductions. The U.S. Centers for Medicare and Medicaid Services (CMS) set the 2023 cap at $32,486.92, up from nearly $31,300 per patient for Fiscal Year 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 margins.

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In a nutshell, MedPAC argues that national data show that hospices could handle a pay cut based on their margin performance, but — due to wide variations in the financial positions of different providers — cap reductions would make a better approach to cost control.

“Based on the generally positive indicators of payment adequacy and strong margins, the Commission concludes that a reduction to aggregate payments is warranted,” MedPAC indicated in its report. “However, in this sector, with the range of financial performance across providers and the existence of the hospice aggregate cap, there is the potential to focus payment reductions on providers with disproportionately long stays and high margins.”

During 2020, about 18.6% of hospices exceeded the cap, MedPAC estimated. This percentage has been rising steadily for several years. In 2015, for instance, 12.5% exceeded the cap.

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Most of the above-cap hospices had relatively high average lengths of stay and live discharge rates, as well as margins in the range of 23% before the cap was applied. After the cap, those margins tumbled to about 8%.

If Congress were to implement the recommendation, MedPAC projects that the proportion of above-cap hospices would reach 33%, with for-profits with average lengths of stay around 240 days accounting for most of the increase.

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

“Wage adjustment” refers to the practice of tying reimbursement to the average wages for health care employees in a given market.

For example, hospice per diems are larger in California due to the higher labor costs. On one hand, the bigger paycheck is a boon for those providers. But this also means that they will reach the cap threshold more quickly than a provider in a state like Mississippi where labor costs tend to be lower.

Some have argued that this can interfere with patient access to the benefit.

“If you don’t geographically adjust your cap, we are forced to serve fewer patients [in high-wage markets]. We hit it sooner because our pricing is adjusted for the geography,” David Klementz, CEO of Traditions Health, told Hospice News. “To me, it just logically doesn’t make sense.”

When the Medicare Hospice Benefit was in its design phase, it initially did include a wage-adjusted cap. However, this attribute didn’t make it into the permanent benefit established in 1982.

While implementing a wage-adjusted cap at the outset would have been a viable option, an attempt to do so now would likely be hampered by logistics and politics, according to National Association for Home Health & Hospice (NAHC) President Bill Dombi.

“When anything ever touches the wage index as a way of accounting for that variation in cost, there are winners and there are losers. And that brings in all kinds of difficulties,” Dombi told Hospice News. “And the wage index generally has all kinds of flaws with it. I mean, there’s no science to it at all, whether it’s the one applied to hospitals, home health or hospice.”

This issue is a “political football,” that few policymakers would want to catch, Dombi said.

For starters, legislators would be in the position of voting for a bill that would be taking something away from their constituents.

“When MedPAC said, ‘We’ve got to fix this aspect of the reimbursement model,’ Congress gave CMS the authority to make the changes that they think are appropriate,” Dombi explained. “And CMS is like, ‘Well, thanks, you took this political football and handed it over to us,’ so they’ve sat on their hands themselves. What’s driving the whole issue of distribution based on variation in cost is the politics of applying a cap at this point, because it’s impossible to argue that you shouldn’t do that, except for the disruptive effect of doing so. So I think politics will get in the way of that.”

The payment cap, in essence, is a means of regulating length of stay. The duration of hospice care has emerged as a hot-button concern due to public scrutiny, crackdowns by regulators, auditors and in some cases law enforcement.

Central to the argument is one of the hospice benefit’s defining parameters, the six-month terminal prognosis requirement. Stakeholders are increasingly wrangling with the question of whether long stays represent rampant fraud and abuse or the changing needs of patients.

The Medicare benefit, after all, was designed for cancer patients, but now more people are electing hospice who have diagnoses with less predictable trajectories.

This has led some to postulate that revisions to the benefit’s design may be necessary, according to MedPAC Commissioner Dave Grabowski, who is also a professor of health care policy at Harvard Medical School.

“I can see why they structured the benefit the way they did in the first place, but it doesn’t really fit,” Grabowski said. “I think when you look at the type of individual receiving hospice today, it’s been such a shift. Originally, it was cancer patients. Today, it’s much broader. It’s much harder to predict the end of life. And so it’s not surprising that we have this signal that maybe we don’t have the right system in place.”

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