Understanding the Medicare Hospice Cap
The concept of the Medicare hospice cap is simple: It is a maximum limit on the aggregate amount of payments an individual hospice provider can collect from CMS based on the number of hospice beneficiaries served in a given cap year, which runs from October 1 through September 30.
When a hospice provider does not exceed the cap, the hospice provider simply gets to keep all of its payments for that cap year. On the other hand, things become more complicated when a hospice provider exceeds the cap.
To understand why a hospice provider has exceeded the cap, you must first know the method that the provider uses to file its cap report: streamlined or patient-by-patient (proportional).
Streamlined Method
- A full beneficiary count of “1” is counted by the hospice provider only in the cap year when the initial hospice election was filed.
- One exception is that if a hospice beneficiary received care from more than one hospice provider, that “1” beneficiary count will be allocated among the hospice providers that served the beneficiary.
- This method is restricted to hospice providers that elected to use the streamlined method during the 2012 cap year.
- A hospice provider can switch to the proportional method in a one-time, one-way election that must be approved by the Medicare Administrative Contractor (MAC) and requires reopening the past three cap years to calculate the current data using the new method.
Proportional Method
- This is the default and mandatory method for all hospice providers, unless they elected the streamlined method in the 2012 cap year.
- The hospice provider counts its portion of the “1” beneficiary based on the allocation of the beneficiary’s total hospice care days, across all providers and cap years, attributable to that hospice during the cap year.
- Providers using the proportional method cannot switch to the streamlined method.
- The predominant method filed by hospices nationwide is the proportional method.
Beneficiary Counts
Each beneficiary only counts as “1” because the Medicare hospice benefit is a lifetime benefit. That count is shared among all hospice providers that serve the same beneficiary.
If a beneficiary transfers to a different hospice provider, the prior hospice provider will still be impacted as its allocation of that beneficiary count decreases. Likewise, if a beneficiary goes off hospice care and later returns to hospice, the beneficiary count does not start over. Instead, it continues from where it left off.
Why Is Exceeding the Cap So Complicated?
For many hospice providers, a common misconception is that a Medicare hospice cap liability becomes fixed when the cap year closes. In reality, a hospice that exceeds its cap will continue to see that liability grow for years after the cap year has ended, as Medicare regularly reassesses prior cap years using updated data.
Understanding how the hospice cap operates is critical for accurately forecasting financial results, managing long-stay beneficiaries, and estimating future Medicare recoupments.
The Hospice Cap Is Not a One-Time Calculation
The hospice cap is calculated at a specific point in time using the payment and beneficiary data available at that time. However, MACs periodically reassess prior cap years using updated information. As a result, a provider’s cap liability may continue to change long after the end of a cap year. If a hospice provider has exceeded its cap, then additional payments associated with that cap year will ultimately be subject to recoupment when the cap is recalculated by the MAC.
Why Liabilities Continue to Increase
Once a provider exceeds the cap for a specific cap year, the liability continues to grow until:
- All Medicare payments related to that cap year have been collected.
- All beneficiaries included in that cap year are no longer receiving hospice services (under the proportional method only).
- Medicare has completed subsequent reassessments of the cap calculation.
This ongoing reassessment process means providers may receive additional demand letters related to the same cap year in the future.
The Role of Long-Stay Beneficiaries
Long-stay beneficiaries are often a primary factor driving continued growth in cap liabilities. When beneficiaries remain on hospice services across multiple cap years, they continue to generate Medicare payments and, under the proportional method, continue to affect the beneficiary count used in the cap calculation. As a result, the liability associated with a prior cap year may continue to increase even after that cap year has ended.
Providers with a significant population of long-stay beneficiaries should be particularly mindful, as a cap issue identified today may continue to affect future financial results.
The Impact on Future Recoupments
A provider that has already exceeded the cap will find that future payments related to that cap year will ultimately become subject to recoupment.
In other words, a hospice provider that is already over the cap may continue to serve beneficiaries and bill Medicare for those services. The provider receives payment, but subsequent cap reassessments may result in those payments being fully recouped in the respective cap year.
Open Cap Years
For an open cap year, hospice providers with long-stay beneficiaries need to add enough new hospice beneficiary admissions to help offset the growing potential liability associated with those long stays.
Closed Cap Years
Once a cap year has ended, providers cannot add new hospice beneficiaries to that cap year. Therefore, beneficiary counts will either remain fixed (under the streamlined method) or will decrease (under the proportional method).
While strategies may exist to improve cap performance in future years, there is no opportunity to add beneficiaries retroactively to a closed cap year. Consequently, any liability associated with a completed cap year must be managed through planning, forecasting, and monitoring of future reassessments.
Financial Reporting Considerations
Because cap liabilities, or potential liabilities, can grow over time, hospices should regularly monitor their cap position rather than waiting until year-end.
Best practices include:
- Performing periodic cap calculations throughout the year.
- Monitoring changes in liability from one assessment period to the next.
- Forecasting the financial impact of long-stay beneficiaries.
- Recording additional estimated liability as updated information becomes available.
- Evaluating patient-mix trends that may affect future cap performance.
Key Takeaway
Exceeding the hospice cap is not a one-time event. Once a cap liability exists, it will continue to grow for years to come. Providers should regularly monitor their cap position to better anticipate and estimate any potential future recoupments.
If you need assistance tracking or estimating potential hospice cap liabilities throughout the year, contact a Home Care & Hospice advisor at Forvis Mazars.