Hospice Payment Reform: Are Changes On the Horizon?

Hospice payment reform has been a hot topic for The Medicare Payment Advisory Commission (MedPAC), a nonpartisan agency that provides Congress with analysis and advice on Medicare. While the FY2021 Hospice Final Rule was limited to essential policies and didn’t include any major updates, changes are still on MedPAC’s radar.

Hospice Payment Background

Medicare spent $19.2 billion on hospice services in 2018. It pays a daily rate for hospice whether a patient receives that day or not. Payments are made according to a fee schedule with four levels of care: routine home care (RHC), continuous home care (CHC), inpatient respite care (IRC), and general inpatient care (GIP). These four levels are distinguished by the location and intensity of services. RHC is the most common level of hospice care, accounting for around 98% of Medicare-covered hospice days in 2018. The other levels of care are available to manage needs in specific situations.

Aggregate Cap

The hospice payment system includes an aggregate cap that limits the total payments a hospice can receive in a year. If a hospice’s payments for the year exceed the number of beneficiaries treated multiplied by the cap amount, it must repay the excess. The cap reduces payments to hospices with unusually long stays and high margins.

Length of Stay

MedPAC notes that while a relatively small share of Medicare hospice patients have long stays, they account for the majority of Medicare spending. Only 14% of hospice enrollees who died in 2018 had stays exceeding 180 days. But nearly 60% of total Medicare spend for hospice was for those patients. And, about $7.3 billion was for additional hospice care for patients who’d already received at least 180 days of hospice.

In 2016, CMS modified the payment structure for RHC with a higher payment rate for Days 1 through 60 and a lower rate for Day 61 and beyond. Hospices also receive additional payment for visits by nurses and social workers in the last week of life. The new RHC payment structure was intended to better align payments with the costs of providing hospice care throughout an episode.

Recent changes

This year, CMS substantially increased the hospice payment rates for the three less frequent levels of care (CHC, IRC, GIP). Additionally, to offset the projected increase in spending, the payment rates for RHC in fiscal year 2020 were reduced by 2.7% which, when offset by the annual payment update (APU), resulted in a net reduction of less than 1%.

Hospice Payment Concerns and Recommendations

MedPAC released a hospice payment advisory report in March 2020 where it identified concerns and offered recommendations on the hospice payment system.

MedPAC concluded  that the aggregate level of payment could be reduced and would still be sufficient to cover high-quality hospice care. It made two recommendations in the report:

  1. Freeze the Fiscal Year 2021 payment rates at 2020 levels
  2. Wage adjust and reduce the hospice aggregate cap by 20% to focus payment reductions on hospice providers with unusually long stays and high margins

Neither of these recommendations were enacted in the FY2021 Hospice Payment Rate Update Final Rule.

In October 2020 MedPAC began discussions on the future of the hospice payment system. It focused on these two key concerns:

  1. Aggregate level of hospice payment substantially exceeds cost, while margins vary widely by length of stay
  2. Outlier utilization patterns among some hospice providers that raise program integrity concerns

Aggregate Level of Hospice Payment

The aggregate cap is designed to reduce payments to hospices with long stays and high margins. In 2017, an estimated 14% of hospices exceeded the cap. The aggregate Medicare margin was 21% before and 13% after the cap. These hospices had high average lengths of stay and high live discharge rates. They were also disproportionately for-profit, freestanding, urban, small, and new entrants to Medicare.

Because the hospice aggregate cap is not waged-adjusted but Medicare payments are, the aggregate cap is stricter in some areas of the country than others. MedPAC suggests that a policy to wage-adjust and reduce the hospice aggregate cap would make the cap more equitable across providers and focus payment reductions on providers with high margins.

In a 2019 meeting, MedPAC noted that long hospice stays for some patients may be substituting for other types of care such as home health care and raised the possibility of adjusting payments for hospice stays accordingly. It has built upon this idea, suggesting a site-neutral payment adjustment for long hospice stays using home health as a starting point. They also discussed exploring an episodic or case-mix based payment system along with developing program integrity measures/compliance thresholds.

Outlier Utilization Patterns

Another issue that was an area of concern at the October 2019 MedPAC meeting is how to address hospices with unusual utilization patterns that raise program integrity concerns. While hospices are expected to have some live discharges, an unusually high rate indicates there may be a problem.

MedPAC suggests exploring a policy where hospice providers whose length of stay or live discharge rates exceed a specified threshold would receive a reduced payment rate for all patients. This could help reduce the potential for “hand picking” hospice patients that would maximize reimbursements and could reduce the potential for hospice business models more focused on revenue  than patient care.

What Does All of This Mean for Your Hospice?

Currently, these recommendations from MedPAC are just that – recommendations. And MedPAC has continuously made recommendations for changes in the past. But it’s becoming increasingly clear that hospice payment reforms are on the horizon. What can you do now to prepare?

MedPAC is looking at how to better address hospice payments for providers that have higher than average lengths of stay and for those that have unusual utilization patterns. Are your patients on service longer than 180 days? Are you providing hospice services for patients who should be receiving home health care instead? Do you have a high number of live discharges?

Examine your hospice procedures to ensure that your lengths of stay and discharges are in line with expected standards. If they aren’t, then you should take a close look at why and if necessary, what you need to do to address that.

Lastly, make sure that you’re effectively managing your hospice billing for accurate, timely reimbursement. Documentation should be complete and accurate. Billing processes should include thorough reviews and errors should be addressed immediately. Remember, if you have troubles now, then you’re bound to run into even more issues if and when hospice payment reforms happen.

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2020-11-19T21:27:10+00:00
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