Navigating the Complexities of Medicare Hospice Caps

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Hospice plays a crucial role in providing compassionate end-of-life care. Offering these vital societal services is both a privilege and a daunting task for healthcare providers. Not only is there an emotional toll for helping terminally ill patients experience their final days with dignity and comfort, but providers of these essential services can experience challenges from the ongoing regulatory requirements the system demands.

Understanding the government-imposed Medicare Hospice Cap is a crucial component for care providers to stay fully within compliance, and to manage their resources effectively and efficiently. The following guide serves to offer a basic understanding of the Medicare Hospice Cap, its implication for service providers, and strategies for its management.

Medicare Hospice Cap: A Brief History 

Established in 1982 under the Tax Equity and Fiscal Responsibility Act (TEFRA), The Medicare Hospice Cap limits the total payments a hospice care provider can receive on behalf of Medicare beneficiaries in a given fiscal year. The Cap was introduced to verify that hospice remains cost-effective and to prevent its overuse within the system. Simply put, the Cap ensures that providers aren’t receiving excessive payments for the long-term care they offer, nor exceed the scope of these critical end-of-life services.

Parts of Medicare’s Hospice Cap

Inpatient Cap

The Inpatient Cap limits the number of inpatient care days a hospice can bill Medicare, thus encouraging care to happen at home or in less intensive (and expensive) settings. This includes general care and respite care (respite as in help provided to primary caregivers on a short-term basis for time to rest, travel, or manage other obligations.) If a hospice exceeds the allowable number of inpatient days, they may face financial penalties or repayment obligations.

Aggregate Cap

The Hospice Aggregate Cap is crucial for managing hospice care programs. What’s important for care providers to understand is that the total Cap their hospice is subjected to is determined on an aggregate basis, meaning the calculation is made by combining all care costs for their patients in a given Cap year. So, while some long-term hospice patients may exceed the Cap in a specific year, the Cap limit can be balanced out by other, shorter-term patients who fall under the Cap limit within the year.

To calculate the Aggregate Cap, simply multiply the number of Medicare beneficiaries who receive hospice care during the fiscal year by the cap dollar amount (or Statutory Cap Amount, a fixed, per-patient number used for aggregated calculations). For the 2024 Cap year, individual beneficiaries can receive up to $33,494.0, an amount which is adjusted annually to reflect changes in what is called the Consumer Price Index for Urban Consumers, or CPI-U. 

So, for example, if a provider services one hundred beneficiaries in a specific year, and (at the current $33,494.01) then the Aggregate Cap total for the hospice care provider equals $3,349,401. This becomes the total Medicare payment a provider will receive.

Counting Beneficiaries: Two Methods

How are hospice care beneficiaries counted? There are two ways: 

First, is the Proportional Method. Used by most hospice care providers, this looks at the percentage of a beneficiary’s total days in hospice spent across all Cap years and amongst all care providers. It accounts for the proportional time a patient spends in a hospice within the Cap year. (FYI: Cap years run similarly to the fiscal year of the Federal Government, October 1 through September 30.)

For the Streamlined Method, beneficiaries are eligible who have not been part of any previous Medicare Hospice cap calculation. In short, if a client has not received hospice care from another provider in past or current Cap years, this simpler approach can be used. They have selected one agency for their care during a specific cap year, and are counted only once, regardless of how long their care continued.

Max reimbursement hospice

Maximum Reimbursement Allowed: An Important Calculation

It’s vital to understand the methods chosen and the calculations made so that hospice care providers make sure they are within Medicare’s reimbursement limits to stay in compliance. Failure to do so can create problems and possible financial liabilities for providers. So, once a beneficiary count has been determined (by either using the Proportional or Streamlined Method), multiply that count by the Statutory Cap amount for the given year to calculate the maximum dollar amount Medicare will reimburse.

What if a hospice care provider exceeds its Medicare Reimbursement Cap? First, excess payments received by a care agency will indeed be recovered by Medicare. Also, penalties may be imposed by the government, adding greater strains on an agency. Such penalties can build up over time as well, causing additional burdens, with outstanding debts owed to the government also accruing interest. Agencies that are severely non-compliant or exceed cap reimbursements on an ongoing basis may even be subjected to legal consequences, thus adding pressure to the provider’s financial and reputational situation.

Of course, and last but not least, a care agency under such financial and regulatory pressures may find itself less able to offer hospice patients the crucial care they deserve. This is not a win-win situation for patients, care providers, or government entities.

Reporting to Medicare: Self-Determined Cap Liability Reports

As a hospice care provider (and an agency reimbursed by Medicare), it is required that a Self-Determined Cap Liability Report be filed on an annual basis. This process assists Medicare in checking that a hospice provider is correctly staying within Hospice Cap limits. To aid in this process, a tool known as the Provider and Statistical Reimbursement (PS&R) System is used by healthcare providers, by Medicare Administrative Contractors, (known as MACs), and by the CMS (Center for Medicare & Medicaid Services). This platform houses accumulated statistical and reimbursement data which is then summarized and used to prepare what is known as Self-Determined Hospice Cap (SDHC) Reports.

This required annual reporting process indicates the total payments received, the number of hospice beneficiaries served, and the subsequent calculation of the Hospice Aggregate Cap. Care agencies must submit their SDHC report no earlier than three months after the end of the previous fiscal year (September 30), meaning the report can be submitted by December 31, or no later than five months after the close of that fiscal year, meaning by the end of the following February. This crucial part of hospice provider responsibility is done on a timely basis so that the agency can be within compliance and avoid any potential penalties.

Reopening: An Ongoing Lookback Function

Known, as “Reopening,” Medicare will reassess, and update Cap determinations made previously, such as the three years before a provider’s current report. This review of these three preceding years may affect and adjust a Cap determination. Like a financial audit, as one would do to review budgets from previous years, Medicare goes over beneficiary counts and payments for this period.

Why is this done? Medicare strives to ensure an agency’s reports are accurate for multiple reasons such as identifying errors in an initial report, changes in beneficiary counts, or adjustments in the payment calculations. Reopening also gives care providers the chance to adjust earlier reports so they can ensure accuracy and correctly reflect true payments and services they provided in earlier years. It allows them to be proactive and address any discrepancies to minimize future liabilities while maintaining their agency’s financial strength.

Helping to Navigate the Process

Providing quality hospice care is a challenging and crucial societal service. Staying financially strong and in compliance is paramount for both a healthcare provider and for the greater good. Being able to navigate these various regulatory requirements while monitoring and providing accurate record-keeping is essential. Satisfying these obligations is not only legally necessary but can allow care agencies to strengthen their operational and financial systems and protocols for long-term success.

Walters & Associates CPAs understands the complexities of managing the Hospice Care Cap, and partners with healthcare providers in meaningful ways to help ensure compliance. This includes assisting providers in meeting obligations such as submission deadlines, providing accurate Self-Determined Cap Liability Reports, as well as proactive Monthly Cap Monitoring Services. With transparent pricing and the assurance of expert guidance, Walters helps agencies focus on delivering compassionate care as they confidently manage their financial and regulatory responsibilities.

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