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MEDPAC Reviews Hospice; Proposes Quadrupling Cap Recoveries

On December 3, 2020, MEDPAC reviewed hospice data from 2019, noting these key metrics:

  • Medicare payments grew just under 10% to $20.9 billion;

  • Hospices served 1.6 million patients, including 51% of 2019 decedents (both modest increases);

  • Average length of stay grew by 2 days to 92.6 days; and

  • 4,800 providers gave service, numerical growth of 4.3%.

MEDPAC notes that although hospice was supposed to save money, evidence on this point is just “mixed.” At the same time, MEDPAC concedes that hospice is loved by patients, providing choice, quality of life, less invasive treatment, and dignified death at home.

The hospice cap remains a favorite revenue recovery target for MEDPAC. MEDPAC never gives direct numbers, but reported that in 2018, 16% of hospices exceeded the cap, up from 14% in 2017. Historically in 2016 and 2017, 1% of Medicare hospice payments were over the cap. This would have been about $160 million in each year (which seems like a low estimate).  If the same approximate percentage holds in 2018, hospice cap liability would come to about $190 million.

Importantly:

MEDPAC has renewed its call for a substantial reduction of the hospice cap allowance, which would drive up cap liability. In March 2020, MEDPAC called for two significant changes, which it still supports:

  • Reducing the cap allowance by 20%, which would reduce allowances from about $31,000 to just about $25,000 per patient unit; and

  • Indexing the cap allowance for regional wage index differences.

MEDPAC does not directly say how much this cut in the cap allowance would increase cap liability, but the math turns out to be very significant.

MEDPAC says that by reducing the cap allowance by 20%, with wage indexing (presumably revenue neutral, more below), Medicare would save up to 3% of total expense. Against $21 billion in payments, 3% savings would amount to a staggering $630 million in additional cap liability. In short, a 20% reduction in cap allowances would quadruple cap liability from $190 million to more than $800 million. MEDPAC does not mention these numbers for a reason.

Please don’t be fooled by wage indexing. Even though fairness may dictate wage indexing, it will be done on a revenue neutral basis. Because the majority of hospice dollars are spent in high wage areas, redistribution of allowances will not come close to offsetting the proposed 20% cap reduction.

Wage indexing, on top of the 20% reduction, will impose materially more cap liability in low wage areas (rural, South, and Puerto Rico), putting these hospice regions into outright crisis. And, while indexing will, for its part, reduce cap liability modestly in high wage areas like New York, California, and Illinois, hospices in these regions should not count on wage indexing to benefit them more than the cap reduction will cost them. Indexing seems like a disinformation campaign designed to defease opposition to the 20% cap reduction.

It is worth noting that the hospice cap is not a cost free tool. The cap tends to suppress hospice for non-cancer diagnosis, and is especially prejudicial to rural and minority access to care, both issues that MEDPAC never covers.

Notably, MEDPAC makes no effort to support the proposed 20% cap reduction with evidence that the cap allowance, at current values, is out of line with alternative end of life treatment costs where hospice is not elected.

All thoughtful hospices should strongly oppose the 20% cap reduction because it will quadruple cap liability, likely doubling and perhaps tripling the number of hospices that face such liability.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 344
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About this Author

Brian M. Daucher Business Litigation Attorney Sheppard Mullin Orange County, CA
Partner

Brian Daucher specializes in business litigation with emphasis on contract, health care, and intellectual property disputes. Mr. Daucher has represented clients in a wide range of industries including technology, consumer products, fiduciary and banking services, food and alcohol, health care, and energy.

Key Experience

  • Won $16 million arbitration award against Dentsply international for willful trademark infringement.
  • Defeated $66 million earn-out claim by seller brought against major sports clothing and equipment manufacturer.
  • Won $...
714-424-2843
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