The Value Proposition of Hospice Transfers under Medicare Reimbursement

“Medicare coverage of hospice depends on a physician’s certification that an individual’s prognosis is a life expectancy of six months or less if the terminal illness runs its normal course.”

This is the criteria set by Medicare for admitting a patient into hospice. CMS provides several documents that provide guidelines for determining if patients qualify based on their clinical situation and this definition. These documents state that this is an inexact science and that it is understood that some patients will last longer and that some clinical issues and indicators are much harder to use for predictions than others. For example, weight loss is a very good indicator, loss of cognitive function is not. These documents also describe how patients can be discharged by a hospice if the clinical data changes to the point where their remaining lifetime is expected to exceed this six month guideline.

Budgeted Hospice Caps

These guidelines provide a lot of leeway for providers to accept patients into hospice. Without any boundaries, hospices would lean toward the decision to admit any marginal patients since it has already been established that they can generally care for these patients at a profit under the daily reimbursement rates provided by CMS.

To compensate for this and to shift the risk of the accuracy of the clinical assessment to the provider community, CMS has established a lifetime hospice cap that is associated with the expected revenue paid by Medicare for 180 days of service.   To make the proposition fair to providers, the patients whose total net reimbursement are under the cap can offset the services for other patients who received payments over the cap during the same cap year.   This allows the penalty to be associated with an aggregate total or the average reimbursement for these patients. Each year, CMS requires hospice providers to calculate their aggregate cap position for the prior cap year and to return all payments over this aggregate net cap total.

Current hospice cap reporting focuses completely on the past. The sole purpose of reporting is to determine what you owe CMS, if anything. The methods used by the government to calculate the cap net payment due (streamline and prorated) have little value for real life case management because neither takes into account the expected future benefit periods for a patient.

Although it is important to calculate the expected payment amount for the cap year, using the streamline and prorated method, if a hospice wants to actually manage their business to minimize or eliminate cap impact to collected revenue, they need to focus on these two events:

  • Admitting the appropriate patients based on the expected hospice cap position impact.
  • Discharging patients who are expected to significantly exceed the cap in the future.

One issue that needs to be taken into consideration is that this lifetime cap applies to all hospice care revenue distributed by CMS to all hospice providers treating a specific patient during their lifetime. Since the lifetime cap reflects the expected payment for 180 days of service, this means that impact of a specific hospice admission on your aggregate cap depends on previous services provided for that patient under hospice and future services provided if they are discharged.

If a patient is entering hospice for the first time in their life. The value proposition is straightforward, if the patient dies within 180 days, the patient’s remaining cap revenue not received will offset other patients who exceed the cap. If they die after 180 days, they will negatively impact the hospice cap position and either will be offset by other patients under the cap, or the revenue over the cap must be returned to CMS when the cap year is calculated.

When hospice caps are calculated historically, the beneficiary count, or number of patients is prorated to reflect coverage of the patient by other hospice providers. These partial patients are then totaled up to come up with a number to multiply with the reimbursement figure to calculate the cap position for the provider.

Although this is useful for historical cap calculations, for planning purposes, each patient is one patient statistically. To accurately calculate the impact of the patient to your own hospice cap, we need to know the previous hospice periods for a given patient when the admission decision is pending. This information should affect our decision to admit the patient if we expect to exceed the cap in aggregate for the current cap year.

Now, let’s assume that a prospective patient has already been serviced for three hospice benefit periods consisting of 90 + 90 + 60 = 240 Medicare billable days. It does not really matter if these previous periods were with another hospice or with the same hospice that is considering admission. Let’s assume that the same clinical decision is made for this patient as all other hospice patients being admitted and that the previous hospice history is not taken into consideration. By this I mean that the expected remaining lifetime is still 180 days for this patient.

The lifetime cap limit is still the maximum allowed before revenue must be returned. We can add the projected remaining lifetime days to the previous total of billable days. In this case, the patient has already had approximately 240 billable days of care, we expect to provide 180 more. If the patient dies exactly six months later, the cap impact of this particular case can be calculated to provide the impact of this case to the aggregate cap position of the provider. Based on the historical method used for cap reporting, this might be divided over different cap years, but the net impact over all cap years and all providers is the same.

The total billable days is 420, of this 42.8% of the lifetime cap can be associated with the final 180 days of service. This means that instead of having a budget of about $150 per day, we have only $64.28 per day if they live for the projected 180 days. A significant amount of the revenue for this patient will have to be returned or offset by other patients.

To illustrate this point, I have calculated the projected hospice cap impact using previous benefit periods where hospice services were delivered by the same hospice or another hospice in the past. It doesn’t matter which since the issue is how many days of hospice service were delivered prior to the pending admission. The lifetime cap represents a known recent cap amount for an actual hospice. This assumes that the patient dies exactly 180 days after admission.


Previous Periods Previous Days Budgeted Days Total Days Cap % Lifetime Cap Available Cap $ Projected Over Cap
0 0 180 180 100.00% $27,135.96 $27,135.96 $0.00
1 90 180 270 66.67% $27,135.96 $18,090.64 $9,045.32
2 180 180 360 50.00% $27,135.96 $13,567.98 $13,567.98
3 240 180 420 42.86% $27,135.96 $11,629.70 $15,506.26
4 300 180 480 37.50% $27,135.96 $10,175.99 $16,959.98
5 360 180 540 33.33% $27,135.96 $9,045.32 $18,090.64
6 420 180 600 30.00% $27,135.96 $8,140.79 $18,995.17
7 480 180 660 27.27% $27,135.96 $7,400.72 $19,735.24
8 540 180 720 25.00% $27,135.96 $6,783.99 $20,351.97
9 600 180 780 23.08% $27,135.96 $6,262.14 $20,873.82
10 660 180 840 21.43% $27,135.96 $5,814.85 $21,321.11

This shows us the declining value proposition of admitting a patient with previous hospice periods. The impact is greater the more previously billed days are present.

The question then is what motivates a hospice to admit a patient under these circumstances? Are there decisions that outweigh this expected financial loss due to returned revenue that might motivate the hospice to admit them anyway? Are hospices admitting these patients not knowing the financial impact of this decision?

If a hospice knows that they will be under the cap in aggregate for the current year, this is not a significant issue, but if you know that you will be approaching or exceed this limit in aggregate, every hospice should be taking this calculation into serious consideration. In any case, hospices should understand that the value of all admitted patients is not equal. Patients admitted with a history of hospice care come with a significant risk of reduced revenue due to the Medicare cap.


By Kalon Mitchell, President MEDTranDirect