Beginning in June 2012, CMS contractors began calculating and issuing hospice cap repayment demands for FY 2010 and 2011.  Hospices that have not filed appeals previously have the choice either before or after receiving the demand to select one of two calculation methods – either the old “Streamlined” method or the new “Pro Rated” method.  CMS online reporting tools now allow hospices to assess current hospice cap position and determine which method may work best for them.

Five years ago, hospices began challenging CMS’ hospice cap calculation method (now called the “streamlined” method).  More than 20 Federal courts, including two Courts of Appeal held the method invalid as contrary to the authorizing statute.

Finally, in October 2011, CMS adopted a new regulation providing for conversion from the old “streamlined” method to the new “pro rated” method.  42 C.F.R. s 418.309.

After a further delay through June 2012 while CMS reached settlements with more than 100 hospices that had appealed “streamlined” method demands, CMS’ contractors are now calculating and issuing hospice cap repayment demands under both methods.

The revised regulation requires contractors to continue to apply the old “streamlined” method to cap repayment demands prior to 2012 for any hospice that has not previously appealed a streamlined demand or elected the pro rated method.  Hospices can switch to the new pro rated method either before repayment demands are issued (by an election) or after receiving demands (by filing a timely appeal).

CMS has established new PSRS tools to allow hospices to review current cap allowances by summary report.  CMS contractors also permit hospices to request detailed backup data to allow hospices to cross-check the calculations.  Other PSRS tools allow hospices to retrieve net reimbursement reports by accounting year.  Through these tools, hospices can assess and compare the results under both methods.

Sheppard Mullin led the litigation to change the hospice cap and has helped more than 150 hospices assess its cap position.

The Two Methods

Congress established the hospice benefit and related retrospective aggregate provider reimbursement cap in 1983.

The statute requires the cap to be calculated annually for each provider as the product of the number of beneficiaries served and the annual per beneficiary allowance (adjusted each year for inflation).   If hospice reimbursement exceeds total allowances, the hospice must repay the difference to Medicare.

Congress was very specific in its instructions to Medicare on calculating the cap, providing that the “number of beneficiaries” in any given year be “reduced to reflect the portion of care provided by the hospice or another hospice in any other accounting year.”  42  U.S.C. s 1395f(i)(2)(C).

But, when CMS implemented this statute, it stated that the statutory method was “too difficult” and therefore adopted the “alternative” method of allocating each beneficiary’s allowance in the initial year of service only.  This is now known as the so-called “streamlined” method.

Under the streamlined method, the following rules apply:

  1. For any beneficiary first admitted to hospice between 9/28 of a given year and the following 9/27, hospice will receive 1.0 units of cap allowance for the accounting year that runs 11/1 to 10/31;
  2. If a patient has received, or later receives, care at more than one hospice, then the units will be split between the hospices proportionally according to days of service.

But, Congress required that allowances for each beneficiary be allocated proportionally across years of service.  So, if a beneficiary received 60 days of service in one year (say 9/1 to 10/31) and 60 in a second year (11/1 to 12/31), the hospice should receive .5 units of allowance in each year.  The streamlined method would give the entire allowance for this beneficiary in year 1 and no allowance in year 2.

The new pro rated method follows the statutory mandate to allocate each beneficiary’s allowance (regardless whether they receive care at more than one hospice) across years of service as follows:

  1. For any given year (11/1 to next 10/31) in which a beneficiary receives some hospice service, hospice shall receive allowances for that beneficiary equal to:

(days on service with that hospice in that year)/(total days of hospice service in any year)

This is the statutory method Congress set up and this is the new pro rated method.

One issue with the pro rated method is that if a patient continues to receive care in later years, the allowances for the original year will decline over time (as the denominator continues to increase).  Of course, this is already the case in the streamlined method as to any patient that later receives care from another hospice (requiring the same pro rated calculation).

Because cap allowances are not static under either method, CMS contractors have taken, and will continue to take, a certain approach in calculation hospice caps.

First, historically, contractors have waited at least one year from the end of any accounting year to calculate caps; most of the change in allowances for any given hospice under either method from ongoing care will occur in this first year.

Second, contractors have and will continue to reopen (for up to three years from the date of the original assessment) prior cap calculations to reassess cap liability.  This has occurred historically under the streamlined method (either where hospice later receives more revenue allocable to a certain accounting year (ie, after a successful ADR appeal) or where patients later received care at another hospice).

For a hospice with a longer than average length of stay (ie, 70 days), the “streamlined” method will tend to overstate allowances in early years, understate them in later years, and thereby overstate repayment demands in later years – especially since excess cap allowances in prior years are not carried forward to later years.  The pro rated method resolves this problem by making precise allocations of allowances.

For these reasons, over the long term a hospice with longer than 70 day length of stay may benefit from the more precise allocation of allowances provided by the pro rated method.  A hospice with an average length of stay less than 70 days should not face any hospice cap liability unless it admits many patients served earlier by another hospice.