CMS evaluates hospice cap changes to offer options

Managers should monitor cap deficit risk monthly

After two district courts struck down the Centers for Medicare and Medicaid Services' (CMS) regulations for calculating hospice caps, CMS issued an unprecedented rule that allowed all hospices with appropriately filed hospice cap repayment demand appeals to avoid going to court.

"This ruling is a big deal," says Carel T. Hedlund, principal, Ober Kaler Attorneys at Law, in Baltimore, MD. "If a hospice has a repayment demand based on exceeding the cap and has taken the appropriate steps to file an appeal, the cases go back to the CMS Intermediaries to be recalculated using the patient-by-patient proportional methodology," she explains. Losing judgments in two different district courts was a major blow to CMS and suggested that as other cases reached district courts, similar decisions would be made to enjoin CMS from calculating hospice caps with the methodology currently used, she says. CMS has also included a proposal included in the 2012 Wage Index that allows a hospice to choose between the patient-by-patient proportional methodology and the current methodology to calculate their hospice cap, she adds.

The hospice cap was introduced in 1983, but appeals of the repayment demands did not occur regularly until about 5 years ago, points out Hedlund. The cap was established to limit the amount of Medicare payments a hospice receives in a fiscal year. Simply described, the cap is determined by multiplying the number of beneficiaries in an individual hospice by the fiscal year's cap amount, which is adjusted each year by CMS, she explains. "I don't know if the repayment demands were not high enough to justify appeals prior to the 2005 fiscal year, or if hospices just did not consider it worthwhile to appeal," she says. "I do know that around 2005 we saw lengths of stay increasing as hospices provided care for longer term patients with a wide range of diagnoses, rather than the typical short-stay cancer patients," she explains. A longer length of stay does increase a hospice's risk of exceeding the hospice cap, especially if the hospice's case mix does not include enough short-term patients to offset the long-term stays, she adds.

Kyle Terry, MBA, consultant and principal at Hospice CAP Consultants in Owasso, OK, learned everything he knows about hospice cap repayment demands the hard way. When working as an administrator for two different hospices, he faced hospice cap deficits of $1.5 million and $800,000. Although the hospices were responsible for repayment demands for previous years, Terry was able to implement business strategies that prevented the hospices from continuing to accrue cap deficits on an ongoing basis. "I was able to eliminate the $1.5 million deficit in 12 months and the $800,000 deficit in 9 months," says Terry.

Even with the CMS ruling, hospices must pay close attention to their hospice cap exposure and hospice managers need to understand how the cap works, says Terry. "I hate to tell clients that if they've received one repayment demand letter, they will get a second and it will probably be for more money," he says. Because the repayment demands are for fiscal years that ended 2 years earlier, it is likely that the hospice did nothing to adjust the case-mix to address cap deficits for the year between the year addressed in the first repayment demand and the current year, he says. For example, a hospice manager won't receive a repayment demand letter for FY2009 until FY2011, he explains. "If the hospice manager wasn't monitoring cap exposure in FY2010 and addressing issues contributing to the cap deficit, the hospice will almost always receive a repayment demand for FY2010," he says.

Although the key to reducing hospice cap deficits is to monitor cap deficit exposure on a monthly basis, the first step is to understand the issues that can increase your hospice's risk, suggests Terry. "The larger the number of hospices in a single market, the greater the risk of exceeding the cap amount," he says. Competition increases awareness of the hospice benefit, improves education about the benefits of earlier admission to hospice, and encourages longer lengths of stay as hospices seek patients who have a wide range of diagnoses, he explains.

The first step to take when a repayment demand letter is received is to compare the list of beneficiaries included in the calculation to your own information, says Terry. Sometimes a patient whose benefit period started in one fiscal year but continued into the next year is counted as a full patient for the first year, he says. In other cases, a hospice may not realize that a patient received care from another hospice during the year and that adjusts how the cap is calculated, he adds. "I've had clients who immediately ask about the lawsuits filed by other hospices challenging the calculation methodology, but I've found that for most hospices the repayment amount is usually accurate, and if it's based on incorrect information, the intermediaries are willing to listen and adjust if needed," he says.

If you do believe your repayment demand is not accurate, you have 180 days to file an appeal, says Hedlund. "The CMS ruling automatically sends any appeals back to intermediaries for recalculation if the appeal was filed appropriately," she says. For that reason, hospices that receive repayment demands should make sure they file their appeals in a timely manner to ensure their cap is calculated in a proportionate manner, she adds. "However, before you file the appeal, make sure the new calculation is appropriate for your hospice," she says. "Some hospices, based on case-mix, may prefer the current calculation," she adds. The only way to know which method is best is to evaluate your data and conduct your own calculation, she says.

Once you've addressed the immediate concern of the first repayment demand letter, take a look at the fiscal year following the year addressed by the letter, suggests Terry. "There's nothing you can do to change the hospice cap deficit for that year because it is in the past, but you can get an idea of how much you might be asked to repay," he says. "Some of my clients were able to plan ahead to set aside extra funds or make financial arrangements for loans to repay CMS when the demand letter arrived," he says. The analysis also gives hospice managers a good picture of the issues that contributed to the hospice cap deficit, he adds. This analysis enables the hospice management team to make changes to their business strategy to avoid or minimize cap deficits in the current and future years, he adds.

In addition to making sure the hospice cap and each hospice's individual risk of exceeding the cap is understood, managers also should review the proposed changes to hospice cap calculation carefully, suggests Hedlund. She adds, "Comment on the proposed changes included in the proposed Hospice Wage Index during the 60-day comment period so CMS has your input on cap calculations."


For more information about the hospice cap, contact:

Carel T. Hedlund, Principal, Ober Kaler Attorneys at Law, 100 Light Street Baltimore, MD 21202. Telephone: (410) 347-7366; fax: (443) 263-7566; e-mail:

Kyle Terry, MBA, Principal, Hospice CAP Consultants, 9607 N. 100th E. Avenue, Owasso, OK 74055. Telephone: (918) 695-4433; e-mail:

• To see the April 14, 2011 CMS Ruling related to hospice cap appeals based on validity of calculation methodology, go to

• To see the proposed Hospice Wage Index for 2012, which includes changes to the hospice cap calculation methodology, go to, select "Hospice Regulations and Notices" on the left navigational bar, then choose "CMS-1355-P." Comments can be made until early July.