Hospice Cap
Background on the Medicare Hospice Cap

In 1982, Congress initiated hospice as a Medicare benefit to offer terminally ill patients and their families an informed choice between interdisciplinary palliative care and conventional hospital-based acute care. Hospice’s goal is to improve the quality of life of each patient and family, when curing the illness is no longer a realistic alternative.

Substitution Benefit

When a Medicare beneficiary elects hospice care, that beneficiary agrees to forego all other Medicare coverage related to their terminal diagnosis. Medicare pays the hospice a flat fee per patient per day regardless of the patient’s diagnosis, acuity or actual cost, and Medicare shifts all actual coverage costs related to the patient’s terminal illness to the hospice. In return the hospice agrees to plan and deliver an individualized plan of care to each patient and family, including all necessary clinical and counseling services, supplies, medical equipment, pharmaceuticals and palliative treatment regimens. The hospice is responsible for all costs related to the terminal diagnosis, including any necessary hospitalization or other acute care.

Coverage and Eligibility

Since 1982, Medicare and Congress have acted repeatedly to broaden hospice coverage to ensure each eligible beneficiary has access to unlimited days of hospice care, regardless of their diagnosis.

1. In 1983, patient eligibility was defined as “terminally ill with a likely prognosis of six months or less”, and each individual beneficiary’s hospice benefit was capped at 210 days, consisting of two 90 day benefit periods followed by a final 30 day benefit period.


2. In 1989 Congress liberalized the eligibility definition to “…six months or less if the illness runs its normal course” to demonstrate regulatory understanding that terminal prognoses were uncertain and that many hospice patients would routinely live longer than 180 days.


3. In 1998, Congress removed the cap on individual length of stay by providing unlimited 60 day eligibility periods, as long as a physician continues to “certify” the patient is terminally ill with a medical prognosis of six months or less. And Medicare developed objective eligibility criteria for each major non-cancer diagnoses, which in practice enabled physicians to certify non-cancer patients as eligible for hospice care.

Eligibility is now objectively defined by clinical criteria, and eligible patients are now entitled to remain enrolled in hospice services until they die, regardless of how long it takes.

Congress' and Medicare's intent was further clarified by CMS Administrator Nancy Ann DeParle in a letter sent to all the nation’s hospices in September, 2000. She wrote, “There is a disturbing misperception that hospices and beneficiaries will be penalized if a patient lives longer than six months. Nothing could be further from the truth.” She continued, “Let me be clear. In no way are hospice beneficiaries restricted to six months of coverage. There is no limit on how long an individual beneficiary can receive hospice services as long as they meet the eligibility criteria.” CMS Administrator Tom Scully reiterated these sentiments in 2002. Indeed, the 2007 CMS consumer guide to hospice care contains similar language.

Hospice Utilization — rapid growth since 1998 coverage expansion, but access still below 50%

Since 1998 Medicare has proactively promoted timely informed hospice choice, reflecting growing medical, political and economic consensus that quality hospice was gold-standard healthcare for America’s terminally ill. Medicare hospice expenditures have grown rapidly from a very low base in 1998, but in 2005 still less than 40% of eligible Medicare decedents received any hospice care, suggesting that most of America's terminally ill seniors, more than one million, still receive their end-of-life care in and out of hospitals and other acute care facilities, or no care at all.

Aggregate Hospice Cap — unchanged since 1982

The 1982 law provided for a Cap on Medicare average reimbursement to each hospice. The intent was to protect Medicare against the aggregate average cost of the new hospice benefit, compared to the aggregate average cost of caring for these patients in a conventional acute care setting. The Cap was intended as an aggregate limitation on a hospice’s average costs, not a limit on payment for any one individual, and was based on the cost of treating shorter-stay cancer patients.

But Congress never modified the 1982 Cap on the hospice provider, even when the limit on an individual's hospice length of stay was removed and when hospice coverage was effectively extended to longer-stay non-cancer beneficiaries. The Cap continues to severely penalize hospices based solely on length of stay, regardless of the eligibility of their patients. A hospice that “hits their Cap” is required to repay Medicare for covered services already provided to eligible Medicare beneficiaries. Hospices don’t have this money; they spent it taking care of eligible dying patients. 

Consequences of the Medicare Hospice Cap

To attempt to avoid “hitting its cap”, a hospice has three choices:

1. admit only cancer patients, who have more predicable and shorter prognoses, or
2. discharge patients who “live too long” whether they remain medically eligible for hospice or not, or
3. care for patients who elect the hospice benefit for however long they remain eligible.

The first two alternatives deny patients the access to hospice care that Congress specifically intended, and no hospice wants to discharge patients who are eligible to receive care. The Cap makes the third alternative a prescription for bankruptcy for many hospice providers.

Hospices are hitting the cap at an escalating rate. From almost nothing in 1999, 2005 estimates suggest CMS will demand repayment of hundreds of millions of dollars from hundreds of hospices in over 25 states. Fiscal intermediary data recently released shows that 29% of New Mexico hospices, 41% of Oklahomahospices, 47% of Alabama hospices and 62% of Mississippi hospices will hit their Cap in 2005. And, we estimate approximately 10% of California hospices may have hit the Cap in 2005.

CMS requires a hospice that hits the Cap to refund millions of dollars within 15 days or seek an extended repayment plan. Many hospices will go out of business, leaving Medicare patients and families without critical hospice services in their time of greatest need, and forcing these patients into less appropriate, higher-cost acute care, or no care at all. Congress must act to stop this growing crisis among Medicare's most vulnerable patient population.