United States: CMS Proposes Payment Reform/Cap Adjustments

On April 30, 2015, CMS released its FY 2015 Hospice Wage Index, including long anticipated payment reform and some changes to the hospice cap calculation.  Comments are due by June 29.  Here is an initial summary and analysis.

Routine Home Care Payment Reform

For years, MedPAC has urged CMS to revamp hospice reimbursement to match what it claims is more actual expense at the beginning and end of hospice service (first and last 7 days), the so-called U-shaped curve.  MedPAC's analysis, focusing just on skilled nursing visits, has long ignored key aspects of the hospice benefit including pharmacy, other types of visits, and DME.

We have previously noted that there is arguably no need or policy justification to pay significantly more for just the first 7 days of care since: (a) very short hospice stays are not best for beneficiaries or Medicare; and (b) hospices already have ample incentive to serve very short stay patients in terms of earning significant cap allowances (even if such stays cost hospices more).

CMS now proposes to shift payment for routine home care but does not exactly follow the MedPAC suggestion.  Instead, CMS proposes to pay just under 20% more for the first 60 days and just under 10% less for every day of care thereafter.  This proposed change would, if adopted, begin October 1, 2015.

So for instance, prior to regional wage level adjustment, CMS notes that routine home care would be $159 in FY 2016; after adjustment it would be $187 for the first 60 days and $145 for days 61+.

CMS anticipates the problem of a patient with a significant gap in hospice care (live discharge / later readmission) by providing that the higher first 60 day rate structure will renew if there is at least a 60 day gap in care.  This reset should encourage re-admission of patients but could also prove problematic.

The breakeven point for hospices for any one patient, assuming no gap reset, falls near 170 days of care.  For a provider overall, it appears that provider must have between 35-40% of its patients under 61 days on service at any given point in time, or its overall revenue will decline (before the SIA adjustment below).  Many hospices will not meet this test and will therefore experience a decline in revenue of between 3-5% almost immediately.

Given that the median length of stay (LOS) is approximately 15 days and average LOS is closer to 80 days, the fact is that almost all hospices have some long stay patients.  This is a natural function of the uncertain dying process and not any type of conspiracy.

One potential benefit of this adjustment will be that the hospice industry may finally have to stop targeting cap hospices and instead acknowledge the basic structural challenge of running a program with uncertain life expectancy.  CMS criticizes live discharges, perhaps rightly, but then blames hospices for long stays, failing to acknowledge the complexity of life expectancy and terminal illness.

The proposed adjustment is still arguably more reasonable than that proposed by MedPAC.  Although nominally tied to an Abt Associates cost analysis, the proposed adjustment may also reflect an appreciation by CMS that length of stay in hospice is not ideal at 7 days but should be longer.  60 days is enough time for the patient and family to realize some of the unique benefits of hospice care while also perhaps conserving at least some expensive traditional end of life care.   The 60 day change corresponds to a well-respected Duke study that urged CMS to promote longer, not shorter lengths of hospice stay.

Although 60 day hospice service periods may be "ideal," they are in fact relatively rare.  The substantial majority of hospice patients either pass away quickly or live a long time on service while declining slowly or sporadically (as reflected by the median and average LOS above).  Both types of patients are eligible.  CMS should keep in mind that although its total spend on hospice has grown nominally to $15 billion, this spend is still less than 10% of the money that Medicare spends on beneficiaries in the last six months of life.  Let's say that again: less than 10%.

Hospices do not "recruit" patients; instead, they receive them by way of referral from other corners of the Medicare system (willing doctors, hospitals, nursing facilities).  Given the lack of control in the referral relationship, the low relative cost of the benefit, and its favored status among beneficiaries and their families, CMS should err on the side of protecting this vulnerable and under-lobbied benefit.

CMS also proposes to allow hospices to bill in the last 7 days of care (for a patient that passes away) for up to 4 hours per day of RN or social worker time spent with patients otherwise receiving only routine home care.  CMS calls this a Service Intensity Adjustment (SIA).  CMS limits the SIA by precluding the SIA to SNF/NF based patients (in part addressing OIG's old claim that nursing home care is somehow duplicative of hospice) and limiting it (somewhat arbitrarily) to RNs and Social Workers.  Some of the best hospice work is done by LPNs, home health aides, and chaplains, who are left out by this adjustment.

As a result, the SIA is very limited and really only pays lip service to the idea of a boost in payment for the last few days of care.  This outcome may be preferable to highly technical and significant new payment streams that could in fact be paid out in a quite disparate fashion and could otherwise require bigger cuts to routine home care rates.

Hospice Cap Changes

CMS proposes to reset the cap accounting year to match the Federal government fiscal year, October 1 through following September 30.  This change would be made in calendar 2017 by ending the FY 2017 cap year on September 30 (a month early) and starting the FY 2018 cap year on October 1 (instead of October 31 and November 1 under the current structure, respectively).

The purpose appears to be to align the cap year to the hospice reimbursement adjustment (starts 10/1 each year).  This change might slightly reduce cap liability by trading a month of higher reimbursement (October of next rate year) for a month of lower reimbursement (October of prior rate year) beginning in FY 2018.  The alignment seems to make sense.

If adopted, the FY 2017 cap year will end September 30, 2017 instead of October 31, 2013; and, as a result, this transition cap year will only run 11 months.  The next cap year, FY 2018, will run for the new twelve month period, October 1, 2017 through September 30, 2018 (matching the reimbursement year and Federal fiscal year).

For those few providers still on the streamlined method (estimated at about 500 hospices), CMS proposes to measure streamlined allowances in the same window that it measures revenue (and pro-rated allowances), instead of shifting late-year admissions into the next cap year.  For streamlined hospices with stable patient admissions every year, this may not pose a challenge.  For others, it will result in more significant misallocations of allowances for hospices as admissions patterns change.

CMS has announced that the FY 2015 cap allowance will be $27,135.96 and that the FY 2016 allowance will be $27,624.21.  The FY 2016 allowance is the first allowance tied to hospice rate change instead of CPI-Urban and, as a result, may present a lower increase than in prior years.

CMS continues to bash hospices that exceed cap, still turning a blind eye to the real problem – the lack of good eligibility criteria, inherent uncertainty in life expectancy, and varying structure of certain hospice markets.  The cap is not something any hospice seeks out, period.  It's something that sneaks up on unwary hospices, especially ones that admit patients with prior service.   Hospices can try to avoid the cap by discharging patients that don't pass away soon enough, but they face criticism for this practice too.

Although CMS points to "many tools" available to predict life expectancy, CMS itself has the most robust information but declines to set National Coverage Determinations.  CMS should end the bashing of cap hospices and focus on open reform and education related to eligibility criteria.  Tell hospices who to serve and let them serve.

CMS also does not mention in this extensive new rule its instruction to MACs to add sequestration to the hospice cap.  This sequestration adjustment, adding money never paid to the hospice to revenue, remains contrary to statute, regulation, and policy in our view.

Related To Terminal Diagnosis

In this lengthy proposed rule, CMS also continues to cement its position that "virtually all" care a patient on hospice receives is related to the terminal diagnosis.  As previously noted, this will eventually lead to CMS attempting to charge back hospices with certain non-hospice costs.

The data that CMS offers about the nature of the problem, though, is hardly alarming.  According to CMS, Medicare spent $15 billion on hospice in FY 2013; and, CMS in turn notes that patients on hospice also received $1.3 billion in non-hospice care.  In short, with about a million patients served, at an average cost of about $15,000, CMS is complaining that an additional $1,300 in other care was provided as well.

Considering that Medicare spends about $42,500 per beneficiary in the last six months of life ($170 billion overall), the expenditure of $15,000 per beneficiary on hospice and an additional $1,300 per hospice beneficiary on unrelated care may not be the most significant issue.

It will be interesting to watch the hospice community react to payment reform in its unexpected incarnation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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