Research Finds Hospice Suppliers “Recreation” Medicare Cost Cap, However With Modest Impression on Prices – Penn LDI

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Medicare beneficiaries who’re terminally in poor health can select to entrust the top of their life to a hospice company; every year, about half of Medicare beneficiaries who die obtain hospice services. Enrolling in hospice means people forgo all different providers associated to their terminal sickness, together with healing care, and depend on the hospice company to ease their ache and assist them die with dignity. A new study by LDI Senior Fellow and Director of Analysis Norma Coe and her colleague David Rosenkranz exhibits that some hospice company decision-making could also be meant to extend funds by undercutting the annual income cap that Medicare imposes. However this “gaming” of the fee guidelines creates solely modest will increase in each hospice enrollment and spending. The research’s findings additionally help MedPAC’s view that wage index-adjusting the cap may make it extra equitable throughout hospice packages, however the authors warning that the MedPAC proposal to cut back the cap by 20 p.c would possibly lead some hospice suppliers to shut, and due to this fact requires extra evaluation.
Hospice care’s function is to cut back a affected person’s ache and supply symptom reduction, and preserve them residence with household and mates slightly than an inpatient care setting on the finish of life. There have been about 5,000 Medicare-certified programs in 2020; most are based mostly in a house well being company. The variety of packages has greater than doubled throughout 2001–2020, due largely to an increase within the variety of for-profit hospice packages and the growth of private equity within the discipline. When hospice works properly, it’s related to higher quality of care, fewer unmet needs, and fewer hospitalizations at end-of-life.
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Medicare pays hospice packages a flat fee for every affected person every day – about $141 to $206 per individual per day in 2018 – however then limits packages’ funds yearly with an “mixture fee cap” based mostly on the variety of sufferers seen in that yr. The cap is designed to forestall financially motivated well being care suppliers from offering extreme hospice care by persuading Medicare beneficiaries to enroll too early or stay enrolled too lengthy after their situation improves. In 2023, the annual per-enrollee cap was about $32,000, which means {that a} hospice program that served 100 sufferers that yr may have obtained not more than $3.2 million from Medicare. Any income above the cap is named “cap legal responsibility” and have to be repaid on the finish of every fiscal yr.
Suppliers “gaming” fee techniques to maximise revenue has been documented in different areas of well being care, resembling hospitals and prescription drug pricing. News reports have highlighted doubtlessly financially motivated hospice supplier conduct. Coe and Rosenkranz needed to analyze how frequent this conduct is and its influence on high quality and price.
The brand new research exhibits that hospice packages churn sufferers due to the cap on their common annual income. Not solely do packages on monitor to exceed the cap improve the speed at which they discharge individuals alive—which may scale back their gross income—however in addition they improve new enrollments, which raises the cap and will increase hospice spending. The authors additionally discovered proof that the brand new individuals these packages enrolled have been more healthy on common and fewer related to hospice care, which helps the concept that the cap causes packages to stretch to seek out extra enrollees.
The scale of the packages’ changes to the cap is small: Hospice packages raised enrollment charges by 5.8% and stay discharge charges by 4.3% after they have been on monitor to exceed the cap. That interprets to only 1.54 extra enrollments and 0.37 extra stay discharges, on common, which might decrease a median packages’ cap cap legal responsibility by $30,000-$50,000 at most . Against this, packages that finally exceeded the cap had a median legal responsibility of $490,000.
The authors examined whether or not churning is related to for-profit packages (that may be extra delicate to the cap), older packages (that may be extra conversant in the cap), bigger packages (that may spend money on forecasting cap liabilities), or packages removed from others on monitor to exceed the cap (that may compete much less for marginal enrollees). They didn’t discover associations between these traits and churning. 
As an alternative, they consider that their findings help the concept that churning is difficult to do, due to different options of the Medicare hospice profit. Particularly, the requirement that the affected person’s different medical suppliers be consulted in enrollment and stay discharge choices and that Medicare beneficiaries who enroll in hospice care forgo protection for his or her terminal diseases each could serve to restrict churning.
The researchers word that whereas churning may theoretically hurt sufferers by lowering their entry to healing care, they didn’t discover proof that newly enrolled people have been extra more likely to exit hospice inside 30 days. And they didn’t discover proof that live-discharged sufferers suffered extra burdensome transitions or have been much less more likely to resume hospice care. Churning might also have an effect on Medicare non-hospice spending by reducing end-of-life hospital and expert nursing facility spending. The authors conclude that whereas packages undercut the cap by churning, their efforts could have lowered Medicare spending on different well being care providers by elevating hospice enrollment.
MedPAC, the impartial company advising Congress on the Medicare program, has recommended lowering the cap and pegging it to geographic variation in fee charges. The research’s findings help the concept that the geographic changes would make the cap extra equitable throughout hospice packages. As a result of they did, nevertheless, discover an affiliation between cap liabilities and withdrawing from collaborating within the Medicare program, the authors warning that policymakers will need to proceed to look at the cap’s impact on market composition earlier than reducing the cap by 20 p.c.
The research “Provider Payment Incentives: Evidence from the U.S. hospice Industry” by Norma B. Coe and David A. Rosenkranz appeared within the August 2025 situation of The Journal of Public Economics.
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