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

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Medicare beneficiaries who’re terminally ailing can select to entrust the top of their life to a hospice company; annually, about half of Medicare beneficiaries who die obtain hospice services. Enrolling in hospice means people forgo all different companies 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 reveals that some hospice company decision-making could also be supposed to extend funds by undercutting the annual income cap that Medicare imposes. However this “gaming” of the cost guidelines creates solely modest will increase in each hospice enrollment and spending. The examine’s findings additionally help MedPAC’s view that wage index-adjusting the cap may make it extra equitable throughout hospice applications, however the authors warning that the MedPAC proposal to scale back the cap by 20 % may lead some hospice suppliers to shut, and subsequently requires extra evaluation.
Hospice care’s objective is to scale back a affected person’s ache and supply symptom reduction, and maintain them house with household and pals slightly than an inpatient care setting on the finish of life. There have been about 5,000 Medicare-certified programs in 2020; most are primarily based in a house well being company. The variety of applications has greater than doubled throughout 2001–2020, due largely to an increase within the variety of for-profit hospice applications and the growth of private equity within the area. 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 applications a flat fee for every affected person every day – about $141 to $206 per individual per day in 2018 – however then limits applications’ funds yearly with an “mixture cost cap” primarily based 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, that means {that a} hospice program that served 100 sufferers that yr may have acquired not more than $3.2 million from Medicare. Any income above the cap is named “cap legal responsibility” and should be repaid on the finish of every fiscal yr.
Suppliers “gaming” cost techniques to maximise revenue has been documented in different areas of well being care, reminiscent of hospitals and prescription drug pricing. News reports have highlighted probably financially motivated hospice supplier habits. Coe and Rosenkranz needed to research how widespread this habits is and its affect on high quality and value.
The brand new examine reveals that hospice applications churn sufferers due to the cap on their common annual income. Not solely do applications on monitor to exceed the cap enhance the speed at which they discharge folks alive—which may scale back their gross income—however additionally they enhance new enrollments, which raises the cap and will increase hospice spending. The authors additionally discovered proof that the brand new folks these applications enrolled have been more healthy on common and fewer related to hospice care, which helps the concept that the cap causes applications to stretch to seek out further enrollees.
The scale of the applications’ changes to the cap is small: Hospice applications raised enrollment charges by 5.8% and reside discharge charges by 4.3% once they have been on monitor to exceed the cap. That interprets to only 1.54 extra enrollments and 0.37 extra reside discharges, on common, which might decrease a median applications’ cap cap legal responsibility by $30,000-$50,000 at most . In contrast, applications 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 applications (that is likely to be extra delicate to the cap), older applications (that is likely to be extra accustomed to the cap), bigger applications (that may put money into forecasting cap liabilities), or applications 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 a substitute, they consider that their findings help the concept that churning is tough 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 reside discharge choices and that Medicare beneficiaries who enroll in hospice care forgo protection for his or her terminal sicknesses each could serve to restrict churning.
The researchers observe 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 prone 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 prone to resume hospice care. Churning may have an effect on Medicare non-hospice spending by reducing end-of-life hospital and expert nursing facility spending. The authors conclude that whereas applications undercut the cap by churning, their efforts could have lowered Medicare spending on different well being care companies 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 cost charges. The examine’s findings help the concept that the geographic changes would make the cap extra equitable throughout hospice applications. As a result of they did, nonetheless, discover an affiliation between cap liabilities and withdrawing from collaborating within the Medicare program, the authors warning that policymakers will wish to proceed to look at the cap’s impact on market composition earlier than reducing the cap by 20 %.
The examine “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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