Sequestration and the Hospice Cap 2.0: Pending Legislation May Extend the Sequestration Moratorium

In the wake of the government-wide sequestration cuts in 2011, the hospice industry was not spared. Medicare hospice payments were reduced by two percent in accordance with a sequestration order issued March 1, 2013, pursuant to Section 251A of the Balanced Budget and Emergency Deficit Control Act.  But reconciling that straightforward reduction with the Medicare hospice cap has led to much debate, including policy shifts, non-regulatory guidelines, and—inevitably—litigation.  Medicare imposes an annual aggregate cap on hospice payments, which fiscal intermediaries enforce after the close of each fiscal year by demanding the return of any payments in excess of the hospice cap.  In the wake of the sequestration cuts, however, the fiscal intermediaries included sequestered payments into the hospice cap calculation. By doing so, many hospices argued that the fiscal intermediaries overstated the hospice cap liability, leading the hospices to challenge the cap calculations through the lengthy administrative appeals process.  Some of those appeals are now advancing to federal district court, where thus far, the reception has been cold.  But temporary relief from the sequestration cuts may be on the horizon with proposed legislation that would extend the moratorium on the sequestration cuts for hospices and other health care providers through the remainder of the public health emergency.

To put things in context, the Hospice Cap Statute (42 U.S.C. § 1395f(i)(2)) generally provides that the amount of annual Medicare payments to a hospice program may not exceed the total “cap amount” for the year. Medicare imposes two annual limits to payments made to hospice providers:  the inpatient cap and the aggregate cap.  The inpatient cap limits the number of days of inpatient care for which Medicare will pay to 20 percent of a hospice’s total Medicare patient care days. The aggregate cap limits the total aggregate payments that any individual hospice can receive in a cap year to an allowable amount based on an annual per-beneficiary cap amount multiplied by the number of beneficiaries served.  Medicare administrative contractors (MACs) oversee the cap process, and hospices must file their self-determined aggregate cap determination notice with their MAC no later than five months after the end of the cap year.  The aggregate cap was originally intended to ensure that hospice payments would not exceed Medicare expenditures in a conventional setting (i.e., hospitals or other settings providing curative treatment).  CMS updates the aggregate cap amount annually, contemporaneously with the hospice payment updates.  CMS determines the number of beneficiaries served by a hospice using either a streamlined or proportional method, with the hospice electing its preferred method.

For the first year of sequestration (Cap Year 2013), MACs initially calculated hospices’ cap overpayments by comparing each hospice’s net reimbursement to its annual aggregate cap.  But in revised determinations for Cap Year 2013 and in determinations for subsequent years, the MACs compared each hospice’s annual aggregate cap against the amount of Medicare payment that would have been made to each hospice if not for sequestration.  Many hospices argue that, by doing so, the MACs overstated the amounts by which their payments exceeded their caps.  Hundreds of hospices have challenged the MACs’ new calculation method, filing appeals with the Provider Reimbursement Review Board.  At least two of those lead cases have now progressed through the district court level, with adverse decisions to the hospices.  The hospices will likely appeal to the Federal Circuit Courts.

In the meantime, the pandemic has prompted a suspension of the sequestration cuts for hospices and other providers.  The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended the Medicare sequester between May 1, 2020 and December 31, 2020.  Recognizing that the effects of the pandemic would continue into 2021, Congress included provisions in the Consolidated Appropriations Act, 2021, signed into law by President Trump in December, that further postponed the Medicare sequester until March 31, 2021.  With it now clear that the pandemic will extend beyond the March 31 cut-off, additional sequestration relief is needed.

The proposed Medicare Sequester COVID Moratorium Act (H.R. 315) would further delay the Medicare sequester through the duration of the public health emergency, helping providers weather the additional costs associated with the COVID-19 pandemic.  The bipartisan legislation would extend the current sequester moratorium through the end of the public health emergency and provide hospices and other providers with additional financial support for the delivery of needed patient care. Postponing these cuts through the remainder of the pandemic would eliminate the need to periodically address the sequester.  A companion bill, H.R. 1868, would eliminate the 2% sequestration cuts until the end of 2021.  H.R. 1868 also excludes the budgetary effects of this bill, as well as the American Rescue Plan Act of 2021, from the scorecards established by the Statutory Pay-As-You-Go (PAYGO) Act of 2010, preventing across-the-board cuts to numerous direct spending programs, including Medicare. Without this action, additional sequester cuts would be triggered in January 2022.  To pay for the change, the bill would extend sequestration, which is scheduled to expire at the end of the fiscal year 2030 through FY 2031.

While these sequester relief bills are positive for the industry, hospices may face reimbursement headwinds if Congress were to act on recent policy recommendations that are at odds with the sequestration relief.  The Medicare Payment Advisory Commission (MedPAC), in its March 2021 report to Congress on hospices, recommended eliminating the update to the Fiscal Year 2021 Medicare base payment rates for hospice for Fiscal Year 2022 and to cut the hospice aggregate cap by 20%, which would result in lower overall reimbursement for hospices.  While only a recommendation at this point, if adopted by Congress, the MedPAC recommendations could reduce access to vital hospice care for patients and families, especially in rural and underserved areas.

For more information about the pending legislation or hospice cap issues in general, please contact Jason E. Bring.