Health Law Daily Medicare Contractor properly applied sequestration in calculating hospice’s aggregate cap payments
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Wednesday, October 21, 2020

Medicare Contractor properly applied sequestration in calculating hospice’s aggregate cap payments

By Jeffrey H. Brochin, J.D.

Nothing in the Medicare statutory or regulatory provisions governing hospice payments identifies a hospice’s total Medicare payment as the net reimbursement to the hospice.

The Provider Reimbursement Review PRRB (PRRB) has affirmed the decision of a Medicare contractor that calculated the 2013 cap year for Good Shepherd Hospice of Mid-America, Inc. (Good Shepherd)—which was the Good Shepherd’s first cap year as a Medicare provider of hospice services—by including funds that were sequestered but never paid to Good Shepherd. The Budget Control Act of 2011 allowed for sequestration for part of Good Shepherd’s initial cap year, and the contractor properly included the sequestered but not-paid funds in its calculation of aggregate cap payment (Good Shepherd Hospice of Mid-America, Inc. v. CGS Administrators, PRRB Hearing, Case No. 15-3312, Dec. No. 2020-D13, July 31, 2020).

Hospice payment methodology. The hospice benefit is an election that certain terminally-ill Medicare beneficiaries can make in lieu of other Medicare benefits. Initially, Congress set the amount of payment for hospice care based on reasonable costs or such other test of reasonableness as the Secretary of HHS might determine. CMS immediately exercised its discretion to base the initial reimbursement methodology for hospice care on an "other test of reasonableness" by implementing the hospice benefit using a prospective payment system for hospice care as a proxy for costs.

Notwithstanding CMS’ promulgation of the hospice prospective payment system, Congress has never removed the hospice cap, which is set on a per beneficiary basis and is adjusted annually for inflation. The adjusted per-beneficiary cap is then applied to each hospice on an aggregate basis across each relevant 12-month fiscal year, resulting in hospice care being paid for pursuant to a unique hybrid reimbursement system involving prospective payments as a proxy for costs subject to an annual cap.

2011 sequestration provision. In 2011, Congress adopted the Budget Control Act of 2011, which included a provision commonly known as sequestration that required the President to reduce discretionary spending across the board, including Medicare spending, by certain fixed percentages in the event that budgeted expenditures exceeded certain limits. The percentage reduction for the Medicare program was capped at 2 percent for a fiscal year, and CMS then directed its Medicare contractors to reduce Medicare payments with dates of services or dates of discharge on or after April 1, 2013 by 2 percent. CMS further directed the Medicare contractors to make sequestration adjustments for hospices subject to the aggregate cap.

Inclusion of sequestered funds challenged. For Good Shepherd’s 2013 cap year, the contractor had initially issued a determination letter on January 8, 2014 which stated that the payments made to Good Shepherd had not exceeded the statutory cap for the period from December 28, 2011 through October 31, 2013. However, the contractor reopened the hospice cap determination on July 28, 2015 and revised its calculation determining that Good Shepherd was overpaid $159,494.72.

Good Shepherd did not dispute the extended cap period of December 28, 2011 through October 31, 2013, the accuracy of the Medicare beneficiary counts, or the adjusted statutory per-beneficiary cap amount. Rather, Good Shepherd asserted that, pursuant to 42 U.S.C. § 1395f(i)(2)(A) and 42 C.F.R. § 418.308, only payments made to a hospice could be assessed as a cap overpayment. Similarly, Good Shepherd argued that the CMS System Manual used to calculate the cap amount references total actual Medicare payments made. Good Shepherd therefore concluded that CMS’s methodology outlined in its March 3, 2015 TDL resulted in the Good Shepherd being improperly required to refund a cap overpayment that included monies never received by Good Shepherd due to Congress’ sequestration order. It maintained that CMS was required to use the net reimbursement (actual amount received by the hospice) in determining how much it exceeded its aggregate cap.

No change to statute or regulation. The PRRB found that CMS did not make any statutory or regulatory changes to the hospice payment when implementing sequestration; rather, CMS implemented the sequestration order by directing its contractors to reduce Medicare payments by 2 percent beginning with dates of service or dates of discharge on or after April 1, 2013. Specifically, CMS instructed its contractors on how sequestration should be applied to certain Medicare payments including: claims payments; cost report payments, including those made to IPPS-exempt hospitals; electronic health record payments; and hospice payments.

The PRRB further found nothing in the Medicare statutory or regulatory provisions governing hospice payment that identifies a hospice’s total Medicare payment as the net reimbursement to the hospice, rather, that those provisions established payment rates for the various hospice services, directed how those payment rates would be updated, and required payment be made to the hospice for each day during which a beneficiary was eligible and under the care of the hospice. Contrary to Good Shepherds’ assertion, it is a hospice’s gross payment that reflects those established rates, not the hospice’s net reimbursement.

For the foregoing reasons, the PRRB ruled that the Medicare contractor properly applied sequestration to Good Shepherds’ aggregate cap payments at issue and calculated each of Good Shepherds’ respective aggregate cap overpayments correctly.

Cost reporting period ended December 31, 2013.

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