This week, the Medicare Administrative Contractors issued instructions for hospices to self-report FY 2014 hospice cap (reports due this month, March 31, 2015).  These instructions include a spreadsheet substantially similar to what we offered earlier this year.  Hospices that fail to submit reports by March 31 may be subject to payment suspension until reports are completed. 

These instructions do not require hospices to include sequestration dollars in revenue.

At the same time, CMS plans to have MACs later revise such reports to include sequestered funds in revenue.  As a result cap overpayment demands coming from the MACs for FY 2013 and final FY 2014 and later demands will be overstated and must be appealed.

CMS has not directly published the sequestration instructions they issued to the MACs.  But CMS has released some limited details to certain hospice groups (NAHC/NHPCO).

CMS’ plan to require hospices to “pay back” certain funds never paid to hospices is contrary to statute, regulation, and existing policy.

We will be offering group appeals to challenge to this new policy (see below).

Cap Self-Reports Should Now Be Filed

First, Hospices should report FY 2014 cap using net reimbursement from the PS&R report (excluding sequestration; MACs will adjust).

Hospices can use our sample spreadsheet we distributed earlier or the sample spreadsheet now offered by the MACs (basically identical).  Palmetto’s instructions can be found here.

NGS has posted similar instructions on its website, but users must navigate the NGS Medicare site, to the Home Health and Hospice tab and find the information posted 3/4/2015.

As of this post, CGS has yet to release its instructions, but they are expected shortly.

The PS&R system is in transition and not accessible to many providers.  If you cannot access the reports you need to complete the cap report, then you should reach out to your MAC and it will provide the reports.

We recommend that in submitting the FY 2014 self-reports, hospices attach the full PS&R revenue report showing gross and net reimbursement (the difference being listed sequestration amounts) and allowance reports.  This will help the MAC understand the report and ensure a clear administrative record of the amount of sequestration in dispute later if and when the MACs increase the demands by a sequestration adjustment.

If the reports show an overpayment, hospices must contemporaneously plan either to repay the overpayment or apply for an Extended Repayment Schedule according to the new instructions from their specific MAC.

Be sure to timely file your FY 2014 reports to avoid potential payment suspension.

The New Sequestration Calculation

The new sequestration policy, hinted at in the MAC publications this week, was also released in part by CMS to the NHPCO and NAHC.  CMS has not made an official release of this policy, but has apparently delivered the policy to the MACs (this should be posted as CMS Transmittal at the very least).  CGS posted this policy just today.

As currently structured, the sequestration policy requires MACs to add a portion of sequestered funds to hospice revenue, even though none of the sequestered funds were ever paid to providers.  For most hospices, the substantial majority of sequestered funds will later be added to the repayment demands.

After the rush to help hospices file timely basic FY 2014 reports this month, the MACs will then turn to calculating FY 2013 demands which have been on hold (a year which included sequestration from April 1 on (7 of 12 months)).  After that, likely in the Fall 2015, MACs will review the FY 2014 self-reports and make sequestration adjustments.

As a result, hospices should be expecting to receive later this year overstated cap repayment demands from the MACs for FY 2013 and FY 2014.

As currently structured, here is the new formula to be applied by the MACs (not to be used by hospices for self-reporting):

Two Step Formula:

Step 1:

Net Reimbursement + Sequestered Funds  – Total Allowances

(Total Allowances = Beneficiary Count * Annual Per Patient Allowance)

As can be seen, this formula will increase the hospice-calculated cap overpayment by the full amount of sequestration (let’s call this new number the “Inflated Cap Overpayment”).

Step 2:

The MACs will then reduce the Inflated Cap Overpayment by the following amount:

(.02) * Inflated Cap Overpayment

The approximate effect as current sequestration policy is to require hospices to “pay back” sequestration on the portion of allowed revenue to total revenue.

There remains no legal justification to require hospices to “pay back” any portion of monies never paid to the hospice.

Example: Consider for FY 2014 a hospice with cap allowances of $1 million and actual paid revenue of $1.2 million.  Such a hospice will self-report cap liability of $200K.  This is in fact the correct amount.  The cap analysis should end here without any consideration of monies never paid to the hospice (sequestered funds).

Upon review, the MAC will note that this hospice was subject to additional sequestered revenue (never paid) of approximately $24,490 (($1.2 million/.98) – $1.2 million) (or, approximately (.02 * $1.2 million)).  The MAC will then adjust the cap calculation as follows:

$1.2 million (revenue) + $24,490 (sequestration) – $1 million (allowances) = $224,500 (rounded)

This new amount, $224,500 = the Inflated Cap Overpayment

The MAC will then reduce that amount by (.02) * ($224,500) = $4,490

Adjusted Cap Overpayment = $224,500 – $4,490 = $220,010

As can be seen, the bottom line here is that for this hospice the sequestration adjustment will overstate cap liability by $20,010, something only modestly less than the full amount of sequestration ($24,490).  The MAC will then issue a revised demand for $220,010, as opposed to the original $200,000.

CMS has released a spreadsheet with one completely unrealistic example:

Hospice has a beneficiary count of 3 (worth about $75K in allowed revenue) and actual revenue ($344K) + sequestration ($6K) of $350K.  Under this example, hospice would realize a better sequestration adjustment because eighty percent of its revenue is over the cap (roughly $275K/$350K), thus reducing its sequestration hit by more than eighty percent.

In our experience, the majority of cap hospices face cap liability of between 5-25% of total revenue.  In these more normal cases, hospices will be required to “pay back” between 75-95% of the sequestered funds they never received.  Ironically, the closer a hospice is to break even on the cap, the higher percentage of its sequestered funds it will have to pay back.

The CMS spreadsheet is designed to deceive, suggesting that the sequestration hit will be nominal and mostly offset by a generous reduction.  If your annual revenue is five times your cap allowances, this may be true, but you have bigger problems than sequestration.  If you are a typical cap hospice, the original spreadsheet will not be indicative of your actual experience.

We have modified the spreadsheet to add examples of how five typical cap hospices would fare with varying revenue and cap exposure in both 2013 and 2014.  (Spreadsheet (first example = CMS example (yellow section); Examples A-E (2013) and A1-E1 (2014) (green section) are more like the hospices we know) (we have added certain data to the original spreadsheet (also in green).)

The spreadsheet demonstrates that overall CMS intends to collect a substantial majority of sequestered funds.  Make no mistake: CMS intends to collect real money from this policy.

Next Steps For Hospices

Hospices need not take any further steps right now other than prepare and submit their FY 2014 self-reported cap calculations (excluding sequestration).

But when hospices do receive either FY 2013 or FY 2014 cap demands from their MACs, the demands will be overstated by a percentage of sequestration funds.

Hospices will then need to timely appeal those overstated demands.

Whatever the justification for this change to the cap calculation, the comforting fact remains that CMS must follow instruction from Congress.  If CMS is dissatisfied with a law, it can ask Congress to change the law.  Basic civics.  CMS cannot advance regulation or policy contrary to statute (or even, as in this case, contrary to their own regulations).

Fortunately, courts will hold CMS accountable.  In prior cases from 2007-2012, every court to consider our challenges (including Federal courts in CA, UT, OK, TX, NM, and DC) held the prior cap calculation method invalid as contrary to law (May 10, 2013 post).

Hospices must remain alert.  Congress has set up a system with short appeal times and cumbersome process.  CMS uses this appeal system to frustrate efficient review of CMS policy.

As a result, each hospice that receives an FY 2013 or FY 2014 cap overpayment demand from its MAC will have to file a timely PRRB appeal within 180 days of receipt of the FY 2013 and FY 2014 demands from the MAC.  This deadline is not subject to extension except with CMS consent (not likely).

CMS appears to be banking on the fact that a certain number of hospices will fail to challenge this new sequestration policy.  Even if a third of hospices fail to challenge the policy, CMS has made the rather cynical calculation that these efforts may prove worthwhile.

Because sequestered revenue as to any single hospice may be relatively modest, no single hospice on its own can justify both the administrative and Federal court litigation fees and costs that will be necessary to reverse this policy.  For these reasons, assuming this policy is adopted as now framed, we will be offering to represent hospices on an alternate fee and cost structure based upon a relatively low, fixed upfront fee plus a percentage of recovery.  There is no need to join this group until you receive either an overstated FY 2013 or revised and overstated FY 2014 cap demand from your MAC.