Memo to MedPAC: You've Got it Wrong on Hospice
Every year, we report the latest recommendations for hospice payment updates from the Medicare Payment Advisory Commission (MedPAC). And every year, the recs make me want to slam my head against my desk.
The commission for a few years running has called on Congress to freeze payment rates for hospice providers, allowing for no increases in 2027 and perhaps beyond. While Congress to date has not acted on these recommendations, the possibility exists that they could. This would threaten the survival of many hospices.
But even if Congress never acts on MedPAC’s recommendations, the commission’s reports send a message that I believe is damaging for the industry, in the picture they paint about the state of play for hospice providers and the benefits that hospice delivers for the health care system as a whole.
MedPAC considers hospices to have a rosy financial outlook, enough to justify the elimination of payment increases in coming years. The commission reported that Medicare beneficiaries have ample access to care and that quality of care remains stable based on publicly reported metrics.
MedPAC also contends that hospices have sufficient access to capital and points to an 8% average margin as a positive indicator. However, the commission’s own data show that providers are undergoing margin compression, with nonprofits bearing the brunt.
The average Medicare fee-for-service margin for hospices fell to 8% in 2023, down from 9.8% in 2022 and 14.2% in 2020, according to MedPAC.
Among for-profit providers, the average 2023 margin was 13.7%, whereas nonprofits in aggregate showed a loss at -1.3%. These numbers exclude cap overpayments and non-reimbursible costs.
These declines occurred during a time of record-breaking demand. Hospice utilization in 2024 reached the highest rate it has ever seen at 53%, MedPAC reported. More than 1.8 million Medicare decedents received hospice care that year for a total of 148 million days of service.
So hospices are caring for more patients but making less money. In that scenario, the likely culprit is rising costs. Hospices and the national trade organizations are reporting that providers’ costs are going up, largely due to inflation and labor expenses. As the nation at large contends with a crisis of affordability, hospices are also feeling the squeeze.
A wide range of stakeholders insisted that the 2.6% pay raise that hospices received in 2026 was insufficient due to proliferating expenses. The falling margins support this position. Hospices are doing more with less and need greater financial support to sustain the access to care that MedPAC lauds.
Flaws and limitations also exist in the methodology that MedPAC uses to determine its recommendations.
First, the commission by necessity uses aggregated national data. This does not account for differences in hospices’ financial positions in individual markets. All health care is local, and hospices in some locales may have higher costs than others or lower rates due to wage adjustments or other factors.
The aggregated data is also skewed by outliers. Some large for-profits see higher, double-digit margins, according to MedPAC. Mathematically, this can lead to a higher average percentage that doesn’t necessarily reflect the experience of the lion’s share of providers.
Also, the data they use mostly pertains to for-profit hospices, MedPAC acknowledges in its annual reports to Congress that it lacks data on the financial performance of nonprofits, which represent a large contingent of the hospice community.
The numbers are also old. The commission applied 2023 data to make its recommendations for 2027. For 2023, they used 2019 data, and so on. The bottom line is that the numbers they are using do not accurately reflect the realities on the ground for hospices today, rather than three years ago.
Of course, it does take time to collect and analyze data, especially so much of it. MedPAC truly may not have a better option or access to more current numbers. However, this limitation spurs questions about the validity of MedPAC’s methodology.
Finally, MedPAC only has data from traditional Medicare and doesn’t reflect the activity of other payers like private insurance or Medicaid. This may have only a small impact because most of hospice’s revenue does come from the traditional Medicare benefit, but nevertheless, gaps exist in the data.
We, as a nation, do need to bring down our preposterously high health care spend. The nation’s total estimated health expenditures in 2024 saw the fastest rate of growth since 1991, the U.S. Centers for Medicare & Medicaid Services (CMS) reported.
In 2024, U.S. health care spending reached $5.3 trillion, up 7.2% year over year. In 2023, those expenditures rose by 7.4%. The 2024 amount represents a cost of $15,474 per person and represents 18% of the U.S. economy. The rate of spending in 2024 grew faster than the nation’s gross domestic product, which rose by 5.3%.
But hospice is not the place to pinch pennies.
Whether we are talking about the commission recommendations or CMS’ annual payment rates, the part that frustrates me is this: Better support for hospices would generate greater savings for the health care system.
Hospice care saves Medicare roughly $3.5 billion for patients in their last year of life, according to a joint report from the National Hospice and Palliative Care Organization (NHPCO), the National Association for Home Care & Hospice (NAHC) and NORC at the University of Chicago. NHPCO and NAHC have since merged into the National Alliance for Care at Home.
With a higher rate, hospices could hire more staff. They could care for more patients. They could generate greater savings. Slashing or freezing their payments would be counterproductive, could reduce access to care and thus push up costs.
I confess, I don’t know what MedPAC can do to address the limitations in its data. Even in my own work as a journalist, we can only act on the best information available at the time. MedPAC is not a villain, but the commission is wrong. Hospices need a payment update, and they need more than 2.6%.