Hospice Cap Overpayments: How the Aggregate Cap Is Calculated

Every hospice participating in Medicare operates under two payment ceilings. The aggregate cap, under 42 CFR 418.309, limits total Medicare payments per beneficiary for the cap year, October 1 through September 30. The inpatient cap, under 42 CFR 418.302, limits how many days can be billed as general inpatient care or respite care. A hospice that exceeds either limit owes the difference to Medicare, and the Medicare Administrative Contractor (MAC) that calculates the overpayment uses that formula to set the amount owed. Cap exposure is a distinct front within Medicare audit defense, built on a formula rather than a sampled finding.

The Aggregate Cap Formula

The MAC calculates a hospice's aggregate cap by multiplying the cap amount for the cap year by its Medicare beneficiary count, under 42 CFR 418.309(a). The base cap was set at $6,500 in 1983 and is adjusted annually by the hospice payment update percentage for cap years after September 30, 2016. For the cap year running October 1, 2026 through September 30, 2027, CMS set the amount at $36,174.75, up from $35,361.44, a 2.3% increase (MLN Matters MM14557, September 30, 2026). Payments exceeding that product become a recoupment the MAC collects.

Counting Beneficiaries: the Proportional Method

How a beneficiary counts toward that multiplication is where disputes start. Through cap years ending October 31, 2011, MACs counted each beneficiary once, credited to a single hospice, under a streamlined method. For cap years from October 31, 2012 on, 42 CFR 418.309(c) and (d)(2) requires the patient-by-patient proportional method instead: a hospice is credited only with the fraction of a patient's total hospice days that the patient actually spent with that hospice. A patient who used two hospices in the same cap year contributes a fractional count to each. A missed transfer changes that fraction, and the cap the MAC applies.

The Inpatient Cap: a Separate 20 Percent Limit

The aggregate cap is not the only ceiling a hospice tracks. Under 42 CFR 418.302, the MAC limits what percentage of total patient days can be billed as inpatient days, counting only general inpatient care (GIP) and respite care, to 20 percent of all hospice days for the cap year. The limit applies across the hospice's entire Medicare population, not patient by patient, so high GIP or respite use among a small group of patients can push the whole population over the threshold. Days billed above it are not covered, and the MAC recoups that payment separately.

A Different Kind of Overpayment Than a RAC Audit

A RAC or UPIC audit can sample a limited number of claims, find an error rate in that sample, and use extrapolation to project the error across the full lookback period. The hospice caps work differently: the MAC applies the formula in 42 CFR 418.309 and 418.302 to the hospice's actual beneficiary and day counts for the full cap year, not a sample. That removes extrapolation as a point of attack, but the figure in a cap demand letter traces directly to specific beneficiaries and specific days, which is where an appeal has to start.

A hospice cannot shrink a cap overpayment by disputing a sample. The figure in the demand letter is built from the hospice's own beneficiary and day counts for the cap year, and a cap appeal has to challenge those counts directly.

Appeal Options After the MAC's Demand Letter

A hospice that disputes a cap calculation can appeal the MAC's determination to the Provider Reimbursement Review Board (PRRB), the HHS tribunal that reviews reimbursement disputes. Under 42 CFR 405.1835 and 405.1837, the hospice must file within 180 days of receiving the MAC's final determination, and the amount in controversy must be $10,000 or more individually, or $50,000 or more for a group. The PRRB track is separate from the administrative law judge and Medicare Appeals Council process used for individual claim denials. The appeal has to identify, for each disputed count, why the MAC's number is wrong.

Why Early Legal Counsel Is Critical

It is critical that hospices promptly retain experienced healthcare defense counsel upon receiving a cap overpayment demand, an audit notice, or any other government inquiry. Early legal intervention can protect the hospice's rights, ensure an accurate response to the MAC's determination, avoid inadvertent admissions, preserve relevant defenses, and allow counsel to communicate with the MAC and the PRRB on the hospice's behalf. Delaying legal representation can significantly affect the outcome of a cap dispute and expose the hospice to unnecessary risk.

How Health Law Alliance Can Help

Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience. The firm defends hospices nationwide against benefit cap overpayments and other Medicare audit exposure. If your hospice received a cap overpayment demand, contact us for a free, confidential consultation through our hospice and home health audit defense page.