How Medicare Budget Neutrality Impacts Hospice Payments

August 31, 2022

Medicare reimbursement is the lifeblood of hospice providers, and a clear understanding of policies like budget neutrality can help elucidate the payment systems that keep their businesses running.

CMS is required by the Affordable Care Act to ensure that reimbursement rate changes are budget neutral. These reimbursements keep hospices in business, and to ensure this, they need a clear understanding of the payment systems. An earlier version of budget neutrality was phased out in 2016.

When CMS gives hospices a pay raise, hospices also must find a way to reduce costs by a comparable amount. These reductions occur within each service. For example, CMS wouldn’t cut hospital payments to increase rates for hospices.

“The intricacies of how they do those calculations are complex, but what’s important for hospices to know is that if we put money into one part of hospice reimbursement, we have to find money for it someplace else,” Mollie Gurian, vice president of home based and home- and community-based services policy at LeadingAge. “It has to be budget neutral relative to what would have happened if you kept the payments the same.”

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