What Happens If Your Hospice Agency Exceeds the Medicare Cap?

Exceeding the Medicare hospice cap isn’t just a billing error. It can trigger major financial stress and compliance headaches. If you're trying to figure out what happens if you exceed your hospice cap & how real-life billing plays into your hospice cap, we’ve got you covered.

We get it: You’re managing patient care, staffing, and compliance. The last thing you need is an unexpected repayment demand from Medicare. At The Home Health Consultant, we’ve helped hundreds of hospice agencies stay compliant and navigate Medicare regulations with practical tools and tailored strategies.

In this article, we’ll walk you through:

• What the hospice cap is (in plain English) & how much the 2024 & 2025 caps are
• Real-world scenarios that affect your cap and billing
• How the hospice cap applies to new agencies
• Common mistakes that cause agencies to exceed the cap 
• What happens if you exceed the hospice cap
• How the hospice inpatient cap affects your agency
• Simple strategies for tracking and avoiding overages

By the end of this article, you’ll know everything you need about exceeding the hospice cap.

What Is the Hospice Aggregate Cap and Why Does It Matter?

The hospice aggregate cap is a yearly limit on how much Medicare will pay your agency per beneficiary. Your agency gets paid daily per patient—but at the end of the cap year, those daily payments are totaled and compared to the cap.

If Medicare paid you more than the allowed amount, you must repay the difference.

• Cap year: October 1 to September 30
• 2024 cap: $33,494.01 per beneficiary
• 2025 projected cap: $34,364.85 (based on CMS's typical inflation adjustment)

This repayment isn’t optional. If you exceed the cap, Medicare expects that money back—fast. If you want a more in-depth explanation of how the hospice cap is calculated, check out our article below for a breakdown.

To put it simply, you’re paid daily for each hospice patient.

If a patient stays on service longer than six months, every extra day increases your risk of going over the cap.

Pro Tip: Some agencies build a financial buffer to cover long-stay patients. If you don’t already, now is the time to start.

Real-Life Scenarios That Affect Your Hospice Cap Liability

Understanding how different patient journeys impact your cap can help you plan better.

1. What Happens If Your Hospice Patient Dies Early? (Before 6 Months)

• You’re paid only for the days of care provided.
• Any remaining payment that your agency would have received if the patient lived the full 6 months, counts as a credit towards your end of year cap.
• Because payments are well under the cap, this scenario usually helps offset your longer-stay patients.

What Happens If Your Hospice Patient Dies Late? (After 6 Months)

• You receive full per diem payments.
• But the longer the stay, the more likely those payments exceed the cap amount. Too many of these can trigger repayments.

What Happens If Your Hospice Patient Cancels Services?

• If canceled before 6 months: You keep what you were paid.
• If canceled after 6 months: You may need to return payments that exceed the cap.

What Happens If Your Patient Transfers to Another Hospice?

• The cap gets split between both agencies.
• Requires a timely and accurate Notice of Change (NOC) form.
• After 6 months, the original hospice must share face-to-face encounter documentation.
• The cap doesn’t reset—benefit periods carry over.

Hospice Patient Transfer Billing Adjustment Example:

Let’s say you cared for a patient last year, but they transferred this year. If the transfer wasn’t handled correctly (or at all), Medicare may reopen last year’s cap report to recalculate. That could mean:

• You owe money back
• Another agency gets credited for part of your paid services

So, like everything else in this industry, documentation is essential to maintaining compliance.

How Does the Hospice Cap Apply to New Agencies?

If you’re newly certified for Medicare, your cap calculation period will not follow the standard October-to-September calendar at first.

CMS requires a minimum of 12 months before doing your first cap check.

Example:

• Certified: March 1, 2024
• Initial cap calculation period: March 1, 2024 – February 28, 2025
• First routine cap year: October 1, 2024 – September 30, 2025

CMS needs a full 12 months of data to evaluate whether you were paid above or below the cap.

Common Mistakes That Cause Agencies to Exceed the Cap

• Not budgeting for long-stay patients
• Failing to submit or track transfer paperwork correctly
• Misunderstanding the difference between calendar year and cap year
• Assuming the cap resets when a patient switches agencies

These aren’t just technical errors—they can lead to tens to hundreds of thousands of dollars in repayments, depending on agency size.

What Happens If You Exceed the Hospice Cap?

If you’re over, your Medicare Administrative Contractor (MAC) will notify you with an official repayment request.

Here’s what happens next:

• You have about 5 months to repay the overage.
• If you miss the deadline, Medicare can withhold future payments and/or add interest charges.
• Frequent or large overages may trigger surveys and ADR’s. Surveyors could question your admissions and discharges.

Quick Fixes That Help:

• Tighten recertification reviews
• Monitor length of stay and proactively plan discharges
• Train physicians on Medicare eligibility guidelines

Ultimately, agencies with a large cap overage need to re-evaluate their patient intake methods. By doing this, they make sure they are not admitting patients who are either not eligible, or right on the edge of eligibility. 

Taking patients who are right around 6 months prognosis poses a great risk to hospice agencies that already amassed a hefty cap. This makes it all the more important to have a system in place for periodically reviewing your internal processes.

What Is the Hospice Inpatient Cap: What If You Go Over 20%?

There’s a second limit many forget: the inpatient 20% cap.

If your inpatient care days exceed 20% of total patient days:

• Medicare retroactively disallows those extra inpatient payments
• You must refund them
• Those days are then treated like routine home care, with lower reimbursement rates

Even if you mostly serve home-based patients, stay cautious if you partner with inpatient facilities. 

Further, make sure all your patients, and their caregivers, understand that once a person is in hospice care, they are declining restorative treatment. This includes going to the hospital during an emergency. Social workers should constantly evaluate for patients and families that may not understand these requirements. This includes patients and family that are still or have not fully processed the situation.

How to Stay Under the Hospice Cap and Out of Trouble

While it is harder to exceed your hospice cap than you may think, you still want to take every precaution to save yourself the headache. Here are a few practical steps you can take to hold your agency accountable for your cap:

1. Use Cap Tools

• Ask your biller or software vendor about built-in cap calculators
• Even a spreadsheet works if updated consistently

2. Monitor Lengths of Stay

• Review all patients at day 150
• Flag anyone approaching 180 days
• Make sure documentation supports continued eligibility
• Consider discharging patients whose condition has not declined, but have surpassed the 6 month mark

3. Educate Your Staff & Referral Partners

• Emphasize the 6-month life expectancy guideline
• Avoid early referrals that skew your cap

4. Compare Your Agency Against National Averages

• Only ~6% of patients stay over 6 months nationally
• If your percentage is higher, investigate why
• Use CMS, MedPAC, or NHPCO data for reference

5. Evaluate Cap Status Regularly

• Check your cap balance quarterly
• If you’re getting close to or have exceeded the allowable cap, stop accepting cases that are exactly 6 months prognosis. Depending on the situation, they may not be risky for your agency to take at that time. 

6. Consider Alternative Arrangements or Services

• Develop relationships with home health agencies that can take on care until the patient declines further, when applicable.
• Consider adding a palliative care program to take patients who are almost eligible, or barely just eligible. 

Thousands of agencies operate successfully within Medicare’s rules. You can too. With the right tracking tools, internal education, and a proactive mindset, you’ll avoid costly surprises. And you get to stay focused on what matters most: compassionate care at the end of life. 

For more information on how to keep your hospice running smoothly, check out our article on what to expect in your next hospice survey below.

*This article was written in consultation with Mariam Treystman.

*Disclaimer: The content provided in this article is not intended to be, nor should it be construed as, legal, financial, or professional advice. No consultant-client relationship is established by engaging with this content. You should seek the advice of a qualified attorney, financial advisor, or other professional regarding any legal or business matters. The consultant assumes no liability for any actions taken based on the information provided.