Hospice Cap Overpayment: What to Do When You Owe Medicare

Quick answer: A hospice cap overpayment is the part of your Medicare payments above a cap. You must repay it (42 CFR 418.308(d)). If you owe one, check the MAC's numbers and learn when interest starts. Ask for a repayment plan before the due date. Then calendar your appeal deadline: 180 days from the day you receive the determination.

The FY 2026 hospice cap is $35,361.44 per beneficiary, and the FY 2027 cap is $36,174.75 (CMS final rule fact sheet). The cap year that ended September 30, 2026 uses the FY 2026 amount.

You may have your own cap number, or a letter from your MAC (Medicare Administrative Contractor, the company that pays your Medicare claims). Either way, the clock is running. This guide covers what the letter means and how the overpayment is computed. It also covers how Medicare collects, how to appeal, and how to keep it from happening again.

Key takeaways

• What you owe: Payments above a cap are overpayments and must be refunded (42 CFR 418.308(d)).
• Two caps: The aggregate cap limits total payments per beneficiary. The inpatient cap limits inpatient days to 20% of total days (42 CFR 418.302(f)).
• Check the math first: Compare the MAC's figures to your own PS&R reports. These are the Medicare summaries of your claims and payments.
• Interest: CMS says interest begins on day 31 if a demand letter is not paid in full within 30 days.
• Repayment plan: You can ask for installments. CMS generally wants them done in three years or less (42 CFR 401.607).
• Appeal clock: 180 days from the day you receive the determination letter (42 CFR 405.1803, 405.1835).
• Appeal thresholds: $1,000 to under $10,000 for a MAC hearing. $10,000 or more for the Provider Reimbursement Review Board.
• An appeal does not stop recoupment under the cost report rule (42 CFR 405.1803(c)).
• Prevention: Track your cap room every month, not once a year.

Owe Medicare, or think you will? Book a free 20-minute call and bring your cap letter or your PS&R report.

What does a hospice cap overpayment mean for my agency?

Medicare limits what it pays your hospice in a cap year. There are two limits, and either one can create an overpayment.

The aggregate cap limits total payments per beneficiary. Your total cap is the cap amount times your number of beneficiaries (42 CFR 418.309). If your payments are higher than that total, the extra is an overpayment. For how the cap works in full, read our guide to the hospice aggregate cap.

The inpatient cap limits inpatient days. The rule says inpatient care days for Medicare patients may not exceed 20 percent of the total days those patients elected hospice care. Only days billed as general inpatient or respite count (42 CFR 418.302(f)). If you go over, the MAC recalculates what you should have been paid for inpatient care. You refund the difference.

The recalculation has four steps (42 CFR 418.302(f)(5)):

1. Divide the maximum allowed inpatient days by your actual inpatient days.
2. Multiply that ratio by the total inpatient payments the MAC made.
3. Multiply your inpatient days over the limit by the routine home care rate.
4. Add steps 2 and 3. That is your allowed inpatient payment.

Illustrative example (not a real hospice): Your Medicare patients had 4,000 hospice days. The 20 percent limit is 800 inpatient days. You billed 1,000. Inpatient payments were $600,000, and the routine home care rate is $200 a day.

You usually learn about an overpayment in one of two ways. You file your own cap and find you owe. Or your MAC sends its own determination. The self-filed cap is due five months after the cap year ends, and the overpayment is due when you file (42 CFR 418.308(c)). For the filing steps, see our post on the hospice cap report due date.

What to do: Find out which cap caused the overpayment. The fix for each is different.

What does the cap determination letter mean?

For a hospice, the MAC's "determination of program reimbursement" letter gives the results of the inpatient and aggregate cap calculations. The rule says this letter serves as the notice of program reimbursement, and the time to appeal starts when you receive it (42 CFR 405.1803(a)(3)).

The notice must also tell you about your hearing rights. You have 180 days from receipt to ask for a hearing (42 CFR 405.1803(b)). A demand letter may follow. The CMS fact sheet on overpayments lists what a MAC demand letter includes. That is how the overpayment was calculated, how interest will accrue, the repayment and recoupment options, rebuttal rights and your appeal rights.

Two dates matter right away. Write down the date you received the determination, because the appeal clock runs from that date. Then write down the date of the demand letter, because the payment and interest clock runs from that date.

Here is a quick, made-up example of the aggregate cap.

Illustrative example (not a real hospice):

What to do: Write down the cap amount, the beneficiary count and the payment total behind your number. Everything else starts there.

How do I check the MAC's numbers?

Do not assume the letter is right. The cap formula has three moving parts, and each can be wrong.

1. The cap amount. Make sure the MAC used the amount for the right cap year. A cap year ending September 30, 2026 uses $35,361.44, not $36,174.75.
2. The beneficiary count. For cap years ending October 31, 2012 and later, the rule is the patient-by-patient proportional method. It counts only your share of each patient's total days in all hospices and all years (42 CFR 418.309). For example, a patient who spent 40% of their hospice days with you counts as 0.4. Some hospices made a one-time election to use an older counting method. That method has its own rules.
3. The payments. Match the payments to your PS&R reports and your own records. Look for claims that were adjusted, voided or paid in another cap year.

A small counting error costs real money. In the example above, a count that is five beneficiaries too low raises your overpayment by $176,807.20 (5 x $35,361.44). The rule also says the cap can be adjusted later when data is updated. MedPAC adds that contractors may reopen a cap calculation for up to three years, and the timing varies. So the number can move after you file.

Recalculation checklist

Work through these in order. Save each step in a folder.

1. Confirm the cap year dates (October 1 to September 30) and the cap amount used.
2. Confirm the counting method on your cap form matches the report you used.
3. Order the PS&R reports for the cap year. See our guide on how to request and read your PS&R report.
4. Rebuild the beneficiary count, patient by patient. Fully pro-rated counts need each patient's days in all hospices.
5. Rebuild total payments for the cap year. Remove claims paid for other years. Add back claims you know were missed.
6. Recompute the aggregate cap: your count times the cap amount. Compare to payments.
7. Recompute the inpatient days limit: 20 percent of total days. Compare to billed inpatient days.
8. List every difference from the MAC with an amount and a source.
9. Send the differences to the MAC in writing, and keep proof of when you sent them.

What to do: Build a side-by-side sheet of the MAC's figures and yours. Send the MAC every difference in writing.

Documents to gather

• The determination of program reimbursement letter, with the date and the envelope or email showing when you received it.
• Any demand letter and every other MAC letter about this cap year.
• PS&R summary reports and the hospice beneficiary count report for the cap year.
• Your self-determined cap worksheet and the cap form you filed.
• Remittance advice and payment records for the cap year.
• A list of adjusted, voided and re-billed claims.
• Admission, discharge and revocation dates for patients with stays in more than one cap year or hospice.
• Inpatient day logs by level of care (general inpatient and respite).
• Your last 12 months of bank balances and cash forecast, in case you ask for a repayment plan.

How does Medicare collect, and when does interest start?

When a MAC sends a demand letter for an overpayment, the CMS fact sheet says you can:

• Pay in full right away.
• Ask for immediate recoupment (the MAC takes the money out of future claim payments).
• Send a rebuttal within 15 calendar days of the letter.
• Appeal.
• Ask for an extended repayment schedule, called an ERS.

The fact sheet says a rebuttal is not an appeal and does not stop recoupment. If you do nothing, the MAC starts standard recoupment on its own.

Interest is the part that surprises owners. CMS says interest begins on day 31 if you have not paid in full within 30 days of the demand letter. It is simple interest on the unpaid balance, charged for every 30-day period. Payments go first to interest, then to principal. The fact sheet also says an immediate recoupment request is not subject to that interest. The regulation adds that interest is waived if you resolve the amount in full within 30 days of the final determination (42 CFR 405.378).

If you do not pay and have no plan, the MAC sends an intent to refer letter. That comes 61 to 90 days after the first demand letter. Then the debt can go to the U.S. Treasury for collection (CMS MLN fact sheet).

Does an appeal stop recoupment? Under the cost report rule, no. 42 CFR 405.1803(c) says recoupment is made notwithstanding any request for hearing. A separate rule pauses recoupment during certain claim appeals. It says it does not apply to overpayments that come from a cost report determination appealed through the provider reimbursement process (42 CFR 405.379(b)(2)). A hospice cap determination follows procedures similar to those in 405.1803 (42 CFR 418.308(c)). Ask your MAC and your healthcare counsel how it treats your letter, and plan for the money to be taken while you appeal.

What to do: Put the day-30 date from the letter on your calendar today. Decide before then: pay, recoup, or request a plan.

Can I get a repayment plan?

You can ask, but it is not automatic. Under 42 CFR 401.607, CMS tries to collect in one lump sum. If you cannot pay, CMS may accept installments. It generally requires them to end in three years or less.

The rule defines two levels of hardship:

• Hardship: Your unpaid overpayments equal 10% or more of your Medicare payments for the period covered by your latest cost report. A contractor may grant an ERS of at least 6 months. Missing one payment is a default, and the full balance is due.
• Extreme hardship: A contractor may grant 36 months and up to 60 months.

CMS and the contractor cannot grant an ERS if they suspect bankruptcy, closing, leaving Medicare, or fraud or abuse. The MAC asks you for financial information, so have your statements ready.

Illustrative example: On the $755,424.00 overpayment above, 36 equal payments would be $20,984.00 a month before interest. That is $20,984 less cash each month for payroll and supplies. Run that against your forecast before you ask.

What to do: Build a 12-month cash forecast with the payments in it. Bring it to the call with your MAC.

Can I appeal a hospice cap determination?

Yes, in some cases. Under 42 CFR 418.311, a hospice that believes its payments were not properly determined may ask for review. It can go to the intermediary (the MAC) or the Provider Reimbursement Review Board (PRRB). The rules in 42 CFR part 405, subpart R apply. The route depends on the dollar amount:

Both deadlines can be extended only with a good cause showing. For a MAC hearing, good cause means extraordinary circumstances beyond your control, such as a fire or a strike, and a late request is dismissed otherwise (42 CFR 405.1813). Do not plan on an extension.

How the amount is counted. The amount in controversy is how much your total program reimbursement would go up if you win. You may combine issues from the same cap year. You may not combine different cap years, even if the same issue appears in each (42 CFR 405.1839).

What you can challenge. The regulation says CMS's methods and standards for setting the payment rates are not subject to appeal (42 CFR 418.311). So you can challenge the calculation facts, such as the beneficiary count or the payments counted. You cannot challenge the published cap amount.

Appeals are legal work. Involve healthcare counsel. We prepare the numbers, the PS&R reconciliation and the cash plan. Interest can keep running during an appeal in some cases (42 CFR 405.378(e)), so a repayment plan and an appeal are not an either-or choice.

What to do: Count 180 days from the day you received the determination. Call counsel in the first month, not the fifth.

How do I stop it from happening again?

The cap is a length-of-stay problem. MedPAC (the group that advises Congress on Medicare) estimated that about 28% of hospices exceeded the cap in 2023, up from about 23% in 2022. Each above-cap hospice exceeded it by about $410,000 on average. Average lifetime length of stay rose to 99.6 days in 2024, and the median was 19 days (MedPAC, March 2026).

You can see the problem coming if you track it monthly. Our simple setup has four lines:

1. Beneficiaries counted so far this cap year, with partial shares.
2. Cap room so far (that count times the cap amount).
3. Medicare payments received so far.
4. Payments as a percent of cap room.

Add a fifth line for the inpatient cap: inpatient days as a percent of total days, with 20 percent as the limit.

Pick a trigger, such as a payments line near 90%, that makes you stop and ask why. Then look at your longest stays, your live discharges and your admissions. Try the numbers in our hospice cap calculator. It is a planning tool, not a filing.

What to do: Set a date each month to update the lines. Share them with your clinical director.

When should I get help?

Get help in these cases:

• The overpayment is large enough that repaying it would strain payroll.
• The MAC's beneficiary count or payments do not match your records.
• You are inside the 180-day appeal window and have not started the numbers.
• You also have a cost report due. The cap and the cost report both use PS&R data and should agree.

The most common problem we see is timing. Owners learn their cap position at filing time, five months after the year ends, when nothing can change. A monthly view moves that moment up by a year.

The second problem is cash. A large repayment, plus interest, lands at the same time as payroll. A forecast built before the letter arrives gives you choices. Our hospice accounting services include cap tracking and the cash plan. We can prepare your hospice cost report and review your cap together, quoted on one call. If you want a finance lead for the plan itself, see our fractional CFO services.

Want a CPA to check the calculation and plan the repayment? Book a free 20-minute call.

Frequently asked questions

What is a hospice cap overpayment?

It is the part of your Medicare payments that is above a cap. Payments made to a hospice during a cap period that exceed the cap amount are overpayments and must be refunded (42 CFR 418.308(d)). There is an aggregate cap and an inpatient cap.

How long do I have to appeal a hospice cap determination?

The Board or contractor must receive your hearing request within 180 days after you receive the determination, unless you qualify for a good cause extension (42 CFR 405.1835(a)(3), 405.1811(a)(3)). For hospice caps, the clock starts when you receive the determination of program reimbursement letter (42 CFR 405.1803(a)(3)).

What dollar amount do I need to appeal?

For a contractor (MAC) hearing, the amount in controversy must be at least $1,000 but less than $10,000. For a Provider Reimbursement Review Board hearing, it must be $10,000 or more. You can combine issues only within the same cap year (42 CFR 405.1811, 405.1835, 405.1839).

Does an appeal stop Medicare from recouping the overpayment?

Not under the cost report rule. 42 CFR 405.1803(c) says recoupment is made notwithstanding any request for a hearing. The recoupment pause in 42 CFR 405.379 does not cover overpayments from a cost report determination appealed under the provider reimbursement process. Ask your MAC how it applies to your letter.

When does interest start on a Medicare overpayment?

CMS says interest starts on day 31 if you have not paid a demand letter in full within 30 days. Under 42 CFR 405.378, interest is waived if you fully resolve the amount within 30 days of the final determination. Ask your MAC how it applies to your letter.

Can I pay a hospice cap overpayment in installments?

You can ask. Under 42 CFR 401.607, CMS can accept installment payments and generally requires them to end in three years or less. An extended repayment schedule of at least 6 months is possible for hardship, and 36 to 60 months for extreme hardship. Approval is not automatic.

What documents do I need to check the MAC's cap numbers?

Gather the determination letter, your PS&R reports for the cap year, the beneficiary count report, your own cap worksheet, payment records and any adjusted or voided claims. Compare each figure to the MAC's and send every difference in writing.

How do I stop a cap overpayment from happening again?

Track your payments against your cap room every month, not once a year. Watch your length of stay and your admissions. A monthly tracker shows the problem months before the cap year ends.

Next step

Book a free 20-minute call with Christian Soriaga, CPA. We will check the calculation, map the repayment options and set up monthly cap tracking.

Sources

• eCFR, 42 CFR 418.302, Payment procedures for hospice care (inpatient cap, paragraph (f))
• eCFR, 42 CFR 418.308, Limitation on the amount of hospice payments (overpayments, filing, suspension)
• eCFR, 42 CFR 418.309, Hospice aggregate cap (cap formula and counting methods)
• eCFR, 42 CFR 418.311, Administrative appeals
• eCFR, 42 CFR 405.1803, Contractor determination and notice of amount of program reimbursement (hospice cap letter, recoupment)
• eCFR, 42 CFR 405.1811, Right to contractor hearing and 405.1813, Good cause extension
• eCFR, 42 CFR 405.1835, Right to Board hearing
• eCFR, 42 CFR 405.1839, Amount in controversy
• eCFR, 42 CFR 405.378, Interest charges on overpayments
• eCFR, 42 CFR 405.379, Limitation on recoupment
• eCFR, 42 CFR 401.607, Claims collection (installments and extended repayment schedules)
• CMS MLN Fact Sheet, Medicare Overpayments (July 2025) (demand letter, interest, options, collection steps)
• CMS, FY 2027 hospice wage index and payment rate update final rule fact sheet (cap amounts)
• MedPAC, March 2026 Report to the Congress, Chapter 10 (share of hospices over the cap, average overage, length of stay, cap reopening)

Last updated: October 2026.

This article is general information, not legal or tax advice.

Soriaga & Associates, LLC is a CPA firm founded in 1985 in Lisle, Illinois, serving home health, hospice, home care, wound care and dental providers nationwide. (630) 491-1268.