APU Penalty Exposure

APU Penalty Exposure is a hospice's financial risk of losing 4 percentage points from its Medicare Annual Payment Update (APU) for failing to meet Hospice Quality Reporting Program (HQRP) requirements in a given reporting year (FY 2026 Hospice Final Rule fact sheet)^[1]. The penalty is a reduction to the annual market basket update, not a flat rate cut.

Each fiscal year CMS sets a hospice payment update, and non-compliant hospices receive that update minus 4 percentage points (FY 2026 Hospice Final Rule fact sheet)^[1]. For FY 2026 (final), CMS set the hospice payment update at 2.6 percent, an estimated $750 million increase; a non-compliant hospice instead receives 2.6 percent minus 4 percentage points, a net reduction. For FY 2027 (final), the finalized update is 2.3 percent; a non-compliant hospice receives 2.3 percent minus 4 percentage points, a net cut of approximately 1.7 percent from prior-year rates (CMS FY2027 final rule fact sheet)^[2]. Because the penalty is subtracted from the update, it can push the net adjustment below zero, meaning non-compliant hospices can be paid less than the prior year. The penalty rose from 2 percentage points to 4 percentage points beginning with the FY 2024 APU. Compliance requires meeting both the HOPE (formerly HIS) submission requirements and the CAHPS Hospice Survey requirements; failing either causes the reduction (Getting Started with the HQRP, January 2026, https://www.cms.gov/files/document/getting-started-hqrp-jan-2026-pdf.pdf).

The penalty is larger than the update it is subtracted from. In FY 2026 the update is 2.6 percent and the penalty is 4 points, so non-compliance does not merely erase the annual increase — it moves payment backward while compliant competitors move forward, a swing of roughly 6 percentage points against the non-compliant hospice (FY 2026 Hospice Final Rule fact sheet)^[1]. That gap compounds every subsequent year off a lower base, and it hits per-diem revenue across the entire Medicare census, not a subset of claims.