Hospices have become big business for private equity firms, raising concerns about end-of-life care

Hospice care, once provided primarily by for-profit agencies, has undergone a remarkable transformation over the past decade, with more than two-thirds of hospices nationwide now operating as for-profit organizations. The ability to make a quick profit from caring for people in their final days of life is attracting a new breed of hospice owners: private equity firms.

That rapid growth has many hospice veterans worried that the original vision for hospice may be fading, as these companies’ demand for capital investment for ROI and the debt burden hospices are forced to take on hurts patients and their families.

“A lot of these transactions are driven by the motive of making a quick profit,” said Dr. Joan Teno, an assistant professor at Brown University’s School of Public Health whose work focuses on end-of-life care. “I am very concerned that you are hurting not only the dying patient but also the family whose memory will be of a loved one suffering because they did not receive adequate care.”

According to a 2021 analysis, the number of hospice agencies owned by private equity firms grew from 106 in 2011 to 409 in 2019, out of a total of 5,615 hospices. During that time, 72% of hospices acquired by private equity were non-profits. And these trends have only accelerated in 2022.

Hospice is an easy business to start, as most care is provided at home and uses lower-cost healthcare workers. This allowed the entry of smaller hospices, many of which were started with the intention of being sold within a few years. Private equity firms, backed by deep-pocketed investors, could then snap up a handful of smaller hospices, create a chain and profit from economies of scale in administrative and supply costs before selling to an even larger one. chain or other private equity firm.

Private equity-owned hospice companies counter that their model supports growth through investment, which benefits the people they care for.

“Private equity sees a huge opportunity to take on smaller businesses that don’t have the complexity, don’t have the ability to grow, don’t have the capital investment, and private equity is saying, ‘We can get in there, put these things together, get standardization, get visibility and to be able to create a better footprint, better access and more opportunities,” said Steve Larkin, CEO of Charter Healthcare, a hospice chain owned by private equity firm Pharos Capital Group.

But he acknowledged that not everyone who enters the hospice market has the best of intentions.

“It’s a little scary,” he said. “There are people who don’t have jobs in health care” who want to invest in hospice.

Boom industry

As the US population ages rapidly, hospice care has become a booming industry. Medicare — the federal insurance program for people 65 and older that pays for most end-of-life care — spent $22.4 billion on hospice in 2020, according to a report by the Medicare Payment Advisory Commission to Congress. That’s up from $12.9 billion just a decade earlier. The number of hospices billing Medicare during that time has grown from fewer than 3,500 to more than 5,000, according to the report.

But with limited oversight and generous payouts, the industry is at high risk of exploitation. Agencies are paid a daily rate for each patient — this year about $200 — which encourages for-profit hospices to cut costs to boost their bottom line. For-profit hospices typically employ fewer staff than nonprofits and expect them to admit more patients.

Many hospice nurses and social workers are booked into 30-minute sessions throughout the day, unable to spend more time with patients if needed. For-profit hospices employ more licensed practical nurses than registered nurses, who are more skilled and rely more on nurses to further reduce costs. One study found that patients in for-profit hospices saw doctors or nurse practitioners one-third more often than those in for-profit hospices. The U.S. Government Accountability Office found in an analysis of federal data from 2014 to 2017 that for-profit hospice patients were less likely than for-profit hospice patients to have received a hospice visit in the past three days of your life.

“The main way to make the bottom line look good is to reduce visits,” Teno said.

According to the Medicare Payment Advisory Commission, for-profit hospices had Medicare profit margins of 19% in 2019, compared to 6% for for-profit hospices.

For-profit hospices also enroll a different set of patients, favoring those likely to stay in hospice longer. Most costs are incurred during the first and last weeks of hospice care. Patients who enroll in hospice must go through several evaluations to develop a care plan and determine their medications. In their final days, as the body begins to shut down, patients often need additional services or medications to keep them comfortable.

“So the sweet spot is kind of in the middle,” said Robert Tyler Brown, assistant professor of population health sciences at Weill Cornell Medical College.

This makes dementia patients particularly profitable. Doctors have a harder time predicting whether a patient with Alzheimer’s disease or another form of dementia has less than six months to live, the eligibility criteria for inclusion. For-profit hospices enroll these patients anyway, Teno said, and will make a profit the longer those patients live. They tend to include fewer cancer patients, whose prognosis is generally more predictable, but who tend to die earlier.

“It’s a very simple business model,” Teno said. “Go to assisted living centers and nursing homes and you can do one-stop shopping.”

Nonprofit vs. Nonprofit

The Rev. Ken Dugger has served as a chaplain in Denver for 13 years in for-profit and for-profit hospices.

At one for-profit hospice, “the word was on the street [that] we were the dementia hospice because we had so many patients with dementia,” Dugger said. “We ended up discharging a lot of patients because they had a long stay and no longer met the criteria.”

He said about a third of hospice patients die each week, so agencies must invest heavily to replace them. This leads to some hospices making promises to families — like daily visits from a nurse’s aide — that they can’t keep.

“Some people see dollars and think, ‘Wow! This is a great chance to make some money here,’ and they don’t understand that hospice is not easy,” Duggar said.

For-profit agencies counter that their for-profit counterparts have cornered the cancer patient market and are expanding access by serving patients with other diagnoses.

But if patients become too expensive, requiring expensive care or drugs, hospice providers can discharge them and take them to a hospital emergency room to get services the agencies don’t want to pay for themselves, said Christy Whitney, former CEO of HopeWest, a nonprofit hospice serving five western Colorado counties.

A 2019 report by consulting firm Milliman found that 31 percent of patients at nonprofits had cancer, while 15 percent had dementia. In for-profit hospices, 22 percent of patients had cancer and 22 percent had dementia, said the report, funded by the National Partnership for Hospice Innovation, a nonprofit hospice trade group.

Patients in nonprofits had more visits to nurses, social workers, and therapy visits. The report found that for-profit hospices had longer patient stays, discharged more patients before death and had profit margins nearly seven times higher.

Other studies have found that for-profit hospices have higher rates of complaints and deficiencies, provide fewer benefits to the community, and have higher rates of emergency room and other hospital services.

Brown said the financial pressure is worse for private equity-backed hospices than for other for-profit hospices, in part because of the way hospice acquisitions are financed. A private equity firm will typically contribute only 10% to 30% of the acquisition price itself, borrowing the rest. Not only does the acquired hospice need to generate profits to satisfy its private equity owners, but it is also saddled with the cost of the loan.

Private equity firms typically aim to turn around their hospice investments in three to seven years.

In 2017, Webster Equity Partners bought Bristol Hospice with 45 locations in 13 states for $70 million. Last year, the firm reportedly considered offers to buy the hospice chain worth $1 billion.

Because hospices are inspected every three years, some are bought and sold without state or federal inspection — and sometimes without regulators even knowing about the sale.

And quality control is weak. Hospices have a financial interest in reporting quality indicators to the Centers for Medical Care and Medical Services, but there is no penalty for poor performance associated with these indicators.

Cord Kasner, CEO of Colorado-based consulting firm National Hospice Analytics, said 17 percent of hospices in Colorado are now privately owned, higher than the 13 percent rate he found nationally. When he looked at the metrics reported to Medicare, he found that private equity-backed firms scored lower than average on self-reported quality measures.

“It’s not a big difference,” Kasner said. “Because the national scores are also tight and there’s not a lot of variation, we look at any difference, even if it’s a percentage point less.”

Many nonprofits believe that private equity-backed and other for-profit hospices are giving the industry a bad name.

“They get the same as us, but they don’t see the same patients. They’re not providing the covered services that need to be covered to get paid per diem,” said Whitney, the former HopeWest CEO who spoke to KHN before retiring in June. “They’ve developed a kind of shadow business that really has very little to do with the business I run. But they are called by the same name.”

Larkin, Charter’s chief executive, lamented the lack of progress in quality metrics as the hospice industry has grown. But he said it’s not limited to private equity-backed or even for-profit hospice providers.

“There are bad companies everywhere,” Larkin said. “There are people who are not aligned, there are people who have bad intentions, there are companies who are not focused on the right things.”

This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health policy research organization not affiliated with Kaiser Permanente.

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