Hospices have become big business for private equity firms, raising concerns

Hospice care, once provided primarily by nonprofit organizations, has seen a significant shift in the past decade, with more than two-thirds of hospices nationwide now operating as for-profit organizations. The ability to turn a quick profit on caring for people in their final days of life is attracting a new breed of hospice owners: private equity firms.

This rapid growth has many hospice veterans worried that the original hospice vision may be fading, as capital investment firms’ demands for return on investment and the debt burden they impose on hospices are hurting patients and their families.

“Many of these transactions are driven by a quick profit motive,” said Dr. Joan Tenno, an associate professor at Brown University’s School of Public Health, whose work has focused on end-of-life care. Doing harm whose memory will hurt loved ones because they did not receive adequate care.”

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

Hospice is an easy business to start, with most of the care provided at home and the use of low-cost health workers. This allowed the entry of smaller hospices, many opened with the intention of selling within a few years. Private equity firms, backed by deep-pocketed investors, can then snap up a handful of small hospices, consolidating a chain and profiting from economies of scale in administrative and logistics costs, before selling to a larger chain or another private equity firm.

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

“Private equity saw a huge opportunity to take small businesses that lacked sophistication, lacked the ability to grow, lacked capital investment, and private equity said, ‘We can come in, put these things together, get standardization, get visibility. And be able to create a better footprint, better access and more opportunity,” said Steve Larkin, CEO of Charter Healthcare, a hospice chain owned by private equity firm Pharos Capital Group.

But he admits that not all those entering the hospice market have good intentions.

“It’s a little scary,” he said. “There are people who have no business being in health care” looking to invest in hospice.

A boom industry

With the US population aging rapidly, hospice has become a boom industry. Medicare — the federal insurance program for people age 65 and older, which pays for the vast majority of end-of-life care — spent $22.4 billion on hospice in 2020, according to a Medicare Payment Advisory Commission report to Congress. That’s up from $12.9 billion just a decade ago. The number of hospices billing Medicare increased from less than 3,500 to more than 5,000 during that time, according to the report.

But with limited oversight and generous payments, the industry is at high risk for exploitation. Agencies are paid a daily rate for each patient — this year, about $200 — which encourages for-profit hospices to limit spending to boost their bottom lines. For-profit hospices tend to hire fewer employees than nonprofits and expect to see more patients.

Many hospice nurses and social workers are booked into 30-minute appointment slots throughout the day, unable to spend as much time with patients as needed. For-profit hospices employ more licensed practical nurses than registered nurses, who are more skilled, and rely more on nurse’s aides to keep costs down. One study found that patients in nonprofit hospices were one-third as often seen by doctors or nurse practitioners in nonprofit hospices. A US Government Accountability Office analysis of federal data from 2014 to 2017 found that patients in for-profit hospice were less likely to have a hospice visit in the last three days of life.

“The main way to improve the bottom line is to reduce visits,” Tenno said.

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

For-profit hospices also enroll a different set of patients, preferring those who can stay in hospice. The highest costs are incurred in the first and last weeks of hospice care. Patients who enroll in hospice must undergo several assessments to develop a care plan and set their medications. In their final days, patients need additional services or medications to stay comfortable as the body shuts down.

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

This makes it particularly beneficial for dementia patients. A patient with Alzheimer’s disease or another form of dementia has a hard time predicting survival times of less than six months, the eligibility criteria for enrollment. For-profit hospices enroll those patients anyway and stand to profit as long as those patients live, Tenno said. They tend to enroll fewer cancer patients, whose prognosis is generally more predictable but who usually die early.

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

Nonprofit vs. For Profit

Rev. Ken Duggar has served as a chaplain in Denver for 13 years in both for-profit and non-profit hospices.

At a for-profit hospice, “the word was on the street [that] We were a dementia hospice because we had so many dementia patients,” Duggar said. “We discharged many patients because they had a long length of stay and no longer met the criteria.”

A third of a hospital’s patients die each week, he said, so agencies must market heavily to replace them. This leads some hospice families to make promises — like daily visits from a nurse aide — that they can’t keep.

“Some people see the dollars and they go, ‘Wow! This is a great opportunity to make some money,’ and they don’t realize that hospice is not easy,” Duggar said.

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

But if patients become too expensive, needing expensive care or drugs, hospice providers may turn them away, and the agencies may take them to hospital emergency rooms to get services they don’t want to pay for themselves, said Christy Whitney, former CEO of HopeWest, a nonprofit. Hospice serves five western Colorado counties.

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

Nonprofit patients had more nursing, social worker, and therapy visits. For-profit hospices, the report found, had longer patient stays, discharged more patients before death and were nearly seven times more profitable.

Other studies have shown that for-profit hospices have higher rates of complaints and shortages, provide fewer community benefits, and have higher rates of emergency room and other hospital use.

Brown said the financial pressure is worse for private equity-backed hospices than for other for-profit hospices, in part to finance hospice acquisitions. A private equity firm typically puts up only 10% to 30% of the acquisition cost itself, borrowing the rest. The acquired hospice not only has to generate profits to satisfy its private equity owners but is also saddled with debt costs.

Private equity firms typically look to flip their hospice investments within three to seven years.

In 2017, Webster Equity Partners purchased Bristol Hospice with 45 locations in 13 states for $70 million. Last year, the firm reportedly entertained a buyout offer of up to $1 billion for the hospice chain.

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

And quality control is weak. Hospitals have a financial interest in reporting quality metrics to the Centers for Medicare and Medicaid Services, but there are no penalties for poor performance tied to those metrics.

Cordot Casner, CEO of Colorado-based consulting firm National Hospice Analytics, said 17% of Colorado hospices are now owned by private equity, higher than the 13% rate he found nationally. When he looked at metrics reported on Medicare, he found that private equity-backed firms scored lower than average on self-reported quality metrics.

“It’s not a huge difference,” Kassner said. “Because the scores nationally are also tight and there’s not a lot of variation, we see any kind of difference, even if it’s a small percentage point.”

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

“They get paid like us, but they don’t take the same patients. They don’t provide covered services that should be covered by the per diem,” said Whitney, the former HopeWest CEO, who spoke to KHN before retiring in June. “They’ve built a shadow business that really has very little to do with the business I’m running. But they are called by the same name.”

Larkin, Charter’s CEO, lamented the lack of progress in standardized metrics as the hospice industry grew. But he said it wasn’t limited to private equity-backed or even for-profit hospice providers.

“There are bad companies everywhere,” Larkin said. “There are people who are misaligned, there are people who have bad intentions, there are companies who don’t focus on the right things.”

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