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Hospice care, provided primarily by nonprofit agencies, has seen dramatic change over the past decade, with more than two-thirds of hospices nationwide operating as for-profit entities. The ability to make a quick profit by caring for people in their final stages of life is attracting a new breed of hospice owners: private equity firms.
That rapid growth has many hospice veterans worried that the original hospice vision may be fading, as those venture capital firms’ demands for return on investment and the debt burden hospices carry are hurting patients and their families.
“Most of these transactions are driven by quick profit,” said Dr. Joanne Teno, an assistant professor at Brown University’s School of Public Health whose work focuses on end-of-life care. “I am deeply concerned that not only the dying patient, but the family whose memory is cherished, will suffer from inadequate care.”
According to the 2021 analysis, the number of hospice agencies owned by private equity organizations rose from 106 in 2011 to 409 in 2019 out of 5,615 hospitals. During that period, 72% of private equity-acquired hospitals were nonprofit. And those trends only accelerated in 2022.
Hospice is an easy business to start using home health professionals that provide the most care and low cost. That allowed smaller hospitals to enter, many with the intention of selling within a few years. Private equity firms, backed by deep-pocketed investors, can then snap up a few smaller hospitals before selling them to a larger chain or another private equity firm, assembling a chain and reaping the benefits from economies in administrative and supply costs.
Private equity-owned hospice companies counter that their model favors growth through investment that benefits the people in their care.
“Private equity sees a great opportunity to take small businesses that don’t have complexity, don’t have growth potential, don’t have capital investment, and private equity “can go in there and combine these things, get standardization, visibility and be. A better footprint, better access and more opportunities,’” said Steve Larkin, CEO of Charter Healthcare, the hospice chain owned by private equity firm Pharos Capital Group.
But he admits that not all entrants into the hospice market are well-intentioned.
“It’s a little scary,” he said. “There are people who have no business in health care” who want to invest in hospice.
Boom industry
As the US population ages rapidly, hospice has become a boom industry. Medicare — the federal insurance program for people age 65 and older, which pays for most end-of-life care — spent $22.4 billion on hospice in 2020, the Medicare Payment Advisory Commission reported to Congress. That’s up from $12.9 billion a decade ago. During that period, the number of Medicare-paid hospitals increased from less than 3,500 to more than 5,000, the report said.
But with limited control and generous pay, the industry is at high risk of exploitation. Agencies are paid a daily fee for each patient — about $200 this year — which encourages for-profit hospices to limit spending to boost their bottom lines. For-profit hospices employ fewer staff than nonprofits and expect to see more patients.
Many hospice nurses and social workers are scheduled for 30-minute appointments throughout the day, unable to spend more time with patients if necessary. For-profit hospices employ more licensed practical nurses than registered nurses, are more skilled, and rely on nursing assistants to keep costs down. One study found that patients in for-profit hospitals saw about one-third as many doctors or nurse practitioners as in non-profit hospitals. The US Government Accountability Office An analysis of federal data from 2014 to 2017 found that patients in for-profit hospitals were less likely to have any hospice visits in the last three days of life.
“The main way to keep the bottom line looking good is to reduce visits,” Tenno said.
According to the Medicare Payment Advisory Commission, for-profit hospices accounted for 19 percent of Medicare profits in 2019, compared with 6 percent for nonprofit hospices.
For-profit hospices also enroll a different set of patients, selecting those with longer hospital stays. Most costs are incurred during the first and last week of hospice care. Patients enrolled in hospice must go through several evaluations to develop a care plan and prepare their medications. In the final days, when the body begins to shut down, patients often seek additional services or medications to feel comfortable.
“So the sweet spot is in the middle,” said Robert Tyler Brown, assistant professor of public health sciences at Weill Cornell Medical College.
This is especially beneficial for dementia patients. Doctors have a hard time predicting that a patient with Alzheimer’s disease or other dementias has less than six months to live, the eligibility criteria for registration. For-profit hospitals enroll those patients anyway, Teno said, and stand to make a profit the longer those patients live. Their prognosis is generally more predictable, but they tend to register fewer cancer patients who die sooner.
“It’s a very simple business model,” Teno said. “Go to assisted living facilities and nursing homes, and it’s a one-stop shop.”
Non-profit vs. for profit
Rev. Ken Dugger worked as a chaplain at both nonprofit hospitals in Denver for 13 years.
At one for-profit hospice, “Word was on the street. [that] “We were a dementia hospice because we had a lot of dementia patients,” Dugger said.
A third of hospice patients die every week, so agencies must market aggressively to replace them, he said. That leads some hospitals to make promises to families — like daily visits from a nurse’s aide — that they can’t keep.
“Some people see a dollar and go, ‘Wow! It’s a great opportunity to make some money here, and they don’t understand that hospice is not easy,” Dugger said.
For-profit agencies counter that their nonprofit counterparts are expanding their reach by targeting cancer patients and serving patients with other diagnoses.
But if patients are too expensive, requiring expensive care or drugs, hospice providers may turn them away, and the agencies may take them to hospital emergency rooms for services they don’t want to pay for themselves, said Christy Whitney, former CEO of HopeWest. A non-profit hospice serving five western Colorado counties.
A 2019 report by Milliman Consulting found that 31 percent of nonprofit patients have cancer and 15 percent have dementia. In for-profit hospitals, 22% of patients have cancer and 22% have dementia, according to the report, sponsored by the National Partnership for Hospice Innovation, a nonprofit hospice trade group.
Nonprofit patients had more visits from nurses, social workers, and physicians. For-profit hospitals, the report found, had longer patient stays, discharged more patients before they died and had a nearly sevenfold increase in profit margins.
Other studies have found that for-profit hospitals have higher rates of complaints and malpractices, fewer community benefits, and higher emergency department and other hospital utilization.
Brown said the financial pressures on private equity-backed hospitals are worse than on other for-profit hospitals, in part because of the financial management of hospice purchases. A private equity firm typically puts down only 10% to 30% of the purchase cost, borrowing the rest. The resulting hospice not only generates profits to satisfy the private owners, but is also tied to the costs of the loan.
Private equity firms typically look to turn around their hospice investments over three to seven years.
In the year In 2017, Webster Equity Partners purchased Bristol Hospice with 45 locations in 13 states for $70 million. Last year, the firm reportedly handled acquisitions of hospice chains worth up to $1 billion.
Because hospitals are inspected every three years, some buy and sell without state or federal inspection — and sometimes without regulators even knowing about the sale.
And quality control is poor. Hospices have a financial incentive to report quality measures to the Centers for Medicare and Medicaid Services, but there are no penalties for poor performance related to those measures.
According to Cordt Casner, CEO of Colorado-based consulting firm National Hospice Analytics, 17% of Colorado hospitals are now owned by private equity, higher than the national average of 13%. Looking at the metrics reported for Medicare, he found that private equity-backed firms scored below average on self-reported quality metrics.
“It’s not a big difference,” Kasner said. “Because nationally the scores are tight and there’s not a lot of variation, even if it’s a percentage point smaller, we’re going to look at any kind of difference.”
Many nonprofits believe that private equity-backed and other for-profit hospitals are giving the industry a bad name.
“They get paid the same as us, but they don’t take the same patients. They don’t provide covered services that should be covered by the capitation fee,” said Whitney, the former HopeWest CEO. She spoke with KHN before her retirement in June. “They’ve developed a very small shadow business with the business I run. But they have the same name.”
Charter CEO Larkin laments the lack of improvement in quality measures as the hospice industry continues to grow. But that’s not limited to private equity-backed or for-profit hospice providers, he said.
“There are bad companies everywhere,” Larkin said. “There are wrong people, there are people with bad intentions, there are companies that don’t pay attention to the right things.”
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