Private equity-owned hospice company agrees to pay $4.2 million settlement

On May 1, 2024, the Department of Justice (DOJ) announced it had reached a $4.2 million settlement agreement with private equity-owned home health and hospice company, Elara Caring, to resolve allegations that it defrauded Medicare in violation of the False Claims Act over six years.[1] The company has been private equity-owned since 2010.

The False Claims Act (FCA) is a federal law that establishes liability for individuals or companies that defraud governmental programs.[2] It is commonly used to prosecute health care companies that defraud Medicaid, Medicare, and related programs by submitting false claims for a variety of activities.[3] In Elara Caring’s case, the allegations occurred at various Texas locations and involved submitting false claims and knowingly retaining overpayments for hospice services provided to patients who were ineligible for the hospice benefit because they were not terminally ill.[4]

In 2018, Blue Wolf Capital and Kelso & Company created Elara Caring from the merger of three home health companies, establishing one of the largest home health and hospice providers in the US.[5] Two of the companies, one based in Michigan and the other in Connecticut, were previously acquired by Blue Wolf in 2016.[6]^,[7] The third company, based out of Addison, Texas, was acquired in 2018 by Blue Wolf and Kelso ahead of the three-way merger.[8] Prior to Blue Wolf and Kelso’s ownership, the Texas-based company, Jordan Health Services, was owned by Palladium Equity Partners which purchased it in 2010.[9] The alleged violations in the DOJ’s lawsuit spanned from 2014 to 2021, the entire time of which the company was private equity-owned.[10] None of Elara Caring’s former and current private equity owners were named in the settlement announcement.

At the time of the merger, the rebranded companies under Elara Caring employed 32,500 caregivers and served 65,000 patients each day across 16 states.[11] As of 2024, the company reports a slightly smaller footprint on its website, claiming it employs 26,000 caregivers and serves over 60,000 patients each day across 17 states.[12]

Private equity-owned hospice companies increasingly make up a disproportionate share of the hospice industry, particular through acquisitions of non-profit providers. In 2019, approximately 113,000 (8%) of the nation’s 1.46 million Medicare hospice beneficiaries were cared for by private equity-owned hospices – a 327 percent increase from 2012.[13]

In 2020, private equity acquisitions of hospice agencies surged, according to a report by the Center for Economic and Policy Research (CEPR). By the end of 2021, private equity accounted for 18 out of a total of 23 deals involving hospice providers. While the hospice industry in 2022 saw a relative lull in dealmaking compared to previous years, “PE firms continue to be leading players in the market” wrote the report’s authors.[14]

Hospice care is ripe with opportunities to legally and illegally game the Medicare payment system
CEPR’s report, titled “Preying on the Dying: Private Equity Gets Rich in Hospice Care,” argues that the flawed Medicare payment system for hospice care has created incentives for private equity investors to buy hospice companies and both legally and illegally game the system.

As explained in the report, ninety percent of all hospice patient days are covered by Medicare or Medicaid, with Medicare being the largest payer.[15] Unlike most other types of medical care that is reimbursed per individual treatment or service, Medicare pays a flat daily rate for each hospice patient.[16] This rate was capped at $33,494.01 per year per eligible patient for 2024.[17]

Because of this payment model, hospice agencies can easily game it in both legal and illegal ways to enhance their profits. An example would be providing inferior services to hospice beneficiaries, such as providing home visits less frequently than needed, and sending less skilled staff (e.g. aides in lieu of registered nurses) to cut costs and pocket a greater proportion of the Medicare payment. Another strategy is to enroll ineligible patients (patients with longer than 6 months to live) for hospice care. This means that the hospice agency can receive payments for much longer than it would if it enrolled a person who was terminally ill.[18] In the most extreme cases, some hospice agencies have billed for services they did not provide at all.[19]

The CEPR report argues that private equity-owned hospice providers have “unique pressures to quickly increase revenue and operating profits,” due to their high levels of debt and emphasis on increasing profits over short time horizons before cashing out of the investment.[20] As such, they may be more likely to engage in profiteering compared to other types of for-profit providers.

The Office of Inspector General (OIG) has estimated that hospice agencies engaging in inappropriate billing have cost Medicare billions of dollars.[21] This dollar amount cannot capture the extent that these billing practices have also robbed hospice beneficiaries of the quality care and support they needed and deserved in their final days and months of life.

The relationship between private equity healthcare investments and FCA violations
A 2021 report from the Private Equity Stakeholder Project surveys FCA lawsuits brought against private equity-owned health companies. The report notes that there is substantial overlap between the profit-seeking behavior exhibited by private equity owners of healthcare companies and fraudulent activities targeted by the FCA.[22]

Historically, the vast majority of FCA lawsuits against private equity-owned healthcare companies have excluded their private equity owners.[23] The DOJ recently announced that it is increasing its scrutiny of private equity’s role in healthcare fraud,[24] and the agency has made similar announcements in the past.[25]  However, it remains to be seen whether the DOJ’s enforcement actions will match its stated intentions.

Further reading on private equity and hospice care:

• From CEPR, April 2023: Preying on the Dying: Private Equity Gets Rich in Hospice Care
• From PESP, March 2022: Private Equity at Home: Wall Street’s Incursion into the Home Healthcare and Hospice Industries
• From KFF Health News, July 2022: Hospices have become big business for private equity firms, raising concerns about end-of-life care
• From HuffPost, December 2021: Private equity is gobbling up hospice chains and getting involved in the business of dying

Further reading on private equity and False Claims Act violations:

• From PESP, February 2021: Money for Nothing: How Private Equity has defrauded government health programs
• From PESP, December 2023: Blackstone faces fraud settlement as DOJ alleges “culture of kickbacks

[1] Office of Public Affairs – US Department of Justice. “Elara Caring Agrees to Pay $4.2 Million to Settle False Claims Act Allegations That It Billed Medicare for Ineligible Hospice Patients,” May 1, 2024. https://www.justice.gov/opa/pr/elara-caring-agrees-pay-42-million-settle-false-claims-act-allegations-it-billed-medicare.

[2] Centers for Medicare and Medicaid Services False Claims Act Primer. https://downloads.cms.gov/cmsgov/archived-downloads/ SMDL/downloads/SMD032207Att2.pdf.

[3] Johns Hopkins Medicine Federal & State False Claims Act/Whistleblower Protections Policy. https://www.hopkinsmedicine.org/ johns_hopkins_healthcare/providers_physicians/health_care_fraud_and_abuse/Federal_State_False_Claims_Act_Whistleblower_ Protections_Policy.html

[4] Office of Public Affairs – US Department of Justice. “Elara Caring Agrees to Pay $4.2 Million to Settle False Claims Act Allegations That It Billed Medicare for Ineligible Hospice Patients,” May 1, 2024. https://www.justice.gov/opa/pr/elara-caring-agrees-pay-42-million-settle-false-claims-act-allegations-it-billed-medicare.

[5] Mullaney, Tim. “Jordan, Great Lakes, National Home Health Rebrand as Elara Caring.” Home Health Care News, July 17, 2018. https://homehealthcarenews.com/2018/07/jordan-great-lakes-national-home-health-rebrand-as-elara-caring/.

[6] Stempak, Nicole. “Blue Wolf Capital Acquires National Home Health Care.” I Advance Senior Care (blog), May 17, 2016. https://www.iadvanceseniorcare.com/blue-wolf-capital-acquires-national-home-health-care/.

[7] Beltran, Luisa. “Blue Wolf Capital to Invest in Great Lakes Caring.” Content. PE Hub (blog), November 29, 2016. https://www.pehub.com/blue-wolf-capital-to-buy-great-lakes-caring-sources/.

[8] Houlihan Lokey. “Houlihan Lokey Advises Jordan Health Services.” Accessed May 3, 2024. https://hl.com/about-us/transactions/houlihan-lokey-advises-jordan-health-services/.

[9] Palladium Equity Partners LLC. “Palladium Equity Partners to Sell Jordan Health Services to Kelso & Company and Blue Wolf Capital Partners.” Accessed May 3, 2024. https://www.prnewswire.com/news-releases/palladium-equity-partners-to-sell-jordan-health-services-to-kelso–company-and-blue-wolf-capital-partners-300627422.html.

[10] Office of Public Affairs – US Department of Justice. “Elara Caring Agrees to Pay $4.2 Million to Settle False Claims Act Allegations That It Billed Medicare for Ineligible Hospice Patients,” May 1, 2024. https://www.justice.gov/opa/pr/elara-caring-agrees-pay-42-million-settle-false-claims-act-allegations-it-billed-medicare.

[11] Mullaney, Tim. “Jordan, Great Lakes, National Home Health Rebrand as Elara Caring.” Home Health Care News, July 17, 2018. https://homehealthcarenews.com/2018/07/jordan-great-lakes-national-home-health-rebrand-as-elara-caring/.

[12] Elara Caring. “About Us.” Accessed May 3, 2024. https://elara.com/about-us/.

[13] Pg. 26; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[14] Pg. 23; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[15] Pg. 10; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[16] Pg. 10; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[17]“Hospice Payments: FY 2024 Update.” cms.gov, August 10, 2023. https://www.cms.gov/files/document/mm13289-hospice-payments-fy-2024-update.pdf.

[18] Pg. 38; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[19] Pg. 20 Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[20] Pg. 54; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[21] Pg. 20; pg. 28; Appelbaum, Eileen, Rosemary Batt, and Emma Curchin. “Preying on the Dying: Private Equity Gets Rich in Hospice Care.” Center for Economic and Policy Research, April 25, 2023. https://cepr.net/wp-content/uploads/2023/04/2023-05-Preying-on-the-Dying-Appelbaum-Batt-and-Curchin.pdf.

[22] O’Grady, Eileen. “Money for Nothing: How Private Equity Has Defrauded Medicare, Medicaid, and Other Government Health Programs, and How That Might Change.” Private Equity Stakeholder Project, February 2021. https://pestakeholder.org/wp-content/uploads/2021/02/Private-Equity-False-Claims-Act-PESP-022221-.pdf.

[23] Pg. 2; O’Grady, Eileen. “Money for Nothing: How Private Equity Has Defrauded Medicare, Medicaid, and Other Government Health Programs, and How That Might Change.” Private Equity Stakeholder Project, February 2021. https://pestakeholder.org/wp-content/uploads/2021/02/Private-Equity-False-Claims-Act-PESP-022221-.pdf.

[24] Penn, Ben. “US to Prioritize Private Equity’s Role in Healthcare Fraud.” Bloomberg Law, February 22, 2024. https://news.bloomberglaw.com/us-law-week/us-to-prioritize-private-equitys-role-in-healthcare-fraud.

[25] Department of Justice “Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce’s Institute for Legal Reform,” June 26, 2020 in Washington D.C. https://www.justice.gov/civil/ speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims.