Private equity’s growth in the hospice industry

Recent report from CEPR examines private equity’s growth in the hospice industry and what this means for quality of care

Read the report here: Preying on the Dying: Private Equity Gets Rich in Hospice Care

A new report from the Center for Economic and Policy Research (CEPR) shines a light on private equity’s troubling incursion into the $22.4 billion business[1] of hospice care, and how its growing presence is impacting patients and their families.

Building on recent government and research reports examining the hospice industry, researchers Eileen Appelbaum, Rosemary Batt, and Emma Curchin demonstrate how a flawed-Medicare payment system for hospice care has attracted private equity investors into the industry and incentivized profit-seeking tactics that can harm patients. Their report concludes with policy recommendations that could address these problems and protect the dignity of terminally ill patients and their families.

Growth of private equity in hospice care
The authors argue that inadequate regulation of the hospice industry, alongside built-in incentives that make it easy to game the system in legal ways (and sometimes illegal ways) have contributed to PE’s incursion into hospice care. And, like other subsectors within healthcare, the fragmentation of the hospice industry has provided ample opportunity for consolidation, a strategy PE firms often use to grow their portfolio investments and then attempt to reap a major return when they take the combined company public or sell to another firm.

According to the report, private equity firms “have accounted for a disproportionate share of the increase in hospice in the number of hospice deals” since 2018.[2] By 2019, there were 1.46 million Medicare hospice beneficiaries, 113,000 (8%) of which were cared for by PE-owned hospices.[3]

From 2012 to 2019, the number of patients cared for in PE-owned hospices increased by 327%. And from 2011 to 2019, most of the buyout transactions in the sector were for-profit providers (including PE-backed companies) acquiring nonprofit agencies.[4] Currently, more than two thirds of hospices are for-profit entities.[5]

PE-backed acquisitions of hospice agencies surged in 2020, and 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” according to the report’s authors.[6] Two of the largest home health and hospice providers are private equity-owned: Elara Caring (Blue World Capital, HarbourVest, Constitution Capital, and Leavitt Equity) and AccentCare (Advent International).[7]

Flawed payment model enables profiteering at the expense of patients
Ninety percent of all hospice patient days are covered by Medicare or Medicaid, with Medicare being the largest payer.[8] 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.[9] This rate was capped at $31,297.61 per year per eligible patient in 2022.[10]

Nearly 99% of hospice care payments fall into the payment category of “routine home care” where the daily payment rate is $203.40 for the first 60 days. Appelbaum, et al. point out that,

“payments are per diem and are made for every day the patient is enrolled with the provider, whether or not the patient receives any care on that day. This makes hospice an attractive target for providers who may find it tempting to cheat patients of required care while billing Medicare.” [11]

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.

In the most extreme cases, some hospice agencies have billed for services they did not provide at all.[12] The Office of Inspector General has estimated that hospice agencies engaging in inappropriate billing have cost Medicare billions of dollars.[13] 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 report also highlights another strategy used to game the payment system, which 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.[14]

Recent research has documented that for-profit hospices, on average, have longer patient stays than nonprofit hospices, allowing them to pocket more money.[15] This is accomplished by admitting a higher proportion of ineligible patients and patients with dementia, and fewer patients with more expensive diagnoses like cancer.[16] Such practices contribute to the phenomenon in which for-profit agencies have three times the profit margins of nonprofit agencies, on average.[17]

The opportunities to game the payment system ultimately “create incentives for financial actors such as private equity to target hospice providers for buyouts” according to the report’s authors.[18]

In addition to a flawed payment model that creates ample opportunity for profiteers to game the system, the report argues that regulatory enforcement for what few regulations do exist is lax and insufficient. Appelbaum et al., explain:

“Oversight tends to be lax and enforcement weak in the hospice industry, and both vary widely by state…California is an extreme example…The extreme effects of lax regulation and oversight have been documented for California by the state’s auditor. The report found little to no enforcement even when the evidence pointed toward organized fraud that cheats patients of necessary care and costs the government millions of dollars.”[19]

Appelbaum, et al. argue 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 report provides a detailed case study Curo Health Services (and its merger with Kindred at Home), to illustrate the cost-cutting strategies used by private equity investors and how these have impacted workers and patients.[21] These strategies have included gaming “the Medicare payments system by admitting patients before they require care or by billing/overbilling CMS for patient care services that were not required, and, in some cases, not provided,” according to the authors.[22]

Policy recommendations
The report provides several policy recommendations to address profiteering in the hospice industry. One solution would be for Medicare to provide hospice services publicly instead of contracting with for-profit agencies.[23] However, the authors recognize that the feasibility of such a solution within our current healthcare system is limited, and thus provide a three-pronged policy agenda, instead.[24]

First, they advocate for strengthening and adequately enforcing already existing policies. They note here that sufficient public funding is needed for the relevant state and federal agencies charged with enforcement.[25]

Second, they propose updating existing polices to “account for the entrance of private equity into the industry.”[26] More specifically, they recommend enhancing antitrust regulations to combat the “buy and build” consolidation strategy used by PE firms that often falls under the radar of the Federal Trade Commission (FTC). They argue, “the FTC and DOJ need enhanced merger review authorization, as well as increased enforcement ability to meet this challenge.” Lastly, they suggest involving more agencies related to healthcare and consumer protection in the review and approval of merger and acquisition activity.[27]

In the third prong of their proposed policy agenda, Appelbaum, et al. argues for reform of the payment system in order to close loopholes that allow profiteering at the expense of patients. For example, CMS should stop its flat fee model and transition to one that takes into account patient needs, with payment depending on the number and intensity of services needed, as well as the skills of those providing the services.[28]

Conclusion
CEPR’s new report on private equity and the hospice industry is a critical addition to the growing body of research examining the impacts of private equity in healthcare. Policymakers and regulators must take this research seriously and move to address profiteering at the expense of hospice patients by enacting recommended policy changes and ramping up enforcement of existing regulations.

You can read the full report here: Preying on the Dying: Private Equity Gets Rich in Hospice Care.

Further reading on private equity and 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

[1] Pg. 8; 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.

[2] Pg. 7; 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.

[3] 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.

[4] 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.

[5] Pgs. 8-9; 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.

[6] 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.

[7] Pgs. 31; 27; 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.

[8] 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.

[9] 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.

[10] Pg. 11; 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.

[11] 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.

[12] 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.

[13] 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.

[14] 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.

[15] 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.

[16] Pg. 38; pg. 60; 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] Pg. 4; 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.

[18] Pg. 4; 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. 14; 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] See pgs. 32-34 and 44-52 of 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] [22] Pg. 46; 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.

[23] Pgs. 55-56; 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.

[24] Pgs. 8; 56; 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.

[25] Pg. 56; 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.

[26] Pg. 58; 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.

[27] Pg. 58; 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.

[28] Pg. 59; 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.