Profit is a key, driving focus of many businesses. Although private equity investment in health care could lead to improvement by injecting needed capital, a pressing concern is that many private equity firms often operate on the model of buying and quickly selling for a substantial profit within 3 years. A recent commentary on private equity1 used the metaphor of an experiment that observed what happened to an ecosystem when a new predator was introduced: contrary to the hypothesis that this event would lead to an improved ecosystem, the opposite occurred.
We are now witnessing a natural experiment in the hospice market. Private equity firms see huge profits in buying hospice programs that are providing care for the most vulnerable persons and their families at a sentinel, often tragic time.
Just as private equity acquisition throughout medical specialties2 has surged in recent years,3 the hospice industry has been found to be fertile ground for private equity firms. This is exemplified by the recent acquisition of Kindred Healthcare, an umbrella organization that owns hospices that provide care for more than 50 000 Medicare beneficiaries annually. In 2018, Humana and 2 private equity partners purchased Kindred Healthcare for $4.1 billion. In the year prior, Humana paid $800 million for a 40% stake in Kindred at Home, Kindred Healthcare’s hospice division. Private equity firms had majority (60%) ownership of Kindred at Home but gave Humana the option of buying that portion in 3 years. In 2021, Humana did so, paying the equity firms an additional $5.7 billion—for a total of $8.1 billion, more than double the amount the firms paid 4 years earlier.
Although researchers demonstrated that introducing a predator species into to an ecosystem did indeed cause harm, we simply do not know if the metaphor holds for the introduction of private equity into the ecosystem of hospice care—ie, how these acquisitions affect the care of dying patients and their families. There is no transparency; these transactions are often covered by nondisclosure agreements and ownership is not publicly disclosed as it is for nursing home ownership on the Centers for Medicare & Medicaid Services (CMS) website. Research has documented important concerns with for-profit hospices in terms of complaints.4 One study5 found greater use of less-skilled clinical staff by for-profit hospices, and that 90% of for-profit hospices had the lowest spending on direct patient care and highest rates of hospital use. Because of the private equity model of short-term profits, these concerns may be magnified with more aggressive tactics around cost cutting and profit maximization.
There are 3 key ways that hospice profits are maximized. These include decreasing visits to hospice patients by professional staff or use of less-skilled persons for visits, shifting the cost of expensive medications to Medicare Part D, and enrollment of persons who are anticipated to have a longer length of stay and less need of intensive hospice services.
Hospice differs from other entities that provide health care services. Under Medicare rules, patients can qualify for hospice care if they have an expected prognosis of 6 months if the disease follows its usual course. However, nearly half of hospice patients are admitted during the last 2 weeks of life, a time when it would be difficult to change hospice providers.
The increasing presence of private equity firms in hospice care is concerning in terms of how it affects hospice patients and those who care for them. It is also concerning in terms of how it might affect the next generation of physicians specializing in palliative medicine. These physicians are often employed by hospices to provide nonhospice palliative care to patients who choose to not enroll in hospice or who are not qualified for hospice under the Medicare hospice rule of having an expected prognosis of 6 months, as well as medical care to hospice patients. Because nonhospice palliative care services are poorly reimbursed by Medicare,6 hospice organizations must often provide palliative care at a financial loss, on the promise that that palliative care consults will lead to a referral at that hospice when a patient’s disease progresses. Young physicians and other health care professionals working for hospices owned by private equity firms may well be faced with concerns about the quality of care vs profits and find themselves in situations in which they feel that to provide care, they need to look the other way, rationalizing that providing some care is better than no care.
Between 2011 and 2019, there were 409 private equity transactions in hospice, with 58% of those transactions involving the purchase of a nonprofit agency. Approximately 16% of hospice patients are cared for by hospices that are owned by either private equity or publicly traded corporations, yet we know virtually nothing about the quality of care provided when these entities take over a hospice program.
To protect people who need hospice care, Congress must urgently provide oversight for this vulnerable population.
First, transparency is needed. Transactions and changes in ownership affecting hospice organizations need to be reported to and publicly disclosed by the CMS on its website.
Second, Congress should further strengthen the oversight of hospice providers. Currently, despite substantial reported concerns, oversight occurs only every 3 years. In addition, for-profit providers often rely on private accreditation, as opposed to certification by state governments. There are limited ways for hospices to maximize profits, and inspections should be goal-directed and data-driven. For example, if there is a high rate of live discharges after 180 days, which may indicate that a hospice is enrolling persons who are not qualified, the patient and family interviews that are part of the inspection and chart review should focus on the recertification process. A change in ownership should be reported and should be a trigger for federal or state inspection of that hospice program. Only rarely does the CMS impose fines, drop hospice programs from Medicare, or both. Congress mandated a focus on poor performers, but did not change the frequency of inspections that occur only every third year.
Third, prohibitive noncompete clauses can make it difficult choice for physicians to report substantial concerns for investigation. When there is a preponderance of evidence that there is a concern regarding a hospice program, prohibitive noncomplete contracts should be voided.
Fourth, physicians as health care professionals are obligated to abide by the ethical standards of their profession to put patients first. Medical schools, residencies, and fellowships should provide health care professionals with the tools to deal with difficult situations, like when there is a concern that threatens quality of care due to financial concerns.
Hospice is one of the Medicare programs held in high regard by the public and health care professionals. Congress should act now to address unanswered questions about private equity and its involvement in hospice.
Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Teno JM. JAMA Health Forum.
Corresponding Author: Joan M Teno, MD, MS, Oregon Health & Sciences University, 3181 SW Sam Jackson Park Rd, Portland, OR 97239 (firstname.lastname@example.org).
Conflict of Interest Disclosures: None reported.
Disclaimer: Dr Teno is an expert consultant advising the team evaluating the Value-Based Insurance Design approach. This post is independent of that work and represents the opinion of the author and does not represent the views or policies of the US Department of Health and Human Services, nor does the mention of trade names, commercial products, or organizations imply endorsement by the US government.
Teno JM. Hospice Acquisitions by Profit-Driven Private Equity Firms. JAMA Health Forum. 2021;2(9):e213745. doi:10.1001/jamahealthforum.2021.3745