At a glance
Researchers compared 191 for-profit hospices acquired by private equity firms between 2018 and 2022 with 1,305 similar for-profit hospices that were not.
After acquisition, Medicare paid $993 more per hospice stay relative to comparison hospices, a 5.9 percent increase from a baseline of $16,922.
Average length of stay increased by 6.3 days and patients were more likely to be discharged alive from private equity hospices, with no increase in services provided.
Patients with dementia were admitted more, suggesting that the private equity hospices may have shifted toward patients who need less daily care, which is more profitable under Medicare’s flat daily payment.
The authors say that changing the payment system could reduce that incentive.
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A study of for-profit hospices acquired by private equity firms found that Medicare spending rose by 5.9 percent per hospice stay after acquisition, compared with similar for-profit hospices that weren’t acquired. The increase was driven mainly by longer stays, with the average length of stay rising by 6.3 days. This was likely related to shifts toward patients who use less daily care, including a significant increase in the share of patients with dementia, consistent with a larger share of patients discharged from hospice alive.
Medicare pays hospices a set daily fee regardless of how much care a patient needs. The researchers found no increase in services at private equity-acquired hospices, and instead fewer social work visits. Specifically, there were no increases in physician, nurse, or home health visits that may have kept patients alive longer. This suggests the increased length of stay and live discharges may be partly due to a shift toward patients who need less ongoing care, beyond what other for-profit hospices were already doing, the researchers said.
The findings are published in the November issue of Health Affairs.
“The goal of hospice is to provide respectful, person-centered care that helps terminally ill people approach end of life with dignity, while minimizing pain and suffering,” said senior author Zirui Song, associate professor of health care policy in the Blavatnik Institute at Harvard Medical School and HMS associate professor of medicine at Massachusetts General Hospital, where he is a general internist. “For patients and their families, this comes at a stressful time in their lives, and we have a responsibility to make sure the system works well for all of the people who need it and that it is financially sustainable for our aging population.”
Nearly half of the people who die in the United States are Medicare beneficiaries who use hospice, and up to a quarter of Medicare spending occurs in the last year of life.
Private equity’s growing role in hospice
Over the past two decades, U.S. hospice ownership has shifted from mostly nonprofit to nearly three-quarters for-profit, and private equity firms are now the fastest-growing type of owner. In a typical private equity deal, a firm buys a company with a mix of money from investors and borrowed money. The debt is usually assigned to the company that is purchased, which must then generate revenue to pay it down, plus interest. Firms also have strong incentives to repay investors quickly, which requires additional revenue.
Song’s previous work on private equity has shown that private equity ownership in health care has been associated with concerning changes in hospitals and physician practices, including increases in Medicare spending, decreases in physician workforce, and increases in adverse health outcomes, including death, likely related to staffing cuts.
For this study, the researchers wanted to see what happens to care and costs when a hospice that was already for-profit is acquired by private equity. Since both kinds of hospices serve the same population under the same payment system and with a profit motive, would there even be any difference?
The researchers used Medicare fee-for-service claims to compare 191 hospices newly acquired by private equity firms between 2018 and 2022 with 1,305 matched control hospices that were for-profit but not owned by private equity firms. The study looked at the two years before and the two years after each acquisition to see what changed, and it compared that to how things changed in the control group.
The research showed there were significant differences. Underlying the increase in spending, patients at hospices acquired by private equity stayed in hospice longer than patients at control hospices. A smaller share had very short stays of less than a week, more stayed longer than six months, and patients were more likely to be discharged from hospice alive.
A shift in which patients were admitted
There was also a change in the mix of patients admitted to hospices after acquisition by private equity. The share of patients with dementia rose from 22.6 percent to 23.8 percent, while the share at control hospices did not change.
In the study, the two biggest groups of patients in hospice were people with dementia and people with cancer. Medicare pays the same daily fee for a patient with dementia whose decline is gradual and who needs relatively few services as it pays for a person with cancer who needs frequent visits and complex pain management. The cost of those services and provider visits comes out of the daily fee.
The researchers checked to see if the longer stays and live discharges could be explained by a difference in the care delivered. Did hospices provide more services after private equity acquisition? The answer was no. There was no significant change in total visits or time spent on visits per week, and if anything, the patients received fewer social work visits.
The more likely explanation for the longer stays and live discharges was a shift toward admitting patients who required less care, Song said.
“That makes sense from the point of view of a for-profit facility that looks to generate revenue under this payment system,” Song said. “The bigger question is whether that is the best payment model for meeting the needs of people who need hospice, or of ensuring that Medicare spending is sustainable.”
The researchers wrote that policy changes to Medicare’s hospice payment system may be warranted. One option is adjusting the daily fee by a patient’s clinical need. This could be based on patient diagnoses, similar to how hospitals are paid. However, although adjusting for patient risk could reduce the incentive to select lower-risk patients, it could also encourage coding to maximize payment, the authors caution. Other options include separating out fees for needed care, with monitoring to protect against unnecessary use or overbilling of services.
“As the population ages, we should make sure that high-quality hospice care is available for all the patients who need it, as well as sustainable for the Medicare program,” Song said.
Authorship, funding, disclosures
Sneha Kannan of the University of Pittsburgh was the first author of the study. Additional authors include Julia Driessen, Jeremy M. Kahn, and Catherine Mankiw.
This research was supported by grants from the National Institute on Aging (R01 AG097947), the Agency for Healthcare Research and Quality (R01 HS029467), and Arnold Ventures (20-04402).
