More than 1.7 million people in the US receive hospice care annually. Medicare introduced the hospice benefit in 1982, whereby agencies are reimbursed on a per diem basis, providing a fixed daily payment for each enrolled patient, regardless of the services delivered. As such, hospices can increase profits by either expanding their patient census or reducing their operating expenses. Hospice has since grown into a multibillion-dollar industry, and as of 2022, for-profit providers represent more than 75 percent of all hospices in the US. Agencies owned by private equity (PE) firms and publicly traded companies represent a growing subset of for-profit hospices.
Robust literature has found that for-profit hospice ownership is associated with lower consumer-reported quality, higher rates of complaints, a higher number of live discharges, and a higher hospitalization rate compared with not-for-profit ownership. In a study in Health Affairs, Dr. Robert Tyler Braun, assistant professor of population health sciences, and colleagues analyzed Medicare hospice cost reports to assess revenues, expenses, net income, and profit margins across four categories of hospice ownership: PE, publicly traded company, other for-profit, and not-for-profit ownership.
Researchers conducted a cross-sectional analysis of 2,989 hospices using 2022 Medicare cost reports, finding notable differences in finances across categories of ownership. Not-for-profit ownership was associated with the greatest spending on direct patient care services, relative to all three for-profit models examined.
PE-owned agencies reported the highest profits and lowest spending on direct patient care. Their profitability is largely driven by higher revenues from nursing facility room and board; Medicaid reimburses these costs for patients who are dually eligible for Medicare and Medicaid. These results provide new evidence that PE-owned hospices may strategically prioritize nursing facility-based patient enrollment as part of a broader approach to maximizing profitability.
Results also indicate that limited investment in direct patient care among PE-owned, publicly traded company-owned, and other for-profit hospices may contribute to elevated hospitalization rates, thereby undermining hospice quality and shifting costs to other parts of the health care system.
“Future research must push past descriptions and test whether the financial and quality gaps we observe are causal, not just coincidental,” said Dr. Braun. “It will also be essential to uncover how different types of acquisitions produce different patterns of care. Ownership is a field of varied motives and strategies.”
To promote Medicare savings and align payment with care delivery costs, researchers suggest that policymakers could modify the per diem model of hospice payment to reduce reimbursement when beneficiaries are co-located in nursing facilities. These are settings where patients are often relatively stable, and operational efficiency is achievable.
“As this work evolves, the guiding principle is simple,” said Dr. Braun. “If hospice is meant to honor the end of life, then we must shine as much light as possible on the forces that shape it.”
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