Dive Brief:
- Medicare spending rose for hospices acquired by private equity firms, according to a new study in Health Affairs, adding an extra $1,000 per hospice stay compared to other for-profit facilities.
- PE-owned hospices had an average length of stay of about six days longer and more patients were discharged alive, which indicated a higher volume of patients who don't require highly specialized, expensive treatments, the study found.
- This shift “may represent an increase in potentially inappropriate admissions or inappropriately early admissions to hospice,” researchers explained, as PE firms seek to maximize reimbursement from Medicare.
Dive Insight:
U.S. hospices have been rapidly transitioning to for-profit structures, with three-quarters of facilities under for-profit ownership by 2022. At the same time, PE firms have gobbled up hospices: The firms owned 15% of hospices in 2026, compared to 3% in 2012.
Medicare’s payment structure makes hospices an attractive target for PE firms. The government reimburses the facilities at a flat, daily rate for each patient, regardless of the volume of services they receive. PE firms can capitalize on this arrangement by shifting focus toward longer-stay populations, such as patients with dementia.
The Health Affairs study found that this rang true for the PE-owned hospices in its analysis, which examined fee-for-service Medicare claims from 2016-2022 across 191 for-profit hospices acquired by PE firms. A control group included 1,300 for-profit control hospices without PE backing.
The share of patients with dementia increased by 4% from baseline among PE-owned hospices. Meanwhile, control hospices experienced no change during the period.
Patients with dementia and Alzheimer's disease typically require fewer specialized services or expensive daily medical equipment compared to those with terminal cancer, which is another major patient population for hospices.
Additionally, more hospice patients were discharged alive from PE-owned hospices, according to the study.
Hospices can pocket more of the daily rate when they care for less resource-intensive, longer-stay patients. This may mean PE-owned facilities are cherry-picking healthier patients who end up outliving the hospice eligibility window, the study suggested.
The CMS tries to tamp down profit-maximizing among hospices by reducing reimbursements after 60 days and requiring a recertification of hospice needs at 180 days. But considering the major shift in hospice ownership, the researchers suggested that more needs to be done, such as adjusting daily rates based on beneficiary risk, similar to how hospitals are paid. This would reduce the incentive for patient cherry-picking, they said.
Other options include carving out fees for necessary care and monitoring to prevent unnecessary use or overbilling, they added.
The CMS is tightening oversight over hospices, especially those owned by PE firms.
Last month, the CMS introduced the Service and Spending Variation Index, a claims-based scoring system to monitor hospice use trends to prevent fraud, waste and abuse. Hospices must now also provide a notice to all beneficiaries specifying the services, items, drugs and conditions that are not related to their terminal illness and related conditions and therefore will not be covered by Medicare's hospice benefit.
The agency has also proposed more sweeping changes to its ability to revoke Medicare billing privileges across provider types, including kicking providers out if their owners are in hot water. Specifically, hospices, home health agencies and medical suppliers could be unenrolled from Medicare if they don't obtain accreditation after a change in majority ownership.
