Private Equity-Owned Hospices Show Preference for Profitable Medicare Patients and Shift in Clinical Focus, Reveals Study

The hospice industry has undergone a significant transformation over the last three decades. Initially, it consisted mainly of small, nonprofit organizations focused on delivering home-based end-of-life care to cancer patients. However, it has since evolved into an industry dominated by for-profit hospices, which comprise nearly two-thirds of all hospice agencies. These for-profit hospices serve a broader patient population in community and institutional settings. According to a study published in JAMA Network Open, understudied development is the growing ownership of hospices by private equity (PE) firms and publicly traded companies (PTCs).

In 2019, approximately 16% of Medicare hospice patients received care from agencies owned by PE firms or PTCs. Private equity firms are for-profit entities that invest in various industries using capital from sources such as pension funds, wealthy individuals, and endowments. These investments are usually private and not accessible to the general public. Similarly, PTCs are for-profit entities, but ownership is distributed among public shareholders. PE firms and PTCs enter the hospice sector through a "platform and roll-up" strategy. They start by acquiring a well-established, reputable hospice agency in a community (the platform agency) and then acquire smaller agencies (the roll-up) to expand their market share, gain more referrals, and create economies of scale.

According to researchers, hospices are attractive to PE firms and PTCs due to stable Medicare payments and include relatively low barriers to entry and minimal capital requirements. Advocates argue that these institutional investments can lead to economies of scale by standardizing clinical practices, improving quality, and streamlining administrative processes, enhancing care quality and profitability while reducing administrative burdens for clinicians. However, critics raise concerns that PE and PTCs may prioritize short-term above-market returns, potentially leading to the selective enrollment of patients requiring less complex care and longer hospice stays, such as those with dementia and nursing home residents.

In this study, researchers aimed to update previous estimates and track the evolution of PE and PTC acquisitions of hospice agencies from 2010 to 2021. Using data sources from Irving Levin Associates Health Care Mergers, Centers for Medicare & Medicaid Services (CMS) hospice Provider of Services files, and Medicare Post-Acute Care and Hospice Public Use File (PAC PUF) between 2013 and 20202, they examined the number of deals and agencies acquired, the percentage of Medicare fee-for-service patients receiving care from PE- and PTC-owned agencies, and their geographic distribution. Additionally, they employed a difference-in-differences approach within an event study framework to investigate changes in patient characteristics and care sites following these acquisitions.

The study consisted of two primary samples: one to examine the prevalence and geographic distribution of PE and PTC acquisitions from 2010 to 2021 and the other to assess changes in agency and patient characteristics and dependent variables for hospices acquired between 2014 and 2019 compared to non-acquired for-profit hospices. The findings revealed that between 2010 and 2021, 178 PE acquisitions involving 853 agencies and 15 PTC deals with 421 agencies totaling 193 deals and 1274 acquired hospices in the US. In 2021, 14.4% and 11.0% of Medicare hospice patients received care from PE and PTC-owned hospices, respectively.

Regarding patient and hospice characteristics, hospice agencies acquired by PE and PTCs were generally larger and served a slightly higher percentage of patients in nursing homes before acquisition. However, there were no significant differences in patient clinical characteristics pre-acquisition. Post-acquisition, there was a notable relative increase in patients with dementia for both PE and PTC-owned hospices. Additionally, PTC-owned hospices showed a significant increase in patients receiving care at home and a decrease in the HCC risk score. The study's limitations included potential underrepresentation of smaller acquisitions, difficulty tracking PE and PTC exits from hospices, and imprecise timing of acquisitions within a year due to annual Medicare updates.

"This cohort study suggests that hospices owned by PE firms and PTCs may target Medicare patients likely to be more profitable, specifically those in sites of care and/or with certain clinical conditions, such as dementia, that are associated with lower complexity of care. Additionally, prior to acquisition, PE firms and PTCs appear to have targeted agencies with more patients in nursing homes," said researchers.

Reference

Braun RT, Unruh MA, Stevenson DG, et al. Changes in diagnoses and site of care for patients receiving hospice care from agencies acquired by private equity firms and publicly traded companies. JAMA Network Open. 2023;6(9):e2334582. doi:10.1001/jamanetworkopen.2023.34582