Transitions CEO: Medicare Advantage Could Slow Private Equity Interest in Hospice

CEO Jim Palazzo founded Transitions Hospice in 2007 as a portfolio company within the Transitions Group — which also holds skilled nursing, home health, medical equipment and therapy assets. 

He became interested in health care during his college years while working as a caregiver for a friend’s 87-year-old grandfather three nights a week and began his professional career in the skilled nursing arena.

Palazzo spoke with Hospice News about his company’s growth trajectory, industry consolidation, emerging payment models and the impact of the COVID-19 pandemic.

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Could you start by telling me a little bit about your own professional background and how you came to the hospice field?

I have an undergraduate degree in health administration, and I started doing internships at short-term psychiatric hospitals and other health care organizations. My first job when I got back home from college was with a skilled nursing facility for pediatrics. I ended up being with that company for 15 years and became senior vice president of operations. About 15 years ago, I opted to go out on my own.

While I was working at the skilled nursing facility, my father had gotten ill. I was running a very successful inpatient hospice unit with another hospice provider at one of my facilities, and I asked if they would take care of my father. They said, “of course,” and that he’ll get everything he needs. Within a couple of days I learned what that meant, and it wasn’t very positive. 

What kind of problems did your family experience?

I started seeing the cracks in hospice. They couldn’t figure out how to do visits in the evenings because they did all their visits Monday through Friday through 4:00 p.m., and I told them that wouldn’t work for me. Then they came back the next day and said they were going to do two visits a week at 6:00.

After that, I said my siblings and I will handle it ourselves, and we cared for my father. Unfortunately he died in the hospital, where he didn’t want to be. It was a pretty disturbing experience for me. I felt that hospice should have been a 24/7 business, and you should visit when the patient needs you.

What drew you back to hospice?

I went out to start my own business, and I started with a skilled nursing facility, then I ended up with a home health agency, and I ended up with a therapy company. Then someone offered to me a hospice in the small Rockford [Ill.] market, and I said absolutely not.

They kept coming back, and someone close to me said to me that if I have problems with hospice maybe I should do it the way I think it should be done, and so 12 years ago I walked into a hospice office.

At the time, I had 11 patients and 16 staff members. I addressed the staff members and said that every time a patient or building calls us, we’re going to go. We’re going to be available 24-hours-a-day, seven days a week. And within the first six days of being there, I had 13 resignations out of the 16 people.

I wanted my hospice to be designed to be as close to what a family would imagine a hospice is. I think families believe three things when they sign up for hospice, I believe they feel that they’re going to get immediate support, and they’re going to be able to drop some of the weight off their back. I think families believe that their hospice is going to be there when they need them.

The national average for hospice staff being with a patient at the time of death was about 18% the last time I checked. We average about 95%, and I’m very proud of that. Even through the COVID pandemic, we were at 87% of our deaths and that’s considering that we were not able to do visits in many facilities.

I think those three things have really mattered to our families and have really contributed to our growth, because we really don’t market. Our marketing is really word of mouth, and we’ve seen exponential growth and referrals.

You recently opened in de novo in Northwest Indiana. Can you tell me about your growth strategy?

My strategy for growth is really simple. I go where the majority of the hospices are. If there’s a heavily populated area with hospices, that’s the market I want to be in. The more saturated is with hospices, the more clearly my brand stands out. That’s always been a very strong growth strategy for us that was very successful down in central Illinois, I anticipate the two markets that we’ve chosen to grow into that we will see significant robust growth really quickly.

Are you concentrating on the Illinois and Indiana markets or are you targeting additional geographic areas?

For the rest of this year we are concentrating on our Illinois and Indiana markets. Going into 2021, we are considering a leap to a couple more [states bordering Illinois].

Do you have mergers and acquisitions on your radar or are you concentrating on de novos?

At this point I’m not considering mergers and acquisitions. Certainly it was something that we looked at as an organization, but I do believe that the opportunities for a midsize company like mine are still very regional. I believe that the opportunity for us to double and triple and quadruple in size over the next five years is not out of the question. We can really become a major player in some of the major markets, within the central United States and heading towards the southeast.

This is an age of consolidation and private equity. I’m not frightened by that. I feel that is an opportunity for us. We’re big enough now to where we can expand to other marketplaces. I think that we can compete with the large consolidated hospices because our model is so different. We have the wherewithal to do that now. I’m seeing this marketplace as a real opportunity.

What are your thoughts on the Medicare Advantage carve-in coming in 2021? How might that impact your organization?

I don’t think it’ll have a major impact on my organization. I do see a significant percentage of Medicare clients who have Medicare Advantage plans. I do think that there’ll be a small reduction in rates like we’ve seen in skilled nursing, but sometimes that brings more volume too.

I think that where it’s really gonna affect the industry is that that will probably really dampen the private equity side because they really get scared off by major payment changes. That might slow acquisitions down for a bit.

Can you talk a little bit about the COVID-19 pandemic and how that has impacted your organization from an operational and financial standpoint?

We’ve taken COVID very seriously from the beginning. We have our offices sanitized regularly. We have a very limited in-office schedule, and we have a lot more people working remotely,

We’ve made sure that from the very early stages our staff have been in full [personal protective equipment]. We’ve had not a single positive staff person and our entire organization.

As far as from a business perspective, we’ve seen very few COVID-positive patients. If a hospice is seeing COVID-positive patients, they tend to be very short term in nature. At its peak, they were not really making it out of the hospitals. I think being a good partner with your contracted facilities has been key and being able to manage patients when they need you to.

Has your perspective on hospice changed since those early days when you know after your father’s death?

I think that there are some very good hospices out there. Everybody that comes into hospice is a caring person. I think the majority of the hospices are struggling and these days it’s margin over quality. I’ve never had to have those constraints or those concerns. But with consolidation. I’m probably more concerned about the quality of hospice going forward because I don’t see anything good coming out of the private equity markets. I think that the pressures of margin are going to even dilute the care even more. I think that hospices need to strive to be better every day.

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