Senate Finance Committee to Probe Private Equity Role in Kindred at Home

The U.S. Senate Finance Committee is investigating private equity interest in the home health and hospice provider Kindred at Home. The move reflects growing concern among lawmakers about the impact of private equity’s involvement in hospice. 

The private equity firms Welsh, Carson, Anderson & Stowe (WCAS) and TPG Capital in 2018 acquired a combined 60% stake in Kindred at Home in partnership with Humana Inc. (NYDE: HUM). Earlier this year Humana bought out its investor partners to obtain full ownership of Kindred at Home in an $8.1 billion transaction, which included the insurance company’s existing $2.4 billion equity value. 

Finance Committee Chairman Ron Wyden (D-Ore.) and Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) penned a letter to Kindred at Home President and CEO David Causby requesting information about the company’s interactions with its private equity backers, citing concerns about quality.

“A recent report from the Government Accountability Office (GAO) found that hospices with the lowest quality scores are most likely to be for-profit,” Brown’s office told Hospice News in an email. “Given Kindred at Home’s history of private equity-driven growth, Sen. Brown and his colleagues are requesting additional information in order to better understand this national trend.”

While the probe is focused on a single company and its investors, it could have implications for the industry at large as private equity continues to make inroads in the hospice space. Private equity interest in the hospice sector has been gaining momentum in recent years.

The hospice market remained extremely active throughout 2020 and early 2021, despite some transaction delays brought on by COVID-19 headwinds. Private equity hospice transactions rose nearly 25% between 2011 to 2020, according to a recent industry transaction report that M&A advisory firm The Braff Group shared with Hospice News. Multiples have also reached all-time highs across all home health care sectors, including hospice, according to Mark Kulik, managing director at The Braff Group.

Demographic tailwinds and rising utilization are the largest factors driving private equity hospice activity in hospice. Nearly 10,000 people in the United States become Medicare eligible every day, according to the Kaiser Family Foundation.

Rising hospice utilization rates are also whetting the appetites of private equity investors. About 51% of all Medicare decedents in 2019 were enrolled in hospice at the time of their death, according to the Medicare Payment Advisory Commission (MEDPAC). This reflects a slow but steady rise from 50.1% in 2018 and 48.2% in 2017.

“Private equity investment in the U.S. health care system – including the hospice industry – has increased more than twenty-fold since 2000, surpassing $100 billion in deals in 2018,” the senators wrote in the letter. “We are concerned that when applied to hospice care, the private equity model of generating profit on a rapid turnaround can occur at the expense of dying patients and their families.”

The investigation represents growing concern about how hospice care may have changed due to more for-profit involvement. Near the inception of the Medicare Hospice Benefit, most hospices were non-profits often operated by volunteers. As of 2017, more than two-thirds of hospice providers were for-profit, compared with less than a third in 2000, according to MEDPAC. The number of hospices in the United States ballooned to nearly 4,500 in 2017, up from 2,300 in 2000, with for-profit hospices accounting nearly all of the net increase.

An estimated 16% of Medicare hospice enrollees received care from either a private equity-owned or a publicly traded hospice company in 2019, up from 11% in 2012, a recent study reported.

A 2019 GAO report compiled at Wyden’s request that for-profit hospices generally had lower quality scores than nonprofits, including lower rates of home visits during the last days of life and higher numbers of live discharges. However, the same study found that for-profits were more likely to care for people of color and low-income patients who are enrolled in both Medicare and Medicaid. 

Following the close of the Kindred at Home acquisition in the third quarter, Humana plans to spin off and sell the company’s hospice business to capitalize on high market valuations. The company also expects to see substantial cost savings through reduced hospitalizations and skilled nursing admissions as more care moves into the home.

While Kindred at Home also provides home health care, the senators’ inquiry was focused on the company’s hospice operations in particular. TPG Capital had no comment on the investigation, and WCAS did not respond to inquiries from Hospice News. 

The senators asked Kindred at Home to provide details on the number of its locations that care for hospice patients, a list of any facilities that closed during the past decade, average and median length of stay since 2011, and data on live discharges, among other information. 

“The hospice benefit serves a particularly vulnerable patient population. The U.S. Senate Committee on Finance has a strong interest in ensuring the quality of services delivered under the Medicare program, including the hospice benefit,” the senators indicated. “We are committed to ensuring the Medicare program provides essential, high-quality care to beneficiaries, especially at the end of life.”