California Gov. Gavin Newsom (D) earlier this month signed two hospice reform laws designed to strengthen hospice oversight. While some stakeholders applauded these steps as a way of thinning the crowded California market, they could lead to frustration for providers seeking to grow their presence in the state. 

The bills — Senate Bill 664 and Assembly Bill 1280 — came after a Los Angeles Times investigation into alleged misconduct among California hospice providers.The new laws put a moratorium on new licenses and mandate an extensive audit of California’s licensing and oversight processes, including an anti-kickback stipulation that prohibits hospices from paying health care providers for referrals.

The new laws are critical steps towards leveling the playing field for hospice providers in the state and preserving the quality of end-of-life care, according to Michael Milward, CEO of the California Hospice Network, a strategic partnership of community-based nonprofit hospice providers.

“The moratorium is designed to curb new hospice licenses in areas that are already saturated with providers,” said Milward. “Our hope is that the moratorium will help level the playing field for the nonprofit, mission-driven hospices that have always put patients, families and the communities they serve first.”

Federal and state agencies started taking a sharper look at hospices in response to 2019 reports from the U.S. Department of Health and Human Services Office of Inspector General (OIG). OIG found that 20% of hospices nationwide experienced a condition-level finding from regulators between 2012 and 2016 that posed serious risks to patient life and safety.

The Los Angeles Times reported that the number of hospice providers operating in California has swelled during the past several years, largely among for-profit companies. This rapid expansion correlated with rising instances of fraud and negligence, according to the Times, which also cited a “cottage industry” of kickbacks and deceptive practices.

Approximately 4,840 hospices provided care to Medicare beneficiaries in 2019, according to the Medicare Payment Advisory Commission (MEDPAC). Of these, about 71% were for-profit companies. The Golden State is home to more than three quarters of the nation’s hospices, or roughly 1,200, according to recent data from the California Health Report. The report indicated that the number of hospices has risen six-fold in the last decade across Los Angeles County alone, with 97% of those for-profit.

Smaller hospices and nonprofits are often at a disadvantage when competing with larger, well-capitalized providers with the resources to complete multiple acquisitions. Consequently, smaller players in the space could have more to gain from the moratorium.

The hospice landscape in California has been more competitive than in other parts of the country, Millard told Hospice News. Before taking the helm of CHN in 2020, Milward was previously CEO at Hospice of Santa Cruz County. Community-based nonprofits need to work together to ensure their long-term sustainability throughout the state, according to Milward.

“One of the most important things we can do to help patients access quality care is to better inform Californians about the differences between the longstanding community-based nonprofit hospice providers, and the hundreds of new, for-profit hospices that have sprung up in the past few years,” Milward said. “Changes in the licensing process will hopefully reduce the proliferation of new hospices that are created or purchased to be a short-term play.”

Though hospices abound in California, utilization among Medicare decedents runs lower than other states where providers are less geographically saturated. Hospice utilization reached 46.1% in the state during 2018, according to the National Hospice and Palliative Care Organization (NHPCO). This trailed behind the national average of 50.6% that year reported by MEDPAC.

A changing regulatory landscape has advocates and stakeholders concerned about the impacts on patient populations, according to Sheila Clark, president and CEO, California Hospice and Palliative Care Association (CHAPCA).

“While CHAPCA supports elimination of fraudulent or negligent hospice programs, it is concerned that a statewide moratorium overreaches the identified problem itself and could unintentionally impede access to end-of-life care in rural or underserved areas of the state,” Clark told Hospice News. “CHAPCA believes a targeted approach to existing bad actor agencies better serves the overall goal.”

Completion of a state audit would identify deficiencies and recommend improvements to the hospice licensure and oversight process in California, said Clark.

The new laws are intended to spur attention and action to improve what many stakeholders see as a regulatory system in need of reform. The California moratorium leaves existing “bad actors unaffected,” according to Clark. Although the SB 664 moratorium bars new hospice licenses from being issued, it allows currently-licensed hospice agencies who may be operating in bad faith to add new locations under their existing license, Clark stated.

“A moratorium will prevent the growth of new bad acting hospice agencies, but will allow existing bad acting agencies to continue and even expand operation,” said Clark. “There are thousands of pending initial hospice license applications. CHAPCA is invested in ensuring that the California Department of Public Health ensure that legitimate programs can be licensed if they can prove need and, more importantly, provide compliant care to the areas in which they would be located.”