During 2021 hospice providers took their first concrete steps towards value-based payments while contending with a global pandemic. Industry consolidation proceeded apace, and the appetites of private equity buyers for hospice assets have not diminished. The health care system and the hospice community also continue to grapple with the challenge of addressing inequitable access and quality of health care while struggling to fill their ranks of employees.
These factors will continue to shape the hospice and palliative care industries during 2022.
Pandemic Still Gut-Punching Providers
As we approach the start of yet another year in a global pandemic, one can start sounding like a broken record. So many of the issues that hit hospice providers during 2020 have persisted, despite signs of improvement last summer before the Delta and Omicron variants hit.
To date nearly 800,000 people have died and millions have suffered from the deadly virus, and the economic fallout is continuing to hurt health care providers, including hospices. Costs are rising, staff are strained, new hires are scarce and length of stay is lower.
At this point, if I had to call out one COVID-19-related trend it would be uncertainty. Health care providers and the nation at large cannot know what to expect. Many believed at the end of 2020 that with the widespread availability of vaccines we would soon be out of the proverbial woods, but we are unlikely to return to anything close to a pre-pandemic normal anytime soon.
Earlier in the year, we seemed to be on that path. Infection rates and morbidity started to fall. Mask mandates and other restrictions were starting to lift. Health care consumers started to return to their physicians’ offices, and hospitals had room and resources to care for more non-COVID patients, including elective procedures.
Subsiding disruption to routine care held promise for increasing hospice referrals and hopefully reaching patients earlier in their illness trajectories. But when the Delta variant started to spread en masse, much of this forward momentum slowed or ground to a halt.
In recent weeks, attention has turned to the Omicron variant. The first U.S. case emerged on Dec. 1, just as colder temperatures in many regions were pushing more people indoors. To date, nearly 30 states and the District of Columbia have seen Omicron cases, including key hospice markets like Florida, California, Texas, Missouri and Arizona, according to the U.S. Centers for Disease Control and Prevention (CDC).
The medical community is still working to assess the unique risks of Omicron compared to other strains. Early indicators suggest that the variant is more virulent, but the CDC as of yet has said more information is needed to determine symptom severity relative to other variants.
In the background, the nation continues to argue about vaccines. Many states and employers have required health care workers to be vaccinated, even as potential federal mandates from the U.S. Centers for Medicare & Medicaid Services (CMS) and the U.S. Occupational Safety & Health Administration languish in the courts.
Inevitably, the U.S Supreme Court will decide the fate of these mandates, but another body may have even more of a say — the market.
Providers have told Hospice News that patients and families are increasingly refusing to allow unvaccinated clinicians into their homes. While this consideration is not universal and varies from market to market, the trend is growing. This is one more factor that hospices will have to weigh as they perform the difficult calculus of crafting their staff vaccination policies.
Wherever they stand on vaccines or mandates, hospices remain stuck between a rock and a hard place. They have to balance concerns of patient and workplace safety, regulation and consumer confidence, with the potential for exacerbated labor pressures, the costs and complexity of vaccine programs and the matter of employees’ personal choices. Nothing about these choices will be easy.
A more positive question regards the potential impact of emerging COVID therapies. Pfizer (NYSE: PFE) has a drug in development that the company said reduces the risk of hospitalization or death by 89%.
The U.S. Food & Drug Administration of course must approve the product, and the results remain to be seen. But it would be hard to argue that an effective treatment wouldn’t make some kind of a positive difference.
Among the possibilities is restoring growth in hospice utilization. In a recent meeting of the Medicare Payment Advisory Commission (MEDPAC) it came out that 47.8% of Medicare decedents elected hospice during 2020, down from 51.6% in 2019. This is the first decline in several years.
I hypothesize that a significant contributor to this decline is COVID itself. Vulnerable patients who contract COVID may be dying more quickly in greater numbers before they have an opportunity to benefit from hospice care. Improving COVID survival rates may help alleviate this, extending life and allowing more patients to access hospice.
Private Equity Will Stay Active, Face More Regulation
Consolidation in the hospice space has continued apace during the pandemic. Providers and investors are seeing rising deal volume and record-high valuations that exceed those for other health care sectors. More than 23 publicly announced transactions occurred during the third quarter of the year, up from 17 in Q2, according to a quarterly report from M&A advisory firm Mertz Taggart.
Looking ahead to 2022, a number of the large, publicly traded strategic buyers have signaled that they would continue to consider hospice deals, but would be leaning their M&A pipeline more heavily towards home health.
Reasons for these shifts include the aforementioned valuations. Integration of acquired hospice assets is also reportedly more complex compared to home health organizations. A third factor is a rebalancing as the dust settles from implementation of the Patient-Driving Groupings Model (PDGM) for home health reimbursement.
Some companies temporarily steered away from home health deals during 2020 and 2021 due to anticipated disruption from PDGM, opting to focus on hospice. Now that the model is firmly established, providers are ready to pick up the pace on home health acquisitions.
Private equity investors, however, are likely to stay bullish on hospice. Multiple firms and PE-backed hospices have told Hospice News that they have no intention of slowing down on hospice deals during 2022, contributing to a trend that has been building for several years.
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.
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.
If strategics pull back on the number of hospice deals they will pursue, private equity and other investors may be poised to fill in the gaps. However, these buyers may face higher levels of regulatory scrutiny than they have in the past.
Prominent lawmakers such as Sen. Elizabeth Warren (D-Mass.), Senate Finance Committee Chairman Ron Wyden (D-Ore.), and Rep. Bill Pascrell (D-N.J.) have begun probing the role of private equity in the health care space. This past year much of the focus has been on nursing home investments, but congressional eyes are starting to turn towards hospice.
Wyden, Warren and Sen. Sherrod Brown (D-Ohio) in August penned a letter to Kindred at Home President and CEO David Causby requesting information about the company’s interactions with its former private equity backers, citing concerns about quality.
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.
Lawmakers to date have not accused any of these companies of wrongdoing, but they are ramping up scrutiny. That scrutiny is likely to build in intensity and scope.
Influence of Medicare Advantage Will Grow
Participation in the value-based insurance design (VBID) demonstration, known as the Medicare Advantage hospice carve-in, doubled between 2021 and 2022. The demo got off to a small start in 2021, but its influence on the industry will likely prove more substantial as the four-year test progresses.
CMS announced that 13 Medicare Advantage organizations will participate in the program next year, up from nine in year one. This raises the number of actual MA plans to 115, up from 53 in 2021. Geographically, the program will be available in 461 counties nationwide, compared to 206 in 2021.
The carve-in represents the most significant step to date in moving hospice towards value-based payment models. While the carve-in could give providers access to more patients who wish to elect hospice but prefer not to leave their MA plans, it also comes with greater financial risk.
Many providers have voiced concerns about the carve-in, particularly that reimbursement dollar amounts will almost certainly fall for patients enrolled in MA. VBID requires plans to pay rates comparable to the per diems providers receive through the traditional Medicare benefit during the first year, but allows plans to negotiate for lower rates in subsequent periods. In these arrangements, MA plans will seek rate concessions in exchange for higher patient volume. Plans will also likely offer to pay for other services such as palliative care and incentive payments tied to quality or cost savings.
The carve-in has been controversial since the day CMS announced it. Some see it as a herald of doom for the traditional Medicare Hospice Benefit and voice fears that a shift towards value-based reimbursement and working with private payers will adversely impact quality and access to care. Others are more optimistic about the demo, saying that the program will give them access to a larger pool of patients as rising numbers of Medicare beneficiaries gravitate towards MA. They also foresee greater opportunities to engage patients further upstream.
The program is reaching the close of its first year, and the long-term results remain to be seen, but we do know that participation among providers and payers has expanded significantly for the second year, a trend that is likely to continue in 2023 and 2024.
Additionally, in recent years CMS leadership in both Republican and Democratic presidential administrations have repeatedly affirmed its commitment to advancing value-based payment models throughout the health care continuum.
However particular hospice providers perceive these value-based programs (for better or worse), they can’t afford to ignore them, whether they come in the form of Medicare Advantage, direct contracting or forthcoming demonstrations of new models.
Labor Pressures Won’t Go Away
Hospices are fighting tooth and nail to rebuild their diminishing workforce while competing with health care employers in other settings. Providers have tried revamping their recruitment and retention efforts, investing in clinical education programs at colleges and universities, raising wages and offered signing bonuses, among a host of other initiatives. Some of these actions are bearing fruit, but it stands to reason that these pains will not go away.
The longstanding labor shortage did not start with the pandemic, though it has accelerated during COVID-19. Hospices have seen rising turnover across the board during the pandemic, as has much of the health care sector. Slightly more than 20% of health care workers have thought about leaving the field due to stress brought on by the pandemic, while 30% have considered reducing their hours, according to a study published in JAMA Network Open.
The solutions start, but do not end, with hospices themselves. Hospices will need additional support if they are going to continue providing patient- and family-centered interdisciplinary care to the growing number of people who need it.
We need to see lawmakers finally pass legislation to bolster the hospice and palliative care workforce that has repeatedly been introduced in the chambers of Congress. We need to see expansion of training programs, including physician fellowships, that will prepare clinicians to provide this specialized care.
A re-examination of hospice reimbursement may also be a necessary step to ensure that providers, including smaller organizations, have the resources to compete with players like health systems in the labor marketplace.
Fight Will Continue for Diversity, Equity and Inclusion
Diversity, equity and inclusion is a sensitive but necessary discussion. Most of us now have seen the data, and whether some of us like to admit it or not, vast disparities exist in the U.S. health care system that often run along racial and ethnic lines. This includes hospice.
Black and Hispanic populations are less likely to receive a hospice or palliative care referral than white patients according to recent data from the U.S. Agency for Healthcare Research and Quality. A little more than 80% of hospice patients in the United States were white in 2018, while a mix of other ethnic demographics made up the remaining 20% of beneficiaries, according to the National Hospice and Palliative Care Organization.
Many hospice providers during 2020 and 2021 took a sharp look at how they reach underserved populations, with some creating new executive-level positions to oversee those efforts. Others have launched extensive outreach and education programs, engaging clergy and other community leaders.
We are certain to hear more talk about this issue, but we also need to see more action on a larger scale if the needle is truly going to move.
I do not doubt the moral commitment of these providers or the worthiness of their efforts. I hope and believe that they will reach more patients in underserved communities. But what the nation needs is system-wide transformation that orients care around the needs of the patient — every patient. This is more than any single provider can do.
The Center for Medicare & Medicaid Innovation (CMMI) has unveiled a new strategy designed to foster equitable patient outcomes through “high-quality, affordable, person-centered care.” CMMI has made fostering greater health care equity and inclusion a cornerstone of this strategy.
I look forward to seeing how this new approach will inform their payment model demonstrations and the results they will achieve. The CMMI strategy has the potential to make a significant impact, but ultimately efforts to address equity will have to extend beyond the structures of new payment model demonstrations, and beyond the confines of Medicare itself.
I commend the hospices that are working to do their part and sincerely hope that more will follow their example, but system-wide change will also need to include their referral partners, payers, regulators and the community at large.
CMMI may be on the right track in tying equity to payment. We all know the saying, “Money talks ….” It may be time for a discussion of ways to tie equity to payment in the larger Medicare space, or how can we tie it to organizational quality metrics or executive compensation. Where does private insurance fit into the equation? For that matter, where do the uninsured fit in?
The health care system desperately needs to address questions like these, and hospices need to be at the table helping to design solutions.
No one should die in pain. No one should grieve alone. Keep fighting.
