Value-Based Payment Models Driving Nonprofit Hospice Affiliations

As hospices prepare for Medicare Advantage, more nonprofits are finding that creating partnerships or entering affiliations will better position themselves for payer negotiations.

Nonprofit hospice affiliations have surged in 2022 and 2023. This is in addition to the creation of several regional collaborative networks and the formation of new Accountable Care Organizations (ACOs).

The gradual move towards value-based payment models is one of the biggest drivers for these types of arrangements, including the hospice component of the value-based insurance design (VBID) demonstration,  Sue Lyn Schramm, founder and principal of Schramm Consulting LLC, said at the National Hospice and Palliative Care Organization (NHPCO) Annual Leadership Conference in Little Rock, Arkansas.


“There’s a list of things that you’ve got to do well to succeed at fee-for-service. We know how to build strong branding. We have really strong presences in our core markets and our home territory. We know excellent quality ratings are huge,” Schramm said at the conference. “ Under VBID, the Medicare Advantage carve-in and Accountable Care Organizations, the list is quite different.”

A whole new playing field

Hospice VBID is designed to test the coverage of hospice care through Medicare Advantage. The program also includes components designed to expand access to palliative care. Originally slated to end next year, the U.S. Centers for Medicare & Medicaid Services (CMS) recently extended the program to 2030.

Partnerships and affiliations can help hospices mitigate the payment reductions that will likely occur within Medicare Advantage, as health plans generally seek to negotiate for lower rates. These relationships can help generate cost savings and bolster hospices’ bargaining power.


Indeed, VBID represents the first time that hospices have had to compete based on price, according to Schramm.

“The big centralized hospices are able to consolidate their back office expenses. They can enforce cost efficiencies. They manage to some rigorous standards, very professional administration, and they often cherry pick the highest-margin patients,” Schramm said. “So that means that those freestanding hospices that are not so sophisticated — and don’t have the advantage of spreading these back office costs over a large patient base — are really disadvantaged when it comes to competing on price.”

Medicare Advantage plans and other value-based payers also often prefer to work with companies with larger geographic scale, Schramm said. Many would rather contract with one large entity with a statewide or multi-state presence than with multiple organizations that cover more localized areas.

Blustery fee-for-service headwinds

However, value-based care is not the only driver of these partnerships. Some hospices are joining forces to better ensure their economic viability in a time of rising costs and workforce shortages.

One contributing factor is stepped up competition as more and more providers enter the market. The number of licensed hospices in the United States has more than doubled since 2000, from 2,200 to more than 5,000 in 2020, NHPCO reported.

Moreover, reimbursement has not kept pace with inflation, including costs for employee transportation expenses, supplies and for wages and benefits in a highly competitive labor market.

Providers have also had to make substantial technology investments in order to remain competitive. Many providers have had to adopt more sophisticated electronic medical record systems (EMRs), as well as artificial intelligence and machine learning solutions and data collection tools.

This is in addition to the costs of establishing or expanding telehealth programs as they boomed during the pandemic.

These factors, among others, have contributed to margin compression in the hospice space, according to Schramm.

“We’ve got an environment of increasing costs that are rising all the time, not just with inflation, but the cost of wages is going up, the cost to invest in EMRs. We know we need all of these back office things that are not getting any cheaper,” Schramm said. “They’re taking up a larger and larger portion of our reimbursement. And then there’s the problem of that reimbursement itself. We know that the increase in the fee-for-service reimbursement is not keeping up with inflation.”

In its 2024 hospice final rule, CMS increased the per diem base rate by 3.1%. Hospice industry stakeholders and providers alike expressed widespread concern that the pay raise was insufficient, calling for higher reimbursement rates to offset inflation, wage pressures and other headwinds.

“While we appreciate the payment increase to 3.1%, a more generous market basket update was badly needed for nonprofit, mission-driven hospice providers committed to continuing to provide quality care in their communities,” Katie Smith Sloan, LeadingAge president and CEO, said in a statement shared with Hospice News. “Even with this increase, conditions on the ground require more support: workforce costs are higher than ever; nurses and aides are scarce, and cost for supplies, drugs, gas, and other expenses are all inflated.”

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