Stakeholders and policymakers who shape the hospice industry are making connections between a provider’s tax status and quality indicators. Their perceptions could have significant repercussions on the outlook of hospice investments.

More private equity (PE) investors have stepped into the hospice and home health space in recent years. This trend extends across the broader health care continuum, as certain types of owners — notably private equity entities — have come under scrutiny from lawmakers. Providers’ tax status may be among the potential risk factors of fraudulent hospice spending.

For-profit business and operational infrastructures can differ from nonprofit hospices, which have historically represented much of the providers in the industry. But research has found that the tide is shifting.

Private equity transactions represented half of all home health and hospice deals in 2018 and 2019, resulting in a 300% increase in patients enrolled under PE-backed providers, according to research published in the Journal of Palliative Medicine.

The research examined Medicare hospice beneficiary data including timely start of care following patient admission, disenrollment and live discharge rates, volume of patient visits, length of stay and billing claim amounts. The data also included tax and ownership status, staffing and leadership makeup and quality scores available on the U.S. Centers for Medicare & Medicaid Services’ (CMS) Care Compare site.

The study linked for-profit hospice care to risks of lower quality, according to researcher Dr. R. Sean Morrison, director at the National Palliative Care Research Center (NPCRC). Morrison is also the Ellen and Howard C. Katz Professor and chair of the Brookdale Department of Geriatrics and Palliative Medicine at Mount Sinai.

Live discharges occur in less than 10% of patients at nonprofit hospices, study author Lauren Hunt indicated. This compared to an overall 20% of live discharge rates among patients of for-profit hospices. Hunt is a nurse practitioner and health services researcher. She also serves as associate professor at the University of California, San Francisco’s (UCSF) Institute for Health Policy Studies Mount Sinai Health System.

“No matter what, tax status matters, and we have to be comfortable talking about that now,” Morrison told Hospice News. “Whether for-profit or nonprofit, we need to figure out how to ensure that every patient is getting access to the highest quality care. We can’t shy away from the fact that there really are clear differences in how organizations run themselves. There are fundamental differences … nonprofits generally overall provided better quality of care.”

Regulators eyeing PE

Private equity owners have come under a regulatory microscope in the hospice space.

Congress members in October re-introduced a bill aimed at instilling a moratorium on new PE-backed hospices and other health care businesses. Sen. Elizabeth Warren (D-Massachusetts) was among those who support the launch of a revised version of the Stop Wall Street Looting Act, which is designed to address regulatory loopholes and eliminate incentives allowing for-profit businesses to dominate the health care space.

“Private equity takeovers are legal looting that make a handful of Wall Street executives very rich while costing thousands of people their jobs, putting valuable companies out of ­business, and in the case of health care, is literally a matter of life and death,” Warren stated.

However, PE investors also can help build economies of scale to help hospices grow and expand access to care, Some maintain that these companies make sustain hospice businesses sustainable or help them obtain new technology or tools.

Rising demand and a fairly stable reimbursement climate are two propellants attracting PE interest to the hospice merger and acquisition landscape, according to Eugene Goldenberg, managing director at the investment firm Edgemont Partners.

Legitimate companies want the best quality possible for the highest return on their hospice investments, he said.

“What are the underlying tailwinds of the business and how investable is this category of hospice from five years ago to now, a decade from now? Without any hesitation, I would say the [hospice] market will be significantly larger than it is today,” Goldenberg told Hospice News at the Elevate conference in Washington D.C. “In general, I have a hard time thinking of a hospice business owned by a private equity firm that emerged smaller than when private equity made the investments. There’s a significant amount of success stories in hospice and private equity, as opposed to any kind of failures or bankruptcies.”

More research is needed to determine the relationship between tax status and ownership structure and patient outcomes, Hunt said.

“We definitely need to invest more research dollars into understanding what the impacts are of different financial players and how that affects outcomes,” Hunt told Hospice News. “The huge increase in private equity acquisitions in hospice is concerning, because the profit motives are very high for fast turnaround on investors in a short period of time. We don’t have a good understanding of private equity spending versus other types of ownership.”

The program integrity problem

Hospice has also come under the eye of regulators due to instances of fraud, waste and abuse, largely due to an influx of new for-profit companies in Arizona, California, Texas and Nevada.

Private equity-owned hospices have not been linked to these activities. These investors ultimately do not want a poor-performing hospice asset, particularly when it comes to quality and compliance, Goldenberg said.

Instances of fraud, waste and abuse in hospice are not directly tied to for-profit and private equity operators, Hunt said

Regardless of tax status, hospices of all walks have faced mounting pressures amid fraudulent activity in the space, according to Patrick Harrison, senior director of regulatory and compliance for the National Alliance for Care at Home.

“We have already seen the broader impacts associated with increased scrutiny on hospice providers,” he told Hospice News in an email.

Program integrity issues in the industry are “seriously challenging” hospices’ ability to meet community needs amid rising demand, increasing labor costs and workforce shortages, Harrison added.

Regulators are zeroing in on fraud, waste and abuse in the hospice space, and the ramped up oversight and enforcement activity has added compliance and financial pressures to legitimate operators, he stated. While the intent is aimed at rooting out malfeasance, the efforts may be inadvertently posing difficulties around improved quality as hospices prepare for and respond to increased auditing and survey activity, Hassion indicated.

“CMS, in its efforts to catch fraudulent providers casts a wide audit net that often ensnares hospices who aim to operate ethically and prioritize patient care,” Harrison said. “For the providers, the audit process is cumbersome, adding significant costs, time, and burdens that ultimately take time away from patient care.”