Newly launched or acquired hospice businesses have come under a finer regulatory microscope in recent years as regulators respond to fraudulent activity in the space. Some legitimate hospices may be buckling under ramped up regulatory pressures that have impacted their financial sustainability.

The U.S. Centers for Medicare and Medicaid Services’ (CMS) regulatory oversight approach could potentially put some new hospices out of business, according to Bryan Nowicki, partner at the law firm Husch Blackwell.

Hospices have faced a growing volume of audits in recent years that in some cases have created substantial financial headwinds, Nowicki said during a recent Husch Blackwell podcast.

“Nobody wants to fold in a poker hand, you’re out of the game at that point,” Nowicki said. “But it just seems the way CMS is proceeding with some of these efforts that a lot is on the line for hospices that are new hospices or that are recently acquired hospices. A lot of pretty serious consequences can be visited upon hospices. [It] can create cash flow issues for a new hospice or recently acquired hospice just starting out.”

The quantity of provider audits has risen steadily for several years running. Among the factors is CMS’ resumed auditing activity after the agency stalled regulatory enforcement processes during the pandemic. A more recent and significant factor came with program integrity concerns heating up in four particular hotbed states: Arizona, California, Nevada and Texas. As a rash of newly licensed hospice operators began cropping up in these states, far exceeding the typical volume.

Multiple reports of unethical or illegal practices have surfaced, particularly among new companies in those four states. In some instances, several hospices have been found operating out of the same address without a corresponding increase in the population of eligible patients. Some individuals also hold management positions at several of these hospices simultaneously.

The fraud issues have ignited a trend of increased auditing activity across the hospice industry. Many hospices have recently reported undergoing multiple audits simultaneously.

A particular sticking point in auditing processes is the prepayment medical review of certain hospices, particularly those with newly activated or reactivated Medicare licenses, or providers who are new to submitting billing claims under their current ownership, according to Nowicki.

A host of consequences can loom within the prepayment medical review process, he said. The risks include potential revocation of Medicare privileges and licensure and termination of the hospice’s provider number.

“The [auditing] process itself could be daunting. The consequences seem to be disproportionate,” Nowicki said. “In the claims [CMS is] reviewing, it seems like it’s not enough for them to really get a fair picture of how the hospice is performing. CMS casts a wide net to a fault. It’s trying to weed out the bad folks but it catches the good guys. There are real draconian consequences that you can appeal, but the odds are you’re not going to win, or you’re going to have to survive through months of no revenue. You’ve got to act quickly in a number of respects.”

The financial impacts can be devastating even for well-meaning, quality hospice providers, said Meg Pekarske, partner at Husch Blackwell. Regulatory enforcement actions have increasingly weighed heavily on hospices’ bottom lines, Pekarske indicated.

Legitimate hospices are getting swept up in the regulatory mix of enforcement actions aimed at rooted out bad actors, she stated. Some new hospices have endured lengthy auditing processes that have hindered their financial sustainability, a trend that has had reaching impacts on patient access. Auditing appeal processes can take a long period of time, during which a hospice may have had their billing privileges revoked or suspended and have limited to nonexistent reimbursement recourse.

“The consequences are getting really serious … with real-life circumstances,” Pekarske said during the podcast. “We’ve been dealing with [hospices saying] CMS looked at a very small sample of claims and is now going to revoke their provider number, and that’s everything. You have appeal rights, but it’s fairly serious. The difference here is the consequences and the whole number of claims that you’re getting a shot at them looking at before they cut the cord and [say] this is an abuse of billing privileges.”

A potentially positive impact of the increased regulatory oversight is that regulators and providers alike are building a foundation for improved quality infrastructure, Nowicki indicated.

The compliance lessons learned by hospices could help fuel future care delivery and business decisions, including those related to buying or selling off programs, he stated. Auditing processes can allow hospices to gain significant insight into potential risk areas within their billing and documentation practices, as well as how to better align their care models with current regulations.

For regulators, the opportunity lies in process improvement and gaining a better understanding of how to detect the fraud risks hiding within a provider’s billing data, Nowicki stated.

“A silver lining of those reviews and being audited is that you get tested and you can improve your process,” he said. “Looking at the audit history will tell you whether you’re buying more risk or you’re buying something that eliminates risk because they had a good [audit] result. Take that into account, that’s the kind of thing that might change minds at CMS.”