Hospice Tax Status and Ownership Matters for Patients and Families

The increase in ownership of hospices by private equity (PE) firms and publicly traded companies (PTCs) documented by Braun and colleagues¹ follows almost 2 decades of steady growth of for-profit ownership of hospice agencies, from one-third of hospices in 2000 to almost two-thirds by 2017.¹ Why is this noteworthy? It is difficult to identify a health care sector more detrimentally affected by the mismatch between profit maximization incentives and quality of care than hospice. Whereas some have argued that tax status (ie, whether a hospice is for profit or nonprofit) is unrelated to hospice quality, an increasing body of evidence suggests otherwise. The requirement for for-profit organizations to distribute net income to shareholders provides strong incentives to generate consistent profits over short time periods. These pressures are further magnified when the owners are PE firms or PTCs who seek to sell acquisitions for considerably more than they paid for them over relatively short time periods (3-5 years) rather than regard them as long-term investments.

Why is profit maximization theoretically problematic for hospice care? Hospice is inherently a service that is difficult for patients and families to evaluate. They often do not know what hospice is until the admission interview, at which point they are immersed in the challenges of the end-of-life experience. Even if patients or their families experience poor quality care and wish to change hospice agencies (as one could with a physician or home health agency), the short time frame of hospice enrollment (one-quarter of patients are enrolled for a week or less) and the potential of disruption during an extremely stressful time make such switching of hospices essentially impossible. Because hospice is generally a once-in-a-lifetime experience for families, comparative experience does not exist and reporting deficiencies or quality concerns after a patient has died may seem futile. This information asymmetry is exacerbated by limited regulation of hospice. The US Centers for Medicare & Medicaid Services Conditions of Participation establish only minimum standards of hospice care, primarily relating to hospice structure (eg, services and staffing). The Medicare Hospice Benefit reimburses hospices on a per diem rate, regardless of services actually provided. Thus, from both a regulatory and a payment perspective, accountability for matching services to actual care needs is lacking and profit maximizing behaviors are incentivized.

These early, largely theoretical concerns regarding the effects of for-profit hospice ownership on hospice quality are now supported by empirical evidence. For-profit compared with nonprofit hospices provide narrower ranges of services to patients,² use less skilled clinical staff,³ care for patients with lower-skilled needs⁴ over longer enrollment periods,^4,5 have higher rates of complaint allegations and deficiencies,⁶ and provide fewer community benefits, including training, research, and charity care.⁵ For-profit hospices are more likely than non-profit hospices to discharge patients prior to death,^5,7 to discharge patients with dementia,⁸ and to have higher rates of hospital and emergency department use.^9,10 In one analysis of 355 hospices, 90% of those with the lowest spending on direct patient care (eg, patient home visits) and the highest rates of hospital use were for-profit hospices.¹⁰ Whereas these are average effects across groups of hospices and individual for-profit and nonprofit hospices do diverge from these trends, in each of the differences cited, profit-maximizing behavior provides a clear explanation for lower-quality care.

Why is PE firm and PTC ownership of hospice particularly concerning? Private equity firms seek to achieve high investment returns on short time horizons (typically 3-5 years), which may conflict with the need for longer-term investments in quality, training, and staff. As hospice agency recertification is required once every 3 years, a PE-acquired hospice could be surveyed only once, or not at all, between purchase and sale. Second, timely and valid quality measurement for hospices remain a work in progress. Although the Hospice Quality Reporting Program provides a financial incentive to report quality metrics and these measures are available to the public on Hospice Compare (https://www.medicare.gov/hospicecompare/), there are no penalties tied to performance level and large amounts of data are self-reported by hospices.

To safeguard hospice quality, regardless of tax status and ownership, we need timely and transparent data with financial consequences for poor performance. Private equity firms and PTCs are drawn to hospice due to Medicare’s stable, consistent revenue stream. Given evidence that hospices are responsive to the profit motive, potentially, the path of least resistance to ensuring high quality care for patients and families regardless of ownership is to channel the profit motive in the direction of quality patient and family hospice care. Additionally, quality assurance efforts and regulatory oversight that acknowledge common ownership of hospices by PE or PTCs will improve transparency and facilitate oversight by patients, families, regulators, and policymakers.