Profit-Obsessed Private Equity Is Now Dominating the US Hospice System

The US hospice system is supposed to provide compassionate end-of-life care. But private equity firms have swallowed up the industry: 7 out of 10 hospice agencies are now for-profit, putting profit maximization over patient well-being.

In recent years, private equity has exploited both fragmentation in the hospice sector and gaping holes in oversight left by federal agencies. (Justin Paget / DigitalVision via Getty Images)

Though the majority of Americans spend the final weeks of their lives in hospice care, the United States only got its first hospice, the Connecticut Hospice, in 1974. Today, just under a half century later, over 5,500 hospices provide services for the dying; in 2020, 1.72 million Americans received care through hospice services, whether in brick-and-mortar inpatient facilities or in the comfort of their homes. (Most people on hospice do pass away at home.)

The United States’ heavily for-profit hospice system would be unrecognizable to Florence Wald and the group of patient-minded nurses, doctors, and clergy who founded the Connecticut Hospice. As of 2020, over 72 percent of hospices are for-profit and approximately 24 percent are nonprofit. Less than 3 percent are publicly owned.

In a new report by the Center for Economic and Policy Research (CEPR), Preying on the Dying: Private Equity Gets Rich in Hospice Care, researchers examined the outsize role that private corporations, and specifically a small but growing group of private equity firms (PEFs), play in the administration of US hospice care. They found that in recent years, private equity has exploited both fragmentation in the sector and gaping holes in oversight left by federal agencies, including the Centers for Medicare & Medicaid Services (CMS) and the Federal Trade Commission (FTC). And though groundbreaking investigations from the Los Angeles Times, the New Yorker, and ProPublica have sounded the alarm on hospice fraud in recent months, too little attention has been paid to issues inherent to the system — in particular, how private equity can so exploit regulatory holes.

These days, the authors of Preying on the Dying write, the hospice industry is dominated by “Wall Street players driven by the logic of profit maximization.”

The Hospice Landscape

Until the early 2000s, the majority of hospices were nonprofits. But in the wake of the financial crisis, most nonprofit hospices and palliative care facilities were bought out — first by publicly traded companies, and now by private equity. Over 70 percent of hospice agencies acquired between 2011 and 2019 were previously nonprofit, and private equity ownership of hospices has doubled since 2011.

William Lazonick, professor emeritus of economics at the University of Massachusetts and cofounder and president of the Academic-Industry Research Network, tells Jacobin that he believes private equity has moved into the health care arena writ large because the sector is largely unregulated and consumers are highly dependent on its products, including hospice services. And given the inherent stress of end-of-life situations for patients and their families, they may also be hard pressed to push back against poor quality or high costs of care.

The hospice industry is especially vulnerable to private equity intrusion because it is fragmented, giving companies the opportunity to “buy up small agencies . . . consolidating local health care markets.” Between 2011 and 2020, private equity deals soared by almost 25 percent. Eileen Appelbaum, coauthor of Preying on the Dying and codirector of CEPR, tells Jacobin that the number of takeovers also remains obscure. “When private equity is involved, it looks like one deal. But they’re picking up many locations. When one deal happens, that might mean two hundred locations.”

For now, the details of the hospice locations involved in these deals are kept private, as they are proprietary. No nationally representative data exists on what these PEFs are doing: “They’re not required to report anything,” Appelbaum says. Since buyouts don’t necessarily lead to company name changes, locals may also not be aware of takeovers. And because deals primarily occur with “little or no disclosure or public scrutiny,” a March 2023 Public Citizen study reported, regulators and watchdogs struggle “to monitor the effects of private equity ownership.”

How Does Private Equity Acquire Hospices?

Private equity firms use “leveraged buyouts” to obtain a company and borrow money in that company’s name to pay themselves dividends. In the meantime, acquired companies are saddled with debts that they must eventually repay. “They get their money up front,” Lazonick explains, “by loading the company up with debt.” Debt-burdened companies are then forced to lay off workers, cut costs, or go bankrupt. Though it’s difficult for researchers to pin down how many private equity deals eventually trigger bankruptcy, leveraged buyouts undoubtedly increase the likelihood of a company going belly up.

The CEPR report is the first to look at how private equity operates in the hospice industry. Though many of the roughly four thousand PEFs in the United States are small firms that don’t load up companies with massive debt, Appelbaum and her coauthors, Rosemary Batt and Emma Curchin, find that hospice acquisition by some of the larger, more predatory private equity firms can do terrific damage to the quality of care for the dying. They argue that the “drive for high returns for investors” leads to extreme wealth extraction on the part of PEFs: “Private equity’s debt-financed acquisition of agencies, its prioritization of profits, and the short time frame before it plans to sell them for much more than it paid to acquire them creates unique pressures to quickly increase revenue and operating profits.” Even publicly traded companies generally hold onto acquisitions longer than private equity funds; the median holding time for private equity–owned companies is just over four years. Those acquisitions can generate as much as a 25 percent return for a PEF and its investors.

Private equity is particularly good at exploiting the public payment system for hospice care. The Centers for Medicare & Medicaid Services have provided a hospice benefit to Medicare and Medicaid recipients since 1983, and from 2000 to 2017, Medicare outlays to hospice providers ballooned from $2.8 billion to $17.7 billion. Medicare contracts other organizations to provide hospice services and reimburses them through a fixed payment system, using a per-diem rate for each patient regardless of what kind of care the patient needs. This means that the “longer a patient stays, the more money the provider makes” — a model that leaves room for abuse, Appelbaum says. She argues that CMS needs to pay a higher fee for patients with higher acuity cases, rather than a flat fee.

For now, the fixed payment system means that privately owned hospice providers are more inclined to take on both ineligible patients who clearly have more than six months to live and healthier patients who require less expensive care. People with dementia, for instance, may have few acute medical needs and live for more than six months, giving providers more time to collect their daily reimbursement and allowing providers to goose their profit margins.

By contrast, cancer patients or patients with heart conditions who are being released from the hospital typically have shorter life expectancies and require more skilled nursing care. Refused by privately owned providers, they frequently wind up in nonprofit hospices. Those providers may struggle to provide for panels comprised of sicker patients, while privately owned companies thrive off relatively healthier, longer-living patients.

Private equity–owned providers find additional ways to boost their profit margins, like slashing the number of days or hours of care a patient receives or using poorly paid, less experienced workers in inappropriate or dangerous circumstances. Researchers have found that Medicare beneficiaries enrolled in for-profit hospice agencies are “more likely to receive a narrower range of services” than beneficiaries getting care from nonprofit agencies. And since CMS lacks standards for what dying patients actually require — especially in the few days before death, “when the patient’s need for pain relief and treatment to improve their comfort are most acute” — patients in for-profit settings are vulnerable to real neglect in the twilight of their lives.

What Can Be Done?

Last December, four leaders of the bipartisan Comprehensive Care Caucus sent a letter to the inspector general and to CMS administrator Chiquita Brooks-LaSure requesting that they initiate an investigation of allegations — made public by the Los Angeles Times, the New Yorker, and ProPublica — of widespread Medicare and Medicaid fraud in hospice care. Around the same time, four preeminent national hospice organizations wrote a joint letter to Brooks-LaSure urging her to fortify federal oversight to safeguard hospice patients and their families. A spokesperson for one member of the Comprehensive Care Caucus, Sen. Tammy Baldwin (D-WI), said that Baldwin’s office had no record of a response from CMS to their December letter.

When approached for comment for this article, Administrator Brooks-LaSure said:

The Centers for Medicare & Medicaid Services (CMS) takes our oversight role of the Medicare program seriously. Effective oversight and enforcement are important to protect the integrity of the Medicare program, especially when it comes to end-of-life care. We are concerned about increased reports of program integrity concerns surrounding the hospice benefit and are working on further strategies to prevent fraud, waste and abuse while making sure that people with Medicare get the care they need.

In the meantime, the coauthors of the CEPR report propose a three-pronged approach to policy reform: strengthening and enforcing existing policies; developing new measures to close loopholes in the system; and enhancing merger review by the Department of Labor and the FTC. Currently, under the Hart-Scott-Rodino Act, the FTC automatically reviews acquisitions valued at over $110 million. But hospice acquisitions rarely hit that trigger threshold, leaving “regulators blind to the scale at which private equity owned hospice chains are growing.” The failure of oversight by antitrust agencies leaves PEFs free to form ever-larger for-profit hospice empires.

New regulations for private equity in other areas of health care offer clues as to what kinds of reforms might work for hospice. Under pressure over concerns about private equity in nursing homes and hospitals — including reports that PEFs often don’t appear in ownership reports for providers in which they are invested — the Biden administration has introduced new transparency requirements. Last December, the administration published ownership information for seven thousand hospitals, and in February, the Department of Health & Human Services (HHS) issued a proposed rule to compel nursing homes to disclose information about their beneficial ownership and management. Just last month, HHS put out ownership data for more than six thousand Medicare-certified hospices and eleven thousand home health agencies.

On the legislative side, US representative Pramila Jayapal (D-WA) reintroduced the Healthcare Ownership Transparency (HOT) Act this March, which aims to combat private equity in health care. The HOT Act would set up bodies to better understand the role of private equity in health care, and require disclosure of ownership stakes in health care facilities — including nursing homes, home health agencies, and hospice providers — ensuring that that information is publicly available even if a facility is in a shell company’s name.

But the bill will most likely “struggle in a Republican House,” says Eagan Kemp, a health care policy advocate at Public Citizen. “Private equity gives so much to Republicans and to centrist Democrats. Any bills that crack down on [it] are facing an uphill battle.” Still, there is certainly a “growing awareness,” he added, including within the Biden administration, “that something needs to be done.”

CMS is ultimately responsible for reining in private equity behavior and enforcing rules that are already on the books, Appelbaum says. But she and others believe the agency’s regulations are deficient. A CMS spokesperson told Jacobin that to participate in Medicare, hospices must meet federal standards for health and safety and are then surveyed at least once every three years to verify their compliance. But Appelbaum notes that if a provider is owned by private equity, it could be sold before it is even due for its next inspection. She argues that CMS needs to carry out more consistent and careful inspections to guarantee that hospice providers are aboveboard before they become eligible for government payments.

Even when problems are found, Applebaum tells Jacobin, “agencies are required to do little more than develop a plan to correct deficiencies. Notably, the agencies are not booted from the Medicare program and continue to collect generous payments while providing substandard care.” Except in egregious cases, CMS rarely revokes a provider’s certification: only nineteen hospices had their Medicare funding revoked between 2014 and 2017.

A spokesperson from CMS said the agency takes appropriate administrative action to recover improper payments and refers cases to law enforcement in instances of suspected fraud. According to the spokesperson, the agency also recently launched a nationwide project to conduct site visits for hospices enrolled in Medicare, focusing on hospices that are colocated at one address; it plans to nix any nonoperational hospices from the Medicare program. This project has helped CMS single out fifteen hospices that the agency is currently removing from billing privileges.

Yet many experts believe that to reduce false claims and improve the quality of hospice care, the entire payment structure for hospice care needs reforming. The National Hospice and Palliative Care Organization has urged CMS to move away from the flat-fee model toward one based on patient needs. Though CMS regularly changes its payments to physicians based on advice the agency receives from its advisory bodies, it’s unclear whether it has a similar authority to change the way that hospice payments are set and distributed. Appelbaum, for one, hopes that a congressional office will pursue the question with CMS. If CMS is unable to make these shifts to the payment structure, then Congress may need to intervene.

A new model would dole out reimbursements based on the services required by individual patients, linking payment to a patient’s diagnosis, the frequency of care services, and to the skills of those who provide the services — in essence, providing incentives to “provide more and higher quality care to patients.”

Finally, there is the option to expand the small fraction of hospice agencies that are currently government owned. According to Preying on the Dying, “Economists argue that when the quality of a service is ill-defined and enforceable contracts cannot be written” — as with hospice — “it may be preferable to have the service publicly provided.” But the authors stop short of defining how that horizon might be achieved, instead acknowledging that it is “not often possible” to provide these services publicly. In the absence of publicly provided hospice services, heightened regulation — including the changes described above — is paramount.

But though they are few and far between, publicly owned hospices do exist. They remain the clearest path forward if the United States is intent on bringing the hospice industry closer to its roots in compassionate caregiving for the dying.