Abstract
“Hello Sean, American Healthcare Capital is a leading healthcare Mergers and Acquisitions advisory group with a specialty in selling Hospice companies. Despite the effects of COVID-19, there has been a noticeable rise in the value of lower-middle market Hospice agencies and for the right asset, valuations have exceeded
Home health and hospice are Medicare benefits that play critical roles in the care of older adults with serious and terminal illness. Every year, over 3 million older adults enroll in home health, and 1.7 million enroll in hospice. 2 Use of both home health and hospice is common at the end of life: 65% of older adults receive home health, hospice, or both in the past six-months of life. 3 The home health benefit was included as part of the original Medicare program in 1965. Prior to 1980, for-profit companies were forbidden from owning home health agencies. After this restriction was removed, both the total number of agencies and proportion with for-profit ownership increased dramatically (Fig. 1). As of 2021, 84% of the 11,474 home health agencies were for profit. 4 The history of hospice follows a similar pattern. Hospice began as a grass-roots movement in the 1970’s supported by volunteers and philanthropy. 5 These efforts led to the enactment of the Medicare Hospice Benefit in 1982, which operated on a fixed per diem reimbursement per enrolled hospice patient. 6 In 1989, this per diem reimbursement rate was increased by 20% and permitted nursing home resident enrollment. 7 Subsequently, the number of for-profit hospices surged from less than 10% of all agencies in 1990 to more than 75% by 2020. 4
Trends in For-Profit/Nonprofit Ownership of Home Health and Hospice Agencies, % of all Agencies.
More recently, attracted by consistent revenues from Medicare and profit margins of over 20%, private equity firms have begun targeting home health and hospice. Private equity refers broadly to any activity where investors buy an ownership, or equity, stake in companies or other financial assets that are not publicly traded. One type of private equity activity that has drawn attention recently is the phenomenon of “leveraged buyouts.” In a leveraged buyout, a private equity firm will use a significant amount of borrowed money to acquire a company with the goal of selling the company for a substantial profit in 3 to 7 years. The assets of the acquired company are frequently used as collateral for the loans and private equity firms will often acquire multiple agencies in a region (“roll-up”) to gain market share and reduce competition. Since 2015, home health and hospice have led the health care services sector for private equity acquisitions. In 2018 and 2019, private equity was involved in almost 50% of home health transactions, and there was a 300% increase in hospice enrollees who received care from private equity-owned hospices between 2012 and 2019. 1
Why does this matter? While free markets maximize social welfare in many businesses, their value in health care is less clear. On the one hand, “big business” investment can bring economies of scale, enhanced efficiency, and infusion of capital that could potentially improve care quality. On the other hand, an emphasis on maximizing profit can be at odds with patient welfare. Indeed, a substantial body of evidence now demonstrates that care quality is consistently worse in for-profits as compared with nonprofits. In home health, for-profits score significantly worse on quality indicators, are less likely to successfully discharge patients to the community, are more likely to have beneficiaries experience institutional admissions within 30 days of discharge, and are less likely to have met patient care goals at discharge compared to nonprofits.8–11 In hospice, for-profits provide fewer services, have higher complaint frequencies, have higher rates of Emergency Department visits and hospital admissions, higher rates of live discharge, are less likely to report quality metrics to the Center for Medicare and Medicaid Services (CMS), and are more likely to have lower Medicare Star ratings.12–16 Tax status does matter.
The entry of private equity into the home health and hospice market is of further concern. Pressure to achieve high returns on very short-term time horizons may conflict with the need for longer-term investments in quality, training, and staffing thus reducing care quality. Agencies may try to maximize revenues from Medicare, increasing costs to taxpayers without improving value. Research in other health care sectors (hospitals, physician practices, nursing homes) has shown that private equity acquisitions are associated with workforce changes (greater reliance on lower skilled workers), increased Medicare costs and service utilization, and mixed effects on quality.17–21 Older adults with serious and terminal illness, especially people from minoritized and other disadvantaged backgrounds, may be at particular risk of bad outcomes associated with reduced investments in workforce, staff training, and other elements of patient care. As home health and hospice agency recertification is required once every three years, a private equity-acquired home or hospice agency could be surveyed only once, or not at all, between purchase and sale, raising additional potential quality concerns
The changing landscape of home health and hospice ownership demand both research to understand the impact of these trends on the care of seriously ill older adults and urgent regulatory response. Key research questions include investigating changes in ownership—including private equity acquisitions—over time and place and how this impacts access to home health and hospice services for at-risk populations. We also need to understand how ownership impacts patient-centered outcomes as well as costs to federal, state, individual payors, and patients and care partners.
Key regulatory changes are also needed, including better ownership transparency and merger oversight, improved and expanded quality reporting, and payment reform. Current government reporting requirements do not require parent companies of complex organizational structures and limited liability partner arrangements to be listed. Private equity is able to gain market consolidation and monopolization because the sizes of the small hospice and home health companies that they serially purchase fall below federal reporting requirements. Quality audits following ownership changes and eliminating the quality reporting exemption for recently acquired or smaller agencies is also needed. Finally, it is time to eliminate the flat hospice fee schedule and link payments to the patient’s diagnosis, to the frequency of care services including in-person visits, and to the skill and staffing levels of the health care workers providing care.
Barring an unlikely major overhaul of the U.S. health care system, the increasing role of the financial sector and pressures to maximize profits in health care are likely to continue. The adverse effects of profit-focused ownership on health outcomes and care quality are now well established. Focused ongoing health services research is urgently needed to monitor quality, gaps in care, and costs as seriously illness care is increasingly financialized. More consistent standards and enhanced reporting of care quality, closure of current regulatory gaps, and long over-due payment reform are needed. Care quality of our most vulnerable populations should never be secondary to profits.