Medicare Spending Rises After Private Equity Buys Hospices | Newswise

A study published in the November issue of Health Affairs found that for-profit hospices acquired by private equity firms saw Medicare spending rise by 5.9 percent per hospice stay after acquisition, relative to similar for-profit hospices that were not acquired. Medicare paid $993 more per stay than at comparison facilities, from a baseline of $16,922. The researchers compared 191 hospices acquired by private equity firms between 2018 and 2022 with 1,305 matched control hospices, examining the two years before and after each acquisition, according to the study as reported by Newswise.

The increase was driven mainly by longer stays. Average length of stay rose by 6.3 days, a smaller share of patients had very short stays of less than a week, and more stayed longer than six months. Patients at private equity-acquired hospices were also more likely to be discharged alive. The researchers found no significant increase in total visits or visit time, and patients received fewer social work visits, so the longer stays were not explained by additional services.

The study attributes the pattern partly to a shift in patient mix. Because Medicare pays a set daily fee regardless of care needs, patients with dementia, whose decline is typically gradual and who require fewer services, are relatively more profitable. The share of dementia patients rose after acquisition, while control hospices showed no change. Senior author Zirui Song, associate professor of health care policy at the Blavatnik Institute at Harvard Medical School, said the result "makes sense from the point of view of a for-profit facility that looks to generate revenue under this payment system."

The authors note that private equity ownership is growing quickly in hospice care. Over the past two decades, U.S. hospice ownership has shifted from mostly nonprofit to nearly three-quarters for-profit, and private equity firms are now the fastest-growing type of owner. The study authors suggested that Medicare's payment design may warrant changes, including adjusting the daily fee by patient diagnosis or separating out payment for specific services with monitoring safeguards. They cautioned that risk adjustment could also encourage coding to maximize payment. The study was led by Sneha Kannan of the University of Pittsburgh, with co-authors Julia Driessen, Jeremy M. Kahn, and Catherine Mankiw, and was supported by grants from the National Institute on Aging, the Agency for Healthcare Research and Quality, and Arnold Ventures.