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Medicare spending rose nearly 6% after private equity firms acquired hospice providers, but patients did not receive more nursing visits or other clinical services, according to a new study published in the November issue of Health Affairs.
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Instead, researchers found that patients had longer hospice stays, were more likely to be discharged, and increasingly had diagnoses associated with lower daily care needs.
These findings raise questions about whether Medicare’s hospice payment system creates financial incentives for providers to admit patients who require fewer services rather than those with more complex end-of-life care needs.
For hospice nurses and other healthcare professionals, the research shows how ownership structures and reimbursement policies may influence patient admissions, care delivery, and access to services.
Medicare Hospice Spending Increased After Private Equity Acquisition
Researchers analyzed Medicare fee-for-service claims from 191 for-profit hospices acquired by private equity firms between 2018 and 2022 and compared them with 1,305 similar for-profit hospices that were not acquired.
The analysis compared the two years before and after each acquisition to identify changes in spending, patient characteristics, and services.
Following acquisition, Medicare spending increased by an average of $993 per hospice stay relative to the comparison group, a 5.9% increase from a baseline of $16,922.
Patients at private equity-acquired hospices stayed an average of 6.3 days longer than those at comparison hospices. Fewer had stays lasting less than a week, while more remained in hospice for longer than six months.
Patients were also more likely to be discharged alive.
However, researchers found no corresponding increase in physician, nursing, or home health visits that might explain the longer stays.
Hospice Nursing and Clinical Services Did Not Increase
The study found no significant changes in the total number of clinical visits or the amount of time providers spent with patients each week. Patients also received fewer social work visits.
The findings suggest that longer hospice stays were not explained by an increase in the clinical services researchers measured.
Instead, researchers identified changes in the types of patients admitted to hospice as a more likely explanation.
The study did not establish whether individual patients received adequate care or whether the changes affected their quality of life.
Hospice Admissions Shift Toward Patients With Dementia
After private equity acquisition, the proportion of hospice patients with dementia increased from 22.6% to 23.8%, while the proportion remained unchanged at comparison hospices.
Dementia and cancer were the two largest diagnostic groups represented in the study, but patients with these conditions can have substantially different care needs.
A patient with dementia may experience a gradual decline and require relatively few daily services, while a patient with cancer may need frequent clinical visits and complex pain management.
Yet Medicare generally pays hospices a fixed daily rate regardless of how much care an individual patient requires.
That payment structure can make patients with lower daily care needs more financially attractive to hospice providers.
Researchers suggested that the shift toward admitting patients with less intensive care needs may help explain both the longer stays and the higher proportion of patients discharged alive.
The findings do not establish that private equity-owned hospices deliberately selected patients based on profitability, but they are consistent with financial incentives created by the existing payment system.
“The bigger question is whether that is the best payment model for meeting the needs of people who need hospice, or of ensuring that Medicare spending is sustainable,” said Zirui Song, the study’s senior author and an associate professor of health care policy at Harvard Medical School.
Private Equity’s Growing Role in Hospice Care
Private equity firms are now the fastest-growing category of hospice owners, as the U.S. hospice industry has shifted from predominantly nonprofit organizations to a market in which nearly three-quarters of providers operate for profit.
Unlike traditional for-profit operators, private equity firms frequently finance acquisitions through a combination of investor capital and borrowed money.
The acquired company typically assumes responsibility for repaying that debt, creating pressure to generate revenue while delivering returns to investors.
Previous research by Song has linked private equity ownership in other healthcare settings to increased Medicare spending, reduced physician staffing, and adverse patient outcomes.
The latest study examined whether similar financial pressures could influence hospice operations, even when the acquired organizations were already operating for profit.
The findings suggest that private equity acquisition may introduce additional changes in patient selection and spending beyond those associated with conventional for-profit ownership.
Could Medicare Change How It Pays for Hospice Care?
Researchers say changes to Medicare’s hospice reimbursement system could help reduce incentives to favor patients who require less intensive care.
One possibility is adjusting daily hospice payments based on patients’ clinical needs.
Such a system could account for differences in diagnoses and care complexity.
However, the authors cautioned that adjusting payments based on patient risk could create new incentives for providers to document diagnoses in ways that maximize reimbursement.
Another approach would separate payments for certain clinical services from the daily hospice rate, with oversight to prevent unnecessary services and overbilling.
Any changes would need to balance financial sustainability with equitable access to high-quality end-of-life care.
“The goal of hospice is to provide respectful, person-centered care that helps terminally ill people approach end of life with dignity, while minimizing pain and suffering,” Song said.
Nearly half of Americans who die are Medicare beneficiaries who use hospice services, underscoring the importance of how these providers are financed and operated.
“As the population ages, we should make sure that high-quality hospice care is available for all the patients who need it, as well as sustainable for the Medicare program,” Song said.
