An Odd Pairing? When a Health Insurer Also Wants to Be a Hospice Company
Posted June 22, 2018 5:06 p.m. EDT
Death has always been lucrative enterprise, whether it involves mahogany caskets or teams of estate and tax lawyers. But hospice, the business of caring for those who are nearing death, has become a booming multibillion-dollar industry that is attracting more and more for-profit companies, including one of the nation’s major insurers.
That insurer, Humana, is making an unusual bet beyond the current strategy of health insurers to merge with pharmacies or buy up doctors’ practices. In teaming up with two investment firms, Humana plans to buy two hospice chains that together would create the industry’s biggest operator, with hundreds of locations in dozens of states.
Humana, which specializes in offering private Medicare Advantage plans, joined forces with TPG Capital and Welsh, Carson, Anderson & Stowe, two private-equity firms, last December to take over a division of Kindred Healthcare that offers both home health and hospice care. In April, the same group said it planned to buy another large hospice outfit, Curo Health Services, owned by another investment firm, Thomas H. Lee Partners.
In short, Humana, which provides Medicare Advantage plans to about 3.5 million people for their medical needs, also wants to dominate care for those at the end stages of life, whether it provides aid in a home setting or in a facility.
But a spate of government lawsuits charging negligence and malfeasance against some hospice providers underscores the risks of profiting from the dying: Companies have been accused of signing up people who are not terminally ill, denying visits from a nurse or even refusing a needed trip to the hospital.
While people getting hospice care may be at less risk for getting medical tests and treatments they do not need or want, they could get too little care, said Dr. Joan Teno, a professor of medicine and a health services researcher at the Oregon Health & Science University. The danger when a profit-driven company is delivering care is “the focus is more on profits than on quality,” she said.
“We need to make sure quality is front and center,” she said.
Humana’s decision to purchase the two hospice outfits puts it squarely in the middle of the debate. Both of the companies it plans to acquire have been embroiled in lawsuits brought by the federal government accusing them of, in one case, overbilling Medicare and, in another, paying doctors and nurses illegal kickbacks to refer patients to hospice.
Medicare has largely driven the recent interest in hospice, spending about $17 billion on such care in 2016, the most recent figure available. The program covering health care for people 65 and over began paying for hospice in 1983, a time when many people at the end of life were forced to spend their last days in a hospital bed, receiving expensive but futile treatments. To allow people to die more comfortably at home, the program started services like nursing care and a home health aide for people with a life expectancy of six months or less. People typically agree to stop treatments aimed at curing their disease in favor of care that makes them more comfortable.
— A ‘Pretty Profitable Business’
Hospices are paid a fixed amount per day and are expected to oversee the care of someone with a terminal illness, including home visits, medicines to control pain and trips to a specialist or hospital if needed. While a hospice is paid about $150 to $200 a day for routine care, they can get paid nearly $1,000 a day if someone needs round-the-clock services. Patients can stay in hospice as long as doctors agree they remain terminally ill.
Providing hospice care can be a “pretty profitable business,” said Emily Evans, a managing director for Hedgeye Risk Management, a research firm. She estimates some private companies make as much as 40 cents of profit for every dollar of revenue they take in, an extremely high profit margin of 40 percent. The Medicare Payment Advisory Commission, which does research for Congress, estimates that for-profit companies running hospices, which make up about two-thirds of the industry, had an overall profit margin of 16 percent, compared with about break-even for nonprofits.
Many hospice outfits have been sued by the government, accused of overbilling Medicare by enrolling patients who did not qualify, or for stinting on care. Last year, the Department of Justice settled a lawsuit against one company, Chemed, for $75 million. Chemed, a public company, also owns Roto-Rooter, the plumbing and drain cleaning business.
Government officials had accused Chemed and its hospice unit, Vitas, of aggressively billing Medicare for “crisis care,” even when patients did not require intensive services. One nurse who worked for Vitas described being sent to patients’ homes during a so-called crisis only to find the patients “were at church, the beauty parlor, or playing bingo.” Vitas, which was the nation’s largest hospice chain at the time, went ahead and billed for crisis care, according to the government’s lawsuit.
In one particularly egregious case, a hospice outfit in Texas has been accused by the federal government of giving patients unnecessarily high doses of medication that may have led to some deaths. Earlier this month, a nurse case manager pleaded guilty in the case, acknowledging that she collected unused medications like morphine from patients who had died to administer to other patients, and admitted to helping overmedicate some patients to hasten their death. Kindred, whose hospice business Humana hopes to buy, was penalized $3 million in 2016 by federal officials and closed some facilities after the government said it could not ensure that it was not overbilling Medicare. The hospice outfit now owned by Kindred had paid $25 million in penalties in 2012 to settle accusations of improper billing.
Curo, the other hospice business, has also had its share of run-ins with federal officials. Last year, it paid $12 million to settle accusations that it handed out kickbacks to reward doctors for sending patients to its hospices.
Even UnitedHealth Group, the nation’s largest health insurer — with fingers in a number of pies like doctors’ practices, free-standing surgery clinics and urgent care centers — sold its hospice business in 2016, the same year it settled a case with the Justice Department.
United’s hospice unit, known as Evercare, was accused of enrolling patients who did not qualify, setting “aggressive census targets” for enrollment and paying employees bonuses if they met those targets. The company employed a team to “troll nursing homes, hospitals and other care facilities to obtain new Evercare hospice patients,” the Justice Department said.
The flood of lawsuits has discouraged some companies from getting into this field. “There’s a lot of risk,” said Paul Keckley, an independent health care analyst.
But Evans contends that “the margin may well be worth the headline risk.” The federal government does not seem to have “a good plan or an aggressive plan” in prosecuting some of the bad behavior that takes place, she said.
— Cutting Staffing and Services
The potential for great profit margins has certainly caught the eye of bigger businesses. While local nonprofit groups used to provide services, much of the hospice care now available is dominated by companies that may seek higher profits even if that involves enrolling patients who do not need such care, or cutting staff and services to bare levels.
For-profit companies tend to argue they are more efficient and can invest in the people and technology to provide better care for dying patients, especially at home. Humana and the two investment firms declined to comment because they have not yet completed the purchases.
Humana has a significant interest in being able to better manage people in their Medicare Advantage plans, which are private insurance plans for people enrolled in Medicare who do not want to be in the traditional program where the government pays doctors and hospitals directly for their care. Its proposed merger with Aetna, another giant insurer, was blocked last year after the Justice Department claimed it would harm consumers. Analysts say any insurer offering a Medicare Advantage plan would benefit in seeing patients opt for hospice rather than continue much more costly treatments at the end of life. Under the current system, the federal government pays for all of the costs for anyone who is in hospice. If a patient does not enroll in hospice and stays in a Medicare Advantage plan, the insurer remains responsible for all of the medical bills.
An insurer that can steer patients toward its hospice has “better control,” said Rob Smith, an analyst with Capital Alpha Partners. After giving consent, dying patients can be shifted to the hospice program, and while an insurer would lose out on money it received from Medicare to cover that person, a company like Humana could count on the revenue generated by its hospice business. “Your other pocket is filled by Medicare,” he said.
The hospice business has “a pipeline coming from Medicare Advantage,” said Ana Gupte, a senior health care analyst at Leerink Partners. “There is a clear synergy from a top- and bottom-line perspective,” she said.
Home health care, including hospice, is a critical component of Humana’s strategy, analysts say, which is to offer an array of services for people as they age. The insurer may also be betting that hospice care in the home eventually becomes a part of what private Medicare plans must cover in the future.
“Humana wants to own the home,” said Chas Roades, a founder of Gist Healthcare, a consultant, even at the end.