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Why Private Equity is Interested in Hospice

Profit-Obsessed Private Equity is Now Dominating the US Hospice System by Lily Meyersohn offers insights to address hospice care challenges.

Private equity firms (PEFs) are targeting US hospice care and this isn't good for patients or healthcare. Flawed reimbursement and Medicare’s use of coding to pay for services are the problem. Complicated coding:

  • Does a poor job compensating for non-procedural care that is neither complex nor procedure driven

  • Distracts caregivers from focusing on patients' needs

  • Invites fraud and cross subsidization into hospice care, hurting hospice patients

Coding is so complex, it spawned a new industry called revenue cycle management that cost providers $140 billion in 2020 for billing services they couldn’t manage themselves. The article notes: “Private equity is [...] good at exploiting the public payment system for hospice care.” PEFs optimize and manipulate Medicare payments by focusing on the gray areas.

The fact that some services requiring complex care have a higher profit margin while others have none is known as cross subsidization. The article notes that coding creates cross subsidization with hospice patients: “People with dementia [...] 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 [...] typically have shorter life expectancies and require more skilled nursing care. Refused by privately owned providers, they frequently wind up in nonprofit hospices.”

PEFs can manipulate payments and carefully select profitable patients to earn a 15-20% margin while nonprofit hospices struggle to break even.

The author recommends more regulation and transparency which to date have demonstrated little success. I offer a completely different solution: Change the hospice reimbursement model to cost reimbursement. Eliminate coding and instead base payments on the actual cost of care for a patient making all patients equal from a payment perspective. A modest margin beyond the reimbursement of costs could be added to those costs.

This is simple and less costly to administer. Caregivers can focus on patients instead of coding. It eliminates cross subsidization since all patients are paid for equally. It minimizes fraud because there is nothing complex to manipulate in the billing process. It would drive PEFs from the hospice sector because they could no longer achieve their profit margin requirements.

Hospice care is too critical to end-of-life care to be at risk because of a complex payment system. Medicare needs to change how it pays for hospice services.

For details on improving end-of-life care and reforming healthcare see my new book The Journey’s End.

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