A wave of mergers, acquisitions, and investments made hospice another Wall Street commodity to be traded, with one goal: maximizing returns.
The following is an excerpt fromChanging the Way We Die: Compassionate End-of-Life Care and the Hospice Movement by Fran Smith and Sheila Himmel. Copyright © 2014. Reprinted with permission of Cleis Press.
From a mission of mercy, hospice has evolved into a $14 billion industry, increasingly run by corporate chains, and nobody gets more credit, or blame, than the Reverend Hugh Westbrook. He invented the very idea of the corporate hospice, when he and a couple of partners opened the first for-profit program, in Dallas, in 1984—right after the Medicare law he was instrumental in crafting began to pay for hospice services. Over the next two decades, he grew the company into VITAS Innovative Hospice Care, the largest hospice chain in the United States—or anywhere, for that matter, because hospice chains do not exist abroad. In the process, Westbrook proved the unthinkable: A business can make a fortune caring for dying people.
Certainly he did. He had yachts, a Florida beachfront mansion, and a mountain home in North Carolina. He invested in a string of companies. He wrote big checks to Democratic candidates—his name would turn up on an infamous list of donors who received an invitation to sleep in the White House Lincoln Bedroom in exchange for a minimum $50,000 donation to President Clinton’s re-election campaign. And all that happened before he made the really big money, by cashing out to Roto-Rooter, a publicly traded company and a longtime VITAS investor.
Roto-Rooter already owned about 25 percent of VITAS when it acquired the rest of the company, in a $406 million deal in 2004. Westbrook walked away with about $200 million.
He signed the standard agreements not to compete, which kept him out of the hospice world for eight years. In that time, the industry changed more dramatically than even he could have imagined. A wave of mergers, acquisitions, and investments made hospice another Wall Street commodity to be traded, with one goal: maximizing returns. Roto-Rooter kept its hospice operations under the VITAS name but rebranded the corporate parent as Chemed Corp. The name had a ring of scientific authority and did not call to mind clogged drains.
Now under pressure to please shareholders with ever-larger revenues each quarter, VITAS embarked on a fast track to growth. It bought smaller hospices, opened new ones, and marketed more aggressively to doctors—for example, the free VITAS app, released in 2012, offered doctors the convenience of making referrals “without ever leaving your phone.” The company also began advertising directly to consumers, on radio and billboards. In 2012, VITAS had 11,000 employees in fifty-one programs across eighteen states. It served more than 75,000 patients and reported nearly $1 billion in revenues. As VITAS supersized, salaries bulked up too, at least in the corner offices of the corporate suite. Kevin J. McNamara, Chemed president and CEO, earned $6.4 million in salary, bonuses, stock awards, and other compensation in 2011. Timothy S. O’Toole, head of the VITAS subsidiary, had a $2.7 million package.
No wonder hospice beckoned investors. Almost every hospice program opened in the past decade has been for-profit. By 2011, 60 percent of Medicare-certified hospice providers were for-profit companies, up from 27 percent ten years earlier. Gentiva Health Services Inc., a publicly traded home health company, bought up small hospice chains in an aggressive move into the hospice market. (Yes, people in end-of-life-care, at for-profits and nonprofits alike, now toss around phrases like “the hospice market.” In investor circles, it’s “the hospice space.”) By 2012, Gentiva operated hospice programs in 165 locations across thirty states, with net revenues of $765 million.
While such numbers pointed to a dizzying pace of consolidation in a field that had always prided itself on local autonomy and deep community roots, these two hospice giants, together, accounted for less than 15 percent of all spending for hospice care. That left a lot of tantalizing territory wide open. Venture capital and private equity firms began staking their claims. The first three months of 2011 logged ten big equity investments in hospice companies, a near record. “Hospice deal volume continues to roll,” proclaimed Becker’s Hospital Review,a health care business journal, as it named hospice one of “thirteen hot areas for private equity investment.” (Becker’s placed home health care on its “cold” list, which might explain Gentiva’s push into hospice.)
A typical newcomer was Sentinel Capital Partners, a Manhattan-based equity firm with a mission “to generate attractive investment returns.” In 2012, Sentinel added Hospice Advantage, a chain with fifty-six programs across the Midwest and the South, to a diverse portfolio of companies, including Huddle House family restaurants; Trussbilt LLC, a manufacturer of steel doors for prisons; Spinrite, a yarn maker; and National Spine & Pain Centers. The financially beleaguered Washington Post Co. also came on the scene, acquiring a majority stake in Celtic Healthcare, a Pennsylvania- based home health and home hospice provider. In a statement quoted in his own newspaper, Chief Executive Donald Graham—an heir to a proud legacy of journalism in the public trust—said the deal was “part of the Post Company’s ongoing strategy of investing in companies with demonstrated earnings potential.” In 2013, the Washington Post Co. sold the newspaper, but kept the hospice holdings.
The commercialization of hospice generated less enthusiasm outside the investment community. As the market heated up, hospice attracted the worst publicity in its history, dimming its halo image, fairly or not. The U.S. Department of Justice sued several hospices for milking, or bilking, Medicare for millions of dollars—in some cases by enrolling elderly patients who were not terminally ill. A blistering investigation by Bloomberg reporter Peter Waldman uncovered sales contests and high-pressure marketing tactics at a few for-profits—including a “Christmas Cash Blitz,” a “Fall Frenzy,” and a “September Sizzle” at a hospice in Kansas that paid employees as much as $100 a head for referrals. On the clinical side, a long-time hospice nurse, Nancy Costea, published a powerful essay in the journal Nursing Forumin which she chronicled the harried pace of her job, the large caseloads, and the fragmentation of care that left patients in the hands of a parade of unfamiliar nurses and aides, eroding the intimate bond between health care provider and patient that once defined hospice care.
Costea worked for VistaCare Hospice in Albuquerque, a small, well-regarded chain founded in 1995 by three nurses and a health care entrepre- neur. A larger chain, Odyssey HealthCare, acquired VistaCare in 2008 for $147 million. Two years later, Gentiva bought Odyssey for nearly $1 billion. Costea’s account eerily echoed the criticisms that Elisabeth Kübler-Ross and Florence Wald had leveled at hospitals decades before—the frenzied, impersonal conditions that gave rise to the hospice alternative in the first place. Costea wrote of her struggle to do her job without losing her “hospice heart,” giving public voice to a sentiment that more and more nurses and doctors expressed among themselves. Over coffee or a glass of wine at the end of a long day, they would talk about the bureaucracy, the marketers, and ask, often with a guilty grimace: Was hospice in danger of losing its soul?
Hugh Westbrook, of all people, wondered too.
He re-emerged on the hospice scene in 2012, freed from the contract that had sidelined him. “About two and a half seconds after my non-compete agreement expired I started getting calls from private equity firms saying, ‘Are you ready to go and build another company’ and ‘We really want to get into this,’” he recently said. “Even I am surprised at the amount of money waiting to come in—three billion dollars of venture capital and private equity money looking for entry points to the hospice world.”
Westbrook explored several opportunities, reviewed business plans, studied earnings projections. He saw investor groups eyeing hospices not as he did—“it’s my life’s work”—but strictly for short-term gains: “Programs have been started so they can run for a year and be sold, so somebody can make money flipping them and go to the next place and start again.” In the end, he turned down the deals that came his way. He worried about the dark side of private equity, with its single-minded focus on the bottom line. He did not want to see hospice become just another target for corporate raiders, a property to be purchased, stripped, and sold at a handsome profit.
“I don’t think the entrance of venture capital and private equity into the hospice world in a very aggressive way is good for what hospice is about and tries to do,” he said. “I think it’s a threat.”
Westbrook recognized the irony in his stance. Many people considered him a threat and a sellout when he took the first step down the for-profit path. But whether you admire or loathe what he did and where it led, there was no denying that he set out to make a difference for patients, not to make a quick buck off them.
“I’m sure this is not apparent to you,” he said, “but we really believed in what we were doing.”
From the dayHugh Westbrook founded his company with Esther Colli- flower, a nurse, and Donald Gaetz, a health care executive, the hospice world has wrestled with a question: Do for-profits provide good patient care, or do they cut corners to increase their margins? Hospices that receive Medicare money—and more than 90 percent do—are required to offer core services, including nursing, physician oversight, social support, spiritual care, bereavement support, and home-delivered medications, supplies, and equipment. This sets the bar fairly high for all programs, nonprofits and for-profits alike.
“I never saw care diminished,” said Jamie Floyd, a social worker who worked as the national director of marketing and education of the Odyssey chain before leaving the hospice industry. “It’s so regulated, and you have so much to lose.”
But hospices have leeway in determining how to fulfill some of these mandates, and they do not have go beyond the requirements. One hospice may have a spiritual care program staffed by ordained clergy of all faiths certified in clinical pastoral education. Another may rely on volunteers from a local church who stop by the bedside and pray when a patient requests it. One hospice may proactively screen family caregivers for signs of depression or debilitating grief and run specialty bereavement groups for the loss of a spouse, of a parent, of a child. Another hospice may check up on survivors now and then by phone—that’s the bereavement program. One hospice may offer massage therapy or music therapy, or dispatch a psychotherapist to talk with patients about the kind of legacy they would like to leave. Others do no such thing because Medicare does not require or pay for it.
There is no research evidence that for-profits provide lower-quality care than nonprofits, or higher-quality. But they have lower costs (which gives them higher margins) for a few reasons that can have a significant effect on a patient’s experience. For one, for-profits on average employ less-skilled staff at the bedside. A study of 3,927 hospices, published in the Journal of Palliative Medicinein 2010, found that for-profits have proportionally fewer high- end professionals such as registered nurses and medical social workers—the sort of trained, educated staff “prepared to care for patients with terminal illnesses and their families,” the researchers wrote.
Second, for-profits tend to admit the most lucrative patients. Hospices are paid a flat daily rate for each patient, regardless of the diagnosis— Medicare paid an average $157 a day in 2012 for routine home care. But a hospice’s costs to care for that patient fluctuate. Patients and families need the most attention (and staff time) in the first three to seven days and again in the final days before death, so the costs run highest then. Between those end points, the patient’s condition and the family’s situation often stabilize. Nurses and social workers have to visit less frequently. Doctors and pharmacists have to respond to fewer emergency calls. If things are going well, the hospice may have no direct contact at all with the family on a given day, yet the hospice still collects that $157. The payment formula means that hospices can lose money on the patient who dies soon after enrolling. They make the most money on the patient they hang on to for the longest time.
Such patients turn out to be the for-profit sweet spot. A study of 1,036 hospice agencies, published in the Journal of the American Medical Associationin 2011, found that for-profits have far more patients who stay six months, a year, even longer. Some for-profits actively recruit patients who have dementia and other illnesses that progress slowly and often unpredictably—people who might fit the Medicare requirement of a six-month life expectancy, yet who may linger well beyond that. Compared with nonprofits, for-profits, on average, have fewer patients with cancer—people who often need more intensive hospice support, especially to manage pain, and who tend to enroll just days or weeks before they die.
Another way to protect the bottom line is by restricting palliative treatments. In the early days of hospice, the medical management of pain pretty much meant one thing: opioids. That’s still the case in many hospices, even though medical advances have opened up a world of options, especially for people with late-stage cancer. For example, palliative radiation can shrink a tumor pressing on nerves. Palliative chemotherapy has been shown to decrease pain and other symptoms of advanced pancreatic, prostate, and lung cancers. The old-line, relatively low-tech blood transfusion can strengthen a patient, helping him or her function better and enjoy life more.
None of this comes cheaply. A course of palliative radiation can run about $7,500. A unit of blood ranges from $500 to $1,200. Medicare does not require hospices to provide these treatments or pay hospices extra if they do. Some hospices—generally large independent nonprofits or university-affiliated programs—offer such treatments anyway, even without special reimbursement, when they are necessary to keep a patient comfort- able. But under cost pressure from Medicare, many hospices—for-profits and nonprofits both—refuse to provide radiation, transfusions, and other services that they say cross the (increasingly fuzzy) line between palliative care and life-prolonging therapy. For-profits are much stricter on this score, and they are less likely to accept a patient who may need expensive or extensive palliative care, lest they get stuck with the bill.
What happens when such a patient ends up in a for-profit program? In the case of Michelle Hargett Beebee, nothing good. A forty-three-year-old single mother of three, Michelle was diagnosed with pancreatic cancer and enrolled in a VITAS program in late November 2009. She died in her apartment, in Los Gatos, California, after three weeks of unrelieved pain and distress.
It probably goes without saying that the family expected better. Michelle had enrolled in hospice in the hope that she would die in comfort and dignity—two soothing, alluring words on VITAS promotional material. That hope had lifted her spirits, and her family’s too, after the shock and devastation of her diagnosis. The family received the referral at the county medical center, where Michelle had been hospitalized. Desperate and overwhelmed, they never thought to research whether this was the best program in the region or to question the hospital social worker about the brand. “It’s like saying, ‘Here’s some Kleenex.’ ‘Oh, thanks.’ You don’t think, oh, which kind of Kleenex?” said Michelle’s mother, Carol Hargett. “Next thing you know we’re in a meeting room, we’re going, ‘Oh my God, she’s going through so much pain. Please hurry!’ ’’
VITAS physicians prescribed methadone every eight hours and rectal morphine for breakthrough pain. But nothing helped. Of all the torments of those weeks, the thought of her children hurt worst. “Michelle did not want her children to remember her that way,” said her father, Joe Hargett. When the Hargetts called the hospice to say Michelle was in agony, Carol said, they were told that everything possible was being done. An hour before dawn on a December morning, Michelle’s screaming finally stopped, and Carol knew she was dead.
Eleven months later, Carol and Joe sued VITAS, claiming the hospice had deprived their daughter of a peaceful death. The suit charged that doctors did not treat her pain or inform her of treatment alternatives, as California law requires, and that poorly trained employees failed to relay the family’s complaints to the physicians. In particular, the Hargetts asserted that the hospice should have informed them and Michelle about palliative sedation—a last-resort treatment they did not learn about until much later. It uses strong drugs to render a patient unconscious until death, when suffering is intolerable and resistant to all other measures for relief.
As of early 2013, no trial date had been set, and VITAS had lost several attempts to have large portions of the case dismissed. Palliative sedation is controversial and used only in extreme situations, but, whatever the outcome of the case, the Hargetts hoped to illuminate a human issue. “This company has 10,000 patients a day in hospice,” Carol said. “We’re just a number.’’
As it happens, volume has increased since the Hargetts first encountered VITAS. In 2012, the company served 14,000 patients a day.
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