Hospice Care Evolves Into For-Profit Business
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By Kim Dixon
CHICAGO (Reuters) Apr 10 - Care of the terminally ill, once solely the domain of nonprofit organizations, is becoming a big business.
For-profit companies are grabbing a bigger share of hospice, which has grown rapidly in recent years as the U.S. population ages and since the federal government began generously reimbursing the cost of such care.
More than 1 million people received hospice care in 2004, up 51 percent from 2000, according to the National Hospice and Palliative Care Organization.
The nonprofit policy and advocacy group said that during the same period, the number of these programs, which focus on relieving the pain of terminally ill patients rather than curing them, jumped 18 percent to 3,650.
Nonprofits still run about two-thirds of hospice programs, but their share is eroding.
"It's been a very steady move to for-profits," said Don Schumacher, president of the Alexandria, Virginia-based national hospice organization.
Three major hospice owners -- Chemed Corp., Odyssey Healthcare Inc. and VistaCare Inc. -- are publicly traded. Home nursing companies Amedisys Inc. and Gentiva Health Services Inc. both made big acquisitions in hospice programs recently.
"The main reason the for-profit sector is growing is you have a lot of venture capital private equity-backed companies in the space," said analyst Bilal Basrai of the Stanford Group, an investment bank and brokerage.
Increasing public awareness of hospice and favorable reimbursement by Medicare, the primary payer, have spurred the growth that has attracted for-profits.
As baby boomers age and face decisions about their ailing parents, "this service becomes more relevant to our culture," Schumacher said.
Several studies have shown patients suffer less and families are more satisfied with hospice care, which generally takes place at home, compared with an end-of-life hospital stay.
FROM A SLEEPY INDUSTRY...
Hospice, which began in the United States in 1974, evolved from a voluntary movement.
"What you had was a sleepy little industry dominated by not-for-profits a few years back," said Douglas Cannon, chief financial officer of Odyssey, the second-largest publicly traded hospice chain.
But big support from Medicare, the U.S. health insurance for the elderly, is reshaping the industry again. "You'll continue to see the big for-profit concerns expand geographically," Cannon said.
Medicare spending on hospice increased to $8.6 billion in 2005 from $1.9 billion in 1995, according to Raymond James analyst John Ransom.
The agency promotes hospice as a cost-effective option for the dying. Generally it covers patients if they have a prognosis of less than six months to live, and it pays about $125 per day for most routine care.
Experts say the average daily cost for hospice is about $100, compared with $500 at a hospital.
QUALITY CONCERNS?
As the for-profit sector grows, some are concerned that quality may suffer.
A 2004 Yale University study found that patients in for-profit programs were half as likely to receive a full range of services, compared with those at nonprofits.
"The whole nature of hospice is multidisciplinary -- providing pain relief, emotional and psychological care," said Yale professor Elizabeth Bradley, author of the study of 2,080 patients in 422 U.S. hospices. "So I think it is credible that the range of services provided is somewhat related to whether hospice is providing (quality)."
David Casarett, an assistant professor at the University of Pennsylvania Medical School, said the findings were not conclusive on the quality issue.
"The most we can say is that for-profit hospices may provide fewer services," he said. "We don't know the answer to the most important question: Do patients in for-profit hospices have worse outcomes?"
CONSOLIDATION, VALUATION
Most don't see nonprofit hospice going away, although analysts expect long-term consolidation by for-profits, given their efficiency and increased access to capital.
"We believe not-for-profits, which receive approximately 15 percent of their revenues from donations, will be forced to sell to efficient operators like Vitas (a unit of Chemed)," CIBC Markets analyst Michael Wiederhorn said in a recent report.
Ransom cautioned that hospice providers are pricey, though, especially compared with pure home-nursing companies.
The median hospice provider trades at 11 times expected 2007 operating earnings, he said, a 57 percent premium to the median of home health providers like Amedisys and Gentiva.
Shares of Cincinnati-based Chemed, whose Vitas unit is the biggest hospice chain and which also owns the Roto-Rooter plumbing business, are up about 75 percent since the beginning of 2005 and have risen about 18 percent this year.
Odyssey stock is down about 10 percent this year; in February the company gave a disappointing 2006 forecast. VistaCare is up about 12 percent.
Stanford Group's Basrai said the industry's growth has brought increased competition.
"There are a lot more new small mom-and-pop entrants, which is not good for existing hospice providers," he said. "You also have increased government scrutiny."
Dallas-based Odyssey recently settled a civil investigation with the U.S. Department of Justice over its patient admission, retention and discharge practices.
Last year Chemed received civil subpoenas from the inspector general of the U.S. Department of Health and Human Services over Medicare and Medicaid billing.