Us hospice industry a paradigm shift from ‘not for profit’ to ‘for profit’ by Sutherland Global Services

US Hospice Industry: A Paradigm Shift from ‘Not-for-Profit’ to ‘For-Profit’ July 2013

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Understanding Hospice Understanding Hospice Care • Hospice care is intended to provide medical, psychological and spiritual support to terminally ill people who are expected to live for not more than six months. The goal of the hospice care is not to cure the disease but to provide peace, comfort and dignity to the people who are dying. Hospice care can take place at home, at a hospice center, in a hospital or in a skilled nursing facility • To entitle for hospice care, a doctor needs to certify a person that he/she is terminally ill and would live for less than six months. If the person lives longer than six months, he/she is still entitled for the hospice care provided the doctor certifies again. Hospice care includes physical care, counseling, drugs, equipment and supplies for the terminal illness and related conditions • Hospice care is provided in different slabs of period. It starts with two slabs of 90-day period, followed by unlimited slabs of 60-day period. A doctor certifies at the beginning of each benefit period. A patient can change hospice service provider only at the time of change of the benefit period and not in the middle of the period • If health of a patient improves or if the patient wishes to, he/she can stop hospice care at any point in time. A patient who wants to stop hospice care and to continue with the cure of its illness can do so whenever he/she wishes. If the patient is eligible, he/she can join the hospice care back at any time “Hospice is a system of care designed to relieve • Family members are the most important team members of the hospice care. suffering and promote quality of life for people They are aided by doctors, nurses, counselors, social workers, physical and living with terminal illness. Its focus is to address occupational therapists, speech-language pathologists and volunteers in all aspects of suffering, including physical symptoms, psychological and social distress, and providing care to the hospice patient. A hospice nurse and doctor are on-call spiritual pain.” 24 hours a day, 7 days a week to provide support whenever needed • Hospice care is generally provided at home unless a hospice team of trained support staff determines that inpatient care is needed

- James A. Tulsky, MD, Director of the Center for Palliative Care, Duke University

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c.84% of the hospice care is met through Medicare,… Hospice Payment Self Pay Others 0.7% 1.1%

Medicare Hospice Benefit

Charity Care 1.3%

Medicare Hospice Benefit 84.0%

Medicaid Hospice Benefit 5.2% Private Insurance 7.7%

Medicare Will Pay • Hospice-employed physicians and nurse • Other physicians under arrangement with the hospice • Nursing care • Medical equipment • Medical supplies • Drugs for symptom control and pain relief

• Physical therapy • Speech-language pathology services • Social worker services • Dietary counseling • Spiritual counseling • Grief and loss counseling for the individual and his/her family

• A hospice reimburses a fixed amount for the type of hospice care it provides to a Medicare hospice beneficiary irrespective of whether full or partial service is provided on that particular day • There are four categories of hospice services. Single rate is applicable for each different category of hospice service for each day (explained in the next slide)

Medicare Will Not Pay • Non-designated hospice • Below mentioned services providing care to an individual (unless arranged by the hospice (unless under arrangements by or are unrelated to the terminal the designated hospice) illness) • Services related to the treatment of terminal illness • Room and board (unless arranged by the hospice for short-term inpatient care)

• Any other hospice services, as specified in the patient’s plan of • Hospice aide and homemaker care (POC) services

– Covered care in an emergency room, hospital, or other inpatient facility – Outpatient services – Ambulance transportation

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…A fixed amount paid per patient irrespective of services provided

Medicare Hospice Reimbursement Wage Component Subject to Index (USD)

Non-Weighted Amount (USD)

Code

Description

Rate (USD)

651

Routine Home Care

153.45

105.44

48.01

37.32

25.64

11.68

Continuous Home Care (Daily)

895.56

615.34

280.22

655

Inpatient Respite Care

158.72

85.92

72.80

656

General Respite Care

682.59

436.93

245.66

652

Continuous Home Care (Hourly)

Routine Home Care

Continuous Home Care

Inpatient Respite Care General Inpatient Care

• Hospice care is provided at home. Hospices are paid without regard to the volume or intensity of routine home care services provided on any given day • Hospices are also paid when the patient is receiving outpatient hospital care (non-terminal illness) • Payment for continuous home care is done only during emergency as it is necessary to maintain the patient at home (and not at a hospital, skilled nursing facility or inpatient hospice facility stay) • A minimum of 8 hours of service is provided. Payment is calculated on the basis of the number of 15-minute increments (32 or more units). Nursing care must be provided for more than half of the period of care by a registered / licensed practical nurse • A hospice can bill at the inpatient respite care rate for maximum of 5 continuous days for each day on which the beneficiary is in an approved inpatient facility and is receiving respite care. Subsequent days’ payment is made at the home care rate • A hospice can bill for multiple respite periods (of no more than 5 days each) in a single billing period • General inpatient care provided at a Medicare certified hospice facility, hospital, or skilled nursing facility • Paid on a daily basis

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Medicare reimbursement may vary based on the wage index

Example of Calculation

Country / CBSA* Area

CBSA* Code

Wage Index

Routine Home Care

Continuous Home Care

Inpatient Respite Care

General Respite Care

(USD per Day)

(USD per Hour)

(USD per Day)

Rochester, NY

40380

0.8602

138.71

33.74

809.54

146.71

621.51

Sacramento County, CA

40900

1.3777

193.27

47.01

1,127.97

191.17

847.62

Archer County, TX

48660

1.0097

154.47

37.57

901.53

159.55

686.83

• Medicare payment for hospice care is made at one of the four predetermined rates for each day. Except for continuous home care, which is calculated on an hourly basis, all other payments are done on a daily basis • Each rate has two components – wage index based and non-wage index based. Payment varies depending on the wage index based component as each area/region of the US may have different wage index. The office of Federal Register publishes wage index each year for different regions/areas of the US, which is effective from October 01 of a year to September 30 of next year • The wage index based component is multiplied with the wage index and then added to the non-wage component to calculate the payment for that particular area/region • For Example: Rochester (NY) has wage index of 0.8602. To calculate the payment for routine home care, multiply this wage index with the ‘Wage Component Subject to Index’ and then add ‘Non-Weighted Amount’ – Routine Home Care (Rochester, NY) = (0.8602 * 105.44) + 48.01 = USD138.71

Note: *CBSA = Core Based Statistical Areas Source: CMS; Secondary Research © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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For-profit hospices in the US have tripled in the last decade The Rise of For-Profit Hospices in the US 37%

59%

For-Profit

11%

Not-for-Profit Government/Other

30%

Not-for-Profit

672

2052

Government/Other

57%

Medicare Approved Hospices Freestanding

Freestanding

1% 17%

47%

Hospital based 17% Home Health Based Skilled Nursing Facility based

3,585 2,255

Rural

13% 1%

35% 2000

Urban

69%

Hospital based Home Health Based Skilled Nursing Facility based

2011

28%

36%

Urban 64%

72%

Rural

Source: Medicare Payment Advisory Commission (MedPAC); CMS

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Medicare hospice spending increased by almost 4.75 times over the 2000-2011 period Medicare Hospice Spending (USD Bn) 16 13.0

13.8

1.4

1.22

1.16

1.2

1.0

0.8

0.6

6 4

Number of Medicare Hospice Users (Mn)

0.53

0.4

2.9

0.2

2 0

0.0 2000

2010

2011

2000

2011

National Hospice and Palliative Care Organization (NHPCO) estimates that c.44.6% of c.2.51 Mn people who died in 2011 were under hospice care

Average Length of Stay among Decedents (days) 100

2010

80 60

• In 2011, 66.4% of hospice care was provided at a patient’s residence, followed by 26.1% in hospice impatient facility and the remaining 7.4% in acute care hospital

40 20

• During the same year, 37.7% of patients were terminally ill due to cancer

0 2000

2010

2011

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Reasons for rise in ‘for-profit’ hospices Reasons for Rise in ‘For-Profit’ Hospices • Compensation based on enrollment numbers is a key reason for the boom in ‘for-profit’ hospices • ‘For-profit’ hospices have used many gimmicks to increase the number of hospice patient referrals: – Buy gifts for doctors and nursing-facility managers and staff – Offer nursing homes with medical supplies such as diapers, wheelchairs, nutritional supplements and other supplies – Pay nursing-home doctors who also double as hospice medical doctors • Many of the ‘for-profit’ hospices have mushroomed to create a chain of hospices to sell them later to other hospices. Number of patients is a key determinant in such buy-outs. Hence, such hospices have always aimed at just increasing the number of patients • False referral has increased in the average length of stay of patients in the hospice. Referring unnecessary costly hospice service when not required is another area that helps ‘for-profit’ hospices increase their profitability “Research shows that for-profit hospices, and especially publicly traded chain providers, generate higher revenues than their non-profit counterparts. They do this in part, studies show, by selectively recruiting longer-term patients, most of whom do not have cancer, thereby gaming the Medicare payment system.“ - Dr. Robert Stone, Emergency Medicine Physician, Bloomington

“The longer a patient stays, generally speaking, the better the hospice is able to deal with those costs and probably has a greater opportunity for a higher financial margin on that patient.” - Theresa M. Forster, VP - Hospice Policy and Programs, National Association for Home Care & Hospice

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Rising instances of fraud Rising Instances of Fraud • In May 2013, the US federal government has filed suit against Chemed Corporation (including subsidiaries like Vitas Hospice Services LLC and Vitas Healthcare Corporation), alleging false Medicare billings for hospice services. Vitas is one of the largest ‘for-profit’ hospice chains in the US, providing hospice services in 18 states • In March 2013, Hospice of Arizona L.C. agreed to pay USD12 Mn to resolve ‘False Claims Act’ allegations that they submitted false claims to the Medicare program for ineligible hospice services • In May 2012, Odyssey Healthcare, Inc. (a provider of hospice care) agreed to pay USD25 Mn to settle a Medicare fraud case initiated against it by a former employee. In 2006, the company paid USD12.5 Mn to the federal government to settle a similar case when it was sued by another employee for Medicare fraud

• In January 2009, SouthernCare (an Alabama-based hospice company) paid the federal government USD24.7 Mn to settle claims related to fraudulently enrolling Madison-area patients in hospice care and charged Medicare for the services “Medicare and taxpayers depend on hospice agencies to provide medically appropriate services to terminally ill patients. When providers place more importance on the bottom line than on the care of these vulnerable patients, they can expect to face serious penalties.” - Glenn R. Ferry, Special Agent in Charge, US Department of Health and Human Services

“Down deep I didn't think she qualified because she wasn’t terminally ill. The woman from the hospice said we could get around that. I remember her saying, ‘It’s a Government program and the money is just sitting there and you may as well do it.” - Pauline Moskal, Daughter of a Patient

“Under a corporate model of hospice care, there’s an inherent conflict of interest between a company’s drive to maximize profits and a patient’s need for the kind of holistic, multidisciplinary and compassionate care originally envisioned by the founders of the modern hospice movement.”

“Too often, however, we hear reports of companies that abuse this critical service by using aggressive marketing tactics to push patients into services they don’t need in order to get higher reimbursements from the government. The Department of Justice will take swift action to protect taxpayer dollars and make sure that Medicare benefits are available to those who truly need them.”

- Dr. Robert Stone, Emergency Medicine Physician, Bloomington Ind.

- Stuart F. Delery, Acting Assistant Attorney General for the Civil Division

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Conclusion Conclusion • Hospice care is something people with terminal illness want. It provides people with peace, comfort and dignity when they need it most

• With a rise in aging population, demand for hospice care is also rising. More and more people with terminal illness are opting for hospice care. Increase in hospice demand has led to increase in the number of service providers. The launch of many ‘forprofit’ hospices has also resulted in increase in enrollment • Medicare accounted for c.84% of hospice spending in 2011. As hospices get paid a fixed amount per patient signed on for each day of enrollment in the hospice program, many ‘for-profit’ hospice providers started exploiting it to make quick money. False billing and admitting patient to hospice even when he/she is not dying are key areas of fraud • Many cases of fraud have been reported in the US. To prevent it, the federal government has come up with several acts and laws to stop misuse of Medicare, which, if continues, may result in government discontinuing some health benefits to save the country from financial implications

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Thank You