Hospice chains put pressure on nonprofits to boost services 

Hospice industry, like the rest of health care, is growing

In 1975, when the Hospice of Marin in Corte Madera, CA, became the second hospice to open in the United States, no one envisioned a time when hospices would become the standard for end-of-life care—even in profitable chains.

"Our founding ideals were about service and serving people who were dying in a manner that was appropriate, being responsive to their needs, bringing them comfort and dignity, and helping their family stay together as a unit," says Mary Taverna, president of the Hospice of Marin Foundation in Corte Madera and chairwoman-elect of the National Hospice & Palliative Care Organization (NHPCO) in Alexandria, VA.

Taverna, who has been with the Marin hospice since it was founded, says she was surprised, shocked, and disappointed the first time she heard that a for-profit hospice chain had set up shop.

"This reaction was short-lived because I learned that this particular national provider was really very invested in the same principles that everyone else who was not-for-profit was interested in," Taverna recalls.

Hospice providers and industry experts say the growth of for-profit chains might be more of a sign that the industry’s tide has risen high enough to float all boats than it is a warning of a storm for the nonprofit sector of the industry.

The growth of for-profit and chain hospices is a sign that the hospice industry is now fully developed as part of the health care continuum, says Jonathan Keyserling, JD, vice president of public policy for the NHPCO.

"Even though it’s a relatively young program compared to other health care delivery systems, it’s reaching its late teens to early maturity. There is increasing attention paid to economies of scale and how to grow programs," Keyserling says. "I think that points to consolidation and/or growth in the provider base."

In recent years, the number of for-profit hospices has grown significantly, while the growth in the number of nonprofit hospices has been fairly flat, according to a June 2004 report by the Medicare Payment Advisory Commission (MedPAC) of Washington, DC.

The number of for-profit hospices increased from 706 to 883 between 2001 and 2003, a 25% increase, according to A Data Book, Healthcare Spending and the Medicare Program, published by MedPAC in June.

MedPAC also found that the number of not-for-profit hospices increased from 1,340 to 1,384 in that same time period, a 3% rise.

Likewise, the number of freestanding hospices increased by 29% between 2001 and 2003, while the number of hospices based in skilled nursing facilities decreased by 20%, and the number of hospices owned by home health agencies declined by 12%, the report said.

Because of the growth among for-profit hospices, the overall hospice industry grew in size by 8% between 2001 and 2003, rising from 2,266 hospices to 2,454 hospices, the report says.

The report also notes that Medicare spending for hospice care has increased from $3.5 billion in 2001 to $5.9 billion in 2003, a 30% average annual increase.

Expect more growth

"I think what we see today is a lot more growth, and I think the growth in the hospice industry really is no different than what it is in other areas of health care," Taverna says.

"As a long-term veteran in the field and chair of the national organization, what I’m always interested in is what happens to that person at the bedside," she says. "If that person receives quality care and is satisfied with the care received, then whether the care came from a chain or an independent hospice is not the issue."

However, the question many administrators with nonprofit hospices might ask is whether a for-profit chain’s entrance into their market could spell problems for their program.

For instance, the Largo, FL-based Hospice of the Florida Suncoast provides $8 million a year in uncompensated service to its community, and its ability to do so is based on the fact that it’s the only hospice in the area, says Mary Labyak, president, chief executive officer, and executive director of the large nonprofit hospice, which serves 1,800 patients per day.

"We have a unique provider status, and donors support us because we’re their hospice," Labyak says.

In Florida, where state law prohibits hospices from having a for-profit status, all hospices provide a wide range of services for their communities, she says.

"We have everything from our own hurricane shelters to food pantries to neonatal programs, and we have hundreds of volunteers, AIDS programs, palliative care, and various other programs," Labyak says.

Fears of cherry-picking’

Such independent hospices based on the comprehensive care model quite naturally fear that if hospice chains focusing on the Medicare model were to become dominant players in their area, the existing hospices might suffer from competition that cherry-picks its clients, Labyak says.

If many of the patients who have better reimbursement were picked up by chain hospices, non-chain hospices would be left with a smaller proportion of adequately reimbursed clients, making it difficult for them to provide charity care and still meet their bottom lines, she explains.

This trend has occurred in other areas of health care, leading to the closing of hospitals, home health agencies, and other providers, Labyak notes.

In California, where nonprofit hospices like Hospice of Marin have already been forced to deal with competition from chain hospices, this fear has not been realized, Taverna says.

"Competition, while none of us like it, does a number of positive things," Taverna says. "If you’re good, it says you need to get better because you’re no longer the only kid on the block, and you have to convey to your constituents that you are of the highest quality and have to respond to their needs."

Plus, since the industry relies heavily on Medicare and third-party payers, the pricing is fairly standard, and there’s unlikely to be a Wal-Mart effect.

"Maybe a chain has a little more room to do some things where they’re absorbing the costs because they’re national and have more resources to spread around, but there’s not an opportunity to underprice their services," Taverna says.

VistaCare — 14 states and growing

At least one for-profit chain has focused its marketing strategy on increasing hospice’s presence overall through gaining clients who otherwise might never have been referred to hospice care.

VistaCare Inc. of Scottsdale, AZ, one of the nation’s largest hospice chains, has a presence in 14 states and serves more than 5,300 patients daily, says David Rehm, MSW, senior vice president of VistaCare.

The 9-year-old chain initially expanded through acquisitions but now opens new freestanding sites, including three new hospice sites in Georgia and three sites under development in New Mexico, Arizona, and Texas, Rehm says.

The chain will have more than 50 sites when these are all on line, he adds.

"We’re the largest provider of what we call open access’ hospice in the country," Rehm says. "We have a commitment to serving all eligible patients under Medicare criteria, and that’s the principal mission driver of the company."

VistaCare hospices admit any patient who meets the basic Medicare criteria of having a life expectancy of six months or less, Rehm explains.

VistaCare bases this practice on the fact that only about one-third of the eligible hospice population receives hospice care, he says.

"As you can tell, on a national basis there’s room for continued substantial growth in hospice care," Rehm says.

The hospice company’s sites offer consistent services under the Medicare benefit, including nursing care, physician services, social workers, chaplains, home health aides, nutritionists, volunteer services, physical or occupational therapy, hospitalization, respite care, continuous 24-hour care, and bereavement counseling for the family for 13 months after the patient has died, Rehm says.

"We also serve patients anywhere they reside, including nursing homes and retirement communities," he adds. "And one thing we’ve been doing over the last year to two years is to develop strategic partnerships with other health care provider organizations so we can develop an effective and highly coordinated approach to those settings."

New focus is start-ups

Although the organization began to expand through acquisitions, the strategy now is opening start-ups, where VistaCare more easily can create its own operating model, Rehm says.

Another market penetration strategy is for the company to increase its penetration in a particular area, he says.

For example, VistaCare has developed 10 sites in Georgia that extend the hospice company’s reach into areas where there is not a great deal of hospice competition.

"We’re not really looking to open sites in markets where we’ll go in and attempt to take business away from existing providers," Rehm says. "We really look for areas that are underserved."

Nonprofit hospices that feel market pressure from for-profit chains also need to find ways to increase their community stature and expand, Taverna notes.

"It’s an interesting challenge we’re facing nationwide, but it’s not a bad challenge," Taverna says.

The hospice industry, like the health care industry in general, is ripe for substantial change, Keyserling says.

"The difficulty is that it’s such a huge ocean liner that small deviations in that course take enormous pressure and have massive impacts on the patient populations," Keyserling says. "We should never lose the core values, but there’s always room for extensions of services to meet the needs of the patients and families."