Fraud Grows Hospice Care Into $14 Billion Industry

Hospice care has grown beyond its humble roots as a chiefly charitable cause to become a $14 billion industry, with 1,800 for-profit providers and a base of Medicare-covered patients that doubled to 1.1 million from 2000 to 2009.

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Compensation based on enrollment numbers has certainly fueled the boom, and has many questioning the motives of doctors who refer patients for hospice care.

Hospice facilities have been known to pay employees for referrals, while many nursing-home doctors double as hospice medical directors, giving them an incentive to refer patients to their facilities.

In a case that has become the focal point of the Justice Department’s investigation, one woman allowed her aunt to be recommended to hospice care, knowing she wasn’t dying, because it allowed for free, Medicare-paid hospice visits from a nurse and chaplain, plus an extra weekly bath.

The woman, Janet Stubbs, was grateful for the extra help in caring for her aunt, Doris Midge Appling, but didn’t know that she was being admitted to Hospice Care of Kansas during the company’s “Summer Sizzle” promotion drive, which paid employees as much as $100 a head for referrals, or that the nursing home doctor who referred her aunt moonlighted as medical director for the hospice company.

While Harden Healthcare LLC, the hospice’s current owner, denied that medical directors received incentive pay, former hospice employees have confirmed the sort of practice that emphasizes numbers over proper care for qualified individuals.

“They wanted us to admit, admit, admit,” said Joyce White, a former marketer for Vitas Healthcare, a unit of Chemed Corp. (NYSE:CHE). “All of us competed against each other to make our numbers. You lived or died by your numbers.”

Publicly-traded companies like Chemed and Gentiva Health Services Inc. (NASDAQ:GTIV) have created hospice chains through serial buyouts over the last decade. Hospice buyouts and investments by private-equity firms have also led to boosted enrollments.

Funding from Kohlberg Kravis Roberts & Co. enabled Harden’s acquisition of Hospice Care of Kansas’s parent last year. Denver-based KRG Capital Partners LLC sold Dallas-based Trinity Hospice for $75 million in 2006, which was then liquidated by the buyer, nursing-home operator Sunrise Senior Living (NYSE:SRZ) two years later, after $67 million in writeoffs and government allegations of ineligible patient enrollments prior to the takeover.

Catherine Covington, who worked as a Trinity compliance officer from 2000 to 2004, said that after KRG came in, “it was clear their philosophy was, ‘Put everyone on hospice, don’t ask questions, and build!'”

Hospice Care of Kansas gave salespeople a budget of $500 a month to buy lunches and gifts for doctors and nursing-home staff, said Rae Ann Angelo, a Wichita salesperson for the hospice between 2003 and 2009. Nursing homes have been offered diapers, wheelchairs, nutritional supplements, and other supplies in return for patient referrals, other former hospice workers said.

This sort of information has led the inspector general of the U.S. Health and Human Services Department to launch an investigation into hospice marketing practices and financial relationships with nursing facilities. The inquiry was spawned by a 2009 report by the Medpac commission, a congressional advisory body that found hospices “aggressively marketed” to nursing-home patients and paid incentives to medical directors for “inappropriate” referrals and enrollments.

Under federal statues, paying for patient referrals or compensating employees based on recruitment numbers may be illegal, but the laws are “painfully complicated” and loaded with exceptions said Ryan Stumphauzer, a former federal prosecutor in Miami who helped launch South Florida’s Medicare Fraud Strike Force.

Seven pending or settled lawsuits against hospice companies claim that enrollment-based incentives led to the admission of patients who didn’t qualify for hospice care. Appling, Stubbs’s aunt, is identified as “Patient 11” in one of these cases. She was discharged after 20 months in the hospice facility, and lived four more years before her death in April at age 106. Medicare paid nearly $80,000 for her hospice care.

The admission of patients like Stubbs’s aunt is responsible for a 60 percent increase in the average time patients spend in hospice between 2000 and 2009. The average stay of the 10 percent of patients who remained in hospice the longest soared 71 percent to 240 days. The average for hospice patients in 2009 was 86 days.

Medpac says that means at least 110,000 patients weren’t facing imminent death when they were admitted, though doctors said they were. To qualify for Medicare hospice coverage, patients must have a prognosis of six months or less to live, certified by two doctors.

But profit margins on healthier patients who survive for years with minimal care can exceed 20 percent, a clear incentive for hospices to seek out healthier patients. Patients can stay on hospice indefinitely, as long as a hospice physician re-certifies that they are terminally ill every 60 days.

Meanwhile, taxpayers are left footing the bill. Medicare paid $3,980 a month to care for Appling. And Stubbs paid the nursing home $4,000 to $5,000 a month for room and board. Not only does she fear her money was wasted, Stubbs worries her aunt’s hospice stay may have deprived Appling of medical treatments that might have helped her. Patients who enroll in hospice agree to accept pain management instead of aggressive, or curative, treatment.

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