Hospice Tumult: The Beggining of the End?

Over the past couple of months or so, I’ve watched rather intently, the developing storm clouds in the Hospice industry. Suffice to say, what is now apparent takes the form of a perfect storm.  For industry “watchers”, the news regarding Vitas and the amalgamation of federal false claims act suits is a reflection on the core flaws in the present industry model.

For years, I have written and lectured on the market and reimbursement flaw dynamics that exist in the industry and in the current Medicare Hospice Benefit.  Apparently, the Feds via way of the OIG and Department of Justice have finally caught up.  The citations within recently disclosed actions against Vitas, San Diego Hospice, Harmony Hospice in South Carolina, etc. confirm what I have stated for years: the industry has more “providers” than true, organic patients. By organic I mean patients that meet the Medicare hospice benefit eligibility criteria (likely terminal within 6 months). CMS by virtue of continuing to neglect a revamp of the eligibility criteria and reimbursement methodology is complicit in allowing the growth in false claims activity.  The incentives provided within the present Conditions of Participation and the benefit and reimbursement language, are so misaligned with how patients utilize and access hospice services that providers seeking volume and revenue growth have teased and breached, the False Claims Act line.  Minor modifications and clarity such as follows would have shifted the paradigm away from the fraud temptation.

  • Payment modification by place of care.  Lower payments to hospices caring for patients in institutional setting such as SNFs and ALFs has always been logical and prudent.
  • Standardized assessment and certification criteria on the front-end.  SNFs have RUGs, hospitals DRGs, and Home Health has OASIS yet hospice remains a simple certification with no specific assessment criteria for achieving Medicare eligibility for the benefit.
  • Shorter, more dynamic re-certification periods with focused contractor review and documentation standards required at set periods.  Think Part B therapy for example as somewhat of a template (emphasis on somewhat as the MMR process is flawed as well).

The similarities between the above referenced cases and frankly, others that have risen before, are striking.  In each case, the core of the underlying cases are agencies and entities struggling to justify their financial and business existence via admission of only truly organically terminal patients or for that matter, those that are most probably terminal.  By estimation and research within my firm, this population is roughly 65 to 70% of the total patient volume in the industry currently.  Stated another way, fully one-third of all current hospice enrollment is questionable by Medicare definition and therefore, a False Claims Act liability for the agency.  Additionally, a group that is organically terminal or has a high degree of probability of becoming such within a thirty-day window, exhibits a much shorter length of stay profile than what is common among Vitas, Odyssey/Gentiva, etc.  These factors contribute to the plain conclusion that generating year-over-year growth in margin, volume, etc. is improbable unless a solid portion of this growth is suspect and thus, potentially fraudulent.

Now enters the Department of Justice with a literal cruise missile launch across the industry bow. Anyone in the hospice industry mistakenly believing that the massive action against Vitas/Chemed won’t affect them isn’t paying attention.  A la federal investigations and actions against Amedysis, once the largest home health company in the nation, the Vitas action will re-shape the fortunes of the industry and the providers therein. The industry will logically contract and the largest providers that dominate will naturally adjust their business model or face similar investigative actions.  Stays will shorten, discharges will rise, nursing home and assisted living facilities will see less aggressive marketing activity and lower engagement from the respective hospices.  Logically, margins will tighten and census will erode.  Ultimately, CMS will re-visit the fall-out from the Vitas cases with revised regulatory language designed to preempt another rise of fraudulent activity.

And what of Vitas/Chemed?  If I parallel the fortunes of Amedysis, an analogous journey, Vitas is all but done. Certainly, there are phoenix cases but this is not logically one nor was Amedysis.  Vitas’ business model is steeped in what caused the problem as was/is Amedysis’ business model.  Public companies can’t exist without investor confidence and without a record of growth in terms of earnings.  Ultimately, earnings can only be derived by volume growth and revenue growth.  Vitas will not be in a position going forward to continue on this path and certainly, not without substantive changes to how its done business.  Again, logically improbable. In the parallel universe where Amedysis resides, their stock price has fallen from the mid-fifty dollar range to the ten-dollar range today.  Consensus analyst opinions place the price per share target between $5 and $8.  Moving a step further, Amedysis’ value has shrunk by plus 50%.  A similar experience awaits Vitas/Chemed, if not worse.

In a follow-up post, I will review the specifics regarding Vitas and provide thoughts on what I believe, happens next.

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