Bloomberg News

Aunt Midge Not Dying in Hospice Reveals $14 Billion U.S. Market

December 06, 2011

(PHOTO: Doris Appling attends her 101st birthday while on hospice care at Wheat States Manor nursing home in Whitewater, Kansas. Source: Family of Doris Appling via Bloomberg.)

Dec. 6 (Bloomberg) -- Janet Stubbs was grateful when the nursing home recommended hospice care for her aunt Midge. Although Stubbs knew her aunt wasn’t dying, the offer of free, Medicare-paid hospice visits from a nurse and chaplain, plus an extra weekly bath, was too good to pass up.

Stubbs didn’t know that her aunt, Doris Midge Appling, was 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, according to the U.S. Department of Justice. Stubbs also said she had no clue that the nursing home doctor who referred her aunt for hospice moonlighted as medical director for the hospice company.

“It doesn’t seem right,” said Stubbs, who had Appling’s power of attorney to make medical decisions. “What incentive did the doctor have to put my aunt on hospice? How much was she being paid?”

Harden Healthcare LLC, the hospice’s current owner, said medical directors received no incentive pay. Appling’s doctor, Donna Ewy, didn’t return four calls seeking comment.

Hospice care, once chiefly a charitable cause, has become a growth industry, with $14 billion in revenues, 1,800 for-profit providers and a base of Medicare-covered patients that doubled to 1.1 million from 2000 to 2009.

Compensation based on enrollment numbers, pay to nursing- home doctors who double as hospice medical directors and gifts to the nursing facilities have helped fuel the boom, according to an examination of 1,000 pages of court documents and interviews with more than 45 current and former hospice employees, patients and family members.

“They wanted us to admit, admit, admit,” said Joyce White, a former marketer for Vitas Healthcare, a Chemed Corp. unit that is the nation’s largest hospice chain. “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. have created hospice chains through serial takeovers in the last decade. Hospice buyouts and investments by private-equity firms have also led to boosted enrollments.

Funding from Kohlberg Kravis Roberts & Co. enabled closely- held Harden’s acquisition of Hospice Care of Kansas’s parent last year. The seller: private-equity investor Apax Partners, of London and New York.

“There was always pressure to get the patient census up, any way we could, to sell the company,” said Rae Ann Angelo, a Wichita salesperson for the Kansas hospice from 2003 to 2009, including most of the time when Apax owned it. “You can’t sell unless you show big growth.”

Other private equity concerns that have been active in the hospice trade include Denver-based KRG Capital Partners LLC. KRG sold Dallas-based Trinity Hospice for $75 million in 2006. The company was liquidated by the buyer, nursing-home operator Sunrise Senior Living Inc., two years later, after $67 million in write-offs and government allegations of ineligible patient enrollments prior to the takeover.

“After KRG came in, it was clear their philosophy was, ‘Put everyone on hospice, don’t ask questions and build!’” said Catherine Covington, who worked as a Trinity compliance officer from 2000 to 2004. “They were there to make a buck.”

KRG members on Trinity’s board ordered “immediate disciplinary action” when they learned of compliance violations, which led to terminations, according to KRG spokesman Topper Ray.

Hospice Care of Kansas, or HCK, gave salespeople a budget of $500 a month to buy lunches and gifts for doctors and nursing-facility managers and staff, said Angelo, who now works for another hospice. Nursing homes have been offered diapers, wheelchairs, nutritional supplements and other supplies in return for patient referrals, other former hospice workers said.

Under various federal statutes, paying for patient referrals or compensating employees based on the number of Medicare patients recruited 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.

Appling, Stubbs’s aunt, is identified as “Patient 11” in a U.S. Justice Department civil fraud complaint against HCK and its owner, the Voyager HospiceCare unit of Harden. Prosecutors say the company bilked Medicare by paying bonuses to employees and doctors to sign up patients who weren’t dying.

HCK in court filings denied it billed Medicare for ineligible patients. Those the government identified were eligible because “a medical director and/or an attending physician certified” they were terminally ill, HCK said.

Under Medicare rules, patients are eligible or hospice if two doctors certify that they have six months or less to live. They can stay on hospice indefinitely if a doctor recertifies their terminal illness every 60 days.

Appling was discharged after 20 months in HCK, and lived four more years before her death in April at age 106. Medicare paid nearly $80,000 for her hospice care.

Besides the Summer Sizzle promotion, the push for patients at HCK included Christmas Cash Blitz and Fall Frenzy admission drives. Those eligible for cash incentives in these and other programs included managers and admissions and medical staff, according to a dozen former employees.

A former company nurse said employees were warned that disclosing the incentive arrangements outside the company was a fireable offense, according to summary of her interview with the Federal Bureau of Investigation.

The nurse, Yolanda Anderson, was dismissed for revealing the bonus program to a social worker at a nursing home, according to a Justice Department court filing. Harden couldn’t comment on the reason Anderson left because her departure pre- dated its acquisition, said spokeswoman Meg Meo.

HCK was founded in 1998 by Wichita social worker Mark Rowe. Rowe sold the company in 2004 for $11.9 million to Voyager HospiceCare, a startup launched that year by a firm later acquired by Apax. Rowe stayed on as chief executive officer until 2006, collecting at least $2.1 million in additional pay from Voyager, according to HCK court filings.

Apax sold Voyager in 2010 to Harden for roughly $80 million, or about four times Apax’s investment, said Thomas Combs, Voyager’s co-founder. The purchase was funded with $90 million in loans and equity from Kohlberg Kravis, which now owns a minority stake in Harden, according to KKR spokeswoman Kristi Huller. She declined to comment on the government’s allegations and referred further questions to Harden.

Neither Harden nor Apax was named in the U.S. suit against Voyager and HCK, which is pending. Lew Little, Harden’s CEO, declined to answer questions about the federal allegations against Voyager and HCK.

“It is not an unusual practice” for doctors to be medical directors at nursing homes and hospices simultaneously, and some patients “take comfort” from continuing into hospice with the same doctor, Little said in an email.

HCK paid nursing-home doctors up to $4,000 a month to consult for a day or so per week on patients’ conditions and to sign treatment orders, said Roger Megli, a former HCK chaplain and marketer. The nursing-home physicians served as the hospice’s “doorkeepers,” according to Megli.

“If I’m getting $3,000 or $4,000 a month from a hospice to work one day a week, I’m going to refer my patients to hospice, too,” said Megli.

The company used its network of nursing-home doctors to provide a ready supply of patients, according to family physician Larry Anderson of Wellington, Kansas, a former president of the Kansas Medical Society. Several times when he declined to approve his patients for hospice because they weren’t dying, one of the nursing-home doctors certified them instead, Anderson said. He called it ”a win-win for everybody but the taxpayer.”

HCK admitted Appling with a terminal diagnosis of cardiovascular accident, or stroke. It was changed later to “general debility,” according to documents in the court case.

Ewy signed two hospice admission orders -- one as Appling’s attending physician at the nursing home and another one as the Kansas hospice’s medical director, copies of the documents show.

Not that Appling was dying, Stubbs said. She and her husband continued visiting her aunt twice a month at the home, Wheat State Manor in Whitewater, Kansas. Stubbs’s son and his children often joined them. Aunt Midge in her wheelchair would eat Hershey’s Kisses and play ball with the children in the garden, or Uno indoors when it was cold.

A year after Appling went on hospice, the medical staff noted in her chart that she’d gained weight, was “doing well” and was “inappropriate for hospice,” according to documents submitted as evidence in the federal fraud case. She remained on hospice eight more months before the company discharged her, according to Stubbs.

Medicare paid HCK $3,980 a month to care for Appling, according to the government’s complaint. On top of that, Stubbs paid the nursing home $4,000 to $5,000 a month for room and board. “I feel really dumb,” Stubbs said.

Stubbs said she 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.

Stubbs said no one explained that when she enrolled Appling. Stubbs said she wonders if her aunt, who had several strokes, might have benefited from drugs or rehabilitation unavailable to most hospice patients. “Could we have made her remaining years more comfortable?”

--Editors: Gary Putka, Anne Reifenberg

-0- Dec/06/2011 20:39 GMT

To contact the reporter responsible for this story: Peter Waldman in San Francisco at pwaldman@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net


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