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.
KKR Buys In
“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 between 2003 and 2009, including most of the time when Apax owned it. “You can’t sell unless you show big growth.”
‘Make a Buck’
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 writeoffs 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.
Vitas paid salespeople bonuses based on patients’ length of stay, according to White, who worked for the company in Cathedral City, California, from 1998 to 2004. Medicare, which foots 90 percent of the national hospice bill, compensates providers on a per-diem basis, and lengthier stays increase profitability, federal data show.
Vitas “compensates some marketing and management representatives based on overall growth,” according to spokeswoman Kal Mistry. She said Vitas does not link compensation to length of stay or pay bonuses to employees involved in admissions decisions.
VistaCare Hospice, a unit of Atlanta-based Gentiva, paid enrollment bonuses to doctors, admissions directors and branch managers, according to Misty Wall, a former social worker for the company and now an assistant professor at Boise State University in Idaho. VistaCare also gave pizza parties, gift cards and other extras to its registered nurses and social workers for meeting admission targets, Wall said.
Wall has filed a lawsuit against VistaCare in U.S. District Court in Dallas under the U.S. False Claims Act, seeking repayment to the government for admissions of ineligible hospice patients. The law lets plaintiffs share in any recoveries. The Justice Department, which has not joined Wall’s suit, is opposing VistaCare’s motion to dismiss the claim.
The allegations predated Gentiva’s ownership of VistaCare, according to spokesman Scott Cianciulli, who said the company is committed to complying with all Medicare rules.
The inspector general of the U.S. Health and Human Services Department is probing 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 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.
Stumphauzer said he and other “cautious” lawyers believe the health care laws bar all employees and contractors from earning bonuses based on Medicare enrollment goals, including salesmen and managers.
Nursing-home physicians referring patients to hospices that also pay the doctors, especially in cases when the compensation includes enrollment bonuses, may violate a federal statute known as the Stark Law, according to Stumphauzer. The law is designed to ensure that doctors refer patients based on who provides the best care, not based on who is paying them.
Seven pending or settled lawsuits against hospice companies say that enrollment-based incentives led to admitting patients who didn’t qualify for hospice care. Appling, Stubbs’s aunt, is identified as “Patient 11” in one of these cases, 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.
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.
Harden’s purchase of HCK’s parent was part of a flurry of buyouts in the sector. A record 17 hospices were acquired in the first six months of 2011, according to Dexter Braff of the Braff Group, a Pittsburgh-based merger-advisory firm. Prices for mid- sized and larger hospice chains have risen “significantly” in the past two years, from about one times annual revenue to as much as 1.5-times, said investment banker Burk Lindsey of Raymond James & Associates in Nashville.
The rise of for-profit hospice care since 2000 has helped drive a 60 percent increase in the average time patients spend in hospice, to 86 days in 2009, according to Medpac. The average stay of the 10 percent of patients who remained in hospice the longest soared 71 percent to 240 days.
That means at least 110,000 patients weren’t facing imminent death when they were admitted -- although 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.
‘Christmas Cash Blitz’
Profit margins on healthier patients who survive for years with minimal care can exceed 20 percent, according to Medpac. Medicare patients can stay on hospice indefinitely, as long as a hospice physician recertifies that they are terminally ill every 60 days.
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.
Hospice salespeople would vie with drug marketers to provide lunches for doctors, since free food was often the only way to buttonhole them, Angelo said. She’d let physicians’ offices order off the menu from Scotch & Sirloin, a Wichita steak house, and then pick up and deliver the order.
Doctors and nursing homes that Angelo looked to for referrals were given baskets of bread, candy and other goodies at holidays, plus pens, mouse pads, calendars and hand sanitizer emblazoned with the hospice logo, she said. Medical directors -- many of whom also worked for nursing homes -- took a company- paid annual “retreat” to locales including San Diego, and free family vacations at Great Wolf Lodge in Kansas City, Kansas, according to Angelo.
Angelo said her base salary was about $45,000 a year, plus $8,000 to $10,000 in bonuses that were hers to keep whether or not admitted patients turned out to be ineligible.
Rising Patient Stays
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, garnering at least $2.1 million in additional pay from Voyager, according to HCK court filings.
Under Voyager’s control, HCK increased the average patient stay at its main Wichita branch 45 percent to 109 days, according to Healthcare Market Resources, a medical researcher in Thresher, Pennsylvania. During the same 2004 to 2009 period, the average length of stay at all Kansas hospices rose 30 percent to 86 days, the firm said.
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.
‘Patients Aren’t Widgets’
Apax wasn’t 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. No HCK medical directors, including Ewy, received compensation based on referrals or enrollment size, Little said.
“The hospice industry is not about financial incentives but about providing quality of life and dignity to patients,” he said.
HCK taught salespeople to visit nursing facilities to identify hospice prospects, get to know their families and strike up “friendly games of dominoes,” said another former marketer, Vickie Hardiman. When Rowe pushed her to accept commissions for patient admits, Hardiman said she refused because “dying patients aren’t widgets.”
Rowe, who now owns an HCK rival, Rivercross Hospice in Kansas and Oklahoma, said his hospices have always complied with federal rules and regulations and receive high marks from government overseers.
Admissions directors at the Kansas hospice were eligible to earn bonuses of up to 15 percent of their salary for meeting enrollment targets, and medical directors were eligible for “ad hoc ‘spiff’ bonuses” based, in part, on enrollment, according to the government complaint, filed last year in U.S. District Court in Kansas City, Kansas.
Nurses evaluating patients for hospice admissions reported to the marketing department, and felt “pressure” to admit patients whom the marketers identified, whether eligible for hospice or not, according to Pat Perkins, a former HCK nursing supervisor.
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.”
More than half of Voyager’s patients resided in nursing homes, according to Combs, the company’s co-founder and former senior vice president. That compares to about one-third of Medicare hospice patients nationally.
The government often pays twice for hospice patients in nursing homes -- about $137 a day to the hospice provider from Medicare, and about $200 a day that goes to the nursing facility from Medicaid, which covers the indigent elderly.
“Hospice should not be in nursing homes at all,” said Anderson. “It’s redundant and it’s an expense we cannot afford and don’t need.” In July, the inspector general of HHS recommended reducing payments to hospices in nursing home.
Stubbs, Appling’s niece, said she got a call one day from the nursing home where her aunt lived offering extra care if she were enrolled in hospice. HCK admitted Appling with a terminal diagnosis of cardiovascular accident, or stroke. It was changed later to “general debility,” according to documents filed in the court case.
Ewy signed two separate 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.
‘Inappropriate For Hospice’
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. Yet Appling 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 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?” Stubbs asks.
In 2005, the year Appling went on hospice, about 25 percent of HCK’s patients did not meet eligibility requirements and an additional 25 percent were questionable and needed to be reviewed, according to Diana Alvarez, the company’s former director of program integrity.
When members of the medical staff wanted to discharge a patient for good health, hospice managers -- whose pay was tied to enrollment -- resisted, according to Brian Billings, a physician in McPherson, Kansas, who worked for HCK from 2003 until 2007. Billings said he quit because the hospice wouldn’t discharge patients who “obviously” didn’t qualify. “There was a definite shift toward the bottom line,” he said.
Gerald Stout spent about a year in HCK hospice care ending in 2006, and is still alive more than five years later, said his daughter, Brenda Chastain. No one “ever said anything about dying” when he was admitted, Chastain said.
Eight months after Stout was admitted by HCK for Parkinson’s disease, medical reviewers noted in his chart that he’d gained weight, got around well with a walker and “was not appropriate” for hospice. He was discharged three months later. Medicare paid more than $34,000 for his hospice care.
--Editors: Gary Putka, Anne Reifenberg
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