Feb. 3 (Bloomberg) -- Lois Armstrong and David Daucher closed their for-profit hospice in October to get out from under more than $27 million in refunds it owed the federal Medicare program, they said.
The same week, they opened a new hospice with new owners. As a result, the refunds, owed to Medicare for five years’ worth of overpayments to Sojourn Care Inc. of Tulsa, Oklahoma, may never go back to taxpayers. The government links the debt to Sojourn Care, not to its owners, said Brian Daucher, an attorney for the company who is David Daucher’s nephew.
“Individuals can walk away from it,” Brian Daucher said.
The demise of Sojourn Care, and the creation of its successor, RoseRock Healthcare, illustrate how hundreds of hospices across the U.S. exploit quirks in the Medicare payment system that yield higher reimbursements -- with results that can hurt taxpayers and patients, said Tulsa physician Sandra Dimmitt. She had more than 30 Sojourn Care patients in a half- dozen nursing homes when the hospice shut down.
“My patients were dumped out in the cold,” said Dimmitt, a former Sojourn Care medical director. “How can you close one Medicare license, open another and leave the public holding the bag for your debts? Medicare should be irate.”
Armstrong said Sojourn Care worked hard to transfer all but a few patients to other providers. Carolina Fortin-Garcia, a spokeswoman for the federal Centers for Medicare & Medicaid Services, or CMS, declined to comment on Sojourn Care.
Took Some Patients
Armstrong and David Daucher took about 100 of Sojourn Care’s more desirable patients with them to the new hospice, according to interviews with 18 former Sojourn Care nurses, home-health aides, marketers and doctors. About 180 other patients, including Merlin Upshaw, were cut loose to find new caregivers, the former employees said.
Upshaw lost his wheelchair, his toilet riser, his special hospital bed and his favorite nurse, Clara, when the hospice shut, said his daughter, Mary Hendricks. Ten days later, after enrolling in a different program, Upshaw, 92, died of old age, “in a rickety old bed, on a really hard mattress,” she said.
Hospice offers palliative and comfort care for dying patients, in lieu of curative treatments deemed futile at that point. To be eligible for about $150 a day in Medicare hospice coverage, a person must have a prognosis of six months or less to live, certified by two doctors. Patients can stay indefinitely, provided a doctor recertifies the terminal prognosis every 60 days.
Cap on Payouts
Medicare effectively rewards providers that recruit healthier patients who can survive in hospice for years, according to reports by the Medicare Payment Advisory Commission, or Medpac, which advises Congress on health-care policy. Congress in 1982 attempted to discourage such admissions by mandating the so-called hospice cap -- a limit on the average Medicare payout per patient.
Hospices that exceed the annual cap, which was almost $25,000 for 2011, must refund the difference to the government. That was Sojourn Care’s problem: It racked up $27 million in such repayment obligations from 2006 through 2010, according to annual reports it sent to CMS and letters issued by Medicare.
More than 430 hospices, almost all of them for-profits, exceeded the cap in 2009 -- an increase of almost 50 percent since 2006, according to Medpac. Of them, about 40 percent had average lengths of stay that exceeded 180 days, and 44 percent of their patients were discharged alive. In all, the above-cap hospices owed more than $220 million in repayments in 2009, the last year data is available.
It’s unclear just how much of that money the federal government will collect. CMS has suspended such collections, pending changes to the formula for setting the caps that are expected this spring. At least seven hospices that owed more than $35 million in repayments have sought bankruptcy protection since 2008.
“What happened to the cash that disappeared into the hands of the owners?” asked Bruce Stuart, a Medpac commissioner and pharmacy professor at the University of Maryland in Baltimore. “The ethical question I have is whether these companies are in business to provide necessary end-of-life care, or whether they’re in business to defraud the government.”
Fortin-Garcia, the CMS spokeswoman, said the agency “will examine our ability to prevent hospice owners from simply terminating provider agreements to avoid repayment.”
In the absence of criminal conduct, the U.S. has no recourse to collect cap liabilities from individuals, said Carolyn McNiven, a partner with DLA Piper in San Francisco and former chief of the U.S. Attorney’s Health Care Fraud Task Force in Chicago. If improprieties are suspected, prosecutors can pursue fraud charges or seek to disqualify individuals from further participation as Medicare providers, she said.
“If they see a hospice was managed as a cash cow to draw out money through fraudulent means, such as unreasonable management fees, salaries or third-party contracts, they’ll look at that with a jaundiced eye,” McNiven said.
Sojourn Care was a “high quality hospice” that spent more on patient care than industry norms, said Lucinda Rojas Ross, a spokeswoman for Armstrong and David Daucher. Its compliance record with Medicare rules on patient eligibility was “virtually spotless,” she said.
From 2005 through 2010, the company reported more than $26 million in cumulative losses on almost $100 million in revenue, according to reports it filed with CMS. In the same period, it reported about $18 million in “administrative and general” expenses for salaries, benefits and contracts.
No Unusual Compensation
The company’s shareholders never earned a profit, and its executives never received any “unusual compensation,” Ross said. She declined to disclose the salaries of Armstrong or David Daucher. Sojourn Care’s administrative spending in 2010 was roughly in line with several non-profit hospices, according to Daucher.
When Sojourn Care closed, its patients’ average length of stay was slightly under 180 days, Daucher said. The national average is 86 days, according to Medpac. Sojourn Care managers resisted discharging patients whose health improved and who weren’t facing imminent death, said Kim Sklenar, a nurse who worked there.
“It was a huge ordeal to get someone removed from service,” Sklenar said.
Sojourn Care exceeded the Medicare cap because “they didn’t throw people out on the street for living too long,” said Brian Daucher, its lawyer. The company’s $27 million in cap bills ultimately made survival impossible, Armstrong said.
“We simply couldn’t see daylight at the end of the tunnel,” she said.
Stunning Staff Meeting
Many Sojourn Care employees were stunned when Armstrong, after telling staff for months that the company was stable, called a meeting on Oct. 14 to announce that it would close in two weeks, said Risa Sparks, who worked for Sojourn Care as a nurse. Armstrong didn’t mention plans for RoseRock Healthcare until someone in the audience asked about rumors of the new hospice.
“That’s when she started stammering around and said, well, yes, there is another company, but they’d never be as involved as they were with Sojourn,” said Sklenar, the nurse.
With uniformed police officers present in the room, Armstrong told the staffers they were being fired, Sparks said. Meanwhile, a group of employees that had been offered jobs at RoseRock were out in the field lining up certain patients the new company had targeted, she said.
“All of a sudden they went from being eligible for hospice to ‘Go deal with it,’” Sparks said.
A RoseRock competitor, Grace Hospice of Tulsa, assessed 20 of the former Sojourn Care patients, enrolled 14 as charity patients because they were capped out and rejected six as not dying, said Ava Caughrean, the for-profit hospice’s executive director. The 14 patients represent about $56,000 a month in uncollected Medicare reimbursements, she said.
“It’s a big bite, but what I’ve always found in this business is if you follow the rules, you’ll be OK,” said Otis Eversole, Grace’s owner. “There’s no question, Sojourn was slipping Sally through the alley here.”
Armstrong and David Daucher said in an interview that neither of them will ever own a hospice again. They operate RoseRock through a separate Tulsa management company they own called Solstice Healthcare, said Ross, their spokeswoman. RoseRock is owned by some investors in Oklahoma City, according to a license application filed with Oklahoma’s Department of Health. The document named Armstrong and David Daucher the sole members of RoseRock’s board of directors.
By closing Sojourn Care while cap collections are suspended, Armstrong and David Daucher “shut this down on their own terms,” without repayment pressure from Medicare, said Brian Daucher, the company’s attorney.
“We did this because we like doing hospice work,” Armstrong said. “There aren’t any winners in this whole story.”
Merlin Upshaw “lost his value for Sojourn Care,” said Hendricks, his daughter. Over 10 days after his discharge, two other hospices refused to enroll him because his cap allowance was used up. A third agreed to take him on as a charity case right before he died, Hendricks said. “We felt sort of cast adrift.”
Charles Lee Smith, 87, had been with Sojourn Care for a year, said his son, Jeff Smith. A dementia and heart patient, he wasn’t picked up by RoseRock. Finding another hospice was disturbing for his father, who lives at home in Broken Arrow, Oklahoma, Jeff Smith said.
“I wonder, were we dumped?” he said. “Isn’t that America -- close your business, change the name and start over.”
--Editors: John Voskuhl, Gary Putka
To contact the reporter responsible for this story: Peter Waldman in San Francisco at firstname.lastname@example.org
To contact the editor responsible for this story: Gary Putka at email@example.com