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Hospice operators in 2024 are navigating a rapidly transforming environment.
The prior three years have laid the groundwork for change, particularly in the regulatory space as well as gradual migration towards value-based reimbursement and in tandem, the proliferation of business lines beyond hospice.
Meanwhile, providers are also rolling with the ups-and-downs of a market ripe for further consolidation after 2023’s M&A slump as workforce headwinds persist.
With these factors in mind, below are four key trends hospices should watch this year.
The continuing labor conundrum
Workforce pressures and associated costs are overwhelmingly the industry’s most damaging headwind, including the associated wage hikes, enhanced benefits and bonus programs. The shortages also have reduced clinical capacity, which has contributed to drops in patient census and length of stay for many providers.
Referral rejection rates among hospices reached a record high of 41% in 2022, according to data from CarePort, a WellSky company.
Turnover rates for registered hospice nurses reached 25.15% in 2022, according to the 2022-2023 Hospice Salary & Benefits Report, published by Hospital & Healthcare Compensation Service (HCS) in cooperation with the National Association for Home Care & Hospice (NAHC). Nurses also accounted for 16.97% of vacancies.
Hospice aides and CNAs also represented a large percentage of job vacancies and saw high turnover rates, 19.05% and 29.84%, respectively. Only LPNs and LVNs had higher rates, reaching 31.52% turnover and 25.12% for vacancies.
Providers have reported shortages among social workers and nonclinical staff as well.
While some hospice companies reported hiring and capacity gains in 2023, often driven by bonus programs, the problem persists for many providers. And even those improvements can come with hefty financial costs, including rising wages, tech investments, larger benefits packages and bonus programs.
These issues exist throughout the health care continuum, meaning that hospices have a broad range of competitors in the labor market.
In addition to managing the costs, hospice operators will increasingly look inward to improve recruitment and retention. This includes developing an organizational culture that is more supportive for employees, which may help to stave off burnout and encourage them to stay with their current company.
Providers will also have their eyes on efficiency, designing workflows and implementing tools and technology designed to reduce administrative burden on staff. This includes tasks like clinical documentation, a major pain point for clinicians who wish to focus more on their patients.
A potential M&A rebound
After a 2023 slump, the hospice space may be ripe for a 2024 rebound.
Transaction volume declined in the hospice and home-based care space in 2023, following the two record-breaking prior years. Only three hospice deals took place in the third quarter of this year compared to 11 in Q3 2022 and 18 in the same period in 2021, according to data from the M&A advisory firm The Braff Group.
But projections from Braff and PriceWaterhouseCoopers (PwC) could signal an upward trend in the new year.
“Our outlook for 2024 health services deals is cautiously optimistic. While general apprehension from all parties involved in the deal cycle continues, corporate and private equity (PE) players alike continue to hold large levels of capital that need to be deployed,” PwC indicated in a report. “Corporate entities recognize the importance of business reinvention and portfolio transformation to achieve growth and profit expectations, with M&A seen as a leading way to drive these changes.”
A range of factors contributed to 2023’s M&A decline, including rising interest rates and inflation, intensive regulatory activity, macroeconomic issues and gaps between sellers’ valuations and the amounts that buyers were willing to pay. Also, after the flurry of deals that came in 2021 and 2022, many companies took the year to focus on integration and value creation for their newly acquired assets.
But next year, the pendulum could start swinging in the other direction, according to The Braff Group.
“There are lots of reasons to be optimistic about 2024. The fundamental reasons why buyers have targeted health care remains the same,” the firm indicated in a report shared with Hospice News. “The Fed is likely nearing the end of its near uninterrupted string of rate cuts. Institutional loan volume is approaching pre-pandemic levels, and some strategic buyers can use cash or legacy credit at lower costs of capital to fund deals.”
In addition, private equity firms are sitting on more than $800 billion in dry powder, according to Braff.
The close of the years also saw some earnings stabilization among publicly traded companies. Most of the major public hospice companies saw revenue increase year-over-year and sequentially during 2023, with one or two outliers.
Trends like these are often solid indicators that M&A might pick back up, according to PwC.
“There are indications of an earnings recovery in the fourth quarter of 2023, led by earnings growth outside of rate-sensitive and commodities-driven sectors,” PwC indicated in its report. “Our estimates for 2024 see that recovery continuing, which could herald more dealmaking. Valuation gaps between sellers and buyers also seem to be closing for all but the largest deals, providing another reason for optimism that dealmaking could pick up in 2024.”
Consolidation will also likely continue to pick up in the nonprofit sector. Increasingly, nonprofits are pursuing acquisitions and affiliations, as well as forming regional collaboratives.
Rising operating costs and the need to build scale are key reasons that more nonprofits are banding together. Another important factor is the need to prepare to compete with other providers within proliferating value-based payment systems.
The gradual move towards value-based payment models is one of the biggest drivers for these types of arrangements.
Partnerships and affiliations can help hospices mitigate the payment reductions that will likely occur within Medicare Advantage, as health plans generally seek to negotiate for lower rates. These relationships can help generate cost savings and bolster hospices’ bargaining power.
A spotlight on regulation
The regulatory scrutiny impacting the hospice space has only intensified in recent years. Between 2020 and 2023 policymakers introduced a slew of new regulations, a revamped survey process and developed a new Special Focus Program for hospices.
The U.S. Centers for Medicare & Medicaid Services (CMS) finalized its hospice Special Focus Program (SFP) in its 2024 home health rule.
The SFP program will give regulators the authority to impose enforcement remedies against hospices with poor performance based on a data algorithm. These hospices will undergo surveys every six months, rather than the current three-year cycle. They could also face financial penalties or expulsion from the Medicare program.
CMS also finalized the “36-month” rule, which, with certain exceptions, prohibits any change in majority ownership during the 36 months after initial Medicare enrollment, including acquisitions, stock transactions or mergers. The 36-month rule requirement mirrors a regulation that has existed for several years for home health agencies, signaling a tighter outlook on hospice ownership as CMS looks to curb hospice license flipping.
Moverover, beginning in 2024, hospices will face higher penalties for not submitting data to the Hospice Quality Reporting Program (HQRP). Providers who do not submit data incur a 4% annual payment reduction, a hike from 2% that CMS included in its 2024 hospice final payment rule.
In addition to these macro-level changes, auditing of individual organizations likely will proceed apace, with focuses on things like accurate billing and clinical documentation and General Inpatient Care Utilization.
Consequently, many providers will be doubling down on ensuring airtight compliance, particularly to avoid being caught up in the SFPs algorithm for identifying poor-performing hospices.
Though the hospice community generally has voiced support for the program, many contend that the agency’s methodology for identifying hospices for the SFP is deeply flawed. Stakeholders, including hospice providers, industry groups and members of Congress, called on CMS to postpone the program and revise that algorithm.
Nevertheless, the agency decided to move forward with the SFP as it was proposed, leaving hospices to worry that their sustainability will be endangered due to mathematics rather than genuine quality concerns.
Adapting to value-based care
Another focus for providers this year should be adapting towards risk-based payment models.
This includes the development and expansion of services beyond hospice, such as palliative care or Programs for All-Inclusive Care of the Elderly (PACE). These types of business lines help legacy hospices engage patients further upstream, demonstrate a track record of saving money for Medicare, Medicaid and other payers, as well as get ahead of the curb as the health care system moves towards value-based reimbursement.
In the long term, this includes the potential for hospice coverage through Medicare Advantage (MA).
The hospice component of the value-based insurance design (VBID) demonstration entered its fourth year on Jan. 1, 2024 and is expected to proceed through 2030. Often called the MA hospice carve-in, the four-year voluntary demonstration is designed to assess payer and provider performance within Medicare Advantage.
While the ultimate outcome of the demo remains to be seen, many in the space expect that in time MA will become more involved in hospice. Meanwhile, providers are already engaging with MA plans to support their palliative care and other programs, like PACE, home health and home-based primary care, among others.
Accountable Care Organizations (ACOs) also have a rising profile. CMS has signaled its intention to align every Medicare beneficiary with a value-based or accountable care payment system by 2030.
Consequently, many providers have accelerated their moves towards building relationships with ACOs and Management Services Organizations (MSOs).
On Jan. 1, 2023, Medicare launched the ACO Realizing Equity, Access and Community Health (ACO REACH), which is gaining a lot of interest.
Patients aligned within ACO REACH have access to help them navigate the health system and manage their conditions. They may have greater access to enhanced benefits, such as telehealth visits, home care after leaving the hospital and help with copays, according to CMS.
If done right, health care providers and ACOs can collaborate to better manage goal-concordant care to support patients’ overall health, as well as manage the associated costs.
Often, they can give providers access to some data they may not otherwise have, such as details about a region’s patient population and prevalent health conditions. ACO-provider relationships als can offer flexibility by allowing the two parties to customize their agreements to the needs of their patient population.
Factors like these will give ACOs a rising profile in health care, including with hospice and other post-acute providers.
