CMS Proposes ‘36-Month Rule’ to Curb Hospice License ‘Flipping’

Some hospice owners have been selling their businesses soon after securing a license. This has prompted federal agencies to pursue new regulations to address the problem.

The practice appears to stem from a rash of newly licensed hospices that have emerged in California, Nevada, Texas and Arizona.

Some of these providers have secured licenses, as well as Medicare certification and, sometimes, accreditation. They then proceed to enroll a small number of patients for whom they never bill Medicare, multiple hospice executives told Hospice News on background.

By not billing, they are better able to avoid regulators’ attention.

These issues have led to widespread calls for the U.S. Centers for Medicare & Medicaid Services (CMS) to strengthen program integrity for the Medicare Hospice Benefit.

“I think that all of us who are good providers are sick of the bad players. We want to let everyone know that hospice doesn’t want them to be a part of what we do,” Tarrah Lowry, COO of Trustbridge, told Hospice News. “We’re all for program integrity actions that are going to help with getting rid of those types of providers.”

A cluster of affected states

The issue first garnered attention in California, where the state’s Department of Justice (CDOJ) reported that lax hospice oversight had “created the opportunity for large-scale fraud and abuse,” and that it had identified “numerous indicators of such fraud and abuse by hospice agencies” statewide.

In January, hospice organizations began sounding the alarm on similar activity in other states — Arizona, Texas and Nevada.

Arizona had 239 new Medicare-certified hospices appear between 2018 and 2022, representing 52% of all providers in the state. In that time frame, Nevada saw 56 newly certified hospices, and 369 emerged in Texas.

In some instances, multiple hospices have been operating out of the same address without a corresponding increase in the population of eligible patients, according to the California DOJ. Some individuals also hold management positions at several of these hospices simultaneously.

A number of companies advertise their licenses on websites designed to connect buyers and sellers across a range of industries, including hospices. On two of these sites combined, close to 200 hospice companies had posted about licenses for sale, with most asking for prices in the vicinity of $300,000 to $350,000.

Many of those listed were in California, Arizona, Texas or Nevada, though not all.

“People have been flipping licenses, absolutely,” Cory Mertz, managing partner for the M&A Advisory firm Mertz Taggart, told Hospice News. “We saw this same problem in home health a few years ago, and CMS made regulations aimed at preventing it, including a rule that said a home health provider couldn’t sell their business unless they had owned it for at least 36 months.”

As of now, selling a license this way is not technically illegal.

And while a number of providers may have broken some rules in the lead-up to a sale, another proportion may sell for other reasons, such as poor financial performance, according to Kevin Palamara, managing director of the M&A advisory firm Provident Healthcare Partners.

“We have seen individuals ‘selling a license’ in the hopes of making some return on their investment into securing said license; this is much more speculative and would require you finding just the right partner willing to pay versus build,” Palamara told Hospice News in an email. “We haven’t seen groups employ this strategy to make a return, but rather have seen groups try to recoup the time and money spent to secure the license. Typically, it’s a scenario where a group expands into a new market and isn’t finding the success that they had hoped for, and as a result, are looking to offload the license.”

Beyond M&A

The unethical activity extends beyond questionable billing or M&A. Some of the providers in question have also played fast and loose with the payment cap, according to multiple hospice executives.

Newly licensed hospice companies have reportedly been enrolling a handful of patients, keeping them on service until they reached the cap, and then selling or leaving the business before CMS could recoup the overage.

In some cases, even individuals who have lost licenses due to fraud have turned around and secured new ones under a family member’s name, one executive said.

All of these issues have stirred up a hornet’s nest among the hospice community as well as federal lawmakers.

In January, a coalition of four industry organizations made 34 recommendations to CMS and Congress for strengthening oversight. Those four were: the National Association for Home Care & Hospice (NAHC), the National Hospice and Palliative Care Organization (NHPCO), LeadingAge, and the National Partnership for Healthcare and Hospice Innovation (NPHI).

Among the groups’ highest priorities was a targeted moratorium that would limit the enrollment of new hospice providers in regions with “troubling rates of explosive licensure and Medicare certification growth,” according to the list of recommendations.

The problem represents an opportunity for the hospice community to work with lawmakers to identify solutions, according to NHPCO COO and interim CEO Ben Marcantonio.

“One of the key things is really collaborating [with lawmakers] and coming to a real common understanding of what the concerns and issues are and what the solutions are,” Marcantonio told Hospice News. “With the program integrity area, would [CMS and legislators] take action with us on our recommendation around a moratorium in certain states, to get a focused, time-limited moratorium so that we don’t compromise access to care.”

For their part, a number of lawmakers seem ready to pursue such collaboration.

In February, Reps. Beth Van Duyne (R-Texas) and Earl Blumenauer (D-Ore.) led a group of lawmakers who wrote to CMS Administrator Chiquita Brooks-LaSure asking for the agency to brief them on fraud and abuse within the Medicare Hospice Benefit.

“I’m working to find ways to empower hospice care providers,” Van Duyne recently told Hospice News. “They are the ones who best understand the needs of their patients, and we need to make sure that we are leaving ample opportunity to get their opinions on this before we move forward with any potential legislation.”

Wheels start to turn at CMS

CMS has taken recent steps to address the issue, including provisions in two proposed rules for 2024.

The agency proposed a requirement that all physicians who order or certify hospice services for Medicare beneficiaries be enrolled in Medicare or validly opted out. If finalized, this would be a condition for payment.

The proposal is also examining a range of data, such as the number of beneficiaries using the hospice benefit, live discharges, reported diagnoses on hospice claims, Medicare hospice spending and Medicare Parts A, B, and D non-hospice spending.

This likely means the agency is trying to identify trends that could indicate fraud or abuse.

“CMS is looking closely at the hospice industry, as we have increasing concerns about fraud, waste and abuse in this space,” the agency indicated in a statement. “While this rule takes initial steps, this is part of a larger effort by CMS to address hospice fraud, waste and abuse that will continue this year.”

The agency has also proposed to increase to 4% the payment deductions for hospices that do not submit quality measure data to the agency, including the Hospice Item Set. Currently, that percentage is 2%.

 If the rule is finalized as written, CMS would stipulate that a provider that has been denied Medicare certification would not be able to reapply for up to three years. It would also impose restrictions on physicians who have had felony convictions within the previous 10 years.

CMS went a step further in its proposed home health payment rule for 2024, which was unveiled on Friday.

Most prominently, CMS has called for a 36-month ownership requirement before a hospice can sell. The rule forbids any change in majority ownership during the 36 months after initial Medicare certification, including acquisitions, stock transactions or mergers.

If finalized, this would mirror the current regulation for home health providers.

“CMS instituted the 36-month requirement in 2010 after it saw this problem in home health,” Mark Kulik, senior managing director at the M&A advisory practice The Braff Group, told Hospice News. “It would make sense that they would try to do something similar for hospice.”