In summary, overall hospice industry profitability is low, with a median annual organizational profit of $75,683 (range: −$2,444,719 to $2,889,763). However, FP hospices are more profitable than NFPs. Their financial advantage appears to be driven by longer LOS. While FPs provided more visits per patient, this was also due to longer LOS, not a greater intensity of care. In contrast, FPs provided a lower proportion of RN visits to total nursing visits than NFPs. FP profitability is reflected in taxes paid—and among those FP hospices that were profitable, 20.5% of pretax profits were paid in taxes. There were no differences between FP and NFP hospices in the provision of charitable care, and little difference in the availability of special services. Regardless of profit status, few hospices provided physician visits, chemotherapy, or radiotherapy.
Limitations of our analysis include the fact that we only examined California, because the detailed organizational data included in the OSHPD survey are not readily available elsewhere. However, hospice policy is dominated by Medicare, and the hospices we studied served a large number of all 2003 U.S. hospice patients (66,884 of 950,000 total estimated patients) and thus are important in their own right.6
We examined financial data on a per-patient and per-patient–day basis to account for potential biases from including 11 recently opened and 3 recently closed hospices. However, we found that recently opened hospices were more likely to be FP, with lower revenues and higher costs than others, suggesting a conservative bias. Finally, patient-level information about the quality of care is needed to evaluate the implications of our findings.
We found that longer LOS was strongly associated with differences in overall profitability, and this factor was associated with caring for patients with noncancer diagnoses and those from nursing homes. In 2003, 50.6% (33,818 of 66,884) of California hospice patients had noncancer primary diagnoses, an increase from just 35% in 1997.7
Nationwide, 41.8% of hospice patients had noncancer primary diagnoses in 2000.18
This trend may imply that hospice access is improving among patients with diagnoses, other than cancer. Non-cancer patients have less predictable short-term prognoses.19
Adjusting for the other covariates, the average LOS of a hospice would increase by 7.11 days (p
= 0.004) if the percentage of non-cancer diagnoses were increased from the 25th percentile value (42.9%) to the 75th percentile value (64.1%).
Thus, individual hospices may benefit from enrolling patients with non-cancer diagnoses, and patients may also benefit—hospice penetration of nursing homes overall is low and the palliative needs of US nursing home patients are extensive.20–22
Our current study adds to the evidence of prior research that nursing homes are an important source of hospices' referrals. The proportion of noncancer patients was highly correlated with the proportion of hospice patients referred through long-term care (Pearson r
= 0.42), but in multivariate analysis, only the proportion of non-cancer diagnoses was independently associated with LOS.
Because profit status is also associated with differences in clinical performance including the duration of care (e.g., LOS), frequency of visits, and how often RNs compared to other nursing providers (e.g., LVNs, homemakers) are used, further research is needed to assess differences in quality outcomes. We found here as in our previous work that differences in hospice patient population partially account for differences in staff utilization among hospices. Supporters of FP health care argue that services are delivered more efficiently, while opponents suggests that this financial advantage comes at the cost of lower quality care.24–26
The question of what the “right” LOS, nursing intensity, and provider skill mix is for hospice care remains unclear and answering this question will require research that examines variation in these factors with patient clinical outcomes. Furthermore, the nursing shortage could play a role in how hospices are using their staff. Future research should consider the substitution effect more broadly and account for local nursing supply and wages.
NFP hospices have lower pretax profit than FPs, but that difference would be even greater without charitable grants and donations. Because hospice is a low-profit industry overall, charitable income is important to the financial viability of NFP hospices. However, the amount of charity care delivered did not differ by profit status. Charitable revenue is expected to allow NFPs the financial freedom to provide unprofitable services for the community, but NFPs are generally unprofitable entities even with charity revenue. The amount of charitable contributions supporting NFP hospices as a whole could be seen as adequate for financial survival, but insufficient for true fulfillment of the NFP mission.
The low profitability of the hospice industry suggests that hospices will continue to be challenged to provide newer, even more costly palliative therapies. That suggests that hospice patients may not have adequate access to important palliative modalities—or that patients will only enter hospice after they and their providers have exhausted such treatments, keeping LOS extremely short. Payment for other services provided for the terminal illness has to come from the fixed per diem Medicare payment. Hospices infrequently provide chemotherapy and radiation, but this is understandable given the median profit of $6 per day including grants and donations, Addressing this issue will be necessary if it is desirable to integrate hospice more “upstream” in the chronology of illness.
In conclusion, our report provides important information that has been lacking about the financial performance of hospice and sheds light on how policy might influence factors that affect the profitability and financial viability of hospices. As supported by other research, we found that LOS is a particularly important factor associated with differences in financial performance.9
Because of looming demographic changes, cost-effective, high-quality options are urgently needed to assure adequate access to palliative care across the continuum of serious illness care.