Nursing Home Ownership Trends and Their Impact on Quality of Care. DISCUSSION

08/01/2009

Based on detailed ownership data from the State of Texas, nursing home ownership and corporate structures changed substantially in the state during the 2000-2007 time period. Similar to what has occurred in other states, nursing home ownership by large national chains has declined and been replaced by smaller, more regionally-focused private investment-owned facilities.10 Along with these changes, Texas nursing homes increasingly used LLC structures and partnership structures (primarily GPs and LPs), replacing their previous reliance on basic for-profit and not-for-profit structures. From 2000-2007 the percent of Texas facilities using either a LLC or partnership structure increased from around one-quarter of all facilities to almost two-thirds of all facilities.

Nursing homes in Texas also have increasingly used management companies to deliver care. In part, this shift reflects broader structural changes rather than facilities outsourcing resident care. Of the 35 percent of Texas facilities that used a management company in 2007, a little more than half of these facilities used a management company that had common ownership to the facility itself. Finally, the combination of these changes gave rise to nursing home corporate structures that were relatively more complex in 2007 compared to previous years. For instance, many of the larger owners in the state now use facility-level limited liability structures that are separated from final-level ownership (i.e., the investors) by additional layers of LLC structures.

The structural changes used by facility ownership, in particular LLC and limited partnership structures, appear to be used disproportionately by for-profit, chain providers. This association is consistent with the rationale for restructuring and the litigation and private investment trends of the study period. Compared to facilities in the Texas market that did not employ such structures, facilities using the LLC or LP structure generally exhibited higher numbers of survey deficiencies and lower staffing per resident compared to facilities that do not use these structures, suggesting that the average quality of care may be relatively lower in these facilities. Not surprisingly, the facilities that used these limited liability structures have significantly more complex ownership structures overall.

While the landscape of nursing home ownership in Texas has changed substantially in recent years, especially for the proprietary chain facilities in the state, these changes do not appear to have driven broader changes in the way care is delivered by individual facilities, including their quality of care. In particular, across our regression models, the structural changes we identified did not result in significant shifts in facility staffing, payer mix, or survey deficiencies in the facilities that used these limited liability structures compared to those that did not. In other words, the main story of these changes seems to be the altered corporate structures themselves and not the relationship between these structural shifts and corresponding changes in care. From a quality of care perspective in particular, these results imply that care does not seem to improve or decline overall in the wake of structural or management changes. In other words, the facilities that had higher deficiencies and lower staffing before restructuring tend to look relatively similar after these types changes.

Finally, although our ability to identify potential issues related to real estate ownership of Texas nursing homes was limited by the data, our cursory look through the lens of these data confirms that complexity in ownership structures can extend to property ownership and that a sizeable portion of Texas nursing homes have distinct ownership of operations and property.

Importantly, our study data are based on one state and may not be generalizable to other locales. Although the trends identified in our data appear to be occurring in other states,11 the Texas nursing home market is distinct in important ways. According to recent OSCAR data, for instance, Texas has a larger share of for-profit (83.7 percent vs. 66.9 percent) and chain nursing homes (64.5 percent vs. 53.6 percent) relative to the national average. In addition, Texas has the ninth lowest occupancy rate in the country (73.2 percent relative to the national average of 84.3 percent) and one of the lowest Medicaid payment rates in the country.

Another distinctive feature of the Texas nursing home market that has likely played a central role in spurring changes in nursing home ownership in recent years is the rise of nursing home litigation in the state. Along with Florida, Texas nursing homes were hit especially hard by the rise in malpractice litigation that occurred in the late 1990s and early 2000s,12 possibly leading to increased use of corporate structures to help shield parent companies from potentially costly lawsuits. Restructuring can help protect owners from a range of other liabilities as well, including sanctions related to oversight of the Medicare and Medicaid programs and liability under the False Claims Act.13 More specifically, restructuring can limit the reach of sanctions to individual facilities as opposed to entire chains. At the same time, driven in part by liability trends, the larger for-profit nursing home chains exited the Texas market, selling their facilities to private investment companies and others. Similar to broader trends nationally, private investors purchased nursing homes and, in the process of financing these deals, often created companies with re-organized asset and management structures.14 For instance, investment companies that previously focused on properties such as hotels and shopping malls saw opportunities in the nursing home sector that were shaped by real estate values, inexpensive access to capital, and reliable cash flow for operators.

Of course, nursing homes are different from other commercial properties, not least because of their mission to care for a frail resident population. In this context, it is important to assess the relevance of data on corporate structure and how it might be used by stakeholders, something that has been at the center of proposed legislation about nursing home transparency and accountability. We will focus below on the potential use of detailed ownership data in regulatory oversight activities.

Federal and state quality assurance efforts generally focus at the level of the individual nursing facility.15 In the context of chain ownership, this approach implies that state and federal regulators typically do not investigate or sanction corporate culpability beyond the level of the facility. If quality of care is heavily influenced by practices, policies, and systems inherent to ownership, regulators’ facility-specific approach might be ineffective and fail to identify root causes. Switching to a broader regulatory approach is not feasible for the survey and certification system but could be a central feature for quality improvement organizations identifying areas for improvement. More important, a reformed approach would extend responsibility for resident care beyond where the line has been drawn previously at the individual nursing facility. An important example of this approach is the Corporate Integrity Agreement model used by the HHS Office of the Inspector General over the past several years with 15 corporate nursing home providers.16

To raise a more specific question relevant in the context of the detailed Texas ownership data, what should be done to ensure accountability in the context of complex ownership structures, especially where it can be unclear which entities have responsibility for resident care? Should responsibility extend beyond entities that sign provider agreements with Medicare/Medicaid to other parties that are ostensibly not involved in caring for residents? The answer seems to depend on the extent to which these other entities directly or indirectly influence resident care processes, something that remains unclear.

In the context of this uncertainty, a possible use of detailed ownership data in facility oversight is to monitor involvement of investors (whether of property, management, or operating companies) in the nursing home business and to use this information at the point of licensure application. Indeed, this is one of the primary functions of the OMT data in Texas. If an entity involved in a nursing home sale or new application for licensure has a previous history of being associated with substandard care, detailed ownership data can help flag these instances. Armed with these data, licensure agencies could identify bad actors and introduce potential safeguards to lessen the potential for future problems. In addition, having detailed ownership data could be a useful point of leverage if facilities in operation are unable to meet their regulatory obligations (e.g., hiring a temporary management company or paying financial sanctions). More broadly, detailed ownership data could be useful in determining the factors that influence the provision of excellent and poor quality nursing home care and help delineate the role of ownership in its provision. Greater investigation into these topics by researchers could help advance these objectives.

One outstanding question in the collection and maintenance of nursing home ownership data is whether it has relevance for consumer decision making. Any collection of detailed ownership data would occur alongside ongoing efforts that have developed over the last decade to collect, maintain, and report a wide range of nursing home data via the Nursing Home Compare website and assorted state reporting sites.17,18 As a result of these collective efforts, information about nursing home characteristics, staffing, and the care that is delivered is much more widely available than it was in the past. To some, offering consumers further information on nursing home ownership and corporate structuring could offer another piece of valuable data for consumers to consider in choosing the right nursing homes. Yet, given the complexity of these data and the difficulty consumers may have in navigating the information available on Nursing Home Compare,19 the use of such data in regulatory oversight seems to be a higher priority. In fact, given the questionable usefulness of these data to consumer decision making (e.g., in discerning a reliable signal related to quality of care), policymakers should be cautious in adding complex ownership data to the wide range of inputs already available to consumers about nursing home care.

Importantly, the collection and use of detailed nursing home ownership data should be guided by several considerations.20 The ownership data that are collected should have relevance to their intended use, they should be comprehensible to the parties that will use them, and they should streamline the cost of data collection to the extent possible. If detailed ownership data will be used to monitor the involvement of potentially bad actors in the nursing home sector, for instance, the data should be flexible enough to execute queries of particular entities based on parameters of interest. In the context of the Texas OMT data, the complex structures that are used and the multiple layers of ownership possible for operations, management, and property investment imply that a simplistic, flat-file approach would likely not prove dynamic enough to meet the demands of the data. Indeed, a hierarchical, relational database--which Texas uses--seems necessary to capture this information sufficiently.

Presuming the current push toward transparency of nursing home ownership continues, progress to use these data productively will depend on multiple factors. Most obviously, detailed ownership data are not yet available nationally. CMS-maintained PECOS data could serve this role in the future; however, the PECOS data have not yet proven comprehensive or reliable enough for use. Once these core data are in place, important analytic questions remain, namely whether and how nursing home ownership, including corporate structure, matters to the provision of nursing home care. We currently have inadequate understanding of central topics around ownership and nursing home care, including the impact of common ownership across facilities (e.g., does one chain provide consistently better or worse quality of care than another?) and the potential influence of entities beyond the operator/facility itself (e.g., the real property owner) on care delivery. To understand the dynamic effect of ownership in the nursing home sector, a first step is to move beyond the simple distinctions of for-profit/not-for-profit and chain/non-chain to gain a better understanding of how nursing home care and the companies that provide it are evolving. Beyond that, however, it will be important to disentangle which features of nursing home ownership and corporate structuring are most relevant to resident care and to develop an evidence-based and streamlined approach for how this information should be used to ensure high quality of care for residents.

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