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

08/01/2009

The role of ownership in the provision of nursing home care has long been a challenging issue for policymakers and researchers. Historically, much of the focus in this area has been on for-profit providers, which have played a prominent role in the nursing home sector for decades. Nearly two-thirds of facilities in the United States currently operate on a proprietary basis, and many of these facilities operate as part of multi-facility chains. In the context of recurring quality of care problems, the role of for-profit companies has often been investigated as a possible contributing factor, and a large body of research has compared care delivered by for-profit and not-for-profit facilities.1

In recent years, the simple description of “for-profit” or “not-for-profit” has become less useful in describing nursing home ownership. For instance, as detailed in a 2007 account in the New York Times, nursing homes can use complex management structures that might obscure the entities responsible for delivering care and hamper the ability of residents and families to seek recourse through litigation.2 Although the findings of the Times were presented in the context of exploring private equity investment in nursing homes, the ability to structure ownership in ways that separate real estate from operations and decentralize ownership across distinct sub-companies have relevance for the nursing home industry as a whole. In other words, knowing the proprietary status of a nursing home provider is insufficient to discern how organizational assets are structured and the operational approach of the company managing the delivery of nursing home services.

In the wake of the New York Times article, the immediate attention of Congressional policymakers and other stakeholders centered on private equity investment in the nursing home sector, specifically focusing on its impact on the quality of resident care. At the same time, policy attention to the issue played out in multiple state legislatures, as advocates and labor organizations raised concerns about the purchase of the nation’s largest nursing home chain, HCR Manor Care, by the private equity firm the Carlyle Group.3 Importantly, the empirical evidence of the quality impact of private equity investment in the nursing home industry has been mixed to date. Research by consumer advocates and labor union representatives found that staffing and quality decreased after private equity firms purchased nursing homes from national chains.4 In contrast, the Florida Agency for Health Care Administration reviewed the impact of similar transactions in the state of Florida and did not find a drop in quality following facilities’ purchase.5 Similarly, a review of these transactions nationally, conducted by this study’s authors, did not find a negative impact of private equity purchase on nursing home quality of care.6 The same study emphasized that its findings presented an early snapshot only and that the long-term impact of these types of transactions could vary substantially depending on the organizational structures and capitalization of the resulting companies, the length of time the assets were held, and the exit strategies that were employed.

Perhaps reflecting the reality that for-profit investment, both privately and publicly held, will likely play a continued role in the nursing home sector, policymakers have focused increasingly on broader issues of ownership transparency and accountability. A key example of this attention is the re-introduction of the Nursing Home Transparency and Improvement Act by U.S. Senators Charles Grassley (R-IA) and Herb Kohl (D-WI) (companion legislation has been proposed in the U.S. House of Representatives). The proposed legislation seeks to increase transparency of and accountability for nursing home care through a variety of measures. Provisions include ownership-focused components such as requiring the Department of Health and Human Services (HHS) to identify entities that either have a significant ownership interest (greater than 5 percent) in a nursing home or that play an important role in its management, financing, or operations. In addition, provisions would equip the HHS to address corporate-level quality and safety problems in nursing home chains through development of a national monitoring program to analyze and address chain-wide issues.

Seeking greater understanding of the ownership structures of nursing homes, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) contracted with Harvard Medical School to study the trends in organizational structures of nursing homes and their impact on quality of care. This current work builds on previous research funded by ASPE. Specifically, ASPE funded a study of nursing home liability issues and a study on the divestiture and corporate restructuring of national nursing home chains in response to liability issues and payment changes. This study furthers the knowledge base from the previous two studies by describing specific corporate structures and the relationship between ownership trends and indicators of nursing home quality. The overall objectives of this project were: (1) to describe the corporate structures of nursing homes and trends over the past decade; and (2) to analyze the effect of corporate structure on quality of care and staffing in nursing homes.

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