Ownership Conversions and Nursing Home Performance

Quality has been a long standing policy issue in the nursing home sector with over three decades of research establishing substandard care practices in particular facilities (Institute of Medicine 2001). Given that nearly two-thirds of nursing homes are for-profit owned, there has been an interest among researchers and policy makers in establishing a causal link between ownership status and quality of care. In a comprehensive literature review of 38 studies published over the period 1990–2002, Hillmer et al. (2005) concluded that quality was lower in for-profit nursing homes. However, this previous literature is based almost entirely on cross-sectional comparisons of nonprofit and for-profit nursing homes. The last decade has been a period of tremendous change within the nursing home sector, with many of the nation's largest nursing home chains going through periods of considerable expansion and contraction (Stevenson, Grabowski, and Coots 2006). Although the majority of facility transactions occur within ownership type, there were nearly 3,000 conversions across for-profit, nonprofit, and government status over the period 1993–2004, with a large increase in the latter part of the period. These conversions may affect a facility's administrative and nursing staff turnover, access to capital, willingness to accept less profitable patients, and overall quality of care. Previous research has not directly tested whether conversions across ownership form have implications for attributes of nursing home behavior such as quality of care. A study of ownership conversions is potentially compelling on two levels (Picone, Chou, and Sloan 2002). First, from the perspective of public policy, state and federal policy makers are asked to make decisions exactly on these changes. Several states such as New York have enacted rules to oversee (and potentially limit) for-profit nursing home entry. More recently, in response to a New York Times article describing substantial private equity investment in the nursing home sector and subsequent quality of care concerns, the U.S. Congress announced plans to investigate business practices at facilities owned by private investment groups (Duhigg 2007a, b). Second, from a methodological perspective, by focusing the analysis on changes in ownership status, we can hold other relevant facility characteristics, such as location, constant. Previous research has shown that for-profit hospital performance is attributable, in part, to where the hospital is located (Norton and Staiger 1994). Compared with the cross-sectional approach often employed in the literature, this empirical framework provides a more precise means of identifying the effects of ownership on nursing home performance. The goal of this paper is to examine nursing home performance following a conversion between for-profit and nonprofit ownership status. Specifically, we explore changes in occupancy, payer mix, staffing ratios, and a range of quality indicators (QIs) following ownership conversions. With a long panel (1993–2004), we are able to implement a differences-in-differences approach to address potential selection biases at the level of the facility. Given that conversions are usually preceded by financial difficulties (Sloan, Ostermann, and Conover 2003), we examine quality in the periods preceding conversion, and how it evolves in the periods following conversion.