NCPA - National Center for Policy Analysis


September 26, 2008

In recent years, private equity investors have increasingly targeted nursing homes as investment opportunities.  Spurred by investigative reports and anecdotal evidence that these deals led to worsened quality of care, many companies have found themselves under increased federal scrutiny. 

But according to a new study from Harvard University and published in Health Affairs, such conclusions may be premature.  Private equity purchases of nursing homes -- many of which result in administrative and corporate restructuring -- have not caused quality of care to decline significantly to date.  In fact, in some aspects, the quality of care has improved.

  • Starting around 2000, a number of private equity groups began purchasing nursing home chains, mostly in states like Florida and Texas, where litigation was more common than in other states.
  • As a result of these transactions, and to buffer themselves against costly litigation expenses, many of the nursing homes were divided into sub-companies, decentralizing ownership so that, for example, the same "company" didn't own both the property and operations.
  • As a result, if a patient were to sue for medical negligence, it would be more difficult to pursue property assets.

The researchers examined a range of nursing home outcomes and compared the quality of care in private equity purchased nursing homes to those that had not undergone these transactions.  When the data were analyzed, the researchers found scant evidence to suggest that the overall quality of resident care had declined substantially following these purchases:

  • Some factors, such as RN staffing, did in fact decline.
  • But others, such as aide staffing, catheter use, UTIs, weight loss, and pressure ulcers, actually improved.
  • Overall, for seven of nine criteria -- including weight loss and restraint use - such nursing homes improved more than their nonprofit or for-profit counterparts.

Source: David G. Stevenson and David C. Grabowski, "Private Equity Investment and Nursing Home Care: Is it a Big Deal?" Health Affairs, Vol. 27, No. 5, September/October 2008.

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