Nursing Facilities Owned by Private Equity Firms: Fewer Nurses, More Deficiencies

A recent study in the Journal of Health Care Finance finds that Florida nursing facilities owned by private equity firms have fewer registered nurses and more deficiencies than chain-owned for-profit facilities and that the longer the facilities are owned by private equity firms, the fewer registered nurses they employ and the more deficiencies they have.[1]  The researchers found that changing ownership patterns underscore the need for better, more explicit nurse staffing standards and stronger, more effective enforcement.

Research in Florida Nursing Facilities

The research findings and recommendations are based on an analysis of Florida nursing facilities.  In a longitudinal study covering the years 2000-2007, researchers looked at nursing facilities before and after their acquisition by private equity firms.  They compared an experimental group (all Florida nursing homes acquired by private equity firms in 2002 and 2003) with a control group (all Florida-based Medicare- and Medicaid-certified for-profit, chain-affiliated, non-hospital-based nursing homes).  The experimental group consisted of 97 facilities;[2] the control group was approximately 250 facilities.  Id. 5.

The researchers' hypothesis – that private equity-owned nursing facilities would deliver lower quality care to residents than other investor-owned facilities – was confirmed.  In their research, the study's authors looked at three dependent variables – structural, process, and outcome measures.

Structural variables

The researchers found that compared with other chain-operated for-profit nursing facilities, the facilities owned by private equity firms have:

• 29% lower RN hours per patient day (PPD), 7% higher licensed practical nurse (LPN) hours PPD, and 12% higher certified nurse assistant (CNA) hours PPD
• 25% lower skill mix[3]

They also documented "a decline in RN staffing with every progressive year of private equity ownership."[4]  See the Center for Medicare Advocacy's webpage on nurse staffing levels.[5]

Process variables

With respect to process variables, nursing facilities owned by private equity firms, compared with other chain-operated for-profit nursing facilities in Florida, provide worse quality of care to their residents.  Specifically, the researchers report 5% lower pressure sore prevention than the rate for for-profit, chain-owned control group.  In addition, restorative ambulation "declines by approximately 5% with each additional year under private equity ownership."[6]  The researchers found no statistically significant difference in the use of physical restraints and catheters.[7]

Outcome variables

Risk-adjusted quality measures

Florida nursing facilities owned by private equity firms, compared with other chain-operated for-profit Florida facilities, had 9% higher pressure ulcer high/low risk prevalence, although differences in the other risk-adjusted outcome variables that they studied  – ADL decline, bowel worsening, and pressure ulcer – high/low risk – were not statistically significant.[8] 

Non risk-adjusted quality measures (deficiencies)

Facilities owned by private equity firms had 21% higher deficiencies than for-profit chain-owned facilities and "there was a positive association of deficiencies with progressive years of equity ownership."[9]  However, facilities owned by private equity firms "are less likely to be cited for serious deficiencies."[10]  The researchers explain, "It is possible that private equity focusses more on serious deficiencies as they are likely to attract stringent regulatory action including monetary fines."[11] 

Discussion

In addition to identifying issues with the quality of care in facilities controlled by private equity firms, the researchers express concern with transparency of ownership information, pointing to "the deliberately complex organizational structures constructed by private equity [that] not only hinder the ability of regulators to monitor quality but also limit legal remedies available to aggrieved residents."[12]   

The short investment period of private equity firms is a second "worrying aspect of private equity," according to the researchers.[13]  Describing the data in Nursing Home Compare as "blunt tools," the researchers suggest the need for development of "more granular measures of quality and sharper linkages between quality and reimbursement." [14]  On this point, the researchers conclude:

The importance of a strong regulatory framework cannot be stressed enough with adequate market based incentives; improved financial incentives for higher quality with concomitant strong penalties for failing to deliver mandated quality.[15]

Researchers' Recommendations

Recognizing the importance of nurse staffing, which they see as "a primary target for cost-savings," the researchers suggest, "Imposition of federal minimum staffing levels may be helpful and should be seriously considered by CMS."[16] 

They also recommend that "Serious thought . . . be given to an expanded regulatory framework shifting the 'locus of accountability' from facility to the chain-level recognizing that chain is not merely an amalgamation of disparate units but represents a common governing and operational philosophy."[17] 

The researchers conclude:

Transparency and accountability are inextricably linked.  Without ensuring that nursing home ownership is more transparent, accountability cannot be fixed.  And without a strengthened regulatory framework which attempts to move beyond facility level monitoring system, accountability would be limited.  These are challenges which may be particularly relevant to private equity ownership but are by no means limited to them.  Addressing them would help achieve what engages policymakers, regulators, and patients alike: To ensure that nursing homes deliver high quality care and instances where this expectation is belied, effective tools are available to punish the guilty and to compensate the victims.[18]

Conclusion

The research looked only at chain-owned, for-profit facilities, and the subgroup of these facilities that were acquired by private equity firms.  However, other research over the years has clearly documented that for-profit facilities in general, especially those that are chain-operated, employ fewer nurses and have more deficiencies than not-for-profit and publicly-owned facilities.[19] 

As the nursing home industry changes, the federal regulatory system must adapt to and reflect changes in ownership, including the expanding presence the private equity market.  More explicit Requirements of Participation addressing staffing and better mechanisms for monitoring and enforcing compliance with standards of care are essential.

T. Edelman, 08/20/2014