Nursing home care and profit have

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1 MarketWatch MarketWatch Private Equity Investment And Nursing Home Care: Is It A Big Deal? Recent nursing home ownership trends raise important questions about oversight and accountability, but thus far, care has not suffered. by David G. Stevenson and David C. Grabowski ABSTRACT: Private equity investors have recently targeted nursing home chains as investment opportunities. Media attention has raised quality-of-care concerns, but little has been published in the research literature on the topic. Using a multivariate framework, we assessed how private equity purchases of nursing homes affected a range of outcomes. Although some transactions are quite recent, we found little evidence to suggest that nursing home quality worsens significantly following purchase by private equity companies. Nonetheless, recent nursing home ownership trends raise important questions about oversight and accountability, whose answers extend beyond private equity ownership. [Health Affairs 27, no. 5 (2008): ; /hlthaff ] Nursing home care and profit have had a long and sometimes difficult relationship. For-profit companies have played a major role in the nursing home sector for decades, and nearly two-thirds of U.S. facilities operate on a proprietary basis. 1 Many of these facilities are part of multifacility chains, although parent companies vary in their size and geographic scope. In the context of recurring quality-of-care problems, the role of for-profit companies has often been central to investigations of and judgments about what ails this care sector. 2 A large body of research has investigated this topic as well, and differences between forprofit and not-for-profit facilities are a staple of many studies of nursing home quality. 3 A new flashpoint has emerged in assessing the role of profit in nursing home care. As detailed by a New York Times article, private equity investors have recently targeted nursing home chains and facilities as investment opportunities. 4 Importantly, the Times article highlighted quality-of-care concerns and described complex management structures that might obscure responsibility for care and hamper the ability of residents and families to seek recourse through litigation. Although the infusion of private equity dollars into the nursing home industry has been going on for several years, the Times article raised the possibility that these transactions might have a negative impact on residents. Not surprisingly, stakeholders including advocates, labor unions, and the U.S. Congress have been quick to respond, pressing for further scrutiny of these deals and for reassurances that care will not suffer. Despite the attention garnered by recent media coverage, little has been published in David Stevenson (stevenson@hcp.med.harvard.edu) is an assistant professor and David Grabowski, an associate professor, in the Department of Health Care Policy at Harvard Medical School in Boston, Massachusetts. HEALTH AFFAIRS ~ Volume 27, Number DOI /hlthaff Project HOPE The People-to-People Health Foundation, Inc.

2 Health Tracking the research literature on the topic. Although basedonanextensiveinvestigation,thetimes article raises many questions, in particular about the analytic approach used. 5 Recent congressional testimony analyzed the impact of private equity purchases in the context of single-chain transactions, and the Florida Agency for Health Care Administration reviewed the impact of similar transactions in that state. 6 However, there has been no rigorous quantitative assessment of these trends and their impact as a whole. The goal of this paper is to analyze the impact of private equity investment in the nursing home sector. Specifically, we explore changes in occupancy, payer mix, staffing ratios, and a range of quality indicators following private equity purchase. We also discuss broader implications of private equity investment in the nursing home sector, focusing on the incentives of private equity owned facilities relative to other nursing homes and on their oversight and accountability. Background The term private equity refers to a range of investments not tradable on public stock markets. Private equity firms typically focus on venture capital and leveraged buyouts, financing transactions through a combination of capital raised from investors and borrowed from lenders. Initial phase. With some exceptions, the initial phase of private equity investment in the nursing home sector focused on selected facilities that were being sold by larger forprofit chains. Many of these sales occurred during in Florida, where liability costs and premiums were much higher than average beginning in the mid-to-late 1990s. In response to these expenses, almost all national chains looked to divest facilities in the state, a strategy consistent with a broader trend among chains to sell financially underperforming homes. 7 Formation Capital was the biggestplayerinthesefloridatransactions, purchasing facilities from Beverly Enterprises, Genesis Healthcare, and Mariner Health Care and hiring newly formed Seacrest Health Care Management to operate them. Presumably, Formation and other investors anticipated that they could capture operational efficiencies and limit liability exposure through corporate restructuring (for example, by separating real estate assets from operations and forming special-purpose limited liability companies at the facility level), improved litigation environments (such as post tort reform), or a combination of both. The strategy appears to have paid off, as Formation Capital sold these and other nursing home assets to GE Healthcare Financial Services in June 2006 for a sizable profit. 8 Second phase. Trends in senior housing capital markets have played a role in the second, broader phase of private equity investment in nursing homes. Beyond finding firesale properties and inefficiencies upon which to capitalize, investors began to recognize value in the real estate assets of some of the larger chains, especially in a climate with access to relatively inexpensive capital. 9 In particular, the predictable cash flow in the nursing home sector and the untapped value of some companies real estate holdings made selected chains attractive investment opportunities. Beginning in 2003, private equity groups purchased several nursing home chains, focusing on chains that owned the majority of their facilities and generally separating real estate from operations in the deal. A typical transaction in what analysts term a real estate play is a deal where investors buy a company, use therealestateassetstohelpfinancethedeal (for example, leasing the properties to help pay off debt assumed in the acquisition), and hire a separate operating company to manage the assets. In addition to paying rent, the operatortenant usually pays all expenses of the properties, including operating expenses, property taxes, and capital improvements. A key feature reportedly helping the viability of these arrangements is the recent stability in Medicare payment rates, something operators and investors who both have emphasized shifting resident case-mix toward short-stay residents hope will continue. These more recent private equity acquisitions have included facil September/October 2008

3 MarketWatch ities from some of the nation s largest nursing home chains, including Mariner, Beverly, Integrated Health Services, Genesis, and HCR ManorCare. Study Data And Methods Data. We used two primary sources of nursing home data in this study for the period The first source is the Online Survey, Certification, and Reporting (OSCAR) system, which contains survey and certification data for all Medicaid- and Medicarecertified facilities in the United States (96 percent of all facilities). Collected and maintained by the Centers for Medicare and Medicaid Services (CMS), the OSCAR data include information about whether homes are in compliance with federal regulatory requirements. Following an initial survey, states are required to survey each facility no less often than every fifteen months (the average is about every twelve months). Nursing homes submit facility, resident, and staffing information. Deficiencies are entered into OSCAR by survey agencies when facilities are found to be out of compliance with federal regulatory standards. Each deficiency is categorized into one of seventeen areas and rated by its scope and severity (on scale of A to L in order of increasing severity). OSCAR data have several important limitations that should be noted, including a lack of explicit auditing procedures of facilityreported information, potential variation across states and over time, and possible underreporting of serious quality problems. 10 Second, we used data from the Minimum Data Set (MDS) quality indicator/quality measure (QI/QM) system. The MDS is designed to assess residents functional, cognitive, and affective levels and has demonstrated good reliability and validity in measuring nursing home quality at the resident level. 11 Nursing homes have been required to submit MDS data electronically since June Facility-level QI/ QM data are reported monthly by the CMS and are primarily used by state surveyors to monitor changes in residents health status and to identify potential problem areas at particular facilities. Although some issues have been identified around data accuracy, QI/QM data have shown good reliability in identifying potential quality problems. 12 Because all residents are surveyed once per quarter, we aggregated the monthly QI/QM data up to the quarter level. Coding private equity transactions. We used research reports from Lehman Brothers to code private equity transactions in the nursing home sector. 13 In particular, two of these reports detail major nursing home transactions over the past decade, including information about the effective date, the target and acquirer, and the value of the transaction. We coded all private equity transactions between 2000 and 2007, a period that encompasses the vast majority of such transactions over the past decade. Some transactions included only selected facilities, whereas others included entire chains (Exhibit 1). Our definition of a facility is the brick-and-mortar location involved in the transaction; for chainwide transactions, we included only facilities owned by the chain at the time of the transaction. Facilities involved in transactions were coded first with a dichotomous variable indicating such involvement and second with another dichotomous variable to denote whether the transaction involved all facilities in a chain. Facilities were coded as pre or post transaction based on the effective dates of the deals. Our coding approach simplifies the dynamic nature of these transactions. In particular, we coded facilities as being post transaction from the effective date forward, even though some facilities involved in these deals might have been sold during the remainder of the study period. Outcomes. We estimated models using measures from the OSCAR and MDS data. From OSCAR, we examined strategic outcomes, including facility occupancy rates and the proportion of Medicaid residents within the facility; quality-related inputs, including registered nurse (RN), licensed practical nurse (LPN), and nurse aide staffing per resident; and inspection outcomes, including the number of health-related deficiencies and significant (G level or higher) deficiencies received during the CMS survey process. The staffing HEALTH AFFAIRS ~ Volume 27, Number

4 Health Tracking EXHIBIT 1 Summary Of Private Equity Transactions Included In The Analyses Of Nursing Home Ownership Transfer, Transaction type/ nursing home company Private investment group Year effective Number of facilities included Targeted facilities type transaction Extendicare Beverly Enterprises Genesis Healthcare Mariner Health Care Entire chain transaction Centennial Healthcare Integrated Health Services Mariner Health Care Meridian Skilled Healthcare Group Beverly Enterprises Laurel Healthcare Tandem Health Care Genesis Healthcare HCR ManorCare Greystone Tribeca Acquisition LLC Formation Capital Properties Formation Capital Properties Formation Capital Properties Warburg Pincus Abe Briarwood National Senior Care Formation Capital Properties Onex Partners Pearl Senior Care Formation Capital Properties Formation; JER Partners Formation; JER Partners Carlyle Group SOURCE: Deals identified using Lehman Brothers financial reports on the skilled nursing facility sector and in consultation with sector analysts. NOTES: The number of facilities reflects facilities identified in our administrative data sources and does not necessarily match exactly the number of facilities included in filings with the U.S. Securities and Exchange Commission. The ManorCare-Carlyle transaction had not closed at the time of our analyses and is not included in our bivariate or multivariate results. data reported on OSCAR are notoriously noisy, and we have followed earlier work in cleaning these data. 14 The MDS QI/QMs examined include selected domains validated by the CMS and featured on the Nursing Home Compare Web site. These health assessment domains include (1) catheter use; (2) urinary tract infections; (3) excessive weight loss; (4) time spent in bed or in a chair (bedfast); (5) loss of ability in basic activities of daily living (ADLs); (6) range of motion (ROM) decline; (7) use of physical restraints; (8) pressure sores (high risk); and (9) pressure sores (low risk). Analysis. Descriptive statistics for outcomes of interest were weighted by the number of beds per facility observation. For facilities sold to private equity companies, we assessed measures across pre- and post-deal observations, comparing these unadjusted values to other national, for-profit, and for-profit chain averages over the same time frame. To examine the impact of private equity ownership on our measures of interest, we estimated regression models that included a set of timevarying nursing home traits (bed size; government, chain, and hospital-based status; and facility-level limitations in ADLs), facility-level fixed effects, and year dummies. We present results from two different model specifications: a pre/post model in which the key explanatory variable of interest is an indicator identifying post observations for those facilities undergoing a private equity deal; and a second specification in which the key explanatory variables of interest are the periods following the deal, which allow observation of how outcomes evolve once a facility is purchased. Including pre-deal terms in the model allows for a changing pattern of quality in the periods leading up to the transaction, given that post-transaction outcomes may be attributable to their prior trajectory as opposed to the transaction itself. By including facility-level fixed effects to control for fixed nursing home traits, the identification strategy in both model specifications relies on within-facility variation over time, removing the unobserved and poten September/October 2008

5 MarketWatch tially confounded cross-sectional heterogeneity and using homes that did not experience private equity deals as a control for unrelated time-series variation. We estimated the staffing models using least squares; the count of deficiencies using a negative binomial model; and occupancy, Medicaid, and MDS quality indicators (percentages) with a logit transformation. Each regression weighted observations by the number of residents and clustered standard errors at the level of the nursing home. Sensitivity analyses. In addition to the findings presented below, we conducted a number of sensitivity analyses to check the robustness of our results. In particular, we compared performance at private equity purchased facilities to for-profit chain facilities only, because this could be considered a more appropriate comparison group than all facilities; also, we excluded the three biggest deals in our analyses one at a time to see if particular deals were driving the results. Both of these checks produced comparable results to the main findings and are not shown. In addition, we examined all other MDS QI/QM outcomes that were available across the study years, finding results of similar direction and magnitude to the QI/QMs that we present. Study Findings Most targeted facility sales were deals in which large nursing home chains sold facilities in Florida between 2000 and 2003; the chainwide transactions we analyzed began in 2000 but mainly occurred between 2003 and 2007 (Exhibit 1). We identified around 1,500 facilities purchased by private equity companies, the vast majority of which involved fullchain deals. As a benchmark, there are approximately 16,100 nursing homes operating in the United States at any given time. 15 The unadjusted results show that facilities involved in private equity deals during (including pre- and post-deal observations) performed significantly worse compared to other national, for-profit, and forprofit chain facility averages on a range of measures, including staffing (RN and nurse aide), health-related deficiencies, and most QI/QM measures (Exhibit 2). An important caveat to the interpretation of the unadjusted results is that there are large secular trends in many of these outcomes, especially the MDS quality indicators, and that these findings do not convey the effect of private equity ownership (for example, adjusting for pre-existing trends at these facilities). Exhibit 3 presents adjusted regression results, with coefficients converted to percentages of the dependent-variable means. The first column presents the results from the standard pre/post model; the latter columns present results from the specification including terms from the periods preceding and following the private equity deal. The comparison group for this second specification is observations three or more years prior to the deal. Both model specifications indicate a statistically significant decrease in RN staffing following private equity purchase. Importantly, however, the second model specification indicates that the decrease in RN staffing began prior to facilities purchase by private equity companies, which suggests that the decline in RN staffing was part of a more general trend in these facilities (and not causally related to the deal itself). The results also suggest an increase in nurse aide staffing and a decline in Medicaid census following private equity purchase. UnliketheRNstaffingresults,however,these findings are not related to pre-existing trends at these facilities. Occupancy rate, LPN staffing, and deficiencies did not change significantly following purchase by private equity companies. Of the nine MDS QI/QM measures examined, improvements in seven of these measures were consistently better at private equity purchased facilities (five of which were statistically significant). ADL and ROM loss were the only two measures that improved less at these facilities (the former of which was significant). Discussion We found little evidence to suggest that nursing home quality worsens significantly following purchase by private equity compa- HEALTH AFFAIRS ~ Volume 27, Number

6 Health Tracking EXHIBIT 2 Private Equity (PE) Deals And Unadjusted Nursing Home Performance, OSCAR variables Nursing homes bought by PE firms (includes preand post-deal observations) All other nursing homes Other forprofit nursing homes Other forprofit chain nursing homes Occupancy Percent Medicaid Registered nurses a Licensed practical nurses a Nurse aides a Health-related deficiencies b G-level (or higher) deficiencies b 85.9% 68.1% %** 64.4%** 81.4%** 68.0% 80.7%** 67.2%** 0.40** ** 6.64** 0.45** 0.31** 0.73** 1.98** 7.24** ** ** MDS QI/QM outcomes Catheter Urinary tract infection Weight loss Bedfast ADL decline ROM decline Physical restraint use Pressure ulcer, high risk Pressure ulcer, low risk 8.1% %** 8.4** 10.8** 7.3%** 8.6** 10.9** 7.7%** 9.0** 11.3** ** 16.1** 7.9** 5.9** 15.7** 7.5** 6.3** 16.4** 7.5** ** 15.2** 2.9** 9.4** 16.0** ** 15.7** 2.9** SOURCES: Online Survey Certification and Reporting (OSCAR) data, ; and Minimum Data Set Quality Indicator/Quality Measure (MDS QI/QM) data, NOTES: Significance denotes a statistically significant difference, using private equity-purchased facilities as a comparison. ADL is activities of daily living. ROM is range of motion. a Hours per resident day. b Number of survey deficiencies identified upon inspection. **p < 0.05 nies. Although our findings suggest troubling declines in RN staffing, this decline was part of a larger trend that predated the facilities purchase by private equity companies. Moreover, we did not find lower quality of care following private equity deals in the form of survey deficiencies or resident outcomes. In fact, wefoundimprovedresidentoutcomesacross several MDS QI/QMs, including catheter use, urinary tract infections, weight loss, and pressure ulcers. At a strategic level, our results suggest that private equity owned facilities deemphasize Medicaid-financed care. At this point, a major limitation in evaluating the impact of private equity investment in nursing homes is that the bulk of these transactions are quite recent. In particular, some of the largest of these deals (for example, Beverly andgenesis)closedlessthantwoyearsago; thus, we have limited observations in our data to assess what has happened subsequently. Similarly, the largest deal in this sector the ManorCare-Carlyle transaction had not closed at the time of our analyses. Nonetheless, it is important to consider a range of issues in the context of private equity ownership of nursinghomes,especiallyastheymightrelate to quality of care. Our discussion focuses on two general questions. First, is there anything problematic with private equity ownership of nursing homes per se? Second, how should we think about the issue of accountability for resident care, given these newly formed ownership structures? We conclude by identifying questions that remain for researchers and policymakers September/October 2008

7 MarketWatch EXHIBIT 3 Private Equity Deals And Nursing Home Outcomes Of Interest, Regression Results Model 1: single pre/ post term Model 2: set of pre and post terms a OSCAR Post Pre 2 Pre 1 Deal Post 1 Post 2 Post 3+ Occupancy Percent Medicaid 0.55% 2.12** 0.33% % % % % % 6.03** RN staffing LPN staffing Aide staffing Health-related deficiencies G-level deficiencies or higher b 3.14** ** ** 2.28** ** 17.17** 3.56** ** ** ** ** ** ** MDS QI/QM c Catheter use Urinary tract infection Weight loss 5.80%** ** 3.20%** 5.45** 4.09** 5.45%** 6.41** 5.44** 7.74%** 3.72** 6.40** 6.75%** 4.96** 8.41** 8.24%** 4.98** 8.87** 8.46%** ** Bedfast ADL loss ROM loss ** ** 7.49** 3.73** 13.17** 4.25** ** 4.38** ** 2.92** ** ** 1.88 Restraint use Pressure ulcer (high) Pressure ulcer (low) ** 23.95** ** 21.22** ** 29.48** ** 29.08** ** 31.87** ** 43.32** ** 39.27** SOURCES: Online Survey Certification and Reporting (OSCAR) data; and Minimum Data Set (MDS) QI/QM data. NOTES: Estimates generated from regression models controlling for ownership status, chain membership, hospital-based affiliation, a facility-level activities of daily living (ADL) score, bed size, time dummies, and nursing home dummies. Coefficients have been converted to a percentage of the dependent-variable mean. RN is registered nurse. LPN is licensed practical nurse. ROM is range of motion. a The comparison group for each Model 2 regression is observations three or more years prior to the deal. b Each deficiency is rated by its scope and severity on a scale of A to L in order of increasing severity. G-level deficiencies or higher are violations including actual harm or immediate jeopardy to residents health or safety. c A decrease in MDS QI/QM measures is a favorable outcome. **p < 0.05 Potential problems with equity ownership. Media reports of poor-quality nursing home care unfortunately are not new. Yet the recent attention to quality concerns in private equity owned nursing homes struck a chord among policymakers and advocates and triggered U.S. congressional hearings to investigate the matter. More specifically, the interaction of profit seeking and resident care, combined with the transition of facility ownership from public corporation to private entity, sparked several concerns more specific to the context of these transactions. Investors lack of experience. First, private equity investors might have little or no apparent experience in providing nursing home care or in providing health care more generally. Companies presumably will work with operators and managers with relevant expertise (for example, keeping the previous management team in place), and state licensure approval for these sales should actively review this premise. In analyzing the major deals to date, however, our results do not suggest that nursing home care necessarily suffers following purchase by private equity investors. Transparency and accountability. Second, private equity transactions can result in complicated asset, management, and operating structures. Partly to limit liability and related costs and perhaps in response to conditions set by lenders (for example, if financing is largely se- HEALTH AFFAIRS ~ Volume 27, Number

8 Health Tracking cured by real estate), assets are typically split into separate facility-level real estate and operating companies subsequent to purchase. Although nursing home providers used these restructuringoptionsbeforetherecentwaveof private equity purchases, they raise questions of transparency and accountability, which we discuss below. Fiscal liability. Third, private equity companies typically assume large levels of debt in making these acquisitions (for example, Carlyle reportedly assumed morethan$5billionindebt to purchase ManorCare). 16 In structuring these deals, investors (and lenders) presumably value nursing homes relatively predictable consumer demand and cash flow. Nonetheless, if deals are not structured to allow for potential rate cuts or capital needs in the future, operators could struggle to meet payment obligations under these scenarios, especially if resident payer-mix and liability cost trends are not as favorable as expected. Short time horizons. Finally, time horizons for private equity companies in holding nursing home assets are relatively short (reportedly three to five years, on average). 17 Private equity owners have incentives to maintain their assets for sale, but their strategic emphasis is likely distinct from that of a nursing home owner with a longer-term business plan (for example, around capital investment). This differential time horizon also suggests that longterm follow-up of nursing homes undergoing these private equity deals is paramount. Locus of accountability. Apart from the conceptual question of whether private equity owned nursing homes are well positioned to provide high-quality care and the empirical question of whether they do so in practice, it is important to examine accountability for resident care, given the management structures for these facilities. The issue extends beyond private equity ownership, because restructuring into separate property and operating companies is an option available to If quality of care is heavily influenced by practices inherent to ownership, regulators facility-byfacility approach might be ineffective. other nursing homes. More broadly, many nursing home companies do not own the real estate on which their facilities sit; for example, Kindred Healthcare, a large publicly traded chain, rents many of its facilities from Ventas, a health care real estate investment trust (REIT) that was formerly part of the same company (Vencor). At the outset, it should be noted that discussions of accountability ultimately depend on a greater level of transparency/detail about facilities ownership arrangements than one can find in existing data sets. (The CMS is attempting to address these limitations through creation of the Provider Enrollment, Chain, and Ownership System [PECOS]; however, the system has faced implementation challenges andisnotyetinplace.) Federal and state quality assurance efforts generally focus at the level of the individual nursing facility. In recent Senate testimony, acting CMS administrator Kerry Weems highlighted this approach, noting that it does not depend on any theory of ownership but rather is grounded in resident outcomes and surveyor findings at on-site inspections. 18 In the context of chain or private equity ownership, this approach implies that state and federal regulators typically do not investigate or sanction bad actors beyond the level of the facility. If quality of care is heavily influenced by practices, policies, and systems inherent to ownership, regulators facility-by-facility approach might be ineffective. Switching to a broader regulatory approach would require a level of systematic evaluation by the CMS that does not now occur. More important, a reformed approach would extend responsibility for resident care beyond where the line has been drawn. Although licensure inspections are similar across ownership structures, separating companies into distinct facility-level operating and ownership entities could protect owners from a range of other liabilities. 19 These potential sanctions include exclusion from the Medicare 1406 September/October 2008

9 MarketWatch and Medicaid programs by the secretary of health and human services for alleged criminal activity, suspension of payment by Medicare fiscal intermediaries or state Medicaid programs for alleged overpayments, liability under the False Claims Act for alleged fraudulent billing (including acceptance of payment for substandard care), and tort liability for negligence and malpractice. Restructuring does not make the risk of these sanctions go away; rather, it has the potential to limit the reach of these penalties to individual facilities as opposed to entire chains. As noted above, the use of these options extends beyond private equity owned facilities. Questions for future consideration. Moving forward, several questions remain for researchers and policymakers. First, what is the long-term impact of private equity ownership on nursing home care, including quality of care and capital investment? The answer could vary across transactions and will be determined, in part, by the organizational structures of the resulting companies, the length of time the assets are held, and the exit strategies that are employed. Second, what should be done to ensure accountability in the context of ownership structures that limit or even obscure owners responsibility for care? Does responsibility extend beyond operators who sign provider agreements with Medicare/Medicaid (for example, to real property owners)? The answer seems to depend on the extent to which these other entities directly or indirectly influence the care process, something that remains unclear. Congress has focused much of its initial scrutiny on the question of accountability, and an important prerequisite in determining an effective approach to address it will be to gain a better understanding of the companies and operating arrangements that emerge from these deals. 20 Third, to what extent should nursing home oversight maintain its facility-level focus? Surveyors presumably could consider quality of care across facilities with common ownership (for example, by issuing chainwide plans of correction), but such an approach could be difficult to implement and in cases where company assets reside in multiple states would require coordination at the federal rather than the state level. Alternatively, states could focus on ownership type in setting nursing home licensure standards. Several states such as New York, for instance, have enacted rules to oversee (and potentially limit) forprofit nursing home entry. The most important question for stakeholders is how best to ensure high-quality nursing home care. Our results do not show that nursing home care suffers overall following purchase by private equity investors. Nonetheless, recent nursing home ownership trends do raise questions about oversight and accountability, the answers to which extend beyond private equity ownership. Structuring assets in a way that limits corporate liability is not unique to private equity companies, nor is the question of whether profit seeking could compromise resident care. Ultimately, consumers, regulators, and policymakers need to be confident that all nursing homes are well positioned to deliver high-quality care and that there is sufficient recourse in instances where they do not, regardless of their ownership structure. This paper was presented at the Medicaid Congress, 5 June 2008, and at the AcademyHealth Annual Research Meeting, 10 June 2008, both in Washington, D.C. The authors are grateful to the J.W. Kieckhefer Foundation for providing funding for this study. NOTES 1. K.R. Kaffenberger, Nursing Home Ownership: An Historical Analysis, Journal of Aging and Social Policy 12, no. 1 (2000): 35 48; and A. Jones, The NationalNursingHomeSurvey:1999Summary,Vital and Health Statistics Series 13, no. 152, June 2002, pdf (accessed 12 June 2008). 2. B.C. Vladeck, UnlovingCare:TheNursingHomeTragedy (New York: Basic Books, 1980); and M.A. Mendelson, Tender Loving Greed: How the Incredibly Lucrative Nursing Home Industry Is Exploiting America s Old People and Defrauding Us All(New York: Knopf, 1974). HEALTH AFFAIRS ~ Volume 27, Number

10 Health Tracking 3. M.P. Hillmer et al., Nursing Home Profit Status and Quality of Care: Is There Any Evidence of an Association? Medical Care Research and Review 62, no. 2 (2005): ; and D.C. Grabowski and D.G. Stevenson, Ownership Conversions and Nursing Home Performance, Health Services Research 43, no. 4 (2008): C. Duhigg, At Many Homes, More Profit and Less Nursing, New York Times, 23 September In comparing facilities that were purchased by private equity companies to national averages, the Times analyses do little to isolate the impact of private equity involvement from pre-existing trends and other, potentially confounding traits. 6. Charlene Harrington, University of California, San Francisco, testimony before the House Ways and Means Subcommittee on Health, 15 November 2007, hearings.asp?formmode=view&id=6624 (accessed 3 June 2007); Arvid Mueller, Service Employees International Union, testimony before the House Ways and Means Subcommittee on Health, 15 November 2007, (accessed 3 June 2007); and Florida Agency for Health Care Administration, Long Term Care Review: Florida Nursing Homes Regulation, Quality, Ownership, and Reimbursement (Tallahassee: AHCA, 2007). 7. D.G. Stevenson, D.C. Grabowski, and L.A. Coots, Nursing Home Divestiture and Corporate Restructuring: Final Report (Report prepared for the assistant secretary for planning and evaluation, U.S. Department of Health and Human Services, Washington, D.C., 2006). 8. Irving Levin Associates, Formation Capital Deals, Senior Care Investor (July 2006). 9. K. Fischbeck, A.T. Feinstein, and B. Strong, Lehman Brothers SNF Quarterly Review (New York: Lehman Brothers, 2007). 10. U.S. Government Accountability Office, Federal Monitoring Surveys Demonstrate Continued Understatement of Serious Care Problems and CMS Oversight Weaknesses, Pub.no.GAO (Washington:GAO, 2008). 11. J.N.Morrisetal., ACommitmenttoChange:Revision of HCFA s RAI, Journal of the American Geriatrics Society 45, no. 8 (1997): V. Mor et al., The Quality of Quality Measurement in U.S. Nursing Homes, Gerontologist 43, Special Issue no. 2 (2003): 37 46; S.L. Karon, F. Sainfort, and D.R. Zimmerman, Stability of Nursing Home Quality Indicators over Time, Medical Care 37, no. 6 (1999): ; and D.R. Zimmerman et al., Development and Testing of Nursing Home Quality Indicators, Health Care Financing Review 16, no. 4 (1995): Fischbeck et al., Lehman Brothers SNF Quarterly Review; andk.fischbeck,a.t.feinstein,andb. Strong, Skilled Healthcare Group: Initiation of Coverage (New York: Lehman Brothers, 2007). 14. B.A. Kash, C. Hawes, and C.D. Phillips, ComparingStaffingLevelsintheOnlineSurveyCertification and Reporting (OSCAR) System with the Medicaid Cost Report Data: Are Differences Systematic? Gerontologist 47, no. 4 (2007): ; andx.zhangandd.c.grabowski, Nursing Home Staffing and Quality under the Nursing Home Reform Act, Gerontologist 44, no. 1 (2004): National Center for Health Statistics, Number of Nursing Homes, Beds, Current Residents, and Discharges: United States, Selected Years (Hyattsville, Md.: NCHS, 2007). 16. J. Keehner and Y.A. Yoon, Manor Care LBO a Tall Order for Rattled Lenders, Reuters, 9 November 2007, reutersedge/idusn (accessed 10 June 2008). 17. Private Equity Council, Private Equity: Fact and Fiction, 2008, (accessed 10 June 2008). 18. Kerry Weems, acting administrator, Centers for Medicare and Medicaid Services, CMS Oversight of Nursing Homes: The Special Focus Facility and Other Programs to Address Troubled Nursing Homes, testimony before the U.S. Senate Special Committee on Aging, hearing on Nursing Home Transparency and Improvement, 15 November 2007, (accessed 3 June 2008). 19. J.CassonandJ.McMillen, ProtectingNursing Home Companies: Limiting Liability through Corporate Restructuring, JournalofHealth Law 36, no. 4 (2003): The issues of transparency and accountability are also central to the Nursing Home Transparency and Improvement Act of 2008 (S.2641), proposed by Sen. Herbert Kohl (D-WI) and Sen. Charles Grassley (R-IA) September/October 2008