The Growth of Us Nursing Home Chains through Acquisitions: Antecedents and Effects on Health Outcomes and Operating Strategy

Objective: This paper studies acquisitions of nursing home facilities by nursing home chains. We examine the causes of nursing home acquisitions. We also examine how acquisitions affect the operating strategies of the acquired facilities and the health outcomes of the residents within those facilities. How acquisitions affect resident health outcomes will depend on the ability of the acquiring chain to improve quality in low performing homes and to resist changes that would hurt quality in high performing homes. The analysis is highly relevant in the nursing home sector, in which almost half of U.S. nursing homes are now part of chain organizations and hundreds of acquisitions occur each year. Data Sources: Our data include all reports of inspections of Medicare/Medicaid certified U.S. nursing homes from January 1991 through September 1997, with approximately 19,000 unique nursing homes and 3,000 chain owners. More than 4,000 nursing home acquisitions occurred within this population during the time period. We coded nursing home chain identities from the corporate names reported in the certification files. Study Design: The study uses two sets of analyses to examine the causes and consequences of acquisitions. The first set of analyses uses logistic regression to predict the likelihood that a nursing home will be acquired and examines whether chains are more likely to acquire either high or low quality facilities while controlling for market and state level predictors of acquisition. The second set of analyses examines the predictors of changes in the strategies and health outcomes at facilities and includes the effects of acquisition events, acquiring chain, and target facility characteristics. The outcomes analyses use OLS estimation techniques for pooled cross-sectional data on all nursing home facilities across the years 1992-1997. Principal Findings: Nursing home chains tend to acquire poorly performing facilities that offer opportunities for the new owners to improve health outcomes (pressure ulcer prevalence and health deficiency citations). Post-acquisition health outcomes of target nursing homes may decline initially, but any decline independent of acquirer characteristics tends to be short-lived. Target health outcomes tend to improve over time when the acquiring chain is high quality and/or the target low quality. Conversely, target health outcomes tend to decline when the acquiring chain is poor quality and/or the target high quality. Nursing home acquisitions also lead to changes in operating strategy, with acquired facilities sometimes converging towards their acquirer’s strategies. Conclusions: The results support a contingency view of acquisitions, in which the attributes of both the target and acquiring organization influence post-acquisition outcomes in health quality and operating strategy.