Private Equity Investment and Nursing Home Care: Is It a Big Deal? David Stevenson David Grabowski Harvard Medical School June 10, 2008 Supported with funding from the J.W. Kieckhefer Foundation

Overview  Context  Study objective  Data and analytic approach  Results  Implications

Private equity investment  Since 2000, private equity (PE) companies have been purchasing nursing homes  First phase: purchase of divested facilities pushed by opportunity to capture efficiencies re: liability costs pushed by opportunity to capture efficiencies re: liability costs  Second phase: purchase of entire chains pushed by value of real estate pushed by value of real estate  Predictable cash flow/demand of NHs valued  Not much apparent scrutiny until Manor Care/ Carlyle deal (July 2007)

NYT conclusions  NYT article concluded that PE homes were worse than national average in terms of: Staffing Staffing Deficiencies Deficiencies MDS assessment data MDS assessment data  Also detailed complex corporate structures put into place to circumvent liability Regulatory Regulatory Tort Tort  Strong response spurred renewed attention to nursing home care, particularly around transparency and accountability

Study objectives  To examine effects of PE purchase on nursing home performance Occupancy, Medicaid census, staffing, survey deficiencies, quality indicators Occupancy, Medicaid census, staffing, survey deficiencies, quality indicators  To examine performance in the pre/post deal periods  To examine broader implications of these trends

Data  OSCAR: Facility characteristics (ownership, size, etc.) Facility characteristics (ownership, size, etc.) Payer mix and occupancy Payer mix and occupancy Staffing Staffing Survey deficiencies Survey deficiencies Surveys occur every 9-15 months (n=138,029) Surveys occur every 9-15 months (n=138,029)  MDS Facility Reports: QI data at facility-level by quarter (n= 539,396) QI data at facility-level by quarter (n= 539,396)  PE transaction data from Lehman Brothers financial reports, supplemented by sector analysts: 2000 forward

General empirical approach Y it = β 0 + β 1 NHtoPE it + β 2 X it + a i + y t + ε it Where: Y it is outcome for NH i at time t NHtoPE it is an indicator for PE transaction X it is a set of NH level control variables a i = NH fixed effects y t = year fixed effects ε it is a randomly distributed error term  Simple pre/post model and model with lead and lag periods included Replace transaction dummy with three lag/lead transition terms Replace transaction dummy with three lag/lead transition terms Terms are ±1yr, ±2 yrs and ±3+ yrs Terms are ±1yr, ±2 yrs and ±3+ yrs

Independent variables X it encompasses:  Size dummies  Government status  Whether part of multiple-facility chain  Hospital affiliation  Average # ADLs with which residents need assistance

Performance measures OSCAR Outcomes  Occupancy  Medicaid  RN hours  LPN hours  NA hours  Health-related deficiencies MDS Outcomes  Catheter  Urinary tract infection  Weight loss  Bedfast  ADL decline  Range of motion decline  Physical restraint  Pressure ulcer, high risk  Pressure ulcer, low risk

Methods  For outcomes expressed as % of residents, use logit transformation so dependent variables are of form:  For staffing, use OLS  For deficiencies, use negative binomial model  Huber-White std errors, clustered by NH

Results  Around 1,500 facilities were purchased by PE groups between  Initial deals involved around 100 facilities Most in Florida, where chains divested of high cost homes Most in Florida, where chains divested of high cost homes  Subsequent deals for five of the ten largest chains in the country Beverly, Genesis, Mariner Health Care, Integrated Health Services, and Manor Care* Beverly, Genesis, Mariner Health Care, Integrated Health Services, and Manor Care*

Pre/Post model Outcome Post PE Occupancy rate Percent Medicaid RN Hours LPN Hours 0.55%-2.12%*-3.14%*0.34% NA Hours 2.24%* 2.24%* Deficiencies-2.26% G+ deficiencies -2.24% *statistically significant at p<0.05

Pre/Post model Outcome Post PE Catheter-5.80%* UTI-2.08% Weight Loss -7.02%* Bedfast-0.95% ADL Decline 3.29%* ROM Decline 1.14% Restraint-2.38% PU, high risk -6.32%* PU, low risk %* * statistically significant at p<0.05 (decline is favorable)

Summary of results  Our findings do not suggest NH quality worsens markedly after PE purchase Basic pre/post model and model with multiple pre/post terms produce comparable results Basic pre/post model and model with multiple pre/post terms produce comparable results  Many quality indicators (continue to) improve after PE purchase  However, continued decline in RN staffing is troubling  PE homes appear to de-emphasize Medicaid as a payer  Major caveat: bulk of these transactions fairly recent

Policy implications  Major policy issue doesn’t seem to be private equity ownership per se  Rather: Do complex management and asset structures have implications for quality? Do complex management and asset structures have implications for quality? How can policymakers best ensure accountability given ownership features in NH market more broadly? How can policymakers best ensure accountability given ownership features in NH market more broadly?