Private Equity, Consumers, and Competition : Evidence from the Nursing Home Industry

This paper studies the impact of private equity (PE) acquisitions on quality of care in U.S. nursing homes. To do this, we examine 77 PE deals covering 1451 nursing homes between 1993 and 2017. We find significant heterogeneity in the effect of PE ownership according to levels of local market concentration. In highly competitive markets, PE owners increase staffing by $72,501 worth of care annually, while in less competitive markets they reduce staffing by an average of $18,604. These results suggest that PE owners are more sensitive to competitive incentives than non-PE owners. Policymakers concerned about the potential adverse effects of PE ownership on consumer stakeholders should therefore pay careful attention to whether acquisitions occur in concentrated markets. We further show that PE-owned nursing homes respond more strongly to policies intended to spur competition. We study the introduction of the Five-Star Quality Rating System, a policy that increased the salience of staffing for consumers. Following its introduction, PE-owned facilities increased their staffing by an average of $77,063 worth of care more than their non-PE counterparts. Moreover, PE managers more aggressively shift their staffing composition towards registered nurses (RNs) in response to the rating system's emphasis on RN staffing. Taken together, the effect of market concentration and pro-competition policies are substantial. PE owners in highly competitive markets under the five-star system raise staffing expenditure by 3.6% of the mean, or enough to raise RN staffing by 18% of the mean. In contrast, acquisitions in less competitive markets prior to the five-star system lowered staffing expenditure by 4.3% of the mean, cost-equivalent to reducing RN staffing by 21% of the mean