Private Equity Ownership of Nursing Homes Leads to 10% Higher Risk of Death, 11% Increase in Spending: Study

Private equity ownership of nursing homes has resulted in a variety of negative outcomes, including an elevated risk of death for short-term Medicare patients, higher rates of antipsychotic drug use, and increased taxpayer spending on episodes of care, a new study concluded.

Published as a National Bureau of Economic Research working paper, the February 2021 analysis adds to a growing body of literature scrutinizing the effects of private equity investment in post-acute and long-term care.

“Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our 12-year sample period,” the authors concluded. “This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%.”


In addition to those metrics, the use of antipsychotic drugs — long a criticized practice in nursing homes — was 50% more likely among for residents PE-owned facilities, the team concluded.

The study, performed by researchers from the University of Pennsylvania, NYU, and the University of Chicago, looked at data from about 18,400 nursing homes that operated between 2000 and 2017. Of that total, 1,674 came under PE ownership through 128 separate transactions.

Among the other negative trends seen among PE facilities, according to the researchers: Frontline nursing assistant hours declined by 3%, with overall staffing reductions of 1.4%. At the same time, three types of expenses — “monitoring fees” for portfolio companies, lease payments, and interest payments — rise after a PE buyout, with a 300% jump in interest payments alone.


The study also notes that net income does not change for a facility after a PE acquisition.

“These results, along with the decline in nurse availability, suggest a systematic shift in operating costs away from patient care,” the researchers concluded.

The paper marks the second analysis of private equity and nursing homes by the Penn-NYU-UChicago team off Atul Gupta, Sabrina T. Howell, Constantine Yannelis, and Abhinav Gupta. The first, published just before the start of the COVID-19 pandemic last year, also found that a variety of quality metrics, including federal five-star ratings and staff hours, dipped in the wake of a PE acquisition.

Even before the COVID-19 pandemic, PE ownership of nursing homes had been in the regulatory spotlight, with Sen. Elizabeth Warren and other Democratic lawmakers demanding detailed information about nursing home investments by several major firms, including The Carlyle Group and Formation Capital.

The scrutiny has continued as regulators and elected officials look to unpack the devastation of COVID-19 in U.S. nursing facilities. An August 2020 study found higher rates of coronavirus infections and deaths among PE-owned facilities in New Jersey; a separate probe, which found less of a gulf in outcomes between PE-backed nursing homes and other facilities, nonetheless also concluded that PE buildings were more likely to have shortages of personal protective equipment (PPE).

Earlier this month, leaders from firms that invest in post-acute and long-term health care predicted that the pandemic will bring definitive shifts in PE’s strategy around the sector, with financial backers placing an even higher premium on quality operations with low staff turnover.

“That’s something that really needs to continue to be at the forefront: We generally believe that a cost-cutting strategy to create value is not a good idea,” Jonathan Slusher, head of senior living and health care at the Northwind Group, said. “Sure, you generate short-term cash flow, and you may be able to sell a building for more than you bought it for a year ago. But it’s just fundamentally not the way the space should be owned and operated.”