Even when bankrupt nursing home facilities remain open, workforce disruptions and declines in care quality often increase due to higher turnover and greater reliance on contract workers, resulting in a less experienced staff.

These are the findings of a report released this week by the National Bureau of Economic Research (NBER).

“Bankruptcy-induced turnover might degrade care by disrupting the relationship between patients and staff,” researchers said. “Nursing home care is extremely labor intensive and involves frequent intimate interactions requiring familiarity with patients’ individual clinical needs.”

Bankruptcies were also linked to measurable declines in care quality. Hospitalization rates increased by 1.44%, or 4% of the mean, while the use of physical restraints jumped by 77% of the mean, and incidence of bedsores rose by 14% of the mean, researchers said.

Using payroll and census data covering nearly every U.S. nursing home worker, researchers said they compared the facilities before and after a bankruptcy and against similar facilities that did not file for bankruptcy. Surprisingly, they found that staffing levels and occupancy rates remained mostly stable post-bankruptcy. However, turnover rates increased sharply.

In the year after bankruptcy, weekly worker departures rose by 10% compared to control facilities. New hires replacing the workers who left were contract workers, resulting in staff less experienced and less connected to residents.

Rather than cutting staff to save money, bankrupt nursing homes often paid higher wages and used costly contract workers to backfill vacant positions, especially in competitive labor markets. This suggests that the core issue is retention, not layoffs, with negative implications stemming from the departure of experienced staff, the researchers noted.

To confirm that staff turnover is a key way through which bankruptcies harm patient care, researchers conducted a survey experiment with 247 current and former nursing home staff. The results showed that replacing a high-tenure nurse increased the predicted rate of negative outcomes by 10%. A second experiment with the same participants found that staff expected 47% higher voluntary turnover at bankrupt facilities compared to otherwise identical non-bankrupt ones, reinforcing the link between bankruptcy, increased turnover, and diminished patient care.

Researchers recommend several policy changes to counter the issues that cause harm to residents following a bankruptcy.

Regulators should monitor all provider bankruptcies, not just closures, as operational facilities can still experience harmful effects, they suggest. Policymakers might also consider reducing providers’ reliance on debt financing, which can contribute to financial instability, researchers said. 

Among other solutions, researchers suggested that regulators give vulnerable facilities more time to improve and avoid a bankruptcy, or temporarily take over operations during bankruptcy to preserve staffing continuity. Even minor interventions, such as guaranteeing wages upon filing, could reduce turnover.

“Regulators could make debt financing less attractive by cutting existing debt subsidies and excluding interest payments from consideration in determining reimbursement rates,” researchers said. “A more extreme policy might impose limits on debt financing for healthcare firms. This limit would be analogous to the ubiquitous capital requirements that regulators impose on critical industries such as banking, insurance, and utilities.”