Office of the Assistant Secretary for Planning and Evaluation (ASPE)
January 10, 2025
KEY POINTS
• A CMS rule finalized on November 17, 2023, enhances ownership transparency and policy by requiring detailed disclosures about the ownership and managerial control of nursing homes.
• Publicly available CMS ownership files offer essential information for mapping nursing home structures, assuming the data is accurately reported. However, in some instances, challenges persist due to incomplete data and unclear parent/subsidiary relationships.
• Social Network Analysis (SNA) improved our understanding of shared ownership relationships and provided insights into business and ownership structures.
• Further research is needed to investigate how Social Network Analysis (SNA) can enhance traditional measures of market competition and concentration, such as the Herfindahl-Hirschman Index (HHI), by incorporating shared and cross-market ownership that HHI typically overlooks.
BACKGROUND
The quality of a nursing home facility is influenced by the corporate structure in which it is embedded.
Empirical research has linked private equity (PE) ownership, for example, with increased emergency department use, increased hospitalization, greater Medicare costs, lower staffing levels, and more quality and safety deficiencies in nursing homes. During the Covid-19 pandemic, PE-owned nursing facilities were less likely to possess adequate supplies of personal protective equipment. A study of merger and acquisition activity among nursing homes found that firms favor lower quality facilities for acquisition, and do not drive quality improvements in the period after acquisition. A more recent study using patient-level Medicare data finds that PE ownership is associated with an 11% increase in mortality in US nursing homes, accompanied by declining measures of patient well-being, nurse staffing, and compliance with care standards. The study attributed these declines to PE’s strategic reallocation of operator expenditures away from direct patient-care provision, and toward the payment of management fees, real-estate leasebacks, and interest on debt.
This link between corporate structure and facility quality has led consumers and regulators to call for increased public disclosure of the details of nursing home ownership. In recent years, CMS has undertaken a series of data releases aimed at improving ownership transparency. In April 2022, CMS released the Change of Ownership file, which includes mergers, acquisitions, and changes of ownership beginning in 2016. In September 2022, CMS released common ownership data for all Medicare certified nursing homes. In 2023, in response to a GAO recommendation calling for the incorporation of common ownership data into the consumer-facing Care Compare tool, CMS released Care Compare facility measures of quality, staffing, inspection, and other performance indicators aggregated to the level of “affiliated entity”. CMS defined affiliated entities as “groups of nursing homes that share common individual or organizational owners, officers, or entities with operational/managerial control”, using methods drawn from social network analysis to identify meaningful clusters of facilities.
While acknowledging the strength of prior efforts to bring ownership transparency to the nursing home industry, researchers have identified limitations inherent to the structure of this data. For example, a recent investigation finds discrepancies between CMS ownership data and proprietary versions of the same information, and notes that “the data also cannot be used to identify the hierarchy and structure of ownership levels (for example, an individual might own a percentage of a company that then owns a share of a provider) or identify the parent owner”.
Understanding ownership structure and relationships is relevant not only to nursing home quality, but also aides in our understanding of the broader market dynamics in which nursing home care is delivered – particularly with regard to market concentration and competition. Merger guidelines jointly issued in 2023 by FTC and DOJ specified three harms to competition associated with complex webs of common and partial ownership: a partial owner in multiple firms may have an incentive to favor coordination between them; cross-ownership may reduce the incentive for competition between firms; and partial acquisition may allow access to competitive information held by the acquired firm
RESULTS
See report narrative for presentation of results.
DISCUSSION
Our analysis reveals that as the quality level of nursing facilities increased, the median number of owners generally decreased. As expected, we also observe that the median number of independent owners is lower compared to chain owners. However, the differences in medians were small, especially when considering the standard deviations. This suggests that the variance in the data is large, making it unclear whether these differences are clinically meaningful. We also find that the CMS ownership files provided critical information in mapping nursing home structures, provided the data is accurately reported, though missing data and unclear parent/subsidiary relationships remain a challenge. Ownership structures are inherently complex, and there were instances where reported ownership was not clearly transparent (Appendix A), complicating our analysis.
Social Network Analysis (SNA) however enhanced our understanding of shared owner relationships and offered insights into business and ownership structures at various levels, including chain organization and market levels. Additionally, our examination of market concentration highlighted that even with similar market concentration, network structures can differ. Our findings suggest that HHI may not be capturing all relevant dimensions of concentration. Social Network Analysis (SNA) provides unique insights into market concentration and competition by evaluating the relationships and structures within networks of ownership and control. Additionally, utilizing SNA-specific measures can offer deeper insights into competitive dynamics within markets, beyond what traditional measures like HHI offer.
It is also important to recognize that owners can hold interests in both independent and chain-owned nursing homes. For instance, an owner may partly or wholly own few independent nursing homes while also having ownership stakes in several additional nursing homes affiliated with various chain organizations. This overlapping ownership may have implications for market competition, but more research is needed to fully understand its potential effects and assess the broader impact on markets. Additionally, further research is required to explore how Social Network Analysis (SNA) can enhance traditional measures of market competition and concentration, such as the Herfindahl-Hirschman Index (HHI), by incorporating shared ownership and cross-market ownership that HHI typically overlooks.