  Management involvement. PI firm business strategies. This study also found an increase in CNA staffing  after PI acquisition. From 2003 to 2009, total  deficiencies increased and the likelihood of a serious deficiency  decreased in PI homes; the changes in these deficiency measures from  2003 to 2009 in other for-profit and nonprofit homes did not differ  significantly from the changes in PI homes. Compared to Nonprofit Homes, PI Homes Were More Likely to Have Had a Serious Deficiency Before but Not After Acquisition

In 2009, PI homes did not differ significantly from nonprofit homes in the  likelihood of a serious deficiency when we controlled for other explanatory  factors, even though PI homes were more likely than nonprofit homes to  have had a serious deficiency in 2003. Reported Total Nurse Staffing Ratios Were Lower in PI Homes, but Reported RN Ratios Increased More in PI Homes than Other Homes

On average, total reported nurse staffing ratios (hours per resident per  day) were lower for PI homes than for other types of homes in both 2003  and 2009, but PI homes’ reported RN ratios—the most skilled component  of total nurse staffing—increased more from 2003 to 2009. 3.) CNA ratios. PI Homes’ Financial Performance Showed Cost Increases and Higher Facility Margins Compared to Other Homes

The financial performance of PI homes showed both cost increases and  higher margins when compared to other for-profit or nonprofit homes. Despite increased  costs, PI homes also showed increased facility margins but the increase  was not significantly different from the change in other for-profit homes. In  contrast to PI and other for-profit homes, the margins of nonprofit homes  decreased. Facility costs. The increase in facility costs per resident day from 2003 to 2008 was  less, on average, if the same PI firm acquired both the operations and  real estate than if it did not. Two PI firms’ homes showed  increases that were greater than other homes acquired by PI firms:   (1) one of these sets of homes, for which different PI firms acquired the  operations and real estate, reported lower capital-related costs in 2003  than other PI homes, but higher costs in 2008 and (2) the other firm’s  homes reported higher capital-related costs than other PI homes in both  2003 and 2008. The  increase in facility margins among PI homes from 2003 to 2008 was not  significantly different, on average, if the same PI firm acquired both the  homes’ operations and the real estate than if it did not. Concluding Observations

The acquisition of nursing homes by private investment firms has raised  questions about the potential effects on the quality of care. In fact, reported RN staffing increased more in PI- acquired homes than other homes. However, the performance of these PI  homes was mixed with respect to the other quality variables we  examined. Our findings were consistent with the fact that PI firms we studied are to  varying degrees attempting to increase the attractiveness of their homes  to higher paying residents, including those whose care is reimbursed by  Medicare. In its written  comments, HHS provided CMS’s observations on our methodology. CMS suggested an  alternative to our “before and after” acquisition methodology to take into  account the fact that PI firms acquired nursing homes at different points in  time during 2004 through 2007. In addition, CMS identified a number of  alternative analyses that it believed could help to explore the relationship  between PI ownership and quality. CMS also acknowledged that the  report is an important step toward better understanding the effect of  nursing home ownership on the quality of care provided to residents. One of the  studies we cited used such a methodology. We chose to use a different  methodology and believe that the use of different methodologies  enhances the understanding of an issue. Appendix I: Scope and Methodology

To determine whether nursing homes that are owned by private  investment (PI) firms differ from other nursing homes in deficiencies cited  on state surveys, nurse staffing levels, or financial performance, we   (1) identified nursing homes for which PI firms had acquired the  operations or the real estate or both from 2004 through 2007 and   (2) compared data from before and after acquisition of these homes to  data from other nursing homes, including other for-profit homes and  nonprofit homes. Again, we statistically controlled for other variables that may  influence deficiencies, staffing, and financial performance. Moreover, the 10 PI firms in  our sample acquired about 94 percent of the nursing homes that were  acquired by PI firms from 2004 through 2007; we could not identify the  other approximately 6 percent of PI-acquired nursing homes, and as a  result, some homes that we classified as other for-profit or nonprofit  homes may have been PI-owned.
Why GAO Did This Study

Private investment (PI) firms' acquisition of several large nursing home chains led to concerns that the quality of care may have been adversely affected. These concerns may have been in part due to PI firms' business strategies and their lack of financial transparency compared to publicly traded companies. In September 2010, GAO reported on the extent of PI ownership of nursing homes and firms' involvement in the operations of homes they acquired. In this report, GAO examined how nursing homes that were acquired by PI firms changed from before acquisition or differed from other homes in: (1) deficiencies cited on state surveys, (2) nurse staffing levels, and (3) financial performance. GAO identified nursing homes that had been acquired by PI firms from 2004 through 2007 and then used data from CMS's Online Survey, Certification, and Reporting system and Medicare Skilled Nursing Facility Cost Reports to compare these PI homes to other forprofit and nonprofit homes. For PIacquired homes, GAO also compared homes for which the operations and real estate were owned by the same firm to those that were not. Because research has shown that other variables influence deficiencies, staffing, and financial performance, GAO statistically controlled--that is adjusted--for several factors, including the percent of residents for whom the payer is Medicare, facility size, occupancy rate, market competition, and state. Any differences GAO found cannot necessarily be attributed to PI ownership or acquisition.

What GAO Found

On average, PI and other for-profit homes had more total deficiencies than nonprofit homes both before (2003) and after (2009) acquisition. PI-acquired homes were also more likely to have been cited for a serious deficiency than nonprofit homes before, but not after, acquisition. Serious deficiencies involve actual harm or immediate jeopardy to residents. From 2003 to 2009, total deficiencies increased and the likelihood of a serious deficiency decreased in PI homes; these changes did not differ significantly from those in other homes. Reported average total nurse staffing ratios (hours per resident per day) were lower in PI homes than in other homes in both 2003 and 2009, but the staffing mix changed differently in PI homes. Staffing mix is the relative proportion of registered nurses (RN), licensed practical nurses (LPN), and certified nurse aides (CNA). RN ratios increased more from 2003 to 2009 in PI homes than in other homes, while CNA ratios increased more in other homes than in PI homes. The increase in RN ratios in PI homes from 2003 to 2009 was greater if the same PI firm acquired both operations and real estate than if not. The financial performance of PI homes showed both cost increases from 2003 to 2008 and higher margins in those years when compared to other for-profit or nonprofit homes. Facility costs as well as capital-related costs for PI homes increased more, on average, from 2003 to 2008 than for other ownership types. The increase was less if the same PI firm acquired both the operations and real estate than if it did not. In 2008, PI homes reported higher facility costs than other for-profit homes (but lower costs than nonprofit homes) and higher capital-related costs than other ownership types. Despite increased costs, PI homes also showed increased facility margins and the increase was not significantly different from that of other for-profit homes. In contrast, the margins of nonprofit homes decreased. Although the acquisition of nursing homes by PI firms raised questions about the potential effects on quality of care, GAO's analysis of data from before and after acquisition did not indicate an increase in the likelihood of serious deficiencies or a decrease in average reported total nurse staffing. The performance of these PI homes was mixed, however, with respect to the other quality variables GAO examined. We found differences among PI-acquired homes that reflected management decisions made by the firms and, to varying degrees, some of the changes in the PI firms we studied were consistent with attempts to increase their homes' attractiveness to higher paying residents. HHS provided CMS's observations on our methodology. CMS suggested an alternative to our "before and after" acquisition methodology to take into account the fact that PI firms acquired nursing homes at different points in time during 2004 through 2007. One of the studies we cited used such a methodology and we believe that the use of different methodologies enhances the understanding of an issue. CMS also identified a number of additional approaches for exploring the relationship between PI ownership and quality. We agree that such approaches merit future attention. CMS also acknowledged that the report is an important step toward better understanding the effect of nursing home ownership on the quality of care provided to residents.