UCL School of Management is delighted to welcome Lauren Lu, UNC, to host a seminar discussing ‘Does Ownership Conversion from Nonprofit to For-Profit Benefit the Public? Evidence from U.S. Nursing Homes’
In the last few decades, many healthcare institutions converted their ownership from nonprofit to for-profit, contributing to an increased presence of for-profit ownership in the U.S. healthcare sector. There have been contradicting views on whether such ownership conversions benefit the public. Employing a large panel dataset of U.S. nursing homes dated from 2006 to 2015, we conduct a difference-in-differences analysis on converting facilities’ financial performance, operating policies, and service quality. We observe that converting facilities significantly improved their post-conversion profit margins, compared to propensity-score-matched controls. To explain the improved financial performance, we develop two alternative theories to explain the operational mechanisms: revenue seeking and cost reduction. Our empirical findings suggest that converting facilities increased revenues by increasing the admission of Medicaid-covered residents, who have lower daily reimbursement rate but longer length of stay (LOS) while keeping unchanged the admission of Medicare-covered residents, who have higher daily reimbursement rate but shorter LOS. These changes in resident enrollment were more pronounced in facilities with low occupancy rate than those with high occupancy rate. As a result, unlike critics’ concerns, ownership conversions from nonprofit to for-profit increased access by economically disadvantaged populations covered by Medicaid, as well as the overall access of nursing homes due to increased occupancy rate. Converting facilities also reduced costs by cutting the wage cost of non-nursing staff while keeping that of nursing staff unchanged. In addition, converting facilities kept their total nurse staffing level similar to the controls but changed the staffing mix. On average, converting facilities’ deficiency citations, a negative indicator of quality of care, increased immediately after conversion but returned to a level comparable to controls in the long term. Surprisingly, when converting facilities’ ownership conversions were result of acquisition by for-profit nursing home chains, their deficiency citations were similar to controls throughout the post-conversion period. Taken together, these results suggest that ownership conversions from nonprofit to for-profit can benefit the public in many instances, particularly when nursing homes with low occupancy rate were acquired by for-profit nursing home chains. To perform counterfactual analysis, we build machine learning models to predict post-conversion financial performance. We find that almost half of the nonprofit nursing home closed during 2006-2015 could have improved their profit margin if they were converted to for-profit, and a significant portion of them could have increased their profit margin from negative to positive.