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Private equity ownership and nursing home financial performance

Pradhan, Rohit; Weech-Maldonado, Robert; Harman, Jeffrey S.; Laberge, Alex; Hyer, Kathryn

doi: 10.1097/HMR.0b013e31825729ab

Background: Private equity has acquired multiple large nursing home chains within the last few years; by 2009, it owned nearly 1,900 nursing homes. Private equity is said to improve the financial performance of acquired facilities. However, no study has yet examined the financial performance of private equity nursing homes, ergo this study.

Purpose: The primary purpose of this study is to understand the financial performance of private equity nursing homes and how it compares with other investor-owned facilities. It also seeks to understand the approach favored by private equity to improve financial performance—for instance, whether they prefer to cut costs or maximize revenues or follow a mixed approach.

Methodology/Approach: Secondary data from Medicare cost reports, the Online Survey, Certification and Reporting, Area Resource File, and Brown University’s Long-term Care Focus data set are combined to construct a longitudinal data set for the study period 2000–2007. The final sample is 2,822 observations after eliminating all not-for-profit, independent, and hospital-based facilities. Dependent financial variables consist of operating revenues and costs, operating and total margins, payer mix (census Medicare, census Medicaid, census other), and acuity index. Independent variables primarily reflect private equity ownership. The study was analyzed using ordinary least squares, gamma distribution with log link, logit with binomial family link, and logistic regression.

Findings: Private equity nursing homes have higher operating margin as well as total margin; they also report higher operating revenues and costs. No significant differences in payer mix are noted.

Practice Implications: Results suggest that private equity delivers superior financial performance compared with other investor-owned nursing homes. However, causes for concern remain particularly with the long-term financial sustainability of these facilities.

Rohit Pradhan, PhD, is Postdoctoral Fellow, Department of Health Services Administration, University of Alabama at Birmingham. E-mail:

Robert Weech-Maldonado, PhD, is Professor and L.R. Jordan Endowed Chair, Department of Health Services Administration, University of Alabama at Birmingham. E-mail:

Jeffrey S. Harman, PhD, is Associate Professor, Department of Health Services Research, Management and Policy, University of Florida, Gainesville. E-mail:

Alex Laberge PT, PhD, is Research Associate, Centers for Medicare and Medicaid Services, Woodlawn, Maryland. E-mail:

Kathryn Hyer, PhD, MPP, is Associate Professor, School of Aging Studies, University of South Florida, Tampa. E-mail:

This research was partially funded by the Commonwealth Fund (Grant 20050582) and the U.S. Administration on Aging (Grant 90AM2750).

The authors have disclosed that they have no significant relationship with, or financial interest in, any commercial companies pertaining to this article.

© 2013 Wolters Kluwer Health | Lippincott Williams & Wilkins