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Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes

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  • Atul Gupta
  • Sabrina T Howell
  • Constantine Yannelis
  • Abhinav Gupta

Abstract

Amid an aging population and a growing role for private equity (PE) in the care of older adults, this paper studies how PE ownership affects U.S. nursing homes using patient-level Medicare data. We show that PE ownership leads to a patient cohort with lower health risk. However, after instrumenting for the patient-nursing home match, we find that PE ownership increases mortality by 11%. Declines in measures of patient well-being, nurse staffing, and compliance with care standards help to explain the mortality effect. Overall, we conclude that PE has nuanced effects with adverse outcomes for a subset of patients.

Suggested Citation

  • Atul Gupta & Sabrina T Howell & Constantine Yannelis & Abhinav Gupta, 2024. "Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1029-1077.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:4:p:1029-1077.
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    Cited by:

    1. Martin B. Hackmann & R. Vincent Pohl & Nicolas R. Ziebarth, 2024. "Patient versus Provider Incentives in Long-Term Care," American Economic Journal: Applied Economics, American Economic Association, vol. 16(3), pages 178-218, July.
    2. Jonathan Gruber & David H. Howard & Jetson Leder-Luis & Theodore L. Caputi, 2023. "Dying or Lying? For-Profit Hospices and End of Life Care," NBER Working Papers 31035, National Bureau of Economic Research, Inc.
    3. Bär, Marlies & Bakx, Pieter & Wouterse, Bram & van Doorslaer, Eddy, 2022. "Estimating the health value added by nursing homes," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 1-23.
    4. Tim N. Nolte & Felix Miedaner & Sandra Sülz, 2022. "Physicians’ Perspectives Regarding Private Equity Transactions in Outpatient Health Care—A Scoping Review and Qualitative Analysis," IJERPH, MDPI, vol. 19(23), pages 1-13, November.
    5. Cesare Fracassi & Alessandro Previtero & Albert Sheen, 2022. "Barbarians at the Store? Private Equity, Products, and Consumers," Journal of Finance, American Finance Association, vol. 77(3), pages 1439-1488, June.
    6. Ge Bai & Daniel Jiménez & Phillip Phan & Luis E. Quintero & Alessandro Rebucci & Xian Sun, 2021. "The Financial Fragility of For-profit Hospitals: Evidence from the COVID-19 Pandemic," NBER Working Papers 29388, National Bureau of Economic Research, Inc.
    7. Mathias Dewatripont & Jean Tirole, 2022. "The Morality of Markets," Working Papers ECARES 2022-35, ULB -- Universite Libre de Bruxelles.
    8. Sharjil M. Haque & Anya V. Kleymenova, 2023. "Private Equity and Debt Contract Enforcement: Evidence from Covenant Violations," Finance and Economics Discussion Series 2023-018, Board of Governors of the Federal Reserve System (U.S.).
    9. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2024. "Assessing the quality of public services: For‐profits, chains, and concentration in the hospital market," Health Economics, John Wiley & Sons, Ltd., vol. 33(9), pages 2162-2181, September.
    10. Shubhranshu Shekhar & Jetson Leder-Luis & Leman Akoglu, 2023. "Unsupervised Machine Learning for Explainable Health Care Fraud Detection," NBER Working Papers 30946, National Bureau of Economic Research, Inc.
    11. Bar, M.; & Bakx, P.; & Wouterse, B.; & van Doorslaer, Eddy.;, 2022. "Estimating the health value added by nursing homes," Health, Econometrics and Data Group (HEDG) Working Papers 22/12, HEDG, c/o Department of Economics, University of York.
    12. Sharjil M. Haque, 2023. "Does Private Equity Over-Lever Portfolio Companies?," Finance and Economics Discussion Series 2023-009, Board of Governors of the Federal Reserve System (U.S.).
    13. Michael Alexeev & Ivan Dedyukhin & Leonid Polishchuk, 2024. "Ownership, Asymmetric Information, and Quality of Care for the Elderly: Evidence from US Nursing Homes During the COVID-19 Pandemic," CAEPR Working Papers 2024-006 Classification-, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    14. Liran Einav & Amy Finkelstein & Neale Mahoney, 2022. "Producing Health: Measuring Value Added of Nursing Homes," NBER Working Papers 30228, National Bureau of Economic Research, Inc.
    15. Dörte Heger & Annika Herr & Anne Mensen, 2022. "Paying for the view? How nursing home prices affect certified staffing ratios," Health Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 1618-1632, August.

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    More about this item

    Keywords

    G14; G23; G28; I11;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • I1 - Health, Education, and Welfare - - Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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