The principal–agent problem and owner‐managers: An instrumental variables application to nursing home quality

The literature on provider ownership has primarily focused broadly on for‐profits compared with nonprofits and chains versus nonchains. However, the understanding of more nuanced ownership arrangements within individual facilities is limited. Utilizing the principal–agent and managerial control frameworks, we study the role of managerial ownership and its relationship to quality among for‐profit nursing homes (NHs). We identify NH administrators with more than 5% ownership (owner‐manager) from Ohio Medicaid Cost Reports (2005–2010) and link these data to long‐stay resident records in the Minimum Data Set. Using differential distance to the nearest NHs with a salaried manager relative to an owner‐manager, we address the differential selection into these two types of NHs. After instrumenting for admissions to owner‐managed NHs, quality among long‐stay residents at owner‐managed NHs is generally better than NHs with salaried managers. We find suggestive evidence that the magnitudes of quality difference are larger when the principal–agent problem is likely more pronounced, such as when NHs that are part of a multifacility chain and located in more concentrated markets.