When Mergers Heal: How Nursing Home Consolidation Can Improve Patient Care Quality

Mergers between nursing home chains and independent facilities improve care quality by enhancing operational efficiency, notably reducing health deficiencies and improving resident outcomes. However, benefits vary, with smaller, high-quality, and non-private-equity chains showing the most positive impacts.

A working paper, authored by Pinka Chatterji, Chun-Yu Ho, and Wenqing Li from the State University of New York at Albany and published by the National Bureau of Economic Research (NBER), investigates the effect of ownership changes in U.S. nursing homes on the quality of care. Spanning data from 1999 to 2019, this research rigorously examines how mergers between nursing home chains and independent facilities affect residents’ well-being, particularly in a healthcare segment where pricing is fixed and quality becomes the key axis of competition due to the dominance of public payers like Medicare and Medicaid.

Mergers Improve Quality Through Efficiency

The study’s central finding is that when independent nursing homes are acquired by multi-facility chains, they experience a significant reduction in health deficiency citations, a key indicator of quality, within just two years. This 5% drop signals improved compliance with federal standards and better outcomes for residents. The improvements not only emerge quickly but also persist for at least four years. Notably, these gains are observed exclusively in mergers between chains and independent homes, not in chain-to-chain acquisitions. This suggests that chain ownership brings operational support and infrastructure that independent homes may lack, such as streamlined management systems, staff training programs, and administrative standardization.

Using a staggered difference-in-differences (DID) approach and robust facility matching techniques, the researchers ensure that the improvements aren’t merely due to pre-existing differences between merging and non-merging homes. Their empirical analysis is complemented by a structural model that provides deeper insight into the mechanisms behind the observed quality changes.

Structural Model Reveals the Real Drivers

To unpack why quality improves post-merger, the authors develop a theoretical model that simulates how nursing homes make decisions about quality provision. The model decomposes the overall quality effect into three components: cost efficiency (gains from serving more residents), quality cost savings (lower costs of providing better care), and market power (less incentive to compete when competition shrinks). Among these, only cost efficiency emerges as a statistically significant driver. This means the improved quality comes from the ability to operate at scale, reducing the marginal cost per resident by streamlining processes and leveraging resources across multiple locations.

Contrary to traditional antitrust concerns, there is no significant evidence that market concentration from mergers leads to a decline in service quality. In this tightly regulated industry, where pricing is not determined by market forces, facilities can’t exploit monopoly power by raising prices. Instead, they appear to focus on becoming more efficient and reinvesting some of those savings into improving care.

Not All Mergers Are Equal

A key strength of the study lies in its rich analysis of subgroup differences, which reveals that the type of acquirer matters greatly. Mergers initiated by smaller chains and those with stronger pre-merger quality records tend to produce greater quality gains. Conversely, facilities acquired by large chains see less improvement, possibly due to integration challenges or diluted accountability in sprawling organizations.

Even more revealing is the analysis of private equity (PE) ownership. Mergers involving PE-owned chains are associated with worse or neutral outcomes, often showing increased deficiency citations, though some estimates are statistically insignificant. These patterns support broader concerns about PE’s short-term profit motives, especially in sensitive sectors like long-term care. Similarly, serial acquirers, firms that conduct frequent mergers, tend to deliver delayed benefits. While they may struggle initially due to the complexity of managing multiple integrations, their long-run performance improves once they establish efficient systems across their expanded networks.

Healthier Outcomes for Residents

Beyond regulatory compliance, the study also explores how mergers impact actual health outcomes among residents. The authors measure changes in conditions such as pressure ulcers, contractures, catheter use, physical restraints, and unplanned weight loss or gain. Two of these, contractures and weight change, show statistically significant improvement post-merger. For instance, the share of residents with contractures drops by 6.4%, and the incidence of unplanned weight change falls by 4.8%. A composite index aggregating all five health measures confirms a meaningful improvement in overall resident health within two years of acquisition. These clinical outcomes reinforce the view that improved administrative efficiency can translate directly into better patient care.

Financial and Staffing Adjustments Fuel Gains

The paper further supports its conclusions with financial and staffing data. Post-merger, the cost of inpatient routine services, covering essentials like nursing, food, and room occupancy, declines by 1.2%. Direct care nurse hours per resident day also fall by 4%, driven not by cuts to care but by strategic adjustments in staffing composition. Acquired facilities increase the share of licensed practical nurse (LPN) hours and reduce the reliance on certified nursing assistants (CNAs). These changes point to a more optimized and professionalized care delivery model. Rather than cutting corners, facilities appear to be refining their staffing strategies to balance efficiency and care quality.

The study paints a complex but ultimately optimistic picture of consolidation in the nursing home sector. Mergers, when undertaken by the right type of chain, namely small, high-quality, and non-PE-owned, can enhance care quality without compromising health outcomes. These findings challenge prevailing skepticism around healthcare consolidation and offer a fresh lens through which regulators might assess future deals. As the U.S. continues to reevaluate antitrust thresholds and merger guidelines, this evidence suggests that policy should differentiate between merger types, focusing scrutiny where it's warranted while recognizing the potential for scale-driven improvements in patient care.