Quality Provision in the Nursing Home Industry

Stanfield and Associates, a private equity firm that specialized in the leisure and hospitality segment, had an ownership stake in a number of boutique hotel chains. Its current market had recently stagnated and it was searching for new sectors in which it might continue to earn profits. The firm’s owners were aware of the aging demographics of the U.S. population and were considering the nursing home industry - and skilled nursing facilities in particular - as a potential opportunity. However, they were concerned about whether and how their current capabilities at managing high-quality customer experiences would translate to this new industry. Furthermore, Stanfield and Associates were concerned about a pair of related threats: new federal regulations that mandated minimum staffing levels for nursing homes and a growing backlash to private equity ownership in the healthcare industry. To answer these questions, they asked one of their analysts, Marlo Bell, to provide an overview of the current state of the nursing home industry. In particular, they were interested in two relationships in the data. First, how does quality affect profitability among firms competing in this market? Second, what is the impact of private equity ownership on prices, quality, and cost?