Measuring competition in the nursing home industry: facilities or chains?
Consistently accounting for over 50% of the market, corporate chain-owned nursing homes have played an important role in the industry for several decades. Competition has been extensively studied in the existing nursing home literature. Surprisingly, despite the ubiquitous presence of nursing home chains, very few studies have explicitly considered the role of chains in measuring competition in nursing home markets. Economic theory suggests that decisions of commonly owned facilities will be coordinated in order to maximize the joint profits of the owner. If this holds, many existing studies would overestimate the competitive environment by ignoring common ownership in their measures of market structure. In this study, we use a newly developed database tracking common ownership over a period of nearly two decades to compare chain-adjusted and unadjusted measures of competition at the county level and explore how the differences would affect local market structure.
Data and method
We use the Online Survey, Certification and Reporting system (OSCAR) from 1993 to 2011 to create a Herfindahl-Hirschman Index (HHI) for each county based on number of nursing home beds. We manually code chain identifiers based on the information from a subjective text field in the OSCAR complemented by extensive internet searches when chain names are missing or incorrectly or ambiguously reported. The chain-adjusted HHI is calculated by treating all nursing homes owned by the same corporation within a county as a single entity. Therefore, the adjusted HHI is composed by two parts: one is unadjusted HHI, the other is the increased market concentration purely due to common ownership.
We find modest fluctuation in the HHI measure over time, ranging from 0.48 to 0.51 at the county level. On average, the chain-adjusted HHIs are about 0.02 higher than the unadjusted HHIs. Each year, about 20%-22% of the counties would appear more concentrated when recalculating HHIs accounting for common ownership. However, nursing home chains tend to focus more on expanding access to new markets within a state than to increasing market power within a smaller local market. This is suggested by the fact that the proportion of nursing homes having at least one state partner (but no partner within the same county) is about one-third higher than that of nursing homes having at least one county partners. Using the merger guidelines developed by federal agencies, we find that a majority of nursing home markets would be categorized as highly concentrated. By explicitly accounting for common ownership, we also find that chain ownership could potentially raise concerns about the effect on competition for a subset of nursing home markets.