Nursing home chains and practice patterns: evidence under the Medicare Prospective Payment System

In 1998, Medicare changed its payment method for post-acute care provided by skilled nursing facilities (SNFs) from a cost-based system to a per diem Prospective Payment System (PPS), with a goal to control increasingly high Medicare SNF expenditures. Primarily based on therapy minutes, the PPS created an incentive for nursing homes to provide high-intensity therapy services. Accounting for more than 50% of the SNFs in the United States, corporate chains can affect affiliated facilities’ practice patterns. This paper aims to examine whether the selection of therapy treatment levels for SNF residents varies by chain ownership. Using a Difference-in-Differences estimation approach to compare independent and chain-acquired SNFs during the period from 2003 to 2009, I find that independent facilities acquired by chains experienced a 2.92 percentage point increase in the proportion of residents with the highest therapy treatment level. A more dynamic model suggests that the chain effects may last for years after the acquisition. In addition, I find that the main effects are mostly due to acquisitions by large chains and for-profit chains. However, the increase in treatment intensity among chain-affiliated SNFs does not lead to shorter length of stay. Overall, the findings suggest that government agencies should consider chain affiliation when monitoring Medicare reimbursements among SNFs.