The rise of human service chains: antecedents to acquisitions and their effects on the quality of care in US nursing homes

This paper studies acquisitions of nursing home facilities by chains. We first test alternative ‘cream‐skimming’ and ‘turn‐around’ arguments concerning nursing home acquisitions. We then consider post‐acquisition changes in nursing home health performance, differentiating effects of the acquisition process from those of prior strategy and performance of the acquired home and acquiring chain. Our dynamic empirical analysis of more than 5000 acquisitions by US nursing home chains from 1991 through 1997 shows that nursing home chain acquisitions are driven by a turn around logic, and that performance depends on the prior quality of the target and acquirer. Our analysis is relevant to policy on the nursing home sector, helping clarify why certain homes are acquired and how being acquired affects their residents' welfare. At a more general level, we offer insights concerning strategic factors that promote acquisition and drive expansion of service sector chains.