Panel Paper: Private Equity Ownership and Healthcare Billing Practices: Medicare Reimbursed Post-Acute Care in Skilled Nursing Facilities

Friday, November 9, 2018
8206 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

John Bowblis, Miami University, Christopher Brunt, Georgia Southern University and Sean Huang, Georgetown University

Private equity (PE) firms often acquire companies that are financially distressed, inefficiently operated, or undervalued and through various forms of financial, operational, and managerial restructuring, attempt to increase operating efficiency and add value to shareholders. In the past decades, PE firms have increased their footprint in the healthcare sector. While several studies have examined the effect of PE ownership on quality of care (Cadigan et al., 2012; Harrington et al., 2012; Huang and Bowblis, 2017; Pradhan et al., 2013; Stevenson and Grabowski, 2008), there are currently no studies that examine how PE ownership affects the billing practices of healthcare providers. Because PE firms have acquired nearly 18% of for-profit skilled nursing facilities (SNFs) in the United States, this study examines the billing and coding practices of PE-owned SNFs, with an emphasis on Medicare patients who require rehabilitative care after a hospitalization (e.g., post-acute care). We hypothesize that PE-owned SNFs are more likely to engage in billing practices that increase revenues and profits. That is, Medicare and patients are paying for services where the clinical benefits may be limited, but contribute significantly to SNF profits. To determine whether and to what extent PE-owned SNFs engage in this behavior, we use a patient-level dataset from the state of Ohio of newly admitted, fee-for-service Medicare patients who receive post-acute care at a SNF from 2004 through 2010 (N≈115,000 admissions in 743 SNFs). Our empirical strategy is twofold. Utilizing a difference-in-differences framework, we first examine how billing practices change after a PE firm acquires or divests a SNF chain. Our second analytic approach compares the billing practices of SNFs owned by PE firms to other for-profit SNFs. Patient selection into PE-owned SNFs is not likely to be random; therefore, we estimate regressions models using the two-stage residual inclusion method. Our instrument is the differential distance between a patient’s home and the closest PE-owned SNF and the closest non-PE-owned SNF. Differential distance is a valid instrument because the proximity to a patient’s home is the most important factor in selecting a SNF (Shugarman and Brown, 2006), but it is unlikely a person chooses where to live based on the billing practices of SNFs (e.g. does not explain billing practices). Furthermore, the academic literature accepts differential distance as a valid instrument to examine quality and billing behavior in SNFs (Bowblis and McHone, 2013; Grabowski et al., 2013; and Rahman et al., 2016). Our preliminary findings suggest SNFs acquired by PE firms adjusting their billing practices after acquisition by billing a greater proportion of patients in the most profitable billing codes. These preliminary results are consist with PE-ownership leading to increased overbilling and upcoding.