The smart-seller challenge: Exploring the determinants of privatizing public nursing homes

Abstract

This study investigates the determinants of local governments' decisions to privatize public nursing homes. According to the Online Survey, Certification, and Reporting (OSCAR) 2004 data, more than 100 counties in the United States have recently divested their nursing facilities through change of ownership to nonprofit or for profit or through termination. The theoretical model used in this study proposes four broad categories of antecedents of the privatization decision: market failure, government failure, and monetary and institutional factors. County governments are viewed as rational actors, affected by a range of external and internal pressures and striving to maximize the attainment of their complex missions. The data used in this study come from the OSCAR 2004 file and several other sources. Using logistic regression analysis, the baseline (1998-2000) measures of all independent variables for 622 county-owned homes were regressed on the dummy dependent variable, indicating whether the nursing home was privatized by 2003 or not. Quantitative analysis was supplemented with two exploratory case studies. Local market competition, occupancy level, condition of the physical plant, staffing, the prevalence of privatization in the neighboring counties, and the proportion of elderly in the county were found to be significantly associated with the likelihood of nursing home divestment. The analysis supports the idea of a complex framework of managerial decision making: counties appear to be smart sellers by divesting when occupancy declines, when the physical environment deteriorates, and when private markets are relatively more competitive. They are also found to be smart owners by sustaining public ownership of thriving public facilities surrounded by failing private markets. © The Author 2006. Published by Oxford University Press. All rights reserved.