Federal Nursing Home Administrator Practice Exam

What was the most likely cause of the bankruptcies among larger nursing home chains around the year 2000?

1. Paying too much for acquisitions in 1998 and 1999

2. Increased competition from new facilities

3. Reimbursement cuts from Medicare

4. Mismanagement of operating costs

The correct answer is: Paying too much for acquisitions in 1998 and 1999

The most likely cause of bankruptcies among larger nursing home chains around the year 2000 can be attributed to the trend of paying overly high prices for acquisitions in the preceding years, specifically 1998 and 1999. Many of these companies engaged in aggressive expansion strategies, acquiring multiple facilities to grow their market share. However, the valuations during this time were often inflated, leading to significant financial strain once the acquired facilities needed to be integrated and operated profitably. Once these chains began facing economic challenges, including changing reimbursement landscapes and increased operational costs, the financial burden became unsustainable. Elevated acquisition costs made it difficult for these organizations to maintain sufficient cash flows to cover operational expenses, resulting in widespread financial distress and subsequent bankruptcies. This situation underscores the importance of sound financial planning and caution in mergers and acquisitions, especially in a sector that is heavily influenced by regulatory schemes and reimbursement rates.