THE ARISING · Markets & Strategy
California Nursing Homes Cluster Below 100 Beds, Study Says, Dodging Staffing Rule
A staffing rule meant to raise care standards may be doing something else: pushing weaker-staffed nursing homes to stay just under the size where the rule applies. That is the central claim of a new economics paper on California facilities.
The paper is NBER Working Paper 35849, "Avoiding Regulation: Evidence from Nursing Homes," by Alden Cheng and Riley League. It is a working paper from the National Bureau of Economic Research, dated October 2026. The journal is not stated, and the page does not say it has been peer reviewed. It describes an observational analysis of facility data plus a new statistical method, not a trial. No medication, treatment or supplement is involved, so no clinician caveat applies.
The setting is a California rule that adds staffing requirements for nursing homes with at least 100 beds. According to the authors, they document "extensive bunching" in response. In plain terms, many facilities appear to cluster just under the cutoff rather than cross it.
The harder question is whether the rule actually raises staffing. Homes above the threshold do staff more heavily. But that gap could reflect the rule, or it could reflect which homes choose to be large. The authors built a new estimator to separate the two. It sorts facilities into response types based on their counterfactual and realized staffing and size.
Their conclusion is strong. They estimate that the higher staffing above the threshold is "nearly entirely due to selection." Low-staffing facilities manipulate their size to avoid the regulation. The firms that end up above the line are the ones that would have staffed more anyway.
The authors also report a cost. These size distortions, they write, "limit access, particularly for disadvantaged patients."
For strategy and policy readers, the lesson concerns design. A rule that kicks in at a fixed size gives operators a reason to manage their size. According to the authors, the facilities doing so are low-staffing ones. The result is a regulation that may change where capacity sits more than how well it is staffed. That is our reading of the authors' finding, not something the paper tests as advice.
Limits matter. This is a working paper, and its estimates rest on the authors' modeling approach.
The paper is separate from the JAMA Internal Medicine study we covered on October 11, which linked staffing shortages to a 5% drop in usable U.S. nursing home beds. That work looked at national capacity. This one looks at how one state's size-based rule shapes facility size. The two address different mechanisms and should not be read as the same finding.
What to watch next
Whether the paper clears peer review, and whether other states with sizebased staffing rules show the same bunching.