SMU SOE Seminar Series (November 27, 2024): Government Monitoring of Health Care Quality: Evidence from the Nursing Home Sector

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ABSTRACT

Monitoring is an important policy tool to extract information on firm quality and incentivize quality provision, yet firms may respond strategically by temporarily increasing quality when inspected and dropping efforts when not. This paper examines a central quality inspection in nursing homes, a sector of large economic size but with widespread concerns about quality of care. Using data on nursing homes across the US, we find that nursing homes exhibit strategic responses to the inspection, in multiple core dimensions. Nursing homes increase the quantity and quality of labor inputs, reduce admissions, increase temporary discharges, and improve patient care in response to an upcoming inspection. Despite regulatory efforts preventing inspection dates from being anticipated, the responses emerge about one week before the inspection. The responses rise sharply during the inspection. Nearly all responses, however, drop immediately once the inspection is completed. Given the strategic responses to the inspection, we next examine whether inspection rating is predictive of nursing home quality as measured by patient survival. Leveraging a quasi-experimental design, we find that admission to an above-median-quality-rating nursing home lowers patient 90-day mortality by 1.6 percentage points (an 11 percent decline relative to the mean) compared to admission to a below-median-quality-rating facility. Finally, we examine the effects of quality deficiency citations issued by the inspection on incentivizing nursing homes to improve quality of care; we find mixed results.

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