Institutional form and the nursing home industry: Ownership effects on costs and quality.

Abstract

This dissertation research tests the effects of facility ownership on nursing home industry performance for the years 1985 to 1989. Economic theories of the nonprofit enterprise form suggest that in mixed industries where profit and nonprofit organizations compete and where quality is difficult to measure, the proprietary firm, under pressure to maximize profits, has an incentive to compromise quality by cutting costs and to underprovide services to the poor. Concerns about proprietary nursing homes also focus on the effects of chain ownership on industry performance. Policy changes in the reimbursement and regulatory environment instituted between 1985 and 1989 are also examined to determine whether they affected nursing home behavior. The study uses administrative data from the Michigan Department of Public Health and Medicaid program in a multivariate analysis to test research hypotheses. Ownership is conceptualized as a series of dichotomous variables specifying nonprofit, individually-owned proprietary and chain-owned facilities, as well as government and hospital-owned nursing homes. Total deficiencies cited during the annual certification and survey process are the proxy for quality. Nursing home costs include expenditures on patient care, as well as plant and administrative costs. Study findings failed to confirm the hypothesized relationship between nonprofit auspices and nursing home quality. Nonprofit nursing homes were also found to serve the lowest percentage of Medicaid patients. While ownership had a significant effect on costs, differences in quality were not generally explained by ownership class. Chain-owned facilities did not differ from individually-owned proprietary facilities in respect to either costs or quality. Policy changes instituted by the Michigan Medicaid program and by the federal government to control costs and assure quality were not found to substantially alter provider behavior. Research findings regarding the relative performance of nonprofit nursing homes raise questions about continued state support, through the tax system, of nonprofit institutions in American society and of the utility of theoretical explanations expressing a preference for the nonprofit enterprise form. This study also provided evidence that state Medicaid programs are constrained by political interests in designing effective reimbursement systems that control plant and administrative costs while encouraging greater expenditures on patient care.