Wolves in sheep’s clothing: Is non-profit status used to signal quality?

Why do many firms in the healthcare sector adopt non-profit status? One argument is that non-profit status serves as a signal of quality when consumers are not well informed. A testable implication is that an increase in consumer information may lead to a reduction in the number of non-profits in a market. We test this idea empirically by exploiting an exogenous increase in consumer information in the US nursing home industry. We find that the information shock led to a reduction in the share of non-profit homes, driven by a combination of home closure and sector switching. The lowest quality non-profits were the most likely to exit. Our results have important implications for the effects of reforms to increase consumer provision in a number of public services.     

The effects of ownership and ownership change on nursing home industry costs.

OBJECTIVE. This study examines the effects of ownership type and ownership change on nursing home cost structures, differentiating patient care costs from plant costs. DATA SOURCES. Administrative data from the Michigan Department of Social Services, Medical Services Administration (Medicaid), and the Michigan Department of Public Health are used. Cost data are based on audited cost reports for 393 nursing care facilities in Michigan in 1989. Other facility characteristics are based on data from the 1989 annual licensing and certification survey conducted by the Michigan Department of Public Health. STUDY DESIGN. A series of ordinary least squares regressions is estimated, in which the dependent variable is either per diem patient costs or per diem plant costs. Ownership types are defined as chain, proprietary non-chain, freestanding non-profit, government-owned, and hospital-based facilities. Pooled estimation techniques, as well as separate regressions by ownership type, are presented to test for interaction effects. Key variables include whether a facility changed ownership in the preceding five years and whether chain facilities are in-state- or out-of-state-owned, in addition to size, payer mix, and case mix. PRINCIPAL FINDINGS. Behavioral differences among nursing home ownership types in respect to patient care costs tended to distinguish government-owned and hospital-based facilities from the freestanding homes rather than the usual distinction between for-profit and not-for-profit classes. Variables traditionally included in nursing home cost studies, such as size, occupancy, payer mix and case mix, were found to have similar effects on per diem patient care costs for freestanding non-profit homes as well as for chain proprietary facilities. With regard to the effects of ownership change on per diem plant and per diem patient costs, however, there are few differences among ownership types. Chain and non-chain for-profit facilities, non-profit homes, and hospital long-term care units that had changed ownership reported significantly higher per diem plant costs than facilities without a change of ownership, but did not spend more on patient-related costs. Michigan Medicaid plant reimbursement system policy changes instituted in 1985 to promote continued ownership of facilities were not entirely successful. CONCLUSIONS. Non-profit homes look increasingly like their for-profit counterparts with respect to spending on patient care costs. Increased competition for the more lucrative private-pay patients, coupled with declining state Medicaid reimbursement to nursing homes, may have blurred the historical distinctions between the non-profit and for-profit sectors in the nursing home industry. An exception to increasing homogeneity within the nursing home industry is the tendency of proprietary homes to experience more frequent changes of ownership, which results in higher capital costs passed on to state Medicaid programs. Findings from this study indicate that while facility sales increase per diem plant costs, they do not result in increased spending for direct patient care, suggesting that state Medicaid programs may be indirectly subsidizing facility sales with no accompanying increase in expenditures for patient care. To discourage frequent facility sales, state Medicaid programs may need to consider alternative methods of reimbursing nursing home owners for capital costs.     

Market share of the for-profit and not-for-profit sector from health insurance expenditures

AIM: The aim of the study is to analyze the market share of for-profit private and not-for-profit sector from the expenditures on medical services of the Hungarian National Health Insurance Fund (NHIF), to show its changes in the last years and to show on which field they can be found. DATA AND METHODS: The data derives from the financial database of the National Health Insurance Fund (NHIF) covering the period 1995-2002. The analysis includes the medical provisions (primary care, health visitors, dental care, out- and inpatient care, home care, kidney dialysis, CT-MRI). RESULTS: In 1995 only 6.91% (12.5 billions Ft) of total expenditure for medical services went to for-profit private providers. By 2002 the market share of private providers increased to 15.95% (78.5 billions Ft). During the same period we realized a dynamic increase in the market share of non-profit sector: from 1.04% in 1995 to 2.58% in 2002. The role of private providers is dominant in the case of general practitioners, dental care, transportation, kidney dialysis, CT/MRI and home care (home nursing). CONCLUSIONS: The financial data of the NHIF showed the dynamic increase of market share of for-profit private providers and non-profit sector in many field of health care, although they role in the two most important fields (out- and inpatient care) is still negligible.     

Nursing home cost and ownership type: evidence of interaction effects.

Due to steadily increasing public expenditures for nursing home care, much research has focused on factors that influence nursing home costs, especially for Medicaid patients. Nursing home cost function studies have typically used a number of predictor variables in a multiple regression analysis to determine the effect of these variables on operating cost. Although several authors have suggested that nursing home ownership types have different goal orientations, not necessarily based on economic factors, little attention has been paid to this issue in empirical research. In this study, data from 150 Virginia nursing homes were used in multiple regression analysis to examine factors accounting for nursing home operating costs. The context of the study was the Virginia Medicaid reimbursement system, which has intermediate care and skilled nursing facility (ICF and SNF) facility-specific per diem rates, set according to facility cost histories. The analysis revealed interaction effects between ownership and other predictor variables (e.g., percentage Medicaid residents, case mix, and region), with predictor variables having different effects on cost depending on ownership type. Conclusions are drawn about the goal orientations and behavior of chain-operated, individual for-profit, and public and nonprofit facilities. The implications of these findings for long-term care reimbursement policies are discussed.     

The relationship between quality of care and financial performance in nursing homes

Changes in the reimbursement structure of the Medicaid and Medicare programs have caused nursing homes to face severe revenue restraints. In the hopes of alleviating the effect of payment cutbacks on their financial performance, nursing homes have been instituting quality improvement initiatives. The goal of this study was to examine the relationships of quality of care with revenues, private-pay market share, and costs in the nursing home industry, and how these dynamics interplay to affect financial performance. This goal was achieved by using secondary data consisting of: (1) the Minimum Data Set Plus (MDS+); (2) the Health Care Information Analyst (HCIA) nursing home data set; and (3) the On-line Survey Certification of Automated Records (OSCAR) data set. Structural equation modeling (SEM) using maximum likelihood estimation was used to examine the total, direct, and indirect effects of the variables. Findings indicate that nursing homes that produce high quality care are able to achieve lower resident costs and in the process, report better financial performance than those facilities producing lower quality care. On the other hand, quality of care provided was not significantly associated with the revenues or private-pay market share of the nursing home. Overall, the total effects of quality to financial performance were positive (.055).     

Predicting Lawsuits against Nursing Homes in the United States, 1997–2001

Objectives. To examine how nursing home characteristics impacted the number of lawsuits filed against the facilities in the United States during 1997–2001.
Data Sources/Study Setting. A stratified random sample of 2,378 nursing home in 45 states from 1997–2001. Data were obtained from Westlaw's Adverse Filings: Lawsuits database, the Centers for Medicare and Medicaid Services' (CMS) Online Survey, Certification, and Reporting (OSCAR) database, state complaint surveys, and through primary data.
Study Design. Negative binomial regression was used to explain total lawsuit variance by year. Explanatory variables included (a) facility characteristics—including staffing, number of beds, multistate system membership, for-profit ownership, (b) quality indicators—including total number and type of quality survey deficiencies, pressure sore development, and (c) market area—state has resident rights statutes, state complaint information. Resident acuity levels and year effects were controlled for.
Data Collection/Extraction Methods. Nursing homes were identified and linked to Westlaw data that was searched for the number of lawsuits filed against the home, and then linked to OSCAR data and a primary data analysis of multistate chain membership.
Principal Findings. Staffing levels for certified nursing assistants (CNAs) and registered nurses (RNs) and multistate chain membership were negatively related with higher numbers of lawsuits. More deficiencies on the licensing survey, larger, for-profit nursing homes, and being located in resident rights states were positively related with higher numbers of lawsuits.
Conclusion. This study suggests that nursing homes that meet long-stay staffing standards and minimum quality indicators, are nonprofit, smaller, and not located in resident rights states will experience fewer lawsuits.     

The effect of competition on nursing home expenditures under prospective reimbursement.

The for-profit nursing home's incentive to minimize costs has been maligned as a major cause of the quality problems that have traditionally plagued the nursing home care industry. Yet, profit-maximizing firms in other industries are able to produce products of adequate quality. In most other industries, however, firms are constrained from reducing costs to the point where quality suffers by the threat of losing business to competing firms. In the nursing home industry, competition for patients often does not exist because of the shortage of nursing home beds. As a result, one would expect that nursing homes located in areas where there is excess demand would spend less on patient care than homes located where the bed supply is relatively abundant. This hypothesis is tested using Wisconsin data from 1983. It is found that, in counties with relatively tight bed supplies, an additional empty bed in all the homes in the county will force each home to increase expenditures by $.62 per day for each patient in the home. Overall, the average nursing home located in underbedded markets would spend $5.12 more per patient day or about $240,000 more annually (in 1983 dollars) if it were located in a market where it was forced to compete for patients. The implications for public policy are discussed.     

Female labour supply and nursing home prices

Long term care in Germany is provided in nursing homes, by professional ambulatory services and by the patient’s relatives at home, with the latter being predominantly provided by women. Given an increasing labour market participation of women, long term care at home by female relatives might become less frequent in the future which in turn may result in rising demand for and hence rising prices for long term care services. This paper builds upon the existing literature on the determinants of nursing home prices and investigates whether the labour market participation and the education level of women are correlated with the prices of nursing homes. To the best of our knowledge, this is the first study using panel data approaches in this field of research. Based on a full sample of nursing homes in Germany for the years 2001, 2003, 2005 and 2007, our empirical results suggest that a high share of full-time employed women aged 50–65 at the district level is not associated with higher prices of nursing homes. Furthermore, we find only weak evidence for a positive correlation of prices with the local average of women’s educational level and a negative correlation with part-time employment indicating that price levels are lower in regions with higher shares of part-time employed women.     

The effect of chain ownership on nursing home costs.

Although it is commonly assumed that chain ownership will result in lower costs due to economies of scale, the empirical evidence with respect to the effect of chain ownership on nursing home costs is mixed. Chain for-profit nursing homes will have a cost advantage over independent for-profit homes only if there are firm-level (multiple-home) economies of scale. For the study population of Texas nursing homes in 1983, cost structures differed sufficiently across ownership types to warrant estimating separate cost functions by ownership type. The results indicate that, when other factors affecting cost are held constant, chain homes have lower average costs than independent homes at intermediate and high levels of output, but higher average costs at low and very high levels of output. The results highlight the importance of considering whether or not to pool data across ownership categories when estimating nursing home cost functions.     

The Impact of Asymmetric Information and Ownership on Nursing Home Access

A consistent pattern in the nursing home industry is that non-profit institutions serve a lower proportion of Medicaid patients than do for-profit facilities. This is contrary to the expectation that non-profit, altruistically motivated firms should serve a larger proportion of the less profitable Medicaid patients than proprietary firms. The literature confirms this pattern empirically, but provides no theoretical basis for it, which is the contribution of this paper. Specifically, we show theoretically that information disparities between providers and consumers regarding quality fosters an environment in which the percentage of uninformed consumers is a key factor in determining public-private patient mix.JEL classification: I11, L31     

Profit and Non-Profit Home Health Care Agency Outcomes

The home health care industry, traditionally an industry of non-profit organizations, has increasingly become, as has the rest of the health care industry, invaded by for-profit organizations. The impetus for this invasion was the Omnibus Reconciliation Act (OBRA) of 1980 which encouraged previously restricted for-profit organizations to participate in the Medicare and Medicaid home health care program. Following enactment of OBRA, the number of for-profit organizations grew rapidly and the advantages and disadvantages of their presence in the market has been widely debated. The purpose of this study was to describe differences in behaviors and industry outcomes generated by non-profit and for-profit organizations in Massachusetts. Data for the study was from the Massachusetts State Department of Public Hcalth's Annual Reports of Home Health Agencies. Results suggest that while profit and non-profit agencies behave similarly in many areas, there are areas of difference, with significant differences found in the amount of service delivered and the rates charged.     

Profit and non-profit home health care agency outcomes: a study of one state's experience

The home health care industry, traditionally an industry of non-profit organizations, has increasingly become, as has the rest of the health care industry, invaded by for-profit organizations. The impetus for this invasion was the Omnibus Reconciliation Act (OBRA) of 1980 which encouraged previously restricted for-profit organizations to participate in the Medicare and Medicaid home health care program. Following enactment of OBRA, the number of for-profit organizations grew rapidly and the advantages and disadvantages of their presence in the market has been widely debated. The purpose of this study was to describe differences in behaviors and industry outcomes generated by non-profit and for-profit organizations in Massachusetts. Data for the study was from the Massachusetts State Department of Public Health's Annual Reports of Home Health Agencies. Results suggest that while profit and non-profit agencies behave similarly in many areas, there are areas of difference, with significant differences found in the amount of service delivered and the rates charged.     

Differences between non-profit and for-profit hospices: patient selection and quality

This research compares the behavior of non-profit organizations and private for-profit firms in the hospice industry, where there are financial incentives created by the Medicare benefit. Medicare reimburses hospices on a fixed per diem basis, regardless of patient diagnosis. Because under this system patients with lower expected costs are more profitable, hospices can selectively enroll patients with longer lengths of stay. While it is illegal for hospices to reject potential patients explicitly, they can influence their patient mix through referral networks. A fixed per diem rate also creates an incentive shirk on quality and to substitute lower skilled for higher skilled labor, which has implications for quality of care. By using within-market variation in hospice characteristics, the empirical evidence suggests that for-profit hospices differentially take advantage of these incentives. The results show that for-profit hospices engage in patient selection through significantly different referral networks than non-profits. They receive more patients from long-term care facilities and fewer patients through more traditional paths, such as physician referrals. This mechanism of patient selection is supported by the result that for-profits have fewer cancer patients and more patients with longer lengths of stay. While non-profit and for-profit hospices report similar numbers of staff visits per patient, for-profit firms make significantly less use of skilled nursing providers. We also find some weak evidence of lower levels of quality in for-profit hospices.     

For-profit status and industry evolution in health care markets: evidence from the dialysis industry

This paper examines why for-profit dialysis providers have displaced non-profit providers over the last 25 years. Using detailed data on individual markets’ evolutions, I find that for-profit facilities were quicker to enter growing markets and slower to exit declining ones than non-profit facilities. Moreover, for-profit providers’ presence in a market had a larger impact on the exit and entry behavior of competitors. These results suggest that for-profit dialysis providers have an advantage in static competition relative to non-profit providers, and that this—rather than lower entry costs—explains their increasing prominence. Additional empirical analyses indicate that for-profits’ advantage cannot solely be attributed to efficiencies related to membership in a large, multi-facility chain. This further suggests that managerial incentives have had an economically significant impact on long-run market structure in this industry.     

Asymmetric information, ownership and quality of care: an empirical analysis of nursing homes

Theoretically, when asymmetric information exists, nonprofit organizations, due to the attenuation of the property right, provide better quality of service than do the for-profits. Despite extensive theoretical examination of the behavior of nonprofits, there has been very little empirical testing of the plausibility of these theories. This article addresses the effect of ownership type on the quality of service in the nursing home industry, an environment particularly conducive to identifying the existence of asymmetric information. The study shows that the differences between for-profit and nonprofit homes do become manifest when asymmetric information is present.     

Factors affecting the entry of for-profit providers into a price regulated market for formal long-term care services: A case study from Japan

While the distinct behaviors of for-profit and non-profit providers in the healthcare market have been compared in the economic literature, their choices regarding market entry and exit have only recently been debated. Since 2000, when public Long-Term Care Insurance was introduced in Japan, for-profit providers have been able to provide formal long-term homecare services. The aim of this study is to determine which factors have affected market entry of for-profit providers under price regulation and in competition with existing non-profit providers. We used nation-wide panel data from 2002 to 2010, aggregated at the level of local public insurers (n = 1557), a basic area unit of service provision. The number of for-profit providers per elderly population in the area unit was regressed against factors related to local demand and service costs using first-difference linear regression, a fixed effects model, and Tobit regression for robustness checking. Results showed that demand (the number of eligible care recipients) and cost factors (population density and minimum wage) significantly influenced for-profit providers' choice of market entry. These findings indicate that for-profit providers will strategically choose a local market for maximizing profit. We believe that price regulation should be redesigned to incorporate quality of care and market conditions, regardless of the profit status of the providers, to ensure equal access to efficient delivery of long-term care across all regions.     

Regulation, Ownership and Efficiency in the Swiss Nursing Home Industry

Switzerland is a federal State where policy decisions regarding long-term care regulation are by rights incumbent upon regional and local governments. This situation is in part responsible for the large number of small nursing homes operating in Switzerland. Moreover, long-term care for the elderly is supplied by public, private for-profit and non-profit nursing homes, respectively.The paper presents an econometric estimation of a stochastic cost frontier using cross-section data for a sample of 886 Swiss nursing homes operating in 1998. The results of this analysis are used to examine the relationship between cost efficiency, the alternative institutional forms and the different regulatory settings.     

The Jane Dent Home: the rise and fall of homes for the aged in low-income communities

The Jane Dent Home was established in 1898 (as the Home for Aged and Infirm Colored People) to serve African American elderly barred from admission to most homes for the aged. Sustained by community leadership through difficult times, the Home finally closed in 1975 after growing and persistent racial and economic segregation of Chicago's low-income neighborhoods combined with pressure from state government to ensure fire safety. This history illustrates the decline of not-for-profit homes for the aged while for-profit nursing homes were capturing market share. In Chicago this trend is strongest in low-income communities of color, which may lead to lower quality of care for such communities. Support for indigenous not-for-profit long-term care may promote the goals of health care equity articulated by Healthy People 2010.     

Neoliberalism and health care: the case of the Irish nursing home sector

The usefulness of neoliberalism as a theoretical concept in health research has been debated. This paper argues that when the concept of neoliberalism is used precisely and concretely, it provides an important and valid framework to analyse how health systems have been transformed over the last several decades. This claim is illustrated through the case of the Irish nursing home sector, which, over the last 20 years, has been turned upside down: from a mostly public system, it has been restructured into a mostly private, for-profit one. Privatisation, a quintessential neoliberal outcome, is analysed in detail. It was fostered by several neoliberal policies and has benefitted Irish (and to some extent global) economic elites. Tax incentives for private home operators and government budgetary constraints have limited state involvement in service provision and supported the expansion of the private sector. Private home staff are subject to more ‘flexible’ working conditions, which benefits employers. Moreover, the government plans to build new public nursing homes via public–private partnerships, which amount to privatisation. Also, global nursing home chains have begun to enter the Irish market, which offers profitable opportunities to international investors. However, international research shows that quality of care tends to be lower in private homes, due to cost cutting to increase profits.     

OBRA 1987 and the quality of nursing home care

Because minimum government standards for quality regulate only part of the market failure, they may have unintended effects. We present a general theory of how government regulation of quality of care may affect different market segments, and test the hypotheses for the nursing home market. OBRA 1987 was a sweeping government reform to improve the quality of nursing home care. We study how the effect of OBRA on the quality of nursing home care, measured by resident outcomes, varied with nursing home profitability. Using a semi-parametric method to control for the endogenous effects of regulation, we found that this landmark legislation had a negative effect on the quality of care in less profitable nursing homes, but improved the quality in more profitable nursing homes during the initial period after OBRA. But, this legislation had no statistically significant effect in the later period when the regulation was weakly enforced. JEL Classification I18 . I11