Nursing home quality: A theoretical and empirical investigation
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Nursing home quality has been a major public concern to consumers, health care providers, and policy makers for many years. Most previous work in this field has analyzed nursing home quality by using the excess demand model, in which Medicaid beneficiaries have limited access to nursing home beds. Under the excess demand model, nursing home quality is found to be negatively associated with Medicaid payment. However, evidence suggests that this approach may not be pertinent for today’s nursing home market, particularly as substantial competition from other alternative types of care has emerged in recent years. There is a lot more competition on the part of providers and the less disabled elderly are now seeking less expensive forms of care rather than nursing home care. As a result, nursing home occupancy rate has kept declining in the past three decades. With the national occupancy rate below 90%, the excess demand model may no longer be relevant for much of the nursing home industry. In this dissertation, we develop a market-clearing dynamic equilibrium model to analyze nursing home quality. Traditional nursing home studies assume that the market consists of a fixed number of nursing homes and overlook the choice of entry by new providers in response to changes in demand. Our model accounts for endogenous entry by new providers and address the effects of economic, socio-demographic, and policy variables on the quality of nursing home services. The comparative static analysis predicts a positive impact of both Medicaid spending and consumers’ income on nursing home quality, but a negative impact coming from a higher disability rate among the elderly. Guided by the theoretical predictions, our empirical work focuses on testing the relationship between nursing home quality and various factors such as Medicaid expenditures, income, and the elderly disability rate. Most empirical nursing home studies use county to approximate the nursing home market, but they ignore the fact that counties may not represent the true geographic market for nursing homes. This dissertation improves upon the past research by utilizing the spatial error model to address this measurement error issue. Our empirical results are strongly consistent with the theoretical predictions. Medicaid expenditures are found to have a positive impact on nursing home quality. In addition, the quality of nursing home care is positively influenced by income but negatively affected by the elderly disability rate.