Nursing Homes Quality

Effect of Nursing Home Ownership on Quality

Do non-profit nursing home provide better quality than for-profit nursing homes? Generally, for-profit nursing homes appear to have better quality measures, but this could be due to the fact that non-profit nursing homes act as a safety net, whereas non-profit nursing homes treat sicker patients. Today, I look at Grabowski et al. (2012)‘s attempt to answer this question.

Background on Nursing Home Care

  • Americans living in approximately nursing homes: 1.5 million
  • Number of nursing homes: 16,100
  • Share of Americans who survive to age 65 that will need to use a nursing home at some point in their lives: 46%.
  • Nursing home expenditures in 2009: $137 billion (5.5% of national health expenditures)
  • Medicaid pays for roughly 50% of all nursing home expenditures and 70% of all bed days.
  • Medicare covers post-acute nursing home care, which accounts for 12% of total nursing home expenditures.


The authors rely on two types of data. The first, the Minimum Data Set (MDS), is an assessment data file for nursing home residents. The second file, Medicare Claims and Enrollment records, is used to measure spending. The authors also use the Medicaid Analytic Extract (MAX) data to determine the patient’s Medicaid eligibility. The authors examine newly admitted paitents to nursing homes between January 1, 2004 and June 30, 2005.

Empirical Specification

The authors examine how non-profit status affects quality of care. Quality of care is measured using the following variables: (i) change in ADL functioning, (ii) change in mobility status, (iii) change in pain status, and (iv) re-hospitalization within 30 days. A regression of quality measures on non-profit status will give incorrect estimates if non-profit status is correlated with unobserved measures of quality. “For example, an individual in poorer health may be more likely to choose a nonprofit nursing home and also experience worse outcomes on the measures used to reflect quality.”

To account for this issue, the authors use an instrumental variables approach where the instrument is “differential distance.” Differential distance is defined as differential distance between the nearest nonprofit and for-profit nursing homes for each patient. The authors also use Huber-White standard errors clustered at the ZIP code level.


Our results suggest that—after instrumenting for endogenous ownership—nonprofits nursing homes provide better quality for short-stay patients relative to their for-profit counterparts. Unlike the multinomial logit (uninstrumented) models, the instrumented result is consistent across distinct measures of short-stay quality. Therefore, failure to account for the endogeneity of ownership would lead to an errant conclusion that ownership does not have a systematic relationship to quality of care, which could lead to unjustified policy prescriptions.



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