The Market for
Nursing Home Quality
David Grabowski
University of Alabama at Birmingham
Background
• The standard economic model of quality
competition assumes:
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–
–
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Privately purchased care
Perfectly informed consumers
Choice across providers
No government intervention
• The NH market clearly deviates from all of these
assumptions
History
• In the 1970s, states generally paid for NH
care on a cost-based basis
• Little information typically available to
potential NH consumers
• Certificate-of-need and construction
moratoria often created excess demand for
services
– Occupancy rates were above 95%
Current Market
(Times Have Changed)
• States generally pay for care on a case-mix
adjusted prospective basis
• Public quality reporting now available
• CON/moratoria no longer relevant in many NH
markets due to the growth in assisted living
– Occupancy rates now around 87%
– One-third of facilities that call themselves "assisted
living" have been in business for five or fewer years,
and 60% have been in operation for ten or fewer years
(Hawes et al., 1999)
Examples: Market for Quality
• Beverly Enterprises, Inc.
– Currently experimenting with model of “residentcentered” care in 10 NHs in order to gain competitive
advantage
• Wellspring Innovative Solutions, Inc.
– 11 NHs formed alliance to compete on the basis of
quality for managed care business
• Philadelphia/Buffalo LTC markets
– Philadelphia has experienced growth in CCRCs due to
increased housing wealth; Buffalo has experienced
growth in assisted living due to large pensions of retired
factory workers
Research: Market for Quality
• Innovation
– Competition among nursing homes associated with
more Alzheimer’s and sub-acute care units (BanaszakHoll et al., 1996)
• Facility closures
– High deficiency facilities more likely to voluntarily exit
the market (Angelelli et al., 2003)
• Response to Medicaid Payment Changes
– Higher Medicaid payment rates are associated with
better quality (Grabowski, 2001)
Grabowski & Angelelli, in press HSR
Effect of Medicaid Payment on patient-level riskadjusted pressure ulcer incidence
All Markets
High Occupancy Markets
High Medicaid Homes
*=
statistically significant at the 1% level
Elasticity
- 0.16*
- 0.06
- 0.31*
Research Needs
1) What are the returns to greater competition in
today’s marketplace?
– Earlier work finds that more concentrated markets
achieve better outcomes (Zinn, 1994)
• I/O theory generally holds that when market share is
concentrated in a few large firms, competition is diminished
• In health care markets, concentration may diminish the effect
of information asymmetry, which could increase competition
(Pauly and Satterthwaite, 1981)
– Need to update this work with more recent data and
better quality measures
Research Needs
2) Can we adjust Medicaid payment policy
to better harness market forces?
– Why not reward high quality providers with
higher Medicaid payment rates?
– Demonstration-based evidence supports such a
payment system (Norton 1992)
– Additional demonstrations…
– Tradeoffs of investment in NH and other LTC
settings
Research Needs (cont.)
3) Will greater consumer information create
greater quality competition?
– We need more research on the relationship
between consumer information and consumer
choice.
– Limited knowledge of how hospital discharge
planners influence process
Research Needs (cont.)
4) What is the return to increased NH
regulation?
– State and Federal governments both are
discussing increased minimum staffing
standards
– Federal government continues to use costly
survey and certification process
– Are there market-based alternatives that may
encourage more efficient outcomes?
Research Needs (cont.)
5) What is the role of assisted living and other NH
substitutes towards encouraging good outcomes?
– There is no research tying growth in assisted living
market to NH quality
– Very limited government intervention in assisted living
markets in most states
• Thus, no systematic data
– However, some states have put assisted living providers
under CON