Scale and scope economies in nursing homes: a quantile regression approach

Nursing homes vary widely between facilities with very few beds and facilities with several hundred beds. Previous studies, which estimate nursing home scale and scope economies, do not account for this heterogeneity and implicitly assume that all nursing homes face the same cost structure. To account for heterogeneity, this paper uses quantile regression to estimate cost functions for skilled and intermediate care nursing homes. The results show that the parameters of nursing home cost functions vary significantly by output mix and across the cost distribution. Estimates show that product-specific scale economies systematically increase across the cost distribution for both skilled and intermediate care facilities, with diseconomies of scale in the lower deciles and no significant scale economies in the higher deciles. As for ray scale economies, estimates show economies of scale in the lower deciles and diseconomies of scale or no significant scale economies at higher deciles. The estimates also show that scope economies exist in the lower cost deciles and that no scope economies exist in the higher cost deciles. Additionally, the degree of scope economies monotonically decreases across the deciles.