Excess demand, consumer rationality, and the quality of care in regulated nursing homes

This article investigates whether an empirical basis exists for the hypothesis that nursing homes exploit the irrationality of some nursing home patients by providing inadequate quality care. Evidence from Wisconsin in 1983 shows that violations of the Medicaid certification code in nursing homes are not statistically related to two measures of consumer rationality. Violations are, however, related to a measure of the need to compete for patients, despite the presence of an effective program to enforce these certification standards through fines. Specifically, it is found that, where the bed supply is tight, an additional empty bed in every nursing home in a county is associated with between five and six fewer class C violations (or their equivalent) in every home. This evidence is consistent with the hypothesis that the quality problems that nursing homes have traditionally exhibited are linked to the absence of a need to complete for patients, created by the bed shortage conditions that continue to characterize a large portion of nursing home care markets in the United States. The implications for public policy are discussed.