Is higher nursing home quality more costly?

Area of Science:

• Health Economics
• Healthcare Management
• Gerontology

Background:

• Quality issues in nursing homes are a significant concern globally.
• The relationship between quality and costs in nursing homes may vary across different healthcare systems, particularly in Europe with its prevalence of nonprofit providers.

Purpose of the Study:

• To investigate the relationship between quality indicators and the total cost function of nursing home services.
• To address potential omitted variables and simultaneity biases in analyzing this relationship.

Main Methods:

• Utilized panel data from 45 Swiss nursing homes (2006-2010).
• Employed economic production theory to estimate a total cost function.
• Measured quality using clinical process and outcome indicators from the minimum data set.
• Applied an instrumental variable approach to control for simultaneity bias.

Main Results:

• Negative outcome quality indicators, specifically severe pain and weight loss, were associated with higher nursing home costs.
• Panel data analysis controlled for unobserved nursing home-specific characteristics.

Conclusions:

• Poor patient outcomes in nursing homes can drive up operational costs.
• Findings suggest that payment schemes should incentivize quality improvement to manage costs effectively.