Market Conditions and Performance in the Nursing Home Compare Five-Star Rating

Previous studies have documented that market conditions affect nursing home performance; however, the evidence is inconsistent and conflicting. This study introduces three groups of county market conditions and a peer effect variable, and tests their impacts on the Nursing Home Compare (NHC) Five-Star overall rating. Indiana nursing home data and county characteristics are taken mainly from the NHC and Census Bureau websites. The result of the ordered logistic regression analysis indicates that nursing homes in excess demand markets, namely those that are highly concentrated and have fewer nursing homes, tend to perform better than their counterparts in both excess supply and balanced markets. In addition, a peer effect variable, measured as the average overall rating of the competitors, promotes performance improvement. These findings imply that small markets enable consumers to be well informed about a provider's reputation for quality, consequently enhancing performance. Furthermore, not only consumers but also providers seem to seek performance information on the report card to understand their relative position in the market, which thus affects their market strategies and subsequently performance.