Incenting Better Nursing Home Care

As the population ages, an increasing number of us may live out our final years in a nursing home.  And many of us can’t afford private care, so we end up paid for by Medicaid.  Don’t need to say much about the stereotype of depressing life in one of these facilities.  The quality of care isn’t always great either and a new study published by the National Bureau of Economic Research attempts to ascertain how it can be made better.   (NBER Paper)    The author compared the impact of higher reimbursement by Medicaid on quality with attempting to increase competition around quality by adding nursing homes.  Data from Pennsylvania was used in the analysis.    Since Medicaid sets reimbursement rates by fiat, there is no competition on price, and if rates are very low, nursing homes may have little incentive or resources to use quality as a competitive differentiator.  In some markets, there may be a structural lack of competition as well.  The model created by the author finds that a 10% increase in Medicaid reimbursement results in an 8.8% increase in the nurse to resident ratio, which presumably results in higher quality scores.  It also reduces private pay rates by about 5%, which suggests that there is some cost-shifting in nursing homes, as there is in hospital care.  The model also suggests that adding a new nursing home to a market creates only a very small improvement in quality.  Overall, the author concludes that increasing Medicaid reimbursement is a better way to improve quality of care than is increasing competition.

It seems awfully simplistic to look at nurse staffing ratios as a measure of quality.  It makes sense in a way, but there are a lot of other measures that might more directly relate to the actual health of nursing home residents. While prior research suggests some effect of staffing ratios on other quality measures, many of those are process measures.  And a lot of that research frankly is promoted by nursing unions to increase work opportunities for their members.   And it is pretty obvious that paying nursing homes more should result in at least somewhat better care if they apply any of the reimbursement increase to more staffing and other items that result in better health.  But nursing home care is the largest single Medicaid payment category and it is already stressing state budgets to the breaking point, so more reimbursement probably isn’t feasible.  Intense efforts are underway to try to have people age at home, which generally is less costly, but many people will have to go to nursing homes at some point.  How to ensure a better life experience and better health is challenging given the financial realities of personal and state budgets.  Competition directly on quality might make a difference, where residents are directed to homes with better quality scores and/or nursing homes with higher quality are paid more.  That is a better way to ensure that higher reimbursement is directly correlated with better quality.