The European Journal of Health Economics

, Volume 17, Issue 8, pp 1011–1026 | Cite as

Is higher nursing home quality more costly?

  • L. Di Giorgio
  • M. Filippini
  • G. MasieroEmail author
Original Paper


Widespread issues regarding quality in nursing homes call for an improved understanding of the relationship with costs. This relationship may differ in European countries, where care is mainly delivered by nonprofit providers. In accordance with the economic theory of production, we estimate a total cost function for nursing home services using data from 45 nursing homes in Switzerland between 2006 and 2010. Quality is measured by means of clinical indicators regarding process and outcome derived from the minimum data set. We consider both composite and single quality indicators. Contrary to most previous studies, we use panel data and control for omitted variables bias. This allows us to capture features specific to nursing homes that may explain differences in structural quality or cost levels. Additional analysis is provided to address simultaneity bias using an instrumental variable approach. We find evidence that poor levels of quality regarding outcome, as measured by the prevalence of severe pain and weight loss, lead to higher costs. This may have important implications for the design of payment schemes for nursing homes.


Nursing home Costs Nonprofit Single quality indicators Composite quality indicators Cost-quality tradeoff Process quality Outcome quality Structure quality 

JEL Classification

I10 L3 


  1. 1.
    Riedel, M., Kraus, M.: The organisation of formal long-term care for the elderly: results from the 21 European country studies in the ANCIEN Project. Social Welfare Policies, ENEPRI Research report (2011)Google Scholar
  2. 2.
    Di Giorgio, L., Filippini, M., Masiero, G.: Implications of global budget payment system on nursing home costs. Health Policy 115, 237–248 (2014)CrossRefPubMedGoogle Scholar
  3. 3.
    Wodchis, W.P., Teare, G.F., Anderson, G.M.: Cost and quality evidence from Ontario long term care hospitals. Med. Care 45, 981–988 (2007)CrossRefPubMedGoogle Scholar
  4. 4.
    Lohr, K.N. (ed.): Medicare: A Strategy for Quality Assurance, vol. 1. National Academy Press, Washington, DC (1990)Google Scholar
  5. 5.
    A First Class Service—Quality in the New NHS. Department of Health, London (1997)Google Scholar
  6. 6.
    Council of Europe.: Recommendation on Development and Implementation of Quality Improvement Systems (QIS) in Health Care and Explanatory Memorandum (41st Meeting, 24–26 June). Council of Europe, Strasbourg (1997)Google Scholar
  7. 7.
    WHO.: The World Health Report 2000: health systems: improving performance. World Health Organization, Geneva (2000)Google Scholar
  8. 8.
    Legido-Quigley, H., McKee, M., Nolte, E., Glinos, I.A.: Assuring the quality of health care in the European Union. European Observatory on Health Systems and Policies: Observatory Studies Series No. 12 (2008)Google Scholar
  9. 9.
    Donabedian, A.: The quality of care. How can it be assessed? JAMA 260(12), 1743–1748 (1988)CrossRefPubMedGoogle Scholar
  10. 10.
    Zimmerman, D.: Development and testing of nursing home quality indicators. Health Care Financ. Rev. 16(4), 107–127 (1995)PubMedPubMedCentralGoogle Scholar
  11. 11.
    Zimmerman, D.: Improving nursing home quality of care through outcomes data: the MDS quality indicators. Int. J. Geriatr. Psychiatry 18, 250–257 (2003)CrossRefPubMedGoogle Scholar
  12. 12.
    Berg, K., Mor, V., Morris, J., Murphy, K.M., Moore, T., Harris, Y.: Identification and evaluation of existing nursing homes quality indicators. Health Care Financ. Rev. 23(4), 19–36 (2002)PubMedPubMedCentralGoogle Scholar
  13. 13.
    Li, Y., Cai, X., Ye, Z., Glance, G.G., Harrington, C., Mukamel, D.B.: Satisfaction with Massachusetts nursing home care was generally high during 2005–2009, with some variability across facilities the productive efficiency and clinical quality of institutional long-term care for the elderly. Health Affairs 32(8), 1416–1425 (2013)CrossRefPubMedPubMedCentralGoogle Scholar
  14. 14.
    Nakrem, S., Vinsnes, A.G., Harkless, G.E., Paulsen, B., Seim, A.: Nursing sensitive quality indicators for nursing home care: International review of literature, policy and practice. Int. J. Nurs. Stud. 46, 848–857 (2009)CrossRefPubMedGoogle Scholar
  15. 15.
    Castle, N.G., Ferguson, J.C.: What is nursing home quality and how is it measured? Gerontologist 50(4), 426–442 (2010)CrossRefPubMedPubMedCentralGoogle Scholar
  16. 16.
    McKay, N.L.: Quality choice in Medicaid markets: the case of nursing homes. Quarter. Rev. Econ. Bus. 29(2), 27–40 (1989)Google Scholar
  17. 17.
    Farsi, M., Filippini, M., Kuenzle, M.: Unobserved heterogeneity in stochastic cost frontier models: an application to Swiss nursing homes. Appl. Econ. 37, 2127–2141 (2005)CrossRefGoogle Scholar
  18. 18.
    Farsi, M., Filippini, M., Lunati, D.: Economies of scale and efficiency measurement in Switzerland’s nursing homes. Swiss J. Econ. Stat. 144, 359–378 (2008)Google Scholar
  19. 19.
    Castle, N.G., Engberg, J.: Staff turnover and quality of care in nursing homes. Med. Care 43(6), 616–626 (2005)CrossRefPubMedGoogle Scholar
  20. 20.
    Castle, N.G., Engberg, J.: The influence of staffing characteristics on quality of care in nursing homes. Health Res. Educ. Trust 42(5), 1822–1847 (2007)Google Scholar
  21. 21.
    Dormont, B., Martin, C.: Quality of service and cost-efficiency of French nursing homes. 9th European Conference on Health Economics (ECHE), Zurich, July 18–21 (2012)Google Scholar
  22. 22.
    Spilsbury, K., Hewitt, C., Stirk, L.: The relationship between nurse staffing and quality of care in nursing homes: a systematic review. Int. J. Nurs. Stud. 48, 732–750 (2011)CrossRefPubMedGoogle Scholar
  23. 23.
    Rantz, M.J., Hicks, L., Grando, V., Petroski, G.F., Madsen, R.W., et al.: Nursing home quality, cost, staffing, and staff mix. Gerontologist 44(1), 24–38 (2004)CrossRefPubMedGoogle Scholar
  24. 24.
    Bostick, J.E., Rantz, M.J., Flesner, M.K., Riggs, C.J.: Systematic review of studies of staffing and quality in nursing homes. J. Am. Med. Dir. Assoc. 7(6), 366–376 (2006)CrossRefPubMedGoogle Scholar
  25. 25.
    Mor, V., Berg, K., Angelelli, J., Gifford, D., Morris, J., Moore, T.: The quality of quality measurement in US nursing homes. Gerontologist 43(2), 37–46 (2003)CrossRefPubMedGoogle Scholar
  26. 26.
    Arling, G., Karon, S.L., Sainfort, F., Zimmerman, D.R., Ross, R.: Risk adjustment of nursing home quality indicators. Gerontologist 37(6), 757–766 (1997)CrossRefPubMedGoogle Scholar
  27. 27.
    Nyman, J.A.: Improving the quality of nursing home outcomes. Med. Care 26, 1158–1171 (1988)CrossRefPubMedGoogle Scholar
  28. 28.
    Zinn, J.S., Aaronson, W.E., Rosko, M.D.: The use of standardized indicators as quality improvement tools: an application in Pennsylvania nursing homes. Am. J. Med. Qual. 8, 72–78 (1993a)CrossRefPubMedGoogle Scholar
  29. 29.
    Zinn, J.S., Aaronson, W.E., Rosko, M.D.: Strategic groups, performance, and strategic response in the nursing home industry. Health Service Res. 29, 187–205 (1994)Google Scholar
  30. 30.
    Mukamel, D.B.: Risk-adjusted outcome measures and quality of care in nursing homes. Med. Care 35(4), 367–385 (1997)CrossRefPubMedGoogle Scholar
  31. 31.
    Zinn, J.S., Aaronson, W.E., Rosko, M.D.: Variations in the outcomes of care provided in Pennsylvania nursing homes: facility and environmental correlates. Med. Care 31, 475–487 (1993b)CrossRefPubMedGoogle Scholar
  32. 32.
    Karon, S.L., Sainfort, F., Zimmerman, D.R.: Stability of nursing home quality indicators over time. Med. Care 37(6), 570–579 (1999)CrossRefPubMedGoogle Scholar
  33. 33.
    Mukamel, D.B., Glance, L.G., Li, Y., Weimer, D.L., Spector, W.D., Zinn, J.S., Mosqueda, L.: Does risk adjustment of the CMS quality measures for nursing homes matter? Med. Care 46(5), 532–541 (2008)CrossRefPubMedPubMedCentralGoogle Scholar
  34. 34.
    Gertler, P.J., Waldman, D.M.: Quality-adjusted cost functions and policy evaluation in the nursing home industry. J. Polit. Econ. 100, 1232–1256 (1992)CrossRefGoogle Scholar
  35. 35.
    Carey, K.: A panel data design for estimation of hospital cost functions. Rev. Econ. Stat. 79(3), 443–453 (1997)CrossRefGoogle Scholar
  36. 36.
    Konetzka, R.T., Yi, D., Norton, E.C., Kilpatrick, K.E.: Effects of Medicare payment changes on nursing home staffing and deficiencies. Health Services Res. 39, 463–488 (2004)CrossRefGoogle Scholar
  37. 37.
    Harrington, C., Woolhandler, S., Mullan, J., Carrillo, H., Himmelstein, D.U.: Does investor ownership of nursing homes compromise the quality of care? Am. J. Public Health 91(9), 1452–1455 (2001)CrossRefPubMedPubMedCentralGoogle Scholar
  38. 38.
    Bowblis, J.R., Crystal, S., Intrator, O., Lucas, J.A.: Response to regulatory stringency: the case of antipsychotic medication use in nursing homes. Health Econ. 21, 977–993 (2012)CrossRefPubMedGoogle Scholar
  39. 39.
    Bowblis, J.R., Lucas, J.A.: The impact of state regulations on nursing home care practices. J. Regul. Econ. 42, 52–72 (2012)CrossRefGoogle Scholar
  40. 40.
    Grabowski, D.C., Feng, Z., Hirth, R.A., Rahman, M., Mor, V.: Effect of nursing home ownership on the quality of post-acute care: an instrumental variables approach. J. Health Econ. 32, 12–21 (2013)CrossRefPubMedGoogle Scholar
  41. 41.
    Spector, W.D., Selden, T.M., Cohen, J.W.: The impact of ownership type on nursing home outcomes. Health Econ. 7, 639–653 (1998)CrossRefPubMedGoogle Scholar
  42. 42.
    Castle, N.G., Liu, D., Engberg, J.: The association of nursing home compare quality measures with market competition and occupancy rates. J. Healthcare Qual. 30(2), 4–14 (2008)CrossRefGoogle Scholar
  43. 43.
    Forder, J., Allan, S.: Competition in the English nursing homes market. PSSRU Discussion Paper 2820, University of Kent (2011)Google Scholar
  44. 44.
    Grabowski, D.: A longitudinal study of medicaid payment, private-pay price and nursing home quality. Int. J. Health Care Financ. Econ. 4(1), 5–26 (2004)CrossRefGoogle Scholar
  45. 45.
    Starkey, K.B., Weech-Maldonado, R., Mor, V.: Market competition and quality of care in the nursing home industry. J. Health Care Financ. 32(1), 67–81 (2005)Google Scholar
  46. 46.
    Gutacker, N., Bojke, C., Daidone, S., Devlin, N.J., Parkin, D., Street, A.: Truly inefficiency or providing better quality of care? Analysing the relationship between risk-adjusted hospital costs and patients’ health outcomes. Health Econ. 22, 931–947 (2013)CrossRefPubMedGoogle Scholar
  47. 47.
    Mukamel, D.B., Spector, W.D.: Nursing home costs and risk-adjusted outcome measures of quality. Med. Care 38(1), 78–89 (2000)CrossRefPubMedGoogle Scholar
  48. 48.
    Laine, J., Linna, M., Häkkinen, U., Noro, A.: Measuring the productive efficiency and clinical quality of institutional long-term care for the elderly. Health Econ. 14, 245–256 (2005a)CrossRefPubMedGoogle Scholar
  49. 49.
    Laine, J., Linna, M., Noro, A., Häkkinen, U.: The cost efficiency and clinical quality of institutional long-term care for the elderly. Health Care Manag. Sci. 8, 149–156 (2005b)CrossRefPubMedGoogle Scholar
  50. 50.
    Weech-Maldonado, R., Shea, D., Mor, V.: The relationship between quality of care and costs in nursing homes. Am. J. Med. Qual. 21(1), 40–48 (2006)CrossRefPubMedGoogle Scholar
  51. 51.
    Mor, V., Morris, J., Lipsitz, L., Fogel, B.: Benchmarking quality in nursing homes: the Q-Metrics System. Can. J. Qual. Health Care 14, 12–17 (1998)CrossRefGoogle Scholar
  52. 52.
    Institute of Medicine.: Performance Measurement: Accelerating Improvement. The National Academies Press, Washington, DC (2006)Google Scholar
  53. 53.
    Abdi, H., Williams, L.J.: Principal component analysis. WIREs Comp. Stat. 2, 433–459 (2010)CrossRefGoogle Scholar
  54. 54.
    Jolliffe, I.: Principal component analysis. Encyclopedia of Statistics in Behavioral Science. Wiley, New York (2005)Google Scholar
  55. 55.
    Evans, R.: “Behavioural” cost functions for hospitals. Can. J. Econ. 4, 198–215 (1971)CrossRefGoogle Scholar
  56. 56.
    Kendall, M.G.: Rank Correlation Methods. Hafner Publishing Co, New York (1955)Google Scholar
  57. 57.
    Stock, J.H., Watson, M.W.: Heteroskedasticity-robust standard errors for fixed effects panel data regression. NBER Technical Working Paper 323 (2006)Google Scholar
  58. 58.
    Kezdi, G.: Robust standard errors estimation in fixed-effects panel models. Hung. Stat. Rev. Spec. 9, 96–116 (2004)Google Scholar
  59. 59.
    Rogers, W.H.: Regression standard errors in clustered samples. Stata Tech. Bull. 13, 19–23 (1994)Google Scholar
  60. 60.
    Clark, T.S., Linzer, D.A.: Should I use fixed or random effects? Polit. Sci. Res. Methods 3(02), 399–408 (2015)CrossRefGoogle Scholar
  61. 61.
    Cameron, A.C., Trivedi, P.K.: Microeconometrics Using Stata, Revised edn. Stata Press, College Station (2010)Google Scholar
  62. 62.
    Cameron, A.C., Trivedi, P.K.: Microeconometrics. Methods and Applications. Cambridge University Press, New York (2005)CrossRefGoogle Scholar
  63. 63.
    Shea, J.: Instrument relevance in multivariate linear models: a simple measure. Rev. Econ. Stat. 79(2), 348–352 (1997)CrossRefGoogle Scholar
  64. 64.
    Hayashi, F.: Econometrics. Princeton University Press, Princeton (2000)Google Scholar
  65. 65.
    Bowblis, J.R., McHone, H.: An instrumental variables approach to post-acute care nursing home quality: Is there a dime’s worth of evidence that continuing care retirement communities provide higher quality? J. Health Econ. 32(5), 980–996 (2013)CrossRefPubMedGoogle Scholar
  66. 66.
    Hirth, R.A., Grabowski, D., Feng, Z., Rahman, M., Mor, V.: Effect of nursing home ownership on hospitalization of long-stay residents: an instrumental variables approach. Int. J. Health Care Financ. Econ. 14(1), 1–18 (2014)CrossRefGoogle Scholar
  67. 67.
    Angrist, J.D., Krueger, A.B.: Instrumental variables and the search for identification: from supply and demand to natural experiments. J. Econ. Perspect. 15(4), 69–85 (2001)CrossRefGoogle Scholar
  68. 68.
    Drukker, D.M.: Testing for serial correlation in linear panel-data models. Stata J. 3, 168–177 (2003)Google Scholar
  69. 69.
    Wooldridge, J.M.: Econometric Analysis of Cross Section and Panel Data. MIT Press, Cambridge (2002)Google Scholar
  70. 70.
    Hahn, J., Ham, J.C., Roger Moon, H.: The Hausman test and weak instruments. J. Econom. 160(2), 289–299 (2011)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Institute for Health Metrics and Evaluation (IHME)University of WashingtonWashingtonUnited States
  2. 2.Institute of Economics (IdEP)Università della Svizzera italiana (USI)LuganoSwitzerland
  3. 3.Department of Management, Technology and EconomicsETHZurichSwitzerland
  4. 4.Department of Management, Information and Production Engineering (DIGIP)University of BergamoBergamoItaly

Personalised recommendations