Nursing Home Costs and Quality: Is There a Tradeoff? Robert Weech-Maldonado, Ph.D. Department Health Services Research, Management and Policy University of Florida

Background Nursing home quality issues persist – 2003 GAO report Federal and state governments using market-based approaches to promote QI At the same time, nursing homes are facing revenue constraints – Prospective payment systems – Declining occupancy rates Strong financial incentives to control costs – Will these cost-containment efforts results in lower quality?

Nursing Home Quality Donabedian (1988) posits a structure-process-outcome framework for quality assessment Causal model S  P  O Structural measures – RN staffing Process measures – Use of physical restraints and urethral catheters Outcome measures – Pressure ulcers, cognitive decline, and mood decline

Theoretical Considerations Economics – Newhouse (1970) model of hospital behavior with respect to quality of care – Quality of care is associated with increased costs Strategic management – Cost leadership incompatible with quality differentiation strategy Quality management – Quality brings reduced costs Prevention Process Improvement

Methodological Considerations Definition and measurement of quality – Relatively few studies have used outcome measures – Limitations of existing nursing home quality data (OSCAR and MDS) Operationalization of costs – Total costs versus operating (patient) costs Cost-quality relationship – Linear vs. non-linear Endogeneity

Previous Studies Most studies have used structural and process measures of quality, and have been limited to OSCAR measures of quality Four studies used MDS risk-adjusted outcomes – Structural equation modeling Weech-Maldonado, Neff, and Mor (2003) – Cost functions Mukamel and Spector (2000) Hicks et al. (2004) Weech-Maldonado, Shea and Mor (2006)

Weech-Maldonado, Neff, and Mor (2003) NY, KS, VT, ME, and SD (1996) Using SEM, examined the direct and indirect effects of structure, process and outcome quality on costs – Structure: RN staffing mix – Process: restraints, urethal catheters – Outcomes: pressure ulcer incidence/worsening, mood decline, and cognitive decline

Weech-Maldonado et al. (2003) Major findings – Structure Greater RN staffing leads to higher costs, but higher RN staffing has an indirect negative effect on costs via its positive effect on outcomes of care – Process While process quality does not exhibit a significant relationship with costs, better process of care has an indirect negative effect on costs via its positive effect on outcomes of care – Outcomes Facilities with better outcomes quality have lower costs.

Quality, Costs, and Financial Performance

Mukamel and Spector (2000) NY facilities in 1991 Cost functions using three outcome measures: deterioration in functional status, worsening of pressure ulcers, and mortality Cost-quality relationship non-monotonic with an inverted U shape There are care regimens where nursing homes are able to achieve both lower costs and better quality of care

Hicks et al. (2004) MO facilities Cost functions using three outcome measures: ADL decline, pressure ulcer incidence, and weight loss Similar results to Mukamel and Spector (2000)

Weech-Maldonado, Shea, and Mor (2006) NY, KS, VT, ME, and SD (1996) Cost functions using two outcome measures: pressure ulcers incidence/worsening and mood decline

Weech-Maldonado et al. (2006) Major findings – Non-monotonic relationship between quality and costs – Cost-quality relationship varies by outcome Pressure ulcers and costs – Inverted U shape curve Mood decline and costs – Relatively flat curve at the lower range of quality but increasing costs associated with improved quality after threshold

Pressure Ulcer Worsening

Mood Decline

Conclusions Higher quality not necessarily associated with higher costs Importance of considering the direct and indirect effects of quality on costs as implied by the SPO framework Cost-quality relationship is complex and more aptly called non-monotonic Cost-quality relationship appears to vary depending on the outcome examined

Future Research Cost-effectiveness of interventions designed to simultaneously improve quality and reduce costs Contextual factors associated with both higher quality and lower costs SPO linkages of quality and their impact on cost Identify reliable and valid measures of process care Longitudinal studies examining the cost-quality relationship