1AcademyHealth, June Changes in the Relationship Between Nursing Home Financial Performance and Quality of Care Under Public Reporting Jeongyoung Park, Ph.D. Rachel M. Werner, MD. Ph.D. University of Pennsylvania Funded by AHRQ (R01-HS )

2AcademyHealth, June  Improving quality of nursing home care is a national priority  Over the past decade, the US nursing home industry has experienced severe financial pressure  Improving quality involves substantial production costs  Financial condition/stability becomes an important consideration in explaining quality variation Background

3AcademyHealth, June Prior Research  Yet nature of the relationship between financial performance and quality of care is not obvious  Two conflicting expectations 1.(-): Trade-off (Davis et al, 1998; O’Neil et al, 2003)  Profit-maximization 2.(+): Positive (Mukamel & Spector, 2000; Weech- Maldonado et al, 2003)  Market-wide change->more competitive  Market-based initiatives  Product differentiation strategy

4AcademyHealth, June Market-based Initiatives  Recent move toward market-based quality initiatives  Quality report cards  Nursing Home Compare (November, 2002)  Reallocating demand from low to high quality facilities  Generating indirect financial consequences by changing market shares  Pay-for-performance (P4P)  Currently in place or in planning stage  Direct financial incentives for high performance  Positive relationship between financial performance and quality will be stronger under new market and regulatory conditions

5AcademyHealth, June Research Questions/Hypotheses  How do quality report cards affect the relationship between nursing home financial performance and quality of care?  H1: Facilities with high profit are more likely to provide better quality of care after public reporting  To what extent is this relationship affected by facility or market characteristics?  H2: The extent of the impact is likely to be larger at for-profit facilities after public reporting  H3: The extent of the impact is likely to be larger in more competitive markets after public reporting

6AcademyHealth, June Data  Financial performance  Medicare Cost Report (MCR)  Quality and facility characteristics  Online Survey Certification and Reporting System (OSCAR)  Limited to freestanding skilled nursing facilities (SNFs)  9,444 SNFs with 75,400 observations  FY

7AcademyHealth, June Measures  Financial performance  Total profit margin t-1  Total profit margin t-1 NHC  Total profit margin t-1  NHC  Quality measures  Staffing: Total staff hours per resident day (HPRD)  Outcome: Incidence rate of pressure sores  Process: Incidence rate of restraint use  Total deficiency citations

8AcademyHealth, June Analytic Strategy  Facility fixed-effects (FE) address omitted bias for time- invariant confounders  FE with instrumental variables approach (IV-FE) controls for potential endogeneity of financial performance  Two-stage equation models  Profit = f(X, IV, fixed effects)  Quality = f(X, Profit, fixed effect)  Instrumental variables  CMS hospital wage index t-1  Total resident days t-1  Total resident days t-1 NHC  Total resident days t-1  NHC

9AcademyHealth, June Descriptive Results  For-profit: 72.2%  Nonprofit: 24.0%  Government: 3.8%  Chain: 61.0%  Occupancy rate: 84.4%  Total certified beds: 118  % Medicaid: 65.0%  HHI: 0.27  Total profit margin t-1: 1.1%  Total Staff HPRD: 2.97  Incidence rates of  Pressure sores: 3.67%  Restraint use: 7.07%  Deficiencies: 5.75 Source: OSCAR and MCR (FY )

10AcademyHealth, June Results: Effect of Profit on Quality IV-FE Pre-NHCPost-NHC Total Staff HPRD (0.009)0.111**(0.022)[6.66min] Pressure Sores 0.041*(0.021)-0.149**(0.055) Restraint Use 0.006(0.050)0.382**(0.130) Deficiencies (IRR) 0.992*0.966** IRR=Incidence Rate Ratios **p<.01; *p<.05

11AcademyHealth, June Results: By Ownership Table 4: Effect of total profit margin by ownership (IV-FE) For-profitNonprofit Pre-NHCPost-NHCPre-NHCPost-NHC Total Staff HPRD 0.013**(0.004)[0.78min]0.074**(0.011)[4.44min]-0.014(0.049)0.094(0.089) Pressure Sores 0.016(0.012)-0.114**(0.033)-0.024(0.209)0.108(0.320) Restraint Use 0.019(0.029)0.257**(0.073)0.897(0.743)-0.816(1.232) Deficiencies (IRR) ** IRR=Incidence Rate Ratios **p<.01; *p<.05

12AcademyHealth, June Results: By Market Competition Table 4: Effect of total profit margin by ownership (IV-FE) More Competitive Less Competitive Pre-NHCPost-NHCPre-NHCPost-NHC Total Staff HPRD (0.016)0.137**(0.041)[8.22min]0.017*(0.007)[1.02min]0.042**(0.011)[2.52min] Pressure Sores 0.053(0.034)-0.189*(0.088)0.012(0.027)-0.003(0.040) Restraint Use (0.087)0.560*(0.221)0.035(0.084)0.138(0.114) Deficiencies (IRR) 0.989*0.967** IRR=Incidence Rate Ratios **p<.01; *p<.05

13AcademyHealth, June Conclusions  Financial performance is an important determinant of the delivery of high quality care in post-NHC period  Variation in relationship exists  Effects are statistically significant, but modest in size on average  However, the effects are likely to be larger when direct financial payment is made for high quality performance (i.e., P4P)

14AcademyHealth, June Implication  Recent move toward wide-spread adoption of market-based quality improvement initiatives (i.e., NHC, P4P) may not substantially improve quality across all facilities  P4P may worsen both financial and quality disparities, if financial resources are necessary to achieve high quality of care  Proposed nursing home P4P should be carefully designed and managed