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Effect of public reporting on nursing home financial performance

Park J, Werner RM, Konetzka RT. Effect of public reporting on nursing home financial performance. Paper presented at: AcademyHealth Annual Research Meeting; 2009 Jun 28; Chicago, IL.


Research Objective: Publicly reported quality information may cause consumers to take a more active role in choosing high-quality providers. If this is the case, public reporting may have indirect financial consequences by shifting market share from low- to high-quality providers. The goal of this study is to examine whether public reporting of nursing home quality information launched in 2002 affected nursing home financial performance. Study Design: Using a facility-level fixed-effects model, the effect of public reporting on financial performance was measured in two ways: (1) by comparing financial performance in the post-public reporting period (2003-2005) to the pre-public reporting period (1999-2002); and (2) by comparing financial performance in 2002 to financial performance in 2003, 2004, and 2005 to capture both immediate and persistent effect of public reporting. The effects were estimated separately by performance on reported quality scores because public reporting is likely to improve financial performance for high-scoring facilities more than for low-scoring facilities. Financial performance was calculated from Medicare cost reports from 1999 through 2005, measured as profits, revenues, and expenses. Publicly reported quality measures were calculated from the Minimum Data Set from 1999 to 2005. These included 3 post-acute and 12 chronic care quality measures that the Centers for Medicare and Medicaid Services include in Nursing Home Compare. We defined facilities as high-scoring if quality scores based on all 15 measures were in the top quartile after Nursing Home Compare or improved from before the launch of Nursing Home Compare to after its launch. Conversely, we defined low-scoring facilities as those where quality scores were in the bottom quartile after Nursing Home Compare or stayed the same or worsened from before to after public reporting. Population Studied: 7,521 freestanding Medicare-certified nursing homes between 1999 and 2005 in the US Principal Findings: High-scoring nursing homes had improvement in financial performance as measured by profits. In particular, a significant improvement in both total and operating margins occurred and continued after public reporting. Conversely, low-scoring facilities experienced significant declines in operating margins. Among high-scoring facilities, increases in expenses associated with public reporting were likely offset by increases in revenues possibly because those facilities invested additional resources in improving quality and, therefore, attracted more market share, which ultimately increased profits. These results were consistent with trends in occupancy for high- and low-scoring facilities. Conclusions: Public reporting improves financial performance for high-scoring facilities, possibly by increasing competition based on quality. High-scoring facilities may be able to reinvest these profits for further quality improvement, whereas low-scoring facilities may not be able to sustain quality improvement interventions due to lack of enough fiscal resources. Implications for Policy, Delivery or Practice: The incentives inherent to public reporting appear to be working as intended in that nursing homes that have high reported quality or improve reported quality reap economic rewards. However, safeguards may be necessary to ensure that low-quality facilities have the necessary resources to improve.

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