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Do Minimum Quality Standards Improve Quality? a Case Study of the Nursing Home Industry
*Haizhen LIN, Indiana University 

Keywords: Asymmetric information, quality of care, endogeneity, minimum quality standards regulation, nursing home

In recognition of the asymmetric information problem, government regulators, both at the federal and state level, have imposed minimum quality standards (MQS) on nursing homes in the U.S. The objective of this regulation is to reduce inefficiencies caused by informational asymmetries, and to increase quality of patient care. Whether or not this goal has been achieved, and to what degree, is an important research question given the aging population in the U.S. and the widespread concern about low quality of care in nursing home facilities. This paper is among the first to use a national panel to empirically examine the impact of minimum staffing requirements on nursing home behavior and performance. What we have found has important policy implications regarding the rising costs of long-term health care and ineffective regulations of the nursing home industry. Especially at a time where the efficacy and efficiency of a national health care system is a focal points of public policy debate, more studies of this kind -- studies that provide empirical evidence to maximize the effect of each health care dollar -- are needed. Any analysis of policy impacts raises the question of endogeneity. Taking advantage of our unique dataset (a unique national panel over the 1996 - 2005 period), this paper has employed various specifications to address the potential endogeneity problem caused by unobserved heterogeneity. It first adopts a model with fixed effects specification, which takes into account the permanent differences across states that are unobserved but are likely to be correlated with policy variables. Then the basic model is extended in two ways to take into account of individual heterogeneity in market trends and unobserved heterogeneity in time dependence. We also check the possibility of any reverse causality from the dependent variables to policy changes. Our estimation shows that minimum staffing requirements for licensed nurses improves quality. To be more specific, an half hour increase of minimum staffing requirements for licensed nurses increases quality by 15 percent if quality is measured by the count of citations, and by 20 percent if quality is measured by the value of citations which takes into account differential severity in violation. Minimum staffing requirements for direct care nurses are seen here to have no significant impact on quality. Detailed explanations for this lack of impact are also discussed.