Incentives and the Quality of Care in the Nursing Home Industry

Shortcomings in the quality of care of nursing homes have been an ongoing public concern in various developed countries for decades. Despite various regulatory attempts to improve the situation, several studies still indicate that nurse-to-resident staffing ratios are very low, which may harm a sizable portion of a particularly vulnerable elderly population. As the population ages and spending on nursing homes increases, it is important to understand why nursing homes lack incentives to improve the quality of care so that appropriate policy instruments can be designed.

In recent work Martin Hackmann develops a structural model of the nursing home industry to simulate the effects of policies that either raise regulated Medicaid provider reimbursement rates or increase local competition via directed entry on the quality of care. Using data on US nursing homes, Mr Hackmann finds that low Medicaid provider reimbursement rates contribute to quality shortfalls in this industry. Moderate increases in Medicaid reimbursement rates lead to increases in the quality of care as well as social welfare. On the other hand, Mr. Hackmann also finds that an increase in competition via directed entry has relatively small effects on the quality of care and may actually lower social welfare.

Mr Hackmann also conducts research on the welfare effects of adverse selection in health insurance markets. In his joint work with Jon Kolstad and Amanda Kowalski, Mr Hackmann evaluates the effects of Massachusetts health reform on insurance enrollment, premiums and average claim expenditures. The researchers find that the individual market for health insurance was adversely selected prior to the reform. They also find that the individual mandate, which requires individuals to buy health insurance or to pay a penalty, led to a reduction in premiums and average claim expenditures and an increase in social welfare. This paper was published in the American Economic Review.

During his stay at CES, Mr Hackmann will deliver three CES Lectures on "Topics in Health Economics".

Martin Hackmann is an Assistant Professor of Economics and Early Strumpf Career Professor of Economics at the Pennsylvania State University. Mr Hackmann holds a PhD in Economics from Yale University and a Diplom in Economics from the University of Mannheim.