Limiting managerial discretion by regulation: nursing homes and the national background check program

Abstract

Structuring managerial discretion has been a key government policy tool in contemporary regulation and governance. This paper explores how a policy that constrains managers' discretion in recruitment influences the performance of public services. The National Background Check Program (NBCP) is a federal program aimed at strengthening states' criminal background checks targeting direct patient access employees in nursing homes, where abuse, neglect and misappropriations have been a persistent concern. We combine secondary administrative panel data on Medicare and Medicaid certified nursing facilities with primary data collected from states on their NBCP efforts. We find that NBCP participation, funding and the implementation of fingerprinting requirement, in particular, are associated with fewer deficiencies and higher star ratings. These findings suggest that, while constraining managerial discretion, government regulation is an important tool that federal and state agencies can use to control the performance of public and private entities in some markets and provide market enhancing signals to consumers.