Malpractice Environment vs Direct Litigation: What Drives Nursing Home Exit?

Abstract

An ongoing concern about medical malpractice litigation is that it may induce provider exit, potentially affecting consumer welfare. The nursing home sector is subject to substantial litigation activity but remains generally understudied in terms of the effects of litigation, due perhaps to a paucity of readily available data. In this article, we estimate the association between litigation and nursing home exit (closure or change in ownership), separating the impact of malpractice environment from direct litigation. We use 2 main data sources for this study: Westlaw's Adverse Filings database (1997-2005) and Online Survey, Certification and Reporting data sets (1997-2005). We use probit models with state and year fixed effects to examine the relationship between litigation and the probability of nursing home closure or change in ownership with and without adjustment for malpractice environment. We examine the relationship on average and also stratify by profit status, chain membership, and market competition. We find that direct litigation against a nursing home has a nonsignificant effect on the probability of closure or change in ownership within the subsequent 2 years. In contrast, the broader malpractice environment has a significant effect on change in ownership, even for nursing homes that have not been sued, but not on closure. Effects are stronger among for-profit and chain facilities and those in more competitive markets. A high-risk malpractice environment is associated with change of ownership of nursing homes regardless of whether they have been directly sued, indicating that it is too blunt an instrument for weeding out low-quality nursing homes.

Nursing Home Profit Margins and Citations for Infection Prevention and Control

“…Our exclusion of outlier financial data is consistent with others that have used expenditure and cost data. 17,18 Our final sample includes 12,194 nursing homes that had information on all key variables including profit margins, citation information, and facility characteristics.…”

“…Deficiency citations for infection-related issues could damage the reputation of nursing homes and impact finances either directly through fines or indirectly through lower consumer demand. Nursing homes are profit-maximizing firms 12 that will invest resources to prevent citations for infection prevention and control if these quality improvements ultimately increase their profits. However, nursing homes may not respond to citations if the consumers do not respond to these citations or if the facilities do not have the resources to address citations.…”