Organizational Form and Nursing Home Behavior

Abstract

The authors identify differences in performance among for-profit, nonprofit, and government-owned nursing homes in Minnesota. They investigate whether homes of diverse ownership types distribute their surpluses differently, if those differences narrow over time, and if the various ownership types react differently to changes in the regulatory environment. Government-owned and nonprofit homes spend more per resident day for nursing care costs than do independent for-profit homes. Chain affiliation is important in explaining persistent spending differences. There is an agency problem: Nursing homes belonging to chains behave differently from their independent counterparts. Secular nonprofits belonging to national chains spend less of their surplus on nursing care costs after regulations allowed more of this form of spending to be recouped in rates charged to the residents. The secular firms affiliated with national chains spend less on nursing care than the control group. As the predicted surpluses of for-profit chains increase, the owners' compensation falls.

Ethical Climates in For-Profit, Nonprofit, and Government Skilled Nursing Facilities

“…Private sector organizations are driven primarily by market incentives, which is associated with greater flexibility and innovativeness in both process and outcomes for survival. 16,17 Characteristics such as these resonate with the for-profit literature where the efficiency-driven/personal/organization self-interest climate may be promoted. 14,15 They have both incentives and opportunities to exploit ''information asymmetry'' (information known to some but not others) between consumers and producers to their advantage.…”

“…Contract literature suggests that government presumably faces lower monitoring and contract enforcement costs associated with ensuring responsive community services by contracting with nonprofit rather than for-profit homes. 16 Like public organizations, nonprofit homes are also seen as more efficient in service delivery under conditions of ''information asymmetry.'' 19 The nondistribution constraint signals a possibility that nonprofit homes may have an incentive to provide better care than their for-profit counterparts.…”

“…27 Also, for-profit nursing homes emphasize greater efficiency and are more cost conscious in the delivery of services than nonprofit homes. 16 For example, for-profit homes were found to pursue cost-cutting tactics that compromise quality. 16 For example, for-profit homes were found to pursue cost-cutting tactics that compromise quality.…”

Managers of nonprofit organizations are rewarded for performance

“…The regulations also encourage the minimization of these costs by allowing homes to earn an efficiency incentive up to two dollars per resident day as the noncare costs decline below the industry median. The funds received from the efficiency incentive can be used as desired by the nursing homes (Luksetich, Carroll, and Edwards, 2000).…”

Does Ownership Matter in the Selection of Service Providers? Evidence From Nursing Home Consumer Surveys

“…In this environment, consumers benefit from searching for quality. Several studies on the nursing home industry found that service quality in for-profit firms is generally lower than in nonprofit and local government organizations (Amirkhanyan, Kim, & Lambright, 2008; Ballou, 2005), including in the state of Minnesota (Ben-Ner et al, 2012; Luksetich, Edwards, & Carroll, 2000). So it is particularly apt to investigate the role of organizational ownership in this environment.…”