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Table of contents
1. Do For-Profit and Not-for-Profit Nursing Homes Behave Differently?.......................................................... 1

Bibliography...................................................................................................................................................... 15

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Do For-Profit and Not-for-Profit Nursing Homes Behave Differently?


Author: Aaronson, William E; Zinn, Jacqueline S; Rosko, Michael D Publication info: The Gerontologist 34. 6 (Dec 1994): 775-86. ProQuest document link Abstract: The purpose of this study was to examine behavioral differences between for-profit (FP) and not-forprofit (NFP) nursing homes. Previous studies have failed to establish consistent behavioral differences. This study uses a simultaneous equation model to control for potential endogeneity among system variables, with model parameters estimated using 3SLS. The study provides evidence that NFPs provide significantly higher quality of care to Medicaid beneficiaries and to self-pay residents than do FPs, as evidenced by better staffing and better outcomes among nursing homes with residents at higher risk for adverse outcomes. [PUBLICATION ABSTRACT] Links: Check SFX for Availability Full text: Headnote The purpose of this study was to examine behavioral differences between for-profit (FP) and not-for-profit (NFP) nursing homes. Previous studies have failed to establish consistent behavioral differences. This study uses a simultaneous equation model to control for potential endogeneity among system variables, with model parameters estimated using 3SLS. The study provides evidence that NFPs provide significantly higher quality of care to Medicaid beneficiaries and to self-pay residents than do FPs, as evidenced by better staffing and better outcomes among nursing homes with residents at higher risk for adverse outcomes. Key Words: Ownership, Care staffing, Quality, Adverse outcomes, Case mix, Payer mix O'Brien, Saxberg, and Smith (1983) asked the question, "For-profit or not-for-profit, does it matter?" Several studies have assessed differences between for-profit (FP) and not-for-profit (NFP) nursing homes in terms of access, cost, efficiency, and quality. While these studies have focused on the influence of ownership on nursing home behavior, consistent behavioral differences between FP and NFP nursing homes have not been established (Davis, 1991). The lack of consistent results may in part be related to the use of analytical techniques which do not control for potential endogeneity among case and payer mix, payment rates, and facility characteristics (Lee, Birnbaum, &Bishop, 1983). This study investigates behavioral differences between FP and NFP nursing homes in Pennsylvania by using a simultaneous equation model to control for the effects of endogeneity. In assessing differences between FP and NFP nursing homes, it is useful to identify the comparative effectiveness of each ownership type. Organizations are effective to the extent that they identify and meet the needs of multiple constituents (Zammuto, 1982), including customers, potential customers, regulators, and payers. Nursing homes perform a social function that exposes them to public scrutiny. The use of nursing home services is considered by many to be undesirable, but possibly inevitable. Thus, access to and quality of nursing home care are important public policy issues. Second, nursing homes are the recipients of public money through the Medicare and Medicaid programs. Thus, government has a stake in the cost-effective operation of nursing homes. Third, NFP nursing homes are publicly subsidized through tax exemptions, including tax-exempt capital financing. Thus, NFPs have added responsibilities to provide substantive community benefits related to their tax-exempt status (American Association of Homes for the Aging, 1993). Empirical Studies of Nursing Home Ownership O'Brien et al. (1983) reviewed several studies of differences in FP and NFP status that focused on the influence of ownership on nursing home behavior. The predominant finding of the studies reviewed was that NFP homes had higher quality, but lower efficiency (higher costs). Fottler, Smith, and James (1981) had concluded that quality and profitability were antithetical concepts and that administrators who were required to maximize profits faced a dilemma when state regulatory agencies imposed minimum quality standards. O'Brien

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et al. (1983) also noted that NFP facilities may (1) purposefully operate at a deficit over a long period of time; (2) have a restricted constituency; and (3) enjoy a measure of support from the sponsoring organization. Thus, higher costs necessary to support higher quality are acceptable to NFPs, and also beneficial in attracting selfpay patients. Since many NFP nursing homes have religious affiliations, they may focus on specialized market niches defined by the denominational constituency. Religious affiliation may also project an image of high quality and compassionate care, which in turn would provide a competitive advantage in the self-pay market. While Cohen and Dubay (1990) did not find theoretical justification to hypothesize higher self-pay use rates in NFPs, they speculated that higher quality offered by NFPs may be associated with greater private demand in NFPs. Ullman (1987), in a study of the behavior of nursing home administrators, proposed that administrators of FP nursing homes have an incentive to maximize facility profits subject to a minimum quality constraint. However, NFP nursing home administrators may pursue objectives that enhance personal prestige by increasing the quantity and quality of services in the facility. Thus, staffing may appear in the maximand of the objective function of NFP facilities. By contrast, staffing may be viewed as a cost to be controlled in profitmaximizing FP facilities. While a number of studies have suggested that NFP status may be associated with better staffing and higher quality of service (Davis, 1991; Greene &Monahan, 1981), Zinn, Aaronson, and Rosko (1993), who used a standardization model to adjust for casemix related risk of adverse outcomes, found that FP ownership status was not associated with adverse outcomes such as pressure sores, restraint, or urethral catheterization rates. However, they did not use a simultaneous equation model to account for the endogenous effects of staffing, Medicaid use, payment rates, and case mix. Nyman and Bricker (1989) found that FPs were more efficient, but also found evidence that NFPs did not provide the level of quality necessary to explain the efficiency differences. Nursing Home Service Quality Defining and measuring the quality of nursing home services has been difficult for regulators, consumers, and researchers (Kane &Kane, 1988). While service quality is an elusive concept in nursing homes, it is clear that important constituencies have found quality to be unacceptably low. The Institute of Medicine (1986) identified inadequate supervision of care by physicians and professional nurses as a primary reason for poor quality, and called for increased standards for nurse staffing. Obviously, nurse staffing alone does not assure high quality. The report went further and stated that the most valid proxy measures for quality included care outcomes. The Institute's report served as the model for the enactment of the Nursing Home Reform amendments of the Omnibus Budget Reconciliation Act of 1987. This act was intended to improve the quality of care in nursing homes and specifically identified outcome measures as important criteria of quality. Donabedian (1966) identified three dimensions of health services quality: structure, process, and outcome. With the exception of Zinn et al. (1993), most studies of nursing home quality have used structural variables as proxy measures of quality (Davis, 1991; Creene &Monahan,1981). This study builds on the model developed by Zinn et al. (1993) in that outcome variables are identified as proxy measures of quality. These measures include pressure sores and restraint usage. Pressure sores are an important problem in nursing homes. The prevalence of pressure sores has been estimated to range from 2.6% to 24% and is associated with increased risks for mortality (Brandeis, 1990). Pressure sores are one of the most common, preventable, and treatable conditions associated with immobility in the elderly (Kane, Ouslander, &Abrass, 1989). If NFP status is associated with higher levels of staffing and if NFP objectives include a quality objective, then NFP ownership should be associated with lower rates of pressure sores. Restraint use is also a problem in nursing homes. An Institute of Medicine (1986) study found that there is excessive use of restraints in nursing homes. On average, 41% of all nursing home residents were placed in restraints in 1989, compared to 25% in 1977 (Tinetti, Liu, &Ginter, 1992). Coughlin, McBride, and Liu (1990) found that persons who were confused or functionally incapacitated were more likely to become permanent admissions to nursing homes. Restraints may be used to control aggression (common among persons with dementias) or to prevent injuries (falls in debilitated individuals). However, immobility resulting from restraint use may increase the risk for pressure sores, depression, mental and physical deterioration (Evans &Strumpf, 1989), and may increase risk 12 March 2013 Page 2 of 15 ProQuest

for mortality as well (Miles &Irvine, 1992). Behavioral Models of Nursing Home Behavior We developed conceptual models of behavioral differences between FPs and NFPs. The empirical literature suggests that FPs and NFPs differ in payer mix, cost, and staffing. Scanlon (1980) presented a theoretical model of the nursing home market, on which our conceptual model was built. The mathematical conceptualizations of the FP and NFP models are presented in Appendix A. The assumption that FPs were profit maximizers was used as the basis for the conceptual model of FP behavior. The model suggests that profits will be maximized when the marginal costs and marginal revenues of Medicaid patient days and self-pay patient days are equal. However, the Medicaid payment rate is subject to a rate ceiling. Consequently, if Medicaid costs are high, the Medicaid price will exceed the ceiling and the nursing home will not provide services to Medicaid patients. Profitmaximizing nursing homes are subject to market forces in the self-pay market (Nyman, 1989; Scanlon, 1980; Zinn, Aaronson, &Rosko, 1992), suggesting that they must offer a product that is competitively priced and provides a level of quality acceptable to the market. Given the constraints on profitability identified in the conceptual model, one strategy would be to maintain Medicaid resident costs at or below the Medicaid payment rate ceiling. Since the ceiling is not known in advance, nursing homes must base decisions on estimates of final retrospective reimbursement rates in order to achieve maximum profits. Setting costs too low may adversely affect quality and, as a consequence, reduce self-pay demand. Setting costs too high may violate the rate ceiling and reduce profitability. Alternatively, considering the nature of firms and limits on rationality (March &Simon, 1958; Thompson, 1967) less than rational nursing home decision makers may shift the excess cost of care onto self-pay residents through higher payment rates. However, this strategy is risky since it may diminish the quantity of care demanded by self-pay residents who are price sensitive (Nyman, 1989; Scanlon, 1980) and increase reliance on Medicaid payments. Given the need to remain within the rate ceiling, equation 8 (see Appendix A) suggests further that profit-maximizing nursing homes must keep the marginal cost of care for Medicaid residents low. Heavy care residents generate greater marginal cost and, thus, are more likely to be discriminated against by FPs with high rates of Medicaid use. The existence of excess Medicaid demand allows FPs to practice this type of discrimination (Nyman, 1990). While FP behavior is assumed to be profitmaximizing, there is little agreement as to the prime motives for NFP behavior. The conceptual model of NFP behavior presented in Appendix A is based on Scanlon's model of NFP behavior, which assumes that NFPs maximize services, subject to profit constraints. Scanlon's model implies that revenue from private residents will be used to subsidize Medicaid residents when a favorable shift in private demand occurs, allowing for an increase in capacity. Thus, service expansion has two purposes: to increase selfpay participation, and to increase the home's ability to cross-subsidize Medicaid patients. Consequently, there is limited incentive to "game" (setting costs at a level that will maximize profits from Medicaid without jeopardizing private demand) the Medicaid rates and, thus, a greater likelihood that NFP nursing homes will be reimbursed at the rate ceiling, since costs are more likely to exceed the ceiling. By definition, scale is fixed in the short run and may be difficult to increase even over a long period of time due to bed supply regulations (certificate of need). In order to increase capacity, nursing homes may add unregulated residential services, such as independent living or personal care units, to accommodate the anticipated shift in private demand. Cohen, Tell, Greenberg, and Wallack (1987) found that continuing care retirement communities were attractive to persons with moderate to high incomes who were interested in protecting their assets. However, independent living capacity may allow nursing homes greater latitude in subsidizing Medicaid residents, since they provide increased access to the self-pay market. As inferred from Scanlon's (1980) model, we expected NFPs with independent living capacity to continue to serve Medicaid residents. Methods Sources of Data The individual nursing home serves as the unit of analysis in this study. Nursing home data for 1987 were obtained from three sources: (1) the Medicare and Medicaid Automated Certification System (MMACS) data files; (2) the Pennsylvania Department of Health Long-Term Care Facilities Questionnaire; and (3) Health Profiles of Pennsylvania Counties published by the State Health Data Center. Nursing homes are required to submit responses to the certification survey questionnaire as part 12 March 2013 Page 3 of 15 ProQuest

of recertification for Medicare and Medicaid (MMACS). The survey is completed on one day and provides information on staffing, services, and resident characteristics. The resident characteristic data were used to calculate a nursing home specific case mix index, known as the long-term care index. The calculation of this index is presented in Appendix B. Pennsylvania required, in addition to the certification survey questionnaire, the completion of a comprehensive questionnaire on annual use, employment, and payment characteristics. The three sources of data were merged into one data base and provided information on utilization, prices, facility characteristics, resident characteristics aggregated to the facility level, and county demographics and economic conditions. Definitions and descriptive statistics by ownership type for the variables used in the analysis are presented in Table 1. The merged data base consisted of 449 free-standing, nongovernmental Pennsylvania nursing homes with complete information of which 269 (59.9%) were FP and 180 (40.1%) were NFP. Model Estimation - Statistical Analysis Previous studies have observed that there is considerable endogeneity among payer mix, case mix, occupancy, nurse staffing, and payment rate variables (Cohen &Dubay, 1990; Lee et al., 1983). Thus, a simultaneous equation system was constructed to identify the behavioral effects associated with ownership on case mix, patient outcomes, Medicaid use, and payment rates. In the payer mix models, payment rates and case mix on the right side of the equation were considered to be endogenous. In the payment rate models, Medicaid use and case mix were considered to be endogenous, while payment rate and case mix were viewed as endogenous in the staffing model. In the adverse outcomes models, we assumed payer mix and case mix as right-hand variables to be jointly determined with the dependent variable. In the case mix models, we also assumed that staffing and Medicare use were endogenous. A summary of the regression equations is shown in Table 2. The simultaneous equation model was first estimated using two-stage least squares. This technique was selected since all reduced form equations were either exactly identified or overidentified, and the system is nonrecursive (Kennedy, 1985). However, examination of the error variance-covariance matrix of the structural equations suggests that correlation between the error terms between equations exceeded one-third in at least four cases. While the more robust two-stage least squares (2SLS) may be desirable, Kennedy (1985) recommends the use of threestage least squares (3SLS) to estimate models under these circumstances, in order to increase the efficiency of the estimators. Accordingly, the model was estimated using 3SLS. Only the third-stage estimations for the Medicare use, case mix, nurse staffing and occupancy models are reported. However, it should be noted that, while a few of the coefficients in the 3SLS differed in magnitude and significance, there were no differences in coefficients used to test hypotheses. The order condition was applied in examining the non-zero coefficients for each of the equations. An examination of the results for nonzero coefficients showed that all equations were exactly identified or overidentified.

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Hypotheses Payer Mix and Payment Rate Models. - The first model that we specified had Medicaid use as the dependent variable. Based on previously reported empirical research, Medicaid use was hypothesized to be

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higher among FPs than among NFPs. However, based on the conceptual model, we hypothesized that Medicaid use in FPs would be associated with higher self-pay payment rates. Higher self-pay payment rates act in two ways. First, they reduce the quantity of self-pay patient days in a price-sensitive market (Nyman, 1989). second, higher self-pay payment rates result in more rapid asset "spend-down" and Medicaid conversion. Thus, we included an FP Self-pay interaction term in order to test this hypothesis. The self-pay payment rate is also likely to be adjusted as Medicaid use goes up; thus, it is endogenous as a right-hand variable. Medicaid use was also hypothesized to be associated with lower levels of functional severity and higher discharge rates in FPs since less heavy care is likely to be associated with lower costs, and higher discharge rates prevent asset spend-down followed by Medicaid eligibility. However, these case mix measures are likely to be influenced by the Medicaid use rate as well. Since independent living capacity may attract self-pay residents to the nursing home, it was anticipated that lower Medicaid use rates would be associated with independent living capacity. However, we had hypothesized that NFPs with independent living capacity (ILC) were likely to have higher Medicaid use rates than FPs who developed independent living to maximize self-pay and profits. An ILC FP interaction term was included to test this hypothesis. Medicaid demand variables were included as controls. Next, we developed a model to explain the Medicaid payment rate. The payment rate is influenced by nursing home decisions regarding cost and use, but is subject to a rate ceiling. The conceptual models suggest that FPs have a greater incentive to "game" the Medicaid payment rates, since hitting the rate correctly maximizes profits. Thus, we concluded that NFP payment rates were more likely to be at or close to the rate ceiling. Thus, the Medicaid payment rate was hypothesized to be negatively associated with FP status, and positively associated with case mix and staffing variables. Market cost variables were included as controls. The self-pay payment rate was hypothesized to be positively associated with FP status and was also expected to be associated with higher Medicaid use among FPs. Case Mix Models. -There is considerable variability among nursing homes in terms of case mix. Case mix affects staffing needs, facility costs, and patient outcomes. Thus, it was important that we specify case mix as a dependent variable. Case mix is a complex construct; thus, all of its dimensions cannot be measured directly. We selected two proxy measures of case mix: the long-term care index and the discharge rate. The long-term care index is an aggregate measure of functional severity which was calculated for each facility (see Appendix B). The discharge rate is a proxy for the extent to which the nursing home specializes in short-term rehabilitative or post-acute care (Cohen &Dubay, 1990). Higher discharge rates were expected to be associated with FP status (Cohen &Dubay, 1990). Facility and market characteristics expected to be associated with bed turnover or the level of functional severity were included as controls. The association between the long-term care index and ownership is indeterminant based either on theory or empirical evidence (Cohen &Dubay, 1990). However, functional severity is likely to be higher among older residents (age 85 and older) and among residents who are restrained more frequently (Evans &Strumpf, 1989). The discharge rate was expected to be positively associated with FP status, the Medicare use rate, and the proportion of RNs in the facility, all suggestive of short-term rehabilitative care (Cohen &Dubay, 1990). Care Staffing Model. - Care staffing is a structural measure of quality (Cohen &Dubay, 1990). Both the empirical research and the conceptual model suggest that care staffing is higher among NFPs than FPs. However, care staffing is also jointly determined with case mix and payment rate variables. Thus, case mix and payment rates were included on the right side of the equation as endogenous variables. Bed size and market supply variables were included as controls. The log of beds was used because the incremental changes in regulation determined minimum staffing according to number of residents, unit size, and number of nursing units. Regulation-driven staffing needs were expected to grow at a decreasing rate with numbers of residents due to the dual requirements of minimum nursing hours per resident day and minimum staffing levels per nursing unit and per facility. Adverse Outcomes Models. - Two models were specified, one each for the pressure sore rate and for the restraint use rate, to assess the impact and interaction of facility and risk characteristics on adverse outcomes. Pressure sore rates were expected to be positively associated with personal risk factors, including 12 March 2013 Page 6 of 15 ProQuest

functional severity, percent age 85 and older, restraint use, and Medicaid payment status. Restraints applied properly and monitored appropriately do not materially increase the risk for pressure sores. However, when the restraints are applied incorrectly or when protocols for monitoring are not followed, the risk of pressure sores is increased even in individuals under no additional risk. As suggested by prior research, NFPs may have a quality objective. Thus, we hypothesized that when controlling for risk factors, the pressure sore rate will be positively associated with FP status. FP Risk factor interaction terms were included in the equation to test this hypothesis. Staffing, size, and market variables indicating excess Medicaid demand (Nyman, 1990) were included as controls. Restraint use was also assumed to be associated with personal risk factors, such as the number of confused residents (self/other protection), functional severity (safety), and Medicaid payment status. Again, FP interaction terms were included to test the hypothesis that FPs were more likely to have greater restraint use among residents at risk than NFPs. Size, staffing and county-level Medicaid proportion variables were included as controls. Results The results of the simultaneous-equation model estimation can be found in Tables 3 and 4. The system-weighted R-square across all models was .4335. Only coefficients achieving a significance level of p <.10 or better, and that pertain to the hypotheses regarding behavioral differences between FPs and NFPs, are discussed. Payer Mix and Payment Rates. - Table 3A presents the results from the Medicaid use rate model estimation. Contrary to expectations, the coefficient of the FP ownership binary variable was not significant. However, the coefficient of the Staffed beds use FP interaction term suggests that the Medicaid use rate was greater among larger FP nursing homes than among larger NFP nursing homes. That is, larger FPs were more likely to have a high Medicaid census. Consistent with our expectations, the Medicaid use rate was found to be negatively associated with independent living capacity (ILC). The FP interaction term (FP ILC) suggests that FPs with ILC are likely to have lower Medicaid use rates than NFPs with independent living units. This supports our hypothesis and provides evidence that NFPs developing ILC are more likely to subsidize Medicaid patients with the additional self-pay residents attracted to independent living units. The Medicaid use rate was found to be positively associated with the FP Self-pay payment rate interaction term. This suggests that Medicaid utilization increases as the self-pay payment rate increases to a greater extent among FPs than among NFPs. This is consistent with our hypothesis that an FP strategy to raise the self-pay payment rate may result in higher Medicaid use.

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The Medicaid payment rate model results are presented in Table 3B, and the self-pay payment rate model results are presented in Table 3C. The self-pay payment rate was positively associated with FP ownership, but the Medicaid payment rate was not associated with ownership. The self-pay payment rate was positively associated with the Medicaid use rate. However, the coefficient of the FP Medicaid use rate interaction term was not significant, contrary to our expectations. Case Mix. -Tables 3D and 3E present the results of the case mix model estimations. The long-term care index was not associated with ownership status, a result consistent with our expectation. Surprisingly, functional severity is negatively associated with two of the risk factors for functional severity, percent of residents 85 and older, and the Medicaid use rate. The FP interaction terms with proportion of residents 85 and older and the Medicaid use rate suggest that FPs with a greater proportion of these high-risk residents have higher levels of functional severity than do NFPs. The long-term care index was found to be positively associated with a third risk factor, restraint use. The FP Restrained residents interaction term coefficient suggests that FPs with higher restraint use rates have lower rates of functional severity than do NFPs with high restraint usage. As expected, higher discharge rates (Table 3E) are positively associated with FP ownership. However, the coefficient on the FP interaction with Medicare use is negative, suggesting that FPs with higher Medicare use rates have lower discharge rates than NFPs with high Medicare use rates. This may be due to the greater use of hospitals as sources of admission by FPs (thus, higher Medicare use rates and lower discharge rates) or greater propensity to admit permanent nursing home residents to hospitals for brief stays, resulting in eligibility for Medicare benefits upon a hospital discharge. Care Staffing. - The estimated coefficients for the care staff per bed model are presented in Table 4A. As hypothesized, NFP nursing homes have higher levels of care staffing than FPs. Although direct care staffing was positively associated with payment rates, as expected, the measure was negatively associated with the case mix measures. While this finding requires additional investigation, the association may be due to variation in care needs associated with the measures. For example, nursing homes with high discharge rates may provide a considerable amount of rehabilitation. Nurses and rehabilitation staff may provide services more efficiently and patients may be expected to perform more self-care. Patients who are confused but functionally less debilitated may require more staff-intensive supervision than persons with high levels of functional severity, explaining the negative sign of the long-term care index coefficient. Adverse Outcomes. - The results of the adverse outcomes models are presented in Tables 4B and 4C. Consistent with previous observations (Zinn et al., 1993), the pressure sore rate is negatively associated with FP status (Table 4B). As expected, the pressure sore rate is positively associated with functional severity. However, the pressure sore rate is negatively associated with the three remaining risk factors, Medicaid payment status, restraint use, and proportion of residents 85 and older. The coefficients of the interaction terms provide evidence that the pressure sore rate is associated with the personal risk factors in FPs, not NFPs. That is, each of the FP Risk factor interaction coefficients is positive and significant. These findings suggest that when FPs have residents at risk for pressure sores, their pressure sore rates are higher than among NFPs with equal risk profiles, supporting our hypothesis that when case mix and personal risk are controlled, adverse outcomes are higher among FPs. The negative coefficient on the FP binary variable may be a result of FPs having lower patient risk profiles for pressure sores. The restraint use rate was not observed to be associated with FP status (Table 4C). The restraint use rate is positively associated with the three factors expected to place residents at higher risk for restraint use: the Medicaid use rate, the number of confused residents, and the long-term care index. The FP interaction terms for confused residents and the long-term care index suggest that FPs with residents at risk for restraint use due to these factors are more likely to use restraints than NFPs, supporting our hypothesis that greater restraint use is likely in FPs once personal risk factors are controlled. However, the FP Medicaid use rate interaction term suggests that FPs with heavy Medicaid utilization are less likely to restrain residents than are NFPs with high rates of Medicaid utilization. Results in Table 3D suggest that FPs with high restraint use rates in turn have lower rates of 12 March 2013 Page 9 of 15 ProQuest

functional severity. Thus, FPs with heavy Medicaid use may be more adept at behavior control and restraint use than NFPs. Discussion This study has examined behavioral differences between FP and NFP nursing homes, using a simultaneous equation model. The model estimations were used to test hypotheses that were based on a conceptual model of behavioral differences between FPs and NFPs, and previously reported empirical research. Thus, compared to previous studies, we have used a more systematic approach to assessing differences between FPs and NFPs. We found that FPs differed significantly from NFPs in areas of cost and quality, but not access. Several studies (Nyman, 1989,1990; Scanlon, 1980) have found that the nursing home market is characterized by chronic excess Medicaid demand. Since the market for nursing homes can be partitioned into public and private markets, and since public markets are characterized by excess demand (Bishop &Dubay, 1991; Nyman, 1990; Scanlon, 1980), greater access to the public market may be considered a positive social contribution. Previous research had suggested that FPs have higher Medicaid proportions, suggesting greater access to Medicaid eligibles. This study found that there is no difference in Medicaid proportions according to ownership. However, lower Medicaid use rates are associated with independent living capacity. While NFPs are more likely to have independent living units, FPs are more likely to use independent living to increase self-pay market share. Cohen et al. (1987) proposed continuing care retirement communities as a viable private sector alternative to increased government funding of long-term care. The association of low rates of discharge, lower self-pay payment rates, and continuing care retirement community status with NFP ownership suggest that NFPs are better able to conserve personal funds and prevent asset spend-down to Medicaid eligibility levels. The ability to do so may be related to care subsidies for self-pay patients, allowing reduction of self-pay payment rates. FPs are likely to have higher self-pay payment rates. Higher self-pay payment rates among FPs may be related to case-mix, the discharge rate in particular, or they may be a response to a high Medicaid share, low Medicaid payment rates, and the need to cost shift to protect profits. Contrary to our expectation, FPs were not found to have lower Medicaid payment rates. However, FPs with higher Medicaid use rates have lower Medicaid payment rates, suggesting lower costs than their NFP counterparts with high Medicaid use rates. The association of NFP ownership with higher levels of staffing would suggest that costs are higher in NFPs as a result of better staffing. Thus, NFPs with higher Medicaid use rates are more likely to have Medicaid payment rates at or near the rate ceiling, a finding consistent with our hypothesis. While access by publicly supported residents is an important criterion of social contribution, the issue is complicated by the trade-off between quality and access. Nyman (1990) found that quality suffers due to excess Medicaid demand. That is, as demand by Medicaid eligibles for nursing home admission increases relative to supply, nursing homes are no longer subjected to the rigors of competition. He argued that it was not the low Medicaid payment rates that resulted in lower than expected quality, but the lack of market discipline, which allows nursing homes to overlook issues of service quality. In this study, adverse outcomes were observed to be positively associated with market control variables representing excess Medicaid demand; thus, this study provides additional support for Nyman's conclusion. Access to Medicaid eligibles has been problematic, not just in terms of admission and quality of stays, but also in terms of appropriateness. Payment systems based on two levels of care, skilled and intermediate, have been identified as a cause for nursing home discrimination against heavy care residents at admission (Rosko, Broyles, &Aaronson, 1987). Medicaid heavy care residents may be more subject to discrimination at admission due to the dual disincentives of Medicaid status and heavy care needs. Within the context of a payment system based on two levels of care, association of heavy care resident loads with high Medicaid use would suggest greater social contribution. While a study by Buchanan (1992) found that Pennsylvania adjusts payment level for heavy care case mixes, the same study indicated that heavy care residents in Pennsylvania are hard to place. In this study, we found that FPs with higher levels of Medicaid use had a higher functional severity index. Association between functional severity and Medicaid use in FPs may suggest that FPs are less likely to discriminate against heavy care Medicaid eligibles at admission. However, high rates of functional severity associated with high Medicaid use in FPs may 12 March 2013 Page 10 of 15 ProQuest

also suggest poor quality care. This study provides evidence that NFP status is associated with better care outcomes, a dimension of quality considered to be the best proxy measure of service quality (Donabedian, 1966; Institute of Medicine, 1986). The adverse outcomes models clearly indicate that FPs with high-risk residents have higher rates of adverse outcomes than NFPs. NFPs are more likely to house permanent residents, as evidenced by significantly lower discharge rates. Thus, NFPs also house a significantly higher proportion of the oldest patients, those 85 and older. These patients should be at greater risk for such adverse outcomes as pressure sores, functional severity, and dementias with consequent restraint use, but were observed to experience lower rates of adverse outcomes in NFPs. The cause of higher rates of adverse outcomes in FPs may be either lower levels of staffing resulting in less resident supervision, or poorer process quality. For example, pressure sore rates may be higher in FPs due to inadequately observed care protocols, improper application of restraints, or insufficient staff relative to care needs. Nyman (1988) observed that quality in nursing homes is not associated with cost and that quality can be improved through policies providing quality incentives. He stated that nonprofits may be more motivated to provide better care, explaining better outcomes among NFPs. The one exception to the observed differences in outcome by ownership was the restraint use rate. While FPs are more likely to use restraints with increasing functional severity (safety risks) and with increasing numbers of confused residents (self/other protection) than NFPs, it appears that FPs with high Medicaid use rates are less likely to use restraints. NFPs with high rates of Medicaid use provide quality of care that is not better and may be worse than their FP counterparts when it comes to excessive use of restraints. Thus, the study provides evidence that NFPs produce significantly higher quality of care to Medicaid beneficiaries and to self-pay residents than do FPs. In consideration of the differences in self-pay payment rates, NFPs provide better value and are less likely to shift excess Medicaid costs onto self-pay residents. This may be due to the extensive availability of independent living units among NFPs, or to operating subsidies from charitable sponsors or endowments. The broader range of residential services may allow NFPs to take advantage of private demand for residential services and to assist potential nursing home residents in managing the financial risk of nursing home entry by providing an element of insurance (Cohen et al., 1987). This allows NFPs to better serve the Medicaid residents that are admitted. There are a few study limitations that may affect generalizability. First, while there are a number of possible models, we chose to emphasize the relationships among certain variables we considered to be endogenous and/or which help to identify nursing home organizational effectiveness. Other models are possible and may change the perceived relationships. second, we focused on one state, Pennsylvania. While this limited the confounding effects of environmental characteristics (i.e., differences in Medicaid payment method), the state-specific industry and its environment may have sufficient distinctiveness to limit applicability across geopolitical lines. For example, FP nursing homes represent 59.9% of the free-standing, nongovernmental nursing homes in Pennsylvania, compared to 75% nationwide. The higher proportion of NFPs may distort market behavior when compared to markets in which FPs clearly predominate. References References American Association of Homes for the Aging. (1993). The social accountability program. Washington, DC: AAHA Publications. Bishop, C., &Dubay, L. (1991). Medicare patient access to posthospital skilled nursing facility care. Inquiry, 28, 345-356. Brandeis, C. (1990). The epidemiology and natural history of pressure ulcers in elderly nursing home residents. Journal of the American Medical Association, 264, 2905-2909. Buchanan, R. (1992). Medicaid payment policies for nursing home care: Case mix, access and heavy care. Journal of Health Administration Education, W, 621-648. Cohen, J., &Dubay, L. (1990). The effects of Medicaid reimbursement method and ownership on nursing home costs, case mix and staffing. Inquiry, 27, 183-200. Cohen, M., Tell, E., Greenberg, )., &Wallack, S. (1987). The financial capacity of the elderly to insure for long-term care. The Gerontologist, 27, 494-502. Coughlin, T., McBride, T., &Liu, K. (1990). Determinants of transitory and permanent nursing home admissions. Medical Care, 28, 616-631. Davis, M. (1991). On nursing home quality: A review and analysis. Medical Care Review, 48, 129-166. Donabedian, A. (1966). Evaluating the quality of medical care. Milbank Memorial Fund Quarterly, 44, 12 March 2013 Page 11 of 15 ProQuest

166-206. Evans, L., &Strumpf, N. (1989). Tying down the elderly: A review of the literature on physical restraints. Journal of the American Geriatrics Society, 37, 65-74. Fottler, M., Smith, H., &James, W. (1981). Profits and patient care quality in nursing homes: Are they compatible? The Gerontologist, 21, 532-538. Greene, V., &Monahan, D. (1981). Structural and operational factors affecting quality of patient care in nursing homes. Public Policy, 29, 399-415. Institute of Medicine. (1986). Improving the quality of care in nursing homes. Washington, DC: National Academy Press. Kane, R. A., &Kane, R. L. (1988). Long-term care: Variations on a quality assurance theme. Inquiry, 25, 132-146. Kane, R., Ouslander, J., &Abrass, I. (1989). Essentials of clinical geriatrics (2nd ed.). New York: McCraw-Hill. Kennedy, P. (1985). A guide to econometrics (2nd ed.). Cambridge, MA: The MIT Press. Lee, A., Birnbaum, H., &Bishop, C. (1983). How nursing homes behave: A multi-equation model of nursing home behavior. Social Science and Medicine, 77, 1897-1906. March, J., &Simon, H. (1958). Organizations. New York: ]ohn Wiley &Sons. Miles, S., &Irvine, P. (1992). Deaths caused by physical restraints. The Gerontologist, 32, 762-766. Newhouse, ). (1970). Toward a theory of nonprofit institutions: An economic model of a hospital. The American Economic Review, 60, 145-155. Nyman, ). (1988). Improving the quality of nursing home outcomes: Are adequacy- or incentive-oriented policies more effective? Medical Care, 26, 1158-1171. Nyman, J. (1989). The private demand for nursing home care. Journal of Health Economics, 8, 209-231. Nyman, ). (1990). The future of nursing home policy: Should policy be based on an excess demand paradigm? Advances in Health Economics and Health Services Research, 77, 229-250. Nyman, J., &Bricker, D. (1989). Profit incentives and technical efficiency in the production of nursing home care. Review of Economics &Statistics, 77,586-601. O'Brien, J., Saxberg, B., &Smith, H. (1983). For-profit or not-forprofit: Does it matter? The Cerontologist, 23, 341-348. Rosko, M., Broyles, R., &Aaronson, W. (1987). Prospective payment based on case-mix: Will it work? Journal of Health Politics, Policy and Law, 72, 683-701. Scanlon, W. (1980). Atheory of the nursing home market. Inquiry, 17, 25-41. Thompson,). (1967). Organizations in action. New York: McCraw-Hill. Tinetti, M., Liu, W., &Cinter, S. F. (1992). Mechanical restraint use and fallrelated injuries among residents of skilled nursing facilities. Annals of Internal Medicine, 776, 369-374. Ullman, S. (1987). Ownership, regulation, quality assessment and performance in the long-term health care industry. The Cerontologist, 27, 233-239. Zammuto, R. (1982). Assessing organizational effectiveness: Systems change, adaptation and strategy. Albany, NY: State University of New York Press. Zinn, J., Aaronson, W., &Rosko, M. (1992). The basis for competition in the nursing home industry: A managerial perspective. Journal of Health Administration Education, 10, 595-610. Zinn, J., Aaronson, W., &Rosko, M. (1993). Variations in the outcomes of care provided in Pennsylvania nursing homes: Facility and environmental correlates. Medical Care, 31, 475487. Received July 30, 1993 Accepted June 7, 1994 AuthorAffiliation William E. Aaronson, PhD,1 Jacqueline S. Zinn, PhD,1 and Michael D. Rosko, PhD2 AuthorAffiliation 1 Department of Health Administration, Temple University, Speakman Hall (006-00), Philadelphia, PA 19122. Address correspondence to Dr. Aaronson at this address. 2 Department of Health and Medical Services Administration, Widener University, Chester, Pennsylvania.

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Subject: Studies; Nursing homes; Mortality; Efficiency; Quality standards; Regulatory agencies; Costs; Risk; Customer services; Competitive advantage; Health services; Profitability MeSH: Health Facilities, Proprietary -- economics, Health Facilities, Proprietary -- standards, Homes for the Aged -- economics, Homes for the Aged -- standards, Humans, Least-Squares Analysis, Medicaid,; Medicare, Models, Organizational, Nursing Homes -- economics, Nursing Homes -- standards, Outcome Assessment (Health Care), United States, Health Facilities, Proprietary -- organization &; administration (major), Homes for the Aged -- organization & administration (major), Nursing Homes -- organization & administration (major), Ownership -- economics (major), Quality of Health; Care (major) Publication title: The Gerontologist Volume: 34 Issue: 6 Pages: 775-86 Number of pages: 12

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Publication year: 1994 Publication date: Dec 1994 Year: 1994 Publisher: Oxford University Press, UK Place of publication: Oxford Country of publication: United Kingdom Publication subject: Medical Sciences, Gerontology And Geriatrics ISSN: 00169013 CODEN: GRNTA3 Source type: Scholarly Journals Language of publication: English Document type: Feature Document feature: Tables; References; Equations Accession number: 7843607 ProQuest document ID: 211009258 Document URL: http://login.ezproxy.library.ualberta.ca/login?url=http://search.proquest.com/docview/211009258?accountid=144 74 Copyright: Copyright Gerontological Society of America, Incorporated Dec 1994 Last updated: 2010-06-08 Database: ProQuest Education Journals

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Bibliography
Citation style: APA 6th - American Psychological Association, 6th Edition Aaronson, W. E., Zinn, J. S., & Rosko, M. D. (1994). Do for-profit and not-for-profit nursing homes behave differently? The Gerontologist, 34(6), 775-86. Retrieved from http://login.ezproxy.library.ualberta.ca/login?url=http://search.proquest.com/docview/211009258?accountid=144 74

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