Description:

Hans Zhu (Northwestern): Limiting For-Profit Provision in Nursing Home Markets

Abstract: We examine whether policies that affect the extent of for-profit versus not-for-profit provision in regulated markets such as health and education can be effective at addressing quality shortfalls. We consider the US nursing homes industry, where quality provision has been a concern for many decades. Our motivating evidence suggests that not-for-profit providers choose higher-quality inputs but are more prevalent in higher socioeconomic markets and serve less needy residents. Thus, for-profit providers play an important role in providing access. To explain these facts and explore counterfactual policies we estimate a structural model of nursing home demand and supply which allow firms to have non-pecuniary motives and costs that differ across provider types. Costs play a large role in explaining the observed quality and access patterns. Not-for-profit providers choose higher quality as they have a cost advantage at serving higher quality. For-profit providers have a significant cost advantage at serving less profitable patients and are therefore better suited to lower socioeconomic markets. Banning for-profit providers, even when allowing for takeovers by not-for-providers, is unlikely to improve consumer surplus as not-for-profits are overall more costly than for-profit providers.