Technical efficiency of nursing homes: do five-star quality ratings matter?

This study investigates associations between five-star quality ratings and technical efficiency of nursing homes. The sample consists of a balanced panel of 338 nursing homes in California from 2009 through 2013 and uses two-stage data envelopment (DEA) analysis. The first-stage applies an input oriented variable returns to scale DEA analysis. The second-stage uses a left censored random-effect Tobit regression model. The five-star quality ratings i.e., health inspections, quality measures, staffing available on the Nursing Home Compare website are divided into two categories: outcome and structure form of quality. Results show that quality measures ratings and health inspection ratings, used as outcome form of quality, are not associated with mean technical efficiency. These quality ratings, however, do affect the technical efficiency of a particular nursing home and hence alter the ranking of nursing homes based on efficiency scores. Staffing rating, categorized as a structural form of quality, is negatively associated with mean technical efficiency. These findings show that quality dimensions are associated with technical efficiency in different ways, suggesting that multiple dimensions of quality should be included in the efficiency analysis of nursing homes. They also suggest that patient care can be enhanced through investing more in improving care delivery rather than simply raising the number of staff per resident.