The effect of state regulatory stringency on nursing home quality.

Quality of care has been an important component of the health policy agenda for several decades. The recent passage of the Affordable Care Act (Act HR3590 2010) followed by Secretary Sebelius's National Strategy for Quality Improvement in Health Care (The National Quality Strategy, http://HealthCare.gov 2011) continues to emphasize the development and implementation of policies and practices designed to enhance the quality of the U.S. health care system. One of these policy tools is regulation. The economic rationale for the regulation of quality is the presence of market failures that lead to inefficiencies. It has long been recognized (Arrow 1963) that information asymmetries favoring health care providers and incentives for over-provision and over-consumption created by third-party payment (Pauly 1968) often prevent competition from delivering the highest possible quality at any given price. Regulations, which seek to improve these market outcomes, take a variety of forms, addressing one or more of the three dimensions of quality measurement (Donabedian 1988): structure (e.g., minimum staffing standards), processes (e.g., assistance with walking), and outcomes (e.g., rates of high-risk patients with pressure sores). Regulations impose several types of costs in achieving these benefits. Administrative costs accrue to both the regulatory body and the regulated entity. Rules that affect production processes, either directly through minimum requirements for inputs or indirectly through output or outcome standards, raise the cost of production, potentially creating inefficiencies in production as well. Furthermore, sociologists (Merton 1957) and economists (McKie 1970) have long recognized that when products or services have multiple dimensions of quality, the typical case in health care, regulation of some quality dimensions may result in reductions in the unregulated quality dimensions, imposing offsetting costs on consumers. The U.S. Congress expressed concerns about the relative costs and benefits of regulation in its 2001 Regulatory Right-to-Know-Act, which instructed the Director of the Office of Management and Budget (OMB) to submit an annual cost-benefit report on the federal regulatory programs (Public Law No. 106-554 2001). To our knowledge there have not been rigorous, comprehensive evaluations of the cost-effectiveness of the regulation of quality of the nursing home industry in the United States. The only cost-effectiveness study we found was published by the OMB in its 2009 Report to Congress. The analysis focused on fire safety requirements (sprinkler systems). It estimated the costs to be $45–56 million (in 2001 dollars) compared with $53–56 million in estimated benefits (Office of Management and Budget, Office of Information and Regulatory Affairs, and Executive Office of the President of the United States 2009). Despite this lack of empirical evidence about the cost-effectiveness of the regulations, and despite the widespread perception among over 1000 long-term care experts that the current regulatory system is ineffective, the majority of these experts expressed their belief that enhanced and more stringent regulations should be implemented (Mor, Miller, and Clark 2010). In this article we have two objectives: First, we assess the impact of the stringency of regulations on a number of dimensions of nursing homes' quality. Second, we provide a rough assessment of the cost-effectiveness of the stringency of the regulation of quality of nursing homes by combining the findings from this study with findings from a previous study, in which the cost of regulation of quality of nursing homes in the United States was estimated (Mukamel et al. 2011a).