The Growth in Medicare Advantage and Its Impact on Nursing Home Deficiencies and Staffing

Since the mid-2000s, nursing homes (NHs) have been faced with an increasing percentage of post-acute care patients enrolled in Medicare Advantage (MA), yet our understanding of how this affects NH quality is limited. Theoretically, managed care can have competing effects on quality. On one hand, managed care may provide better coordination and continuous care that enhances NH quality. However, MA plans can also negotiate lower payments than traditional fee-for-service Medicare. When MA has stronger presence in local markets, it can create downward financial pressures. As such, NHs that have higher portion of MA patients may have fewer financial resources to invest in staffing and quality.

To empirically test the hypotheses, we utilize multiple datasets that span from 2011 to 2015 to understand how the proportions of post-acute care admissions that are covered by MA relative to fee-for-service Medicare affect NH quality and staffing. Using the Medicare Beneficiary Summary File (MBSF), we calculate county-level MA penetration rates among all Medicare beneficiaries. For all freestanding, privately-owned NHs in the continental United States, we then use the MBSF along with admissions assessments from the Minimum Data Set to calculate each NH’s proportion of Medicare post-acute care admissions that are enrolled in MA, which we refer to as the NH’s MA admission rate. These rates, calculated on an annual basis, are then merged with the Certification and Survey Provider Enhanced Reporting to obtain facility characteristics, including nursing staff levels and deficiency outcomes. Our final analytical sample include about 61,000 NH-year observations and approximately 14,000 unique facilities.

Our baseline specification is a NH-fixed effect panel regression with dependent variables of the number of deficiencies, severity-weighted deficiency score, or nursing staff levels. The key variable of interest is the NH’s MA admission rate. Because this rate can be endogenous, we use county-level MA penetration rates as an exclusion restriction in an instrumental variable (IV) fixed effect panel regression. The rationale for this exclusion restriction is county-level MA penetration rates are likely correlated with NH MA admission rates (and passes standard weak instrument tests), but the county-level MA penetration rate is unlikely to influence the quality of any individual NH after controlling for other observable covariates.

Treating MA admission rates as exogenous, we generally find no statistical difference in deficiency outcomes or nursing staff levels. However, after accounting for the endogeneity, our IV estimations find that higher MA admission rates lead to worse deficiency scores and lower nursing staff levels for registered nurses, certified nurse aides, total direct care nurses, and registered nurses with administrative duties. Overall, our finding favors the hypothesis that MA creates downward financial pressure which leads to lower staffing levels and worse quality. The negative quality impact can spillover to other non-MA individuals in the NH. As MA continues to grow, policymakers should pay close attention to the unintended consequences for NH quality.