Producing Health: Measuring Value Added of Nursing Homes
We develop a stylized model that allows us to estimate a value-added measure for nursing homes (“SNFs”) which accounts for patient selection both into and out of a SNF. We use the model, together with detailed data on the physical and mental health of about 6 million Medicare SNF patients between 2011 and 2016, to estimate the value added for about 14,000 distinct SNFs. We document substantial heterogeneity in value added. Nationwide, compared to a 10th percentile SNF, a 90th percentile SNF is able to discharge a patient at the same health level about a week sooner, which is about one third of the median length of stay. Heterogeneity in value added within a market is almost as large as it is nationwide. Our results point to the potential for substantial gains through policies that encourage reallocation of patients to higher-quality SNFs within their market.
We thank Alden Cheng, Eric Zwick, and seminar participants at Chicago Booth, Duke/UNC, NBER Summer Institute, Tinos IO conference, UBC, UPenn, USC, Rice, and Washington University for comments and suggestions. We are grateful to Sean Gao, Hannah Ruebeck, Sam Wang, Alicia Weng, Xuyang Xia, Connie Xu, Yuci Zhou, and especially James Okun for superb research assistance, and to the Laura and John Arnold Foundation, and the National Institute on Aging (Finkelstein R01-AG032449) for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Mahoney is currently at the White House, on leave from Stanford and from NBER; all his work on this paper was done while he was still at Stanford.