Government Monitoring of Health Care Quality: Evidence from the Nursing Home Sector

In contracting out, monitoring is an important policy tool to extract information on firm quality and incentivize quality provision. This paper examines a central quality inspection of nursing homes, a sector with significant welfare implications but widespread public concerns about care quality. We find that nursing homes exhibit strong responses to the inspection in multiple core dimensions. However, nearly all responses drop immediately once the inspection is completed. While inspection ratings are unlikely to reflect nursing homes’ absolute quality given the strategic responses, they nonetheless predict nursing homes’ relative quality: admission to higher-rated nursing homes lowers patient mortality.