Competitive spillovers across non-profit and for-profit nursing homes

The importance of non-profit institutions in the health care sector has generated a vast empirical literature examining quality differences between non-profit and for-profit nursing homes. Recent theoretical work has emphasized that much of this empirical literature is flawed in that previous studies rely solely on dummy variables to capture the effects of ownership rather than accounting for the share of non-profit nursing homes in the market. This analysis considers whether competitive spillovers from non-protits lead to higher quality in for-profit nursing homes. Using instrumental variables to account for the potential endogeneity of non-profit market share, this study finds that an increase in non-profit market share improves for-profit and overall nursing home quality. These findings are consistent with the hypothesis that non-profits serve as a quality signal for uninformed nursing home consumers. (C) 2002 Elsevier Science B.V. All rights reserved.