Paying for the view? How nursing home prices affect quality of care

Increasing long-term care demand raises the need of high quality care in nursing homes. This study analyses whether higher prices have a causal effect on quality of care in Swiss nursing homes and assesses the extent of cross-subsidization between different price components. We use administrative data collected by the Swiss Federal Office for Statistics from 2012 to 2016 on all nursing homes in the twelve Swiss cantons with canton-wide fixed reimbursement rates for nursing care. We apply multivariate linear regressions and two-stage least square estimation techniques to estimate the effect of nursing care prices and prices for accommodation and services on care quality, measured by registered staffing levels. Our estimates show a positive impact of all price components on care quality. Although nursing homes are prohibited to use revenues from accommodation and services to cover nursing care, a 10% increase in that price component increases certified staffing levels by 0.7 to 1.7 nurses or four to ten percent (full-time-equivalent) for an average sized nursing home (50 beds). Thus, limiting care prices implicitly sets a limit for care quality and induces care providers to pass on costs to the residents.