Association for Public Policy Analysis & Management

Report cards on provider performance are intended to improve consumer decision-making and address information gaps in the market for quality. However, inadequate risk adjustment of report-card measures often biases comparisons across providers. In 2008, Nursing Home Compare introduced a 5-star rating system to provide consumers with summary information about nursing home quality. In this paper, we tested whether going to a skilled nursing facility (SNF) with a higher star rating leads to better quality outcomes for a patient. We examined the effect of an increase in the star rating of a chosen SNF after an inpatient hospital stay on the amount of time in 180 days after SNF admission spent in SNF, hospital, in the community with and without home health care, and deceased.

To identify the effect of going to a provider with a higher star rating on a patient’s health-care outcomes, we exploited variation over time in the distance from a patient’s residential ZIP code to SNFs of each quality rating as an instrument for quality of the SNF to which they were admitted. We included ZIP code and hospital fixed effects to control for geographic and health-care provider characteristics. We analyzed a sample of over 1.2 million Medicare fee-for-service beneficiaries who were discharged from an acute hospital stay to a SNF and who did not have any SNF utilization in the 12 months prior to the index hospitalization. To measure outcomes, we combined data from Minimum Data Set assessments and Medicare claims to create a “Residential History File” that identified the patient’s location on each of the 180 nights subsequent to their discharge from the hospital.

We show that our instrument, distance to the nearest SNF in each rating category, is a strong predictor of SNF quality. We show that conditional on their ZIP code, patients with different values of the IV are similar. Our main results show that patients who go to higher-rated SNFs achieved better outcomes, supporting the validity of the SNF report card ratings. A one-star increase is associated with a 1.44 decrease in the number of days deceased over 180 days after SNF admission—a 5% decrease from the mean. We estimate 3.3% and 2.4% decrease in number of days spent in inpatient hospital and SNF care, respectively; and 4.0% and 2.5% increase in number of days spent at home in the community with and without home health care.

Our analysis suggest that star ratings matter to quality of care in a way that is important to patients. Although this result is intuitive, given that star ratings are based on quality outcomes for previous patients, previous studies have not been able to adequately address the potential bias from patient selection. Our results are statistically significant and clinically meaningful. These results also have important implications for new payment models that make participating providers accountable for a patient’s spending outside the hospital. Meaningful star ratings will be a key source of information for hospitals looking to identify providers of higher-value post-acute care.