A Latent Variable Model of Quality Determination

Despite substantial interest in the determination of quality, there has been little empirical work in the area. The problem, of course, is the general lack of data on quality. This paper overcomes the data problem by constructing a Multiple Indicator Multiple Cause (MIMIC) model of quality determination. We present a one-factor MIMIC model of quality which derives natural indicators out of the relationship between input demand and output determination. The indicators turn out to be input demands which have been filtered to remove variation due to all factors, except quality ana random disturbances. These indicators are measures of input investment in each unit of output or the volume (intensity) of service. The model is identified by defining input demand to be a function of quantity and "total effective output" (quantity times average quality), instead of quantity and average quality. The model is then applied to the determination of nursing home quality. The model appears to perform quite well, as the results generally conform with economic theory and restrictions implied by the MIMIC structure are accepted in hypothesis tests.

A Decomposition of the Elasticity of Medicaid Nursing Home Expenditures Into Price, Quality, and Quantity Effects

Nursing home expenditures have become a public policy concern primarily because the Medicaid program payes for approximately 50 percent. Medicaid makes health care available to individuals who otherwise could not afford it, by directly reimbursing nursing homes for Medicaid patient care. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. This paper estimates the elasticity of Medicaid expenditures with respect to a change in the Medicaid "plus" factor,and decomposes that elasticity into price, quality, and quantity components. The decomposition is derived from a model of nursing home behavior, which shows that an increase in the Medicaid "plus" factor causes nursing homes to admit more Medicaid patients and reduce quality.Total expenditures are the Medicaid reimbursement rate times the number of Medicaid patients receiving care. An increase in the Medicaid "plus" factor affects the Medicaid reimbursement by directly raising the Medicaid "plus" factor, and by indirectly decreasing average cost through a reduction in quality. These are the price and quality effects, respectively. The quantity effect is change in the number of Medicaid patients. The elasticities are estimated separately for proprietary and "not for profit" nursing homes using a 1980 sample of New York nursing homes. Uniformly, the proprietary elasticities are approximately twice as large as the "not for profit" elasticities. As expected the price and quantity effects are positive, and the quality effects are negative. In the decomposition, the quality effect is quite important. In fact, ignoring it would lead to a fifty-three percent overestimate of the Medicaid expenditure elasticity.

Subsidies, Quality, and Regulation in the Nursing Home Industry

This paper analyzes the impact of the Medicaid patient subsidy and Certificate of Need (CON) cost containment programs on nursing home behavior.The analysis is complicated by the fact the both proprietary and "not for profit" nursing homes exist, and by the problem that qualityis not directly observed. Medicaid pays the for the care of the financially indigent by directly reimbursing nursing homes at a predetermined rate. As a result, nursing homes can price discriminate between patients who finance their care privately and patients whose care is financed by Medicaid. Nevertheless, nursing homes are required to provide the same quality to both types of patients. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. Our results show that Medicaid policymakers face a trade-off between quality and the access of poor to nursing home care. Specifically, we find that increases in the Medicaid "plus" factor cause nursing homes to reduce quality and substitute Medicaid patients for "private pay" patients. These quality differences can be quite large. In fact, in our sample, we find that homes who receive high Medicaid "plus" factors provide hundreds of thousands of dollars less in goods and services than homes who receive average Medicaid "plus" factors, certris paribus. CON attempts to control nursing home expenditures by limiting the supply of beds with capacity constraints and entry barriers. Our analysis shows that CON policy makers are forced to trade off containing the size of the industry (and therefore total Medicaid payments) against quality and access of the poor to nursing home care. Specifically, we find that the capacity constraints and the reduced competition from the entry barriers lead to lower quality and fewer Medicaid patients receiving care.

An Experiment in Incentive-Based Welfare: The Impact of PROGRESA on Health in Mexico

We investigate the impact of a unique anti-poverty program in Mexico on health outcomes. The program, PROGRESA, combines a traditional cash transfer program with financial incentives for families to invest in human capital of children. Our analysis takes advantage of a controlled randomized study design with household panel data. We find that the program significantly increased utilization of public health clinics for preventive care. The program also lowered the number of inpatient hospitalizations and visits to private providers, which is consistent with the hypothesis that PROGESA lowered the incidence of severe illness. We found a significant improvement in the health of both children and adults.anti-pverty program, child health, Mexico

Regulation and the Provision of Quality to Heterogenous Consumers: The Case of Prospective Pricing of Medical Services

This gaper analyzes the welfare implications of fixed price regulation in a model in which consumers are heterogeneous and a firm can endogenously quality discriminate. The motivation for this analysis is the current move of third party payors (governmental and private insurors) toward prospective pricing of medical services. Our major result is that prospective pricing causes a distributional welfare loss. Specifically, in our model, prospective pricing induces a profit maximizing medical care provider to simultaneously provide a smaller than socially optimal level of quality to more severely ill patients and, surprisingly, a greater than socially optimal amount of quality to less severely ill patients. Further, the distributional welfare loss does not disappear when ethically motivated deviation from profit maximization is allowed. The inefficient distribution of quality occurs because prospective payment regulation fixes the price across patients with different severities of illness but allows providers to quality discriminate. More complicated DRG pricing rules do not appear to be able to completely avoid this problem. Alternatively, vertical integration of third party payors into the direct provision of medical care is shown to be able to bypass the problem completely. This implies that the recent proliferation of vertically integrated health care organizations such health maintenance organizations, preferred provider organizations, and managed care plans by self-insuring employers are welfare improving.

The Science of Monetary Policy: A New Keynesian Perspective

MONETARY POLICY; STABILIZATION; CREDIBILITY.

The Effect of Mental Distress on Income: Results from a Community Survey

We employ a unique data set from a community based survey to assess the effect of mental distress on earnings. The main advantage of the data is that detailed measurements of mental health status were made on all subjects in the study. This means that our population-based measure of mental distress does not rely on a patient having had contact with the health care system and obtaining a diagnosis from a provider. The use of diagnosis-based measures may introduce measurement-error bias into the estimates. Our results show that the presence of mental distress reduces earnings by approximately 21% to 33%. To assess the magnitude of any measurement-error bias we present a estimates of models using measures of mental health both on a population-wide basis and on a diagnosis basis. The estimated impact of mental illness on earning is only 9% lower using the using the diagnosis-based measure. The conclusion drawn from this is that little bias is introduced by using the diagnosis-based measure.

Strategies for pricing publicly provided health services

The authors examine how governments finance and allocate public spending, with an eye to developing strategies for pricing publicly provided health services. They also examine the implications of current policy and the possibility for rationalizing competing government priorities. Because governments face budget constraints and cannot fully subsidize all programs and activities, the authors argue the following: a) Public spending on health can (1) improve health outcomes, (2) promote nonhealth aspects of well-being (for example, reducing individuals'risk of economic losses from random health crises), and (3) finance redistribution to the poor. Optimal subsidy and fee policy will depend on how much relative weight government places on those competing objectives. Subsidies need to be reallocated toward the poor and toward public health sector can financed by increasing public subsidies. b) Prices for curative services (user fee) have two distinct roles. They can raise revenue, freeing public resources to be reallocated to public health activities and for limited cofinancing to improve the quality of curative care. More important, they can improve efficiency in the use of public facilities and the health care system as a whole. But those gains must be weighed against evidence that increased fees can compromise public health's three main goals. The literature has focused largely on how raising revenue affects the poor, but the more important effect is likely to be the guidance of resources. User fees are important in cofinancing health care but shouldn't be the primary means of finance. c) Revenue generated from user fees is sometimes used to improve the quality of, and access to, curative medical care. There is some evidence that people are willing to pay some of the cost of improving health care (especially for drugs), but the wealthy are willing to pay a lot more than the poor. If governments charge the average"willingness to pay,"the wealthy will use the services more, the poor, less. d) Prepayment social insurance plans hold promise, but there is evidence that they may introduce inefficient inflation of medical care costs that lower- and middle- income countries cannot afford.Public Sector Economics&Finance,Health Systems Development&Reform,Environmental Economics&Policies,Payment Systems&Infrastructure,Health Economics&Finance,Environmental Economics&Policies,Public Sector Economics&Finance,Health Systems Development&Reform,Health Economics&Finance,Urban Economics

How Will Energy Demand Develop in the Developing World?

Most of the medium-run growth in energy demand is forecast to come from the developing world, which consumed more total units of energy than the developed world in 2007. We argue that the main driver of the growth is likely to be increased incomes among the poor and near-poor. We document that as households come out of poverty and join the middle class, they acquire appliances, such as refrigerators, and vehicles for the first time. These new goods require energy to use and energy to manufacture. The current forecasts for energy demand in the developing world may be understated because they do not accurately capture the dramatic increase in demand associated with poverty reduction.