Researchers have given little attention to relative economic efficiency among nonprofit nursing facilities. Presumably, religious-affiliated, government, and private secular nonprofit facilities pursue similar objectives, perform similarly, and receive tax exemptions accordingly. Using modified, translog cost-and profit-function regression analyses, this article rejects the hypothesis of homogeneous performance. In Texas, private secular nonprofit nursing homes are the most cost-efficient, followed by religious-affiliated and then government nursing facilities. When allocation efficiency is also considered, government and private secular facilities have similar overall economic efficiency; religious-affiliated and government facilities are similar as well; however, private secular facilities are significantly more efficient than religious-affiliated homes. Quality appears to be homogeneous among facility classifications. Given these significant differences, policy makers may want to consider the role of relative economic performance when granting nonprofit status to nursing facilities because nonprofit governance boards may allow their organizations to pursue the “socially superior” goal somewhat divergently.
Aaronson, W. E., Zinn, J. S., & Rosko, M. D. (1994). Do for-profit and not-for-profit nursing homes behave differently?The Gerontologist, 34(6), 775-786.
2.
Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62, 777-795.
3.
Anderson, R. I., Lewis, D., & Webb, J. R. (1999). The efficiency of nursing home chains and the implications of nonprofit status. Journal of Real Estate Portfolio Management, 5(3), 235-245.
4.
Arling, G., Nordquist, R. H., & Capitman, J. A. (1987). Nursing home cost and ownership type: Evidence of interaction effects. Health Services Research, 22, 255-269.
5.
Banaszok-Holl, J., Zinn, J. S., & Mor, V. (1996). The impact of market and organizational characteristics on nursing care facility service innovation: A resource dependency perspective. Health Services Research, 31(1), 97-117.
6.
Ben-Ner, A. (1986). Nonprofit organizations: Why do they exist in market economies? In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 94-113). New York: Oxford University Press.
7.
Birnbaum, H., Bishop, C. E., Lee, A. J., & Jensen, G. (1981). Why do nursing home costs vary? The determinates of nursing home costs. Medical Care, 19, 1095-1107.
8.
Bishop, C., & Dor, A. (1994). Medicare costs in urban and rural nursing homes: Are differential payments required?Inquiry, 31, 153-162.
9.
Bradley, E. H., & Walker, L. C. (1998). Education and advanced care planning in nursing homes: The impact of ownership type. Nonprofit and Voluntary Sector Quarterly, 127(3), 339-357.
10.
Chou, S.-Y. (2002). Asymmetric information, ownership and quality of care: An empirical analysis of nursing homes. Journal of Health Economics, 21, 293-311.
11.
Christensen, L. R., Jorgenson, D. W., & Lau, L. J. (1973). Transcendental logarithmic production frontiers. Review of Economics and Statistics, 55(1), 28-45.
12.
Claxton, G., Feder, J., Schactman, D., & Altman, S. (1997). Public policy issues in nonprofit conversions: An overview. Health Affairs, 16(2), 9-28.
13.
Cohen, J. W., & Spector, W. D. (1996). The effect of Medicaid reimbursement on quality of care in nursing homes. Journal of Health Economics, 15, 23-48.
14.
Dahlman, C. J. (1979). The problem of externalities. Journal of Law and Economics, 21, 141-162.
15.
Dalrymple, M. (2004, June 21). Nonprofit groups to get scrutiny. San Antonio Express-News, p. 6A-6A.
16.
Davis, M. A. (1991). On nursing home quality: A review and analysis. Medical Care Review, 48(2), 129-166.
17.
Davis, M. A. (1993). Nursing home ownership revisited: Market, cost and quality relationships. Medical Care, 31, 1062-1068.
18.
Davis, M. A., Freeman, J. W., & Kirby, E. C. (1998). Nursing home performance under case-mix reimbursement: Responding to heavy-care incentives and market changes. Health Services Research, 33(4, Pt 1), 815-834.
19.
De Alessi, L. (1974). An economic analysis of government ownership and regulation: Theory and evidence from the electric power industry. Public Choice, 19, 1-42.
20.
De Alessi, L. (1983). Property rights, transactions costs, and x-efficiency: An essay on economic theory. American Economic Review, 73, 64-81.
21.
Demsetz, H. (1966). Some aspects of property rights. Journal of Law and Economics, 9, 61-70.
22.
Demsetz, H. (1967). Toward a theory of property rights. American Economic Review, 57, 347-359.
23.
Demsetz, H. (1968). Why regulate utilities?Journal of Law and Economics, 11, 55-65.
24.
Diewert, W. E. (1973). Functional forms for profit and transformation functions. Journal of Economic Theory, 6, 284-316.
25.
Donahue, J. D. (1989). The privatization decision: Public ends, private means. New York: Basic Books.
26.
Fizel, J. L., & Nunnikhoven, T. S. (1993). The efficiency of nursing home chains. Applied Economics, 25, 49-55.
27.
Fried, H. O., Schmidt, S. S., & Yaisawarng, S. (1998). Productive, scale and scope economies in U.S. hospital-based nursing homes. INFOR, 36(3), 103-119.
28.
Furubotn, E. G., & Pejovich, S. (1972). Property rights and economic theory: A survey of recent literature. Journal of Economic Literature, 10, 1137-1162.
29.
Giacalone, J. A. (2001). The U. S. nursing home industry. Armonk, NY: M. E. Sharpe.
30.
Griliches, Z., & Ringstad, V. (1971). Economies of scale and the form of the production function. Amsterdam: North-Holland.
31.
Gray, B. H. (1997). Conversion of HMOs and hospitals: What’s at stake?Health Affairs, 16(2), 29-47.
32.
Hansmann, H. B. (1980). The role of the nonprofit enterprise. Yale Law Journal, 89, 835-898.
33.
Hansmann, H. B. (1981). The rationale for exempting nonprofit organizations from corporate income taxation. Yale Law Journal, 91, 54-100.
34.
Harrington, C., Woolhandler, S., Mullan, J., Carrillo, H., & Himmelstein, D. U. (2001). Does investor ownership of nursing homes compromise the quality of care?American Journal of Public Health, 91(9), 1452-1456.
35.
Hawes, C., & Phillips, C. D. (1986). The changing structure of the nursing home industry and the impact of ownership on quality, cost and access. In B. H. Gray (Ed.), For-profit enterprise in health care (pp. 492-541). Washington, DC: National Academy Press.
36.
Hawes, C., Wildfire, J., & Lux, L. (1993). The regulation of board and care homes: Results of a survey in the 50 states and the District of Columbia. State summaries. Washington, DC: American Association of Retired Persons.
37.
Holahan, J. (1985). State rate-setting and its effects on the cost of nursing home care. Journal of Health Politics, Policy and Law, 9, 647-668.
38.
Hubert, M., & Rousseeuw, P. J. (1997a). A regression analysis with categorical covariables, two-way heteroscedasticity, and hidden outliers. In D. R. Brillinger, L. T. Fernholz, & S. Morgenthaler (Eds.), The practice of data analysis: Essays in honor of John W. Tukey (pp. 193-202). Princeton, NJ: Princeton University Press.
39.
Hubert, M., & Rousseeuw, P. J. (1997b). Robust regression with both continuous and binary regressors. Journal of Statistical Planning and Inference, 57, 153-163.
40.
James, E. (1986). Comments. In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 152-154). New York: Oxford University Press.
41.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360.
42.
Knox, K. J., Blankmeyer, E. C., & Stutzman, J. R. (1999). Relative economic efficiency in Texas nursing facilities: A profit function analysis. Journal of Economics and Finance, 23, 199-213.
43.
Knox, K. J., Blankmeyer, E. C., & Stutzman, J. R. (2001a). The efficiency of nursing home chains and the implications of nonprofit status: A comment. Journal of Real Estate Portfolio Management7(2), 177-182.
44.
Knox, K. J., Blankmeyer, E. C., & Stutzman, J. R. (2001b). Organizational structure, performance, quality and administrative compensation in Texas nursing facilities. Quarterly Journal of Business and Economics, 40(1), 45-68.
45.
Knox, K. J., Blankmeyer, E. C., & Stutzman, J. R. (2003). Organizational efficiency and quality in Texas nursing facilities. Health Care Management Science, 6, 175-188.
46.
Knox, K. J., Stutzman, J. R., & Blankmeyer, E. C. (2000). A cost model for Texas nursing facilities. Southwestern Journal of Economics, 3, 111-127.
47.
Lagnado, L. (2004, February 19). Hospital found “not charitable” loses its status as tax exempt. The Wall Street Journal, p. B1-B1.
48.
Lau, L. J. (1978). Application of profit functions. In M. Fuss & D. McFadden (Eds.), Production economics: A dual approach to theory and application (pp. 135-197). New York: North-Holland.
49.
Lau, L. J., & Yotopoulos, P. A. (1971). A test for relative efficiency and application to Indian agriculture. American Economic Review, 61, 94-109.
50.
Leibenstein, H. (1966). Allocation efficiency versus x-efficiency. American Economic Review, 56(3), 392-415.
51.
Luksetich, W., Edwards, M. E., & Carroll, T. M. (2000). Organizational form and nursing home behavior. Nonprofit and Voluntary Sector Quarterly, 29(2), 255-279.
52.
Marion Merrell Dow, Inc. (1997). Institutional digest. Kansas City, MO: Author.
53.
McKay, N. L. (1991). The effect of chain ownership on nursing home costs. Health Services Research, 26, 109-124.
54.
Meiners, M. (1982). An econometric analysis of the major determinants of nursing home costs in the United States. Social Science and Medicine, 16, 887-898.
55.
Mor, V., Berg, K., Angelelli, J., Gifford, D., Morris, J., & Moore, T. (2003). The quality of quality measurement in U.S. nursing homes. The Gerontologist, 43(11), 37-46.
56.
Morgan, C., Anderson, B., DeMoss, M., Johnson, M., Wilson, C., Madden, J., et al. (2000). A continuum of care: Health issues for older adults. Austin: League of Women Voters of Texas Education Fund.
57.
Mullineaux, D. J. (1978). Economies of scale and organizational efficiency in banking: A profit-function approach. Journal of Finance, 33, 259-280.
58.
Nerlove, M. (1963). Return to scale in electricity supply. In C. F. Christ (Ed.), Measurement in economics and econometrics in memory of Yehuda Grunfeld (pp. 167-198). Stanford, CA: Stanford University Press.
59.
Neuberg, L. G. (1977). Two issues in the municipal ownership of electrical power distribution systems. Bell Journal of Economics, 8(1), 303-323.
60.
Newhouse, J. P. (1970). Towards a theory of nonprofit institutions: An economic model of a hospital. American Economic Review, 60, 87-92.
61.
Nicholson, S., Pauly, M. V., Burns, L. R., Baumritter, A., & Asch, D. A. (2000). Measuring community benefits provided by non-profit and profit hospitals. Health Affairs, 19(6), 168-178.
62.
Nyman, J. A. (1988a). The effect of competition on nursing home expenditures under prospective reimbursement. Health Services Research, 23(4), 555-574.
63.
Nyman, J. A. (1988b). Excess demand, the percentage of Medicaid residents, and the quality of nursing home care. Journal of Human Resources, 23(1), 76-92.
64.
Oster, S. (1986). Comments. In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 152-154). New York: Oxford University Press.
65.
Phillips, C. D., Hawes, C., & Fries, B. E. (1993). Reducing the use of physical restraints in nursing homes: Will it increase costs?American Journal of Public Health, 83(3), 342-348.
66.
Phillips, C. D., Spry, K. M., Sloane, P. D., & Hawes, C. (2000). Use of physical restraints and psychotropic medications in Alzheimer special care units in nursing homes. American Journal of Public Health, 90(1), 92-96.
67.
Porrell, F., Caro, F. G., Silva, A., & Monane, M. (1998). A longitudinal analysis of nursing home outcomes. Health Services Research, 33(4), 835-865.
68.
Rose-Ackerman, S. (1986). Introduction. In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 3-17). New York: Oxford University Press.
69.
Sainfort, F., Ramsey, J., & Monato, H. (1995). Conceptual and methodological sources of variation in the measurement of nursing facility quality: An evaluation of 24 models and an empirical study. Medical Care Research and Review, 52(1), 60-87.
70.
Sargan, J. D. (1971). Production functions. In P. R. G. Layard, J. D. Sargan, M. E. Ager, & D. J. Jones (Eds.), Qualified manpower and economic performance (Pt. V, n.p.). London: Penguin.
71.
Scanlon, W. J. (1980). A theory of the nursing home market. Inquiry, 17, 25-41.
72.
Schlenker, R. (1991). Nursing home costs, Medicaid rates and profits under alternative Medicaid payments systems. Health Services Research, 26, 623-649.
73.
Schlenker, R., & Shaughnessy, P. (1984). Case mix, quality, and cost relationships in Colorado nursing homes. Health Care Financing Review, 6, 61-71.
74.
Schlesinger, M., Gray, B., & Bradley, E. (1996). Charity and community: The role of nonprofit ownership in a managed health care system. Journal of Health Politics, Policy and Law, 21(4), 697-751.
75.
Spore, D. L., Mor, V., Larrat, P., Hawes, C., & Hiris, J. (1997). Inappropriate drug prescriptions for elderly residents of board and care facilities. American Journal of Public Health, 87(3), 404-409.
76.
Steffen, T. M., & Nystrom, P. C. (1997). Organizational determinants of service quality in nursing homes. Hospital and Health Services Administration, 42(2), 179-191.
77.
Stigler, G. J. (1976). The xistence of x-efficiency. American Economic Review, 66, 213-216.
78.
Texas Department of Human Services. (1990). Reimbursement methodology for nursing facilities. Austin, TX: Author.
79.
Texas Department of Human Services. (1994). Texas Medicaid nursing facility 1994 cost report. Austin, TX: Author.
80.
Texas Department of Human Services. (1998). Texas Medicaid nursing facility 1998 cost report. Austin, TX: Author.
81.
Texas Department of Human Services. (1999). Texas Medicaid nursing facility 1999 cost report. Austin, TX: Author.
82.
Texas Department of Human Services. (2000). How QRS rates nursing homes. Austin, TX: Author.
83.
Texas Health Care Association. (1997). Basic facts about Texas nursing facilities. Austin, TX: Author.
84.
Tuckman, H. P., & Chang, C. F. (1988). Cost convergence between for-profit and not-for-profit nursing homes: Does competition matter?Quarterly Review of Economics and Business, 28(4), 50-65.
85.
Ullmann, S. G. (1987). Ownership, regulation, quality assessment, and performance in the long-term health care industry. The Gerontologist, 27, 233-239.
86.
Vitaliano, D. F. (2003). Do not-for-profit firms maximize profit?Quarterly Review of Economics and Finance, 43, 75-87.
87.
Weisbrod, B. A. (1986). Toward a theory of the voluntary nonprofit sector in a three-sector economy. In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 21-44). New York: Oxford University Press.
88.
Weisbrod, B. A., & Schlesinger, M. (1986). Public, private, nonprofit ownership and the response to asymmetric information: The case of nursing homes. In S. Rose-Ackerman (Ed.), The economics of nonprofit institutions: Studies in structure and policy (pp. 133-151). New York: Oxford University Press.
89.
Yoder, S. G. (1986). Economic theories of for-profit and not-for-profit organizations. In B. H. Gray (Ed.), For-profit enterprise in health care (pp. 19-25). Washington, DC: National Academy Press.
90.
Yotopoulos, P. A., & Lau, L. J. (1973). A test for relative economic efficiency: Some further results. American Economic Review, 63, 214-223.
91.
Zinn, J. S. (1993). The influence of nurse wage differentials on nursing home staffing and resident care decisions. The Gerontologist, 33(6), 721-729.
92.
Zinn, J. S., Weech, R. J., & Brannon, D. (1998). Resource dependence and institutional elements in nursing home TQM adoption. Health Services Research, 33(2), 261-273.
