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Productive Efficiency in Non-profit and Public Nursing Homes



Filippini M.


Di Giorgio L.



In Switzerland, the share of nursing homes costs in total social and health costs has risen steadily in the last 20 years. Moreover, the importance of the nursing home industry, with total expenditures approaching 2% of GDP, is expected to grow as the population ages. This increase, and the subsequent impact on Government’s budget deficit, has led to pressure on nursing homes to contain costs. Moreover, it is widely believed that the productive inefficiency (cost and scale efficiency) of nursing homes has partially contributed to the substantial grow in health and social care costs. A way to reduce costs per unit of service could be to improve nursing homes’ efficiency in production activities. The main purposes of this project are a) to develop a theoretical model that captures the economic behavior of nursing homes with different ownership. Particularly, we are interested in modeling and comparing the behavior of private non-profit and public nursing homes; b) to estimate a cost frontier model for a sample of non-profit and public nursing homes using recently developed models, such as the true random effects model and a random coefficients version of the true random effects model proposed by Greene (2005), and to calculate the cost efficiency and the scale inefficiency for all nursing homes; c) to empirically analyze and compare the impact of nursing homes’ ownership on cost and scale inefficiency. The development of the theoretical model on the economic behavior of private non-profit and public nursing homes will be based on the property rights and the public choice literature. More specifically, the model will build on the multitasking frame proposed by Holmstrom and Milgrom’s (1991), and extended by Ballou and Weisbroad (2003), and the models on bureaucracy´s behavior developed by Niskanen (1971, 1991), and Migué and Bélanger (1974). It is worth noticing that the health economics literature focuses on models that emphasize differences in the behavior of for-profit and non-profit health care organizations. Differences between public and non-profit nursing homes are rarely investigated, and are generally examined through empirical oriented approach. The empirical analysis of the productive efficiency will be based on econometric specifications that address the consistency problem (heterogeneity bias) and separate the time-invariant heterogeneity from the inefficiency. For this purpose, the starting point of our study will be the application of the true random effects and the true fixed effects models proposed by Greene (2005). In addition, some extensions of these two models, such as the random coefficients model, will be considered. Finally, since the quality of services provided by nursing homes play an important role for the community well being, both the theoretical and the empirical part of this research will take quality aspects of care into account.The empirical part will use data extracted from the annual financial and economic reports of 36 non-profit nursing homes in Ticino, the Italian-speaking region of Switzerland, over the fourteen-year period from 1993 to 2007.To our knowledge, the proposal represents one of the first comprehensive studies including both theoretical and empirical approaches to differences in the managerial behavior of private non-profit and public nursing homes. The project builds on the existing theoretical and empirical models with the aim of improving them in several aspects.

Additional information

Start date
End date
48 Months
Funding sources
Swiss National Science Foundation / ProDoc