Harvard University

Given the preferential tax treatment afforded nonprofit firms, policymakers and researchers have been interested in whether the nonprofit sector provides higher nursing home quality relative to its for-profit counterpart. However, differential selection into for-profits and nonprofits can lead to biased estimates of the effect of ownership form. By using "differential distance " to the nearest nonprofit nursing home relative to the nearest for-profit nursing home, we mimic randomization of residents into more or less "exposure " to nonprofit homes when estimating the effects of ownership on quality of care. Using national Minimum Data Set assessments linked with Medicare claims, we use a national cohort of post-acute patients who were newly admitted to nursing homes within an 18-month period spanning January 1, 2004 and June 30, 2005. After instrumenting for profit status, we found that post-acute patients in nonprofit facilities had fewer 30-day hospitalizations and greater improvement in pain and ADL functioning