The Magnet Recognition Program: What are the effects on Financial Performance?

Information asymmetry is defined as an imbalance of information between two parties where one party has more information than another party. In health care, information asymmetry impairs the ability of hospitals to compete effectively because customers are unable to evaluate the quality of health care, which then influences customer selection of hospitals. In order to reduce information asymmetry, some hospitals attain quality designations from external parties as signals of their commitment to health care quality and quality management to patients, providers, and payers. One particular quality designation in health care is the Magnet Recognition Program. Magnet Recognition has been promoted as a signal for nursing excellence and quality patient care over the past two decades. Despite the financial investment required to attain the designation, there has been limited research investigating Magnet Recognition as an effective signal of quality. The purpose of this study is to evaluate the effectiveness of the Magnet Recognition signal by examining its effect on various dimensions of hospital financial performance: reimbursement, market share, cost inefficiency and ultimately profitability. A pre-post research design, using control hospitals, was used to measure the effect of the signal. Secondary data from the Medicare Cost Reports, Area Resource File, American Hospital Association and American Nurses Credentialing Center were used. The sample consisted of a longitudinal, unbalanced panel of hospitals located in urban areas between 2000 to 2010. The empirical analysis consists of two phases: (1) propensity score analysis and (2) difference-in difference analysis using fixed effects and a stochastic frontier panel model with random effects. The Magnet Recognition signal was found to have no effect on either hospital reimbursement or market share. The lack of signal effectiveness on reimbursement and market share may be attributed to either the signal strength, interpretability of the signal or responsiveness to the signal. However, the signal was associated with a significant reduction of cost inefficiency. Overall, the signal resulted in a significant increase in profitability. In addition to affecting the appeal and demand for the designation, these results present hospital managers and policy makers with the pathway by which the signal may impact hospital profitability.Doctor of Philosoph