California\u27s minimum nurse-staffing law and its impact on hospital closure, service mix, and patient hospital choice

In 1999, amid growing concerns regarding quality of care, California became the first U.S. state to pass legislation mandating minimum specific nurse-to-patient ratios for every unit in general acute care hospitals. This attempt to improve quality and ensure a minimum standard for it through control of a production input has sparked substantial interest as similar bills have been considered in other states and at the federal level. This study contributes to the literature on the law in a number of ways. First, it considers the law’s structure with respect to its stated quality objectives using an economic framework. In doing so, issues of production efficiency and incentives for quality improvement are addressed. Existing literature on the law’s quality effects are also examined. This study additionally offers new empirical analyses on the law’s effects. These include descriptive analyses, examining increases in nurse wages in California as the short-run supply of nurses remained inelastic to the growing demand. It also provides the first examination of the law’s impact on hospital and emergency department (ED) closure and downsizing of mental health services precipitated by its cost shock. Using matching and other techniques, I find compelling evidence that the law led to significant increases in hospital and ED closures. Specifically, California hospitals had a 2.25 (p=0.020) and 2.84 (p\u3c0.001) times greater hazard rate of hospital and ED closure, respectively, in the years following the law’s passage compared to their matched controls. The results also suggest that mental health services may have decreased due to the law. Among hospitals in California, those with low nurse-staffing levels pre-passage of the law were most affected for these outcomes, consistent with expectations. In addition to the above outcomes, this study provides the first examination of patients’ demand response to hospitals’ changes precipitated by the law. Findings from this analysis point to variation across patients with those seeking elective services being much more responsive than patients with urgent, sudden health needs. The results also highlight contrasting patient responses to the law’s different after-effects. Policymakers elsewhere should consider other legislative approaches than minimum nurse-to-patient ratios for safeguarding and improving quality