BACKGROUND The inadequacy of quality of care in nursing homes has been and continues to be a focus of public concerns. Understanding the relationship between quality and costs can offer guidance to policies designed to encourage high quality. OBJECTIVES To investigate the relationship between costs and quality of care in nursing homes, and to test the hypothesis that higher quality may be associated with lower costs. RESEARCH DESIGN Statistical regression techniques were used to estimate nursing home variable-cost functions that included three risk-adjusted outcome measures of quality. Quality measures were based on decline in functional status, worsening pressure ulcers, and mortality. The study hypothesis was tested by an F test for the exclusion of nonlinear quality variables in the cost functions. SUBJECTS The study included 525 free-standing private and public nursing homes in New York State, or 84% of all nursing homes in the state during 1991. RESULTS F tests rejected the hypotheses that the three quality measures could be excluded from the cost function and that the association between costs and quality was linear. An inverted U-shaped relationship between quality and costs suggests that there are quality regimens in which higher quality is associated with lower costs. CONCLUSIONS Policies that encourage research to identify care protocols and management strategies leading to better outcomes and lower costs, as well as policies that encourage dissemination of such practices, may prevent decline in quality despite the continued financial constraints faced by nursing homes.
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