Winning at All Costs: Analysis of Inflation in NursingHomes' Rating System

The Nursing Home Compare system administrated by the Centers for Medicare & Medicaid Services (CMS) is widely used by patients, medical providers and payers. We argue that the rating system is prone to inflation in self-reported measures, which leads to biased and misleading ratings. We use the CMS rating data over 2009-2013 and the corresponding financial data reported by Office of Statewide Health Planning and Development and patients' complaints data reported by California Department of Public Health for 1219 nursing homes in California to empirically examine the key factors affecting the star rating of a nursing home. We find a significant association between the changes in a nursing home's star rating and its profits, which points to a financial incentive for nursing homes to improve the ratings. We then demonstrate that this association does not always lead to legitimate efforts to improve service quality, but instead can induce inflation in self-reporting in the rating procedure. A prediction model is then developed to evaluate the extensiveness of inflation among the suspect population based on which 6% to 8.5% of the nursing homes are identified as likely inflators. We also summarize the key characteristics of likely inflators, which can be useful for future audit.