Are firms with 'deep pockets' more responsive to tort liability? Evidence from nursing homes.

We provide time series evidence of tort reform's impact on inputs and quality in the nursing home industry. Between 2000 and 2010, 11 state reforms capped noneconomic damages for health care services. Small chain and unaffiliated nursing homes enjoyed "judgment proof standing" and were less apt to be sued, prior to reform. We find that the managers of such homes were relatively unresponsive to the implementation of state caps on noneconomic damages. Large "deep-pocketed" chain-affiliated homes lacked judgment proof standing and implemented greater reductions in their nursing inputs in the aftermath of tort relief. However, we find little evidence of service quality erosion across four measured dimensions of care outcomes. Our findings are consistent with a "defensive care" model in which large chain homes employ unproductive inputs in an effort to meet a negligence standard of care.

Abnormal returns and the regulation of nonprofit hospital sales and conversions.

During the 1990s, concerns that nonprofit (NP) hospitals were being sold at below-market prices to investor-owned (IO) chains helped to prompt the widespread adoption of state laws regulating the sale and conversion of nonprofits. In this paper, we provide a simple test of under-pricing using the IO acquirer's abnormal stock market returns at the time of the acquisition. Prior to regulation, we find that IO chains did not earn abnormal returns from their acquisitions of NPs and earned greater returns from purchasing other IO and privately owned hospitals. In states that subsequently adopted regulations, acquisition activity slowed significantly and acquirer returns became negative. Efficient markets theory suggests that, absent regulation, expected merger synergies were already being transferred to the NP target and that regulation may have reduced expected synergies or increased the costs of acquiring NP hospitals.

The effect of report cards on consumer choice in the health insurance market.

We test the effect of report cards on consumer choice in the HMO market. Federal employees were provided with report cards on a limited basis in 1995 and then on a widespread basis in 1996. Exploiting this natural experiment, we find that subjective measures of quality and coverage influence plan choices, after controlling for plan premiums, expected out of pocket expenses and service coverages. The effect is stronger within a small sample of new hires compared to a larger sample of existing federal employees. We also find evidence that report cards increase the price elasticity of demand for health insurance.