Exhibit 5. Estimated Home Health Agency Cost Functions: Dependent Variable—Log (Total Annual Cost).

Model:		1					2			3		4
Independent Variables				All Agencies N = 7,064			Agencies without QMsN = 3,151			Agencies with QMs; Model without QMsN = 3,913		Agencies with QMs; Model with QMsN = 3,913
Constant				9.552***			9.692***			9.774***		9.709***
Log (# of unduplicated patients)				0.807***			0.761***			0.788***		0.794***
Log (wage index)				0.655***			0.429**			0.792**		0.733**
Log (HHRG case-mix index)				0.167			0.161			0.192*		0.310***
Log (Proportion Medicare)				0.205***			0.210***			0.162*		0.188**
Log (HHRG) x Log (Proportion Medicare)				0.288***			0.257***			0.358		0.319
Proportion LUPA episodes				–2.197***			–1.998***			–2.458***		–2.313***
Proportion PEP episodes				–0.955***			–0.804**			–1.085		–0.670
Skilled nursing contract (yes = 1)				0.035			0.044			0.047**		0.046**
Home aide contract (yes = 1)				0.050*			0.034			0.064**		0.058**
Occupational therapy contract (yes = 1)				0.020			0.009			0.037		0.030
Physical therapy contract (yes = 1)				–0.029			–0.027			–0.027		–0.012
Speech therapy contract (yes = 1)				0.048***			0.030			0.042*		0.024
Years with Medicare certification				0.032***			0.051***			0.017**		0.016**
Years with Medicare certification squared				–0.001***			–0.002***			0.000*		0.000*
Agency is chain affiliated (yes = 1)				–0.070***			–0.032			–0.078***		–0.070***
Agency is a small agency (yes = 1)				–0.045			–0.032			0.042		0.023
Agency is non-profit				–0.445			0.098			–0.707*		–0.900**
Quality Measures:
Proportion patients with improvement in health status				—	—					—		–0.160
Proportion patients who received treatment				—	—					—		0.152
Proportion patients who were assessed				—	—					—		–0.541**
Proportion patients who were hospitalized				—	—					—		1.086***
Interactions with “Agency is non-profit:”
Log (# of unduplicated patients served)				0.052			–0.19			0.073		0.076
Log (wage index)				0.039			0.256			–0.073		–0.039
Log (HHRG case-mix index)				0.511			0.796			0.207		0.128
Log (Proportion Medicare)				–0.134			–0.300***			0.029		0.025
Log (HHRG) x Log (Proportion Medicare)				0.414			0.697			–0.087		–0.066
Proportion LUPA episodes				1.278**			0.979			1.918**		1.746**
Proportion PEP episodes				–0.968**			–1.468**			–0.579		–0.430
Skilled nursing contract (yes = 1)				0.043			0.012			0.027		0.028
Home aide contract (yes = 1)				–0.002			0.091			–0.017		–0.021
Occupational therapy contract (yes = 1)				–0.038			0.037			–0.088		–0.092*
Physical therapy contract (yes = 1)				–0.062			–0.178			–0.022		–0.038
Speech therapy contract (yes = 1)				–0.038			–0.132			–0.009		–0.002
Years with Medicare certification				–0.028***			–0.049**			–0.011		–0.009
Years with Medicare certification squared				0.001***			0.001**			0.000		0.000
Agency is chain affiliated (yes = 1)				0.123**			–0.089			0.162***		0.172***
Agency is a small agency (yes = 1)				0.135			–0.014			–0.043		–0.048
Quality Measures:
Proportion patients with improvement in health status				—			—			—		0.050
Proportion patients who received treatment				—			—			—		0.204
Proportion patients who were assessed				—			—			—		0.039
Proportion patients who were hospitalized				—			—			—		0.062
R 2 —within states				0.81			0.64			0.78		0.79
R2 —between states				0.89			0.72			0.80		0.84
R2 —overall				0.82			0.64			0.76		0.79

NOTE:

^***p < 0.001;

^**0.001 ≤ p < 0.01;

^*0.01 ≤ p <0.05.Fixed state effects not shown.

SOURCE: Authors’ calculations.