Limiting Managerial Discretion in a New Public Management World : Nursing Homes and the National Background Check Program

Enhancing managerial discretion has been a key element of the New Public Management reforms. In a market affected by informational asymmetries and high staff turnover, we explore how a policy that constrains managers’ discretion in recruitment influences the performance of public services. The National Background Check Program (NBCP) is a federal program aimed at strengthening states’ criminal background checks targeting direct patient access employees in US nursing homes, where abuse, neglect and misappropriations have been a persistent concern. We combine secondary administrative panel data on Medicare and Medicaid certified nursing facilities with primary data collected from states on their NBCP efforts. Regression analysis examines the effect of NBCP participation, program funding, participation in the NBCP pilot, and implementation of two regulatory milestones – fingerprinting and rap back – on two measures of nursing home performance: health deficiencies and star ratings. We find that NBCP participation, funding and fingerprinting requirement, in particular, are associated with fewer deficiencies and higher star ratings. These findings suggest that, while constraining managerial discretion, government regulation is an important tool that federal and state agencies can use to control the performance of public and private entities in some markets