Background: Turnover rates in nursing homes have been persistently high for decades, ranging upwards of 100%.
Objectives: To estimate the net costs associated with turnover of direct care staff in nursing homes. DATA AND SAMPLE: Nine hundred two nursing homes in California in 2005. Data included Medicaid cost reports, the Minimum Data Set, Medicare enrollment files, Census, and Area Resource File.
Research design: We estimated total cost functions, which included in addition to exogenous outputs and wages, the facility turnover rate. Instrumental variable limited information maximum likelihood techniques were used for estimation to deal with the endogeneity of turnover and costs.
Results: The cost functions exhibited the expected behavior, with initially increasing and then decreasing returns to scale. The ordinary least square estimate did not show a significant association between costs and turnover. The instrumental variable estimate of turnover costs was negative and significant (P = 0.039). The marginal cost savings associated with a 10% point increase in turnover for an average facility was $167,063 or 2.9% of annual total costs.
Conclusion: The net savings associated with turnover offer an explanation for the persistence of this phenomenon over the last decades, despite the many policy initiatives to reduce it. Future policy efforts need to recognize the complex relationship between turnover and costs.