Signalling Quality: An Assessment of the Effectiveness of Regulator Quality Ratings for Care Homes

When making a choice regarding care homes, potential service users or their family members face problems associated with information asymmetry. Given the credence nature of care home services, many aspects of quality cannot be assessed prior to use. In the absence of a mechanism to assess service quality two main problems can arise. First, users are not able to distinguish between good-quality providers and poor-quality providers, and second, providers of good-quality services are unable to credibly provide accurate information to users to distinguish them from poor-quality providers. In such a situation, both users and providers of high-quality services will welcome measures or effective ‘signals’ that would allow them to differentiate service quality. In England, this role is fulfilled by the Care Quality Commission, through inspections and provision of quality ratings. Quality ratings produced by the regulator have a dual purpose. They provide information about quality for potential stakeholders who may be interested in using the service and they provide feedback for care home service providers to encourage service quality improvement. If quality ratings are to effectively remove problems of information asymmetry, they must be effective in both purposes. Using signalling theory as the basis for a range of quantitative methods, this research assesses the effectiveness of quality ratings provided by the regulator for all care homes, as market signals of quality. Based on the assessment of the three dimensions of an effective signal (signal cost, signal observability and signal consistency), the study finds that regulator quality ratings may not be an effective market signal. Whilst the study finds that quality ratings of some service providers improves after inspection, no improvements are made by a greater number of care homes. Furthermore, the study also finds a positive association between quality ratings and demand for care home places, however, the evidence also suggests that changes in demand are caused mostly by the regulator’s own enforcement actions. In addition to having some issues with internal consistency between quality ratings and inspection reports, evidence suggests that regulator quality ratings are mainly fulfilling the role of a feedback signal for regulatory scrutiny. There is a need for the regulator to consider the informational gain from its quality ratings for potential service users of care homes. If service users are to benefit from quality ratings and inspection reports, these must be internally consistent and easily understandable by those accessing the information.