Does Social Media Dominate Government Report Cards in Influencing Nursing Home Demand?

Problem definition: Social media has become an indispensable platform for disseminating quality information to consumers across various service sectors. Recently, it has extended its influence to healthcare services, which traditionally relied on government report cards to disclose standardized quality information to the public. This article explores the impact of social media on consumer demand for healthcare services and compares its effectiveness with government report cards. Methodology/results: We analyze quality ratings of U.S. nursing homes collected from two information channels: (1) consumer ratings on Yelp and (2) government ratings on Nursing Home Compare, both of which adopt a five-star quality rating scale and are accessible on the Internet. We employ the method of difference-in-differences with continuous treatment intensity and instrumental variables to analyze the data. Using nursing home resident admissions as a proxy for consumer demand, we find that higher Yelp ratings led to higher consumer demand, particularly among Medicare-covered consumers. Furthermore, the effect of Yelp ratings was primarily driven by extreme ratings (one-star or five-star), as opposed to neutral ratings. We also find that Yelp ratings exerted a stronger effect on consumer demand than government ratings. This dominance of Yelp ratings over government ratings was observed primarily in markets with high Yelp penetration or markets with low and medium consumer education levels. Although higher Yelp ratings were associated with increased net incomes, we find little evidence that nursing homes made quality improvement in response to their Yelp ratings. Managerial implications: We recommend that the Centers for Medicare and Medicaid Services recognize social media platforms as valuable sources of information and collaborate with reputable platforms, such as Yelp, to promote public awareness of government report cards like Nursing Home Compare. Moreover, we advise nursing home operators to proactively manage their reputation on social media by promptly addressing consumer complaints and implementing quality improvement measures. Funding: Y. Li was supported by the National Natural Science Foundation of China [Grant 72301193], the Shanghai Sailing Program [Grant 22YF1451000], and the Fundamental Research Funds for the Central Universities. S. F. Lu was supported by the Gerald Lyles Rising Star fund. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2021.0303 .