Abstract:

The aging of the American population, the breakdown of the extended family structure, and the elimination of public institutions for the care of the chronically mentally ill has created an ever growing demand for nursing home care for older Americans. This demand coupled with ever escalating costs has created a crisis of major proportions as both individual and public payors are finding it increasingly difficult to pay for care for these frail and dependent members of our society. The goal of this study is to examine the differences between the non-profit and proprietary institutions in the nursing home industry on several dimensions of performance, and determine the implications of these differences for policy makers engaged in setting policies for nursing home reimbursement. Using data from the 1985 National Nursing Home Survey which was linked to a series of other data sources, this study examined the differences in the response of non-profit and for profit nursing homes to changes in a series of predictor variables on cost, pricing and quality in the nursing homes surveyed. Findings from the study support the hypothesis that the two types of homes do react differently to internal and external constraints in the provision of nursing home services. Specifically proprietary homes seem to specialize in providing uniform low cost care which is relatively unaffected by patient mix, or by external conditions such as regulatory environment or demand variables. These homes appear to concentrate on serving residents which are supported under the Medicaid program. Non-profit institutions on the other hand seem to provide a much more expensive type of care which is very responsive to changes in patient mix. These types of homes seem to seek locations in more favorable environments with higher demand and less restrictive reimbursement regulations. These homes actively seek to attract private patients and seem to utilize the revenues from private patients to offset the losses incurred on Medicaid patients. The findings have important implications with respect to the current efforts to develop a more sophisticated case base reimbursement mechanism in Medicaid programs. Further research is needed to develop more complete models and better classification schemes for the nursing home industry.