Expert Commentary

What would nursing homes do with more money?

As Medicaid reimbursement rates increase, nursing homes add more licensed staff per resident, improving quality of care, a new model suggests.

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As Medicaid reimbursement rates increase, nursing homes add more licensed staff per resident, improving quality of care, a new model suggests.

The issue: As baby boomers age, they are bound to put more strain on nursing homes. A report to Congress prepared by the Center for Medicare and Medicaid Services estimates that over 91 percent of nursing homes are staffed below the level that is minimally necessary to provide all needed care.

The challenge of staffing is linked to economic and regulatory barriers. Nursing care is a costly national expense–in 2016, total expenditures stood at $163 billion, with Medicaid contributing $50 billion to this sum, according to data from CMS. States determine their own rates for nursing home reimbursements under Medicaid, balancing desires to achieve particular outcomes related to quality of and access to care with the need to meet budgetary requirements. New research produced by Martin Hackmann, an economist at UCLA, looks at how small changes in Medicaid reimbursements might improve quality of care.

An academic study worth reading:Incentivizing Better Quality of Care: The Role of Medicaid and Competition in the Nursing Home Industry,” National Bureau of Economic Research working paper, December 2017.

About the study: The researcher looked at survey data from Pennsylvania’s nursing homes. The data included information on Medicaid reimbursement rates, expenses for Medicaid-certified nursing homes, and details about residents. He focused on data collected from 2000 to 2002, which encompassed information from 2,079 nursing homes. Using this information, he modeled the effects of reimbursement rates on staffing and pricing.

Key findings:

  • According to his model, a 10 percent boost in Medicaid reimbursement rates increases the number of skilled nurses per resident by 8.8 percent on average. Hackmann estimates this results in an additional 10 minutes of care spent with each resident per day.
  • The model also predicts that increasing Medicaid reimbursement rates by 10 percent allows nursing homes to decrease the rates they charge residents with private insurance by 4.9 percent on average.
  • The researcher tested whether increased competition spurs nursing homes to improve quality of care; he found the effects were less than that of increased Medicaid reimbursement rates.
  • Hackmann estimated nursing home residents’ preferences based on their health and the nursing homes they chose. For example, he looked at whether an Alzheimer’s diagnosis was associated with residence in a nursing home with an Alzheimer’s unit. Using these preferences and payer data that indicated costs and funding sources (including out-of-pocket expenses) for residents’ stays, he estimated the value of an added skilled nurse to residents at $126,000 per year. This figure exceeds the estimated annual cost of employment, $83,000. He found that residents with more health problems stand to gain more by having higher nurse-to-resident ratios than healthier residents.

Other resources:

  • The U.S. Department of Health and Human Services produced a data brief regarding nursing home complaints from 2011 to 2015. They also authored a report on the growth of nursing home care expenditures over time.
  • The Center for Medicare and Medicaid Services has data on national health expenditures. Medicaid’s website provides details on reimbursement. Medicare’s website offers Nursing Home Compare, a feature that allows access to inspection reports and more.
  • The Agency for Healthcare Research and Quality has additional resources for comparative reports on nursing home care.
  • The Census and U.S. Centers for Disease Control and Prevention have statistics on America’s aging population and use of nursing homes.
  • ProPublica’s Nursing Home Inspect compares nursing home deficiencies and penalties across the country. The tool has generated numerous local probes, listed at the bottom of the page. Elsewhere, CNN investigated elder abuse in nursing homes.

Related research:

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