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Nursing home expenditures are sensitive to market competition and excess demand conditions

During the 1990s, nursing home sub-acute care (short stays for patients recuperating from an acute hospital episode) became an important line of business. Later in the decade, fewer nursing homes were in excess demand markets, and reporting requirements, more regulations, and fraud investigations increased their administrative burden. At the same time, nursing homes faced more competition for long-term care from home care and assisted living facilities for individuals who were less debilitated or less cognitively impaired. A study by William D. Spector, Ph.D., of the Agency for Healthcare Research and Quality, and colleagues at the University of California, Irvine, and the University of Rochester, shows that although fewer nursing homes faced excess demand conditions at the end of the decade, nursing home expenditures remained sensitive to competition from other nursing homes and excess demand conditions in the market.

The researchers retrospectively analyzed data for 1991, 1996, and 1999 for 500 free-standing nursing homes in New York State. They examined nursing home expenditures on clinical, hotel (for example, equipment, plant operation, security, housekeeping, and food service), and administrative activities during the 1990s to determine the association between nursing home competition and excess demand on expenditures.

They found that clinical and administrative costs grew during the 1990s, while hotel expenditures declined. In more competitive markets, clinical and administrative expenditures were higher. Clinical costs in excess demand markets were lower. This study shows the impact of market conditions on nursing home expenditures. The results also suggest that as nursing homes increase the number of short stay residents, they may invest less in hotel aspects of care.

See "Nursing home spending patterns in the 1990s: The role of nursing home competition and excess demand," by Dana B. Mukamel, Ph.D., Dr. Spector, and Alina Bajorska, M.S., in the August 2005 HSR: Health Services Research 40(4), pp. 1040-1055. Reprints (AHRQ Publication No. 05-R068) are available from the AHRQ Publications Clearinghouse.

Editor's Note: Another article on nursing homes suggests that nursing home staffing levels have an important impact on worker health. For more details, see Trinkoff, A.M., Johantgen, M., Muntaner, C., and Le, R. (2005, July). "Staffing and worker injury in nursing homes." (AHRQ grant HS11990). American Journal of Public Health 95(7), pp. 1220-1225.

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