Medicaid Increases May Boost SNF Quality More Than Competition

The free market alone might not be enough to boost skilled nursing facility (SNF) quality, according to a new National Bureau of Economic Research working paper.

The paper, “Incentivizing Better Quality of Care: The Role of Medicaid and Competition in the Nursing Home Industry,” simulated the effects of policies in Pennsylvania that either raised regulated Medicaid reimbursement rates or increased local competition.

Though the findings were limited to the Keystone State, Pennsylvania is fairly representative demographically of the U.S., the paper noted —although its Medicaid reimbursement rates are a bit higher than the national average.


According to the paper, nursing homes in Pennsylvania would increase their quality of care — measured by the number of skilled nurses per resident — by 8.8% following a universal 10% increase in Medicaid reimbursement rates. In contrast, more competition among SNFs would only lead to small increases in skilled nurse staffing ratios.

The findings suggest Medicaid increases can be a cost-effective option for raising the quality of nursing home care in the U.S.

“Medicaid reimbursement rates are considered to be relatively low, and with Medicaid being the primary payer source, nursing homes’ revenue structure is not as generous,” Martin Hackmann, an assistant professor of economics at the University of California, Los Angeles (UCLA) and a faculty research fellow at the National Bureau of Economic Research, told Skilled Nursing News. “But that also means that increasing the Medicaid rates has a substantial effect on nursing home revenues and provides them with an incentive to increase the quality of care.”


There are ways states can increase nursing home quality outside of raising Medicaid rates, such as increasing competition by subsidizing the development of new nursing homes, Hackmann said. But that also comes with its own downsides.

“The benefits from competition appear to be somewhat limited because distance to the nursing home is a key driver of nursing home demand,” Hackmann explained. “Hence, entry of a new provider only has a small effect on local competitors.”

Read the full paper at the National Bureau of Economic Research.

Written by Tim Regan

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