Do case-mix adjusted nursing home reimbursements actually reflect costs? Minnesota's experience

Some states have adopted Medicaid reimbursement systems that pay nursing homes according to patient type. These case-mix adjusted reimbursements are intended in part to eliminate the incentive in prospective systems to exclude less profitable patients. This study estimates the marginal costs of different patient types under Minnesota's case-mix system and compares them to their corresponding reimbursements. We find that estimated costs do not match reimbursement rates, again making some patient types less profitable than others. Further, in confirmation of our estimates, we find that the percentage change in patient days between 1986 and 1990 is explained by our profitability estimates.