Cost and case-mix differences between hospital-based and freestanding nursing homes

Cost differences between freestanding and hospital-based skilled nursing facilities (SNF's) are identified and examined in this article. Although hospital-based and freestanding SNF's have significant differences in terms of location, admissions per bed, percent of Medicare days, occupancy rates, staffing, provisions of rehabilitative services, and patient characteristics, these are insufficient to fully explain cost differences. Less than one-half of the existing cost differences can be explained after controlling for case mix, staffing, and other cost-contributing factors. A reimbursement system that differentiates solely by provider type without relating rates to patient characteristics may overcompensate some providers and undercompensate others.