Market entry and exit in long-term care: 1985-2000

Market entry and exit of skilled nursing providers is analyzed to observe initial industry responses to Medicare prospective payment. Supply adjustments were immediate, and were stronger in urban than in rural areas. After 12 years of steady growth, widespread market expansion ceased in 1998, but net reductions in the number of facilities occurred primarily in the hospital-based sector. In county-level modeling with controls for State policy effects, post-prospective payment system (PPS) reductions in the number of skilled nursing facilities (SNFs) were associated with supply considerations; reductions were more likely to occur in areas with higher bed-to-population ratios prior to PPS implementation, and in areas that had recently seen expansion in capacity. County-level reduction in the number of SNFs was not associated with low income or other sociodemographic risk factors.