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

Area of Science:

• Health Services Research
• Healthcare Economics
• Gerontology

Background:

• The implementation of Medicare prospective payment systems (PPS) significantly impacted healthcare provider markets.
• Understanding market dynamics, including entry and exit of skilled nursing facilities (SNFs), is crucial for policy evaluation.

Purpose of the Study:

• To analyze the market entry and exit of skilled nursing providers in response to Medicare prospective payment.
• To investigate factors influencing the reduction in the number of SNFs post-PPS implementation.

Main Methods:

• Analysis of market entry and exit of skilled nursing providers.
• County-level modeling controlling for state policy effects.
• Examination of supply adjustments in urban versus rural areas.

Main Results:

• Immediate supply adjustments by SNFs were observed, with stronger responses in urban areas.
• Widespread market expansion ceased in 1998, with net reductions primarily in hospital-based facilities.
• Post-PPS SNF reductions were associated with higher pre-existing bed-to-population ratios and recent capacity expansion, not sociodemographic factors.

Conclusions:

• SNF market adjustments to PPS were supply-driven, particularly in areas with high pre-existing capacity.
• Reductions in SNF numbers were concentrated in the hospital-based sector and not linked to socioeconomic risk factors.