The impact of administratively necessary days on hospital costs

When patients remain in the hospital because no room can be found for them in nursing homes, the additional days are called administratively necessary. This study examines the impact of administratively necessary days on hospital operating costs. With the hospital as the unit of analysis, cost is regressed on hospital characteristics. While administratively necessary days are not measured directly, independent variables include determinants of administratively necessary days, such as nursing-home bed supply and nursing-home reimbursement. Three findings are noteworthy: 1) as the nursing-home market loosens (i.e., beds per elderly increases), hospital costs fall, presumably because discharging patients to nursing homes becomes easier; 2) when Medicaid prospectively reimburses nursing homes, hospital costs increase; and 3) having its own skilled nursing facility lowers a hospital's acute-care costs in tight nursing-home markets but not loose ones.