Nursing home cost and ownership type: evidence of interaction effects

Due to steadily increasing public expenditures for nursing home care, much research has focused on factors that influence nursing home costs, especially for Medicaid patients. Nursing home cost function studies have typically used a number of predictor variables in a multiple regression analysis to determine the effect of these variables on operating cost. Although several authors have suggested that nursing home ownership types have different goal orientations, not necessarily based on economic factors, little attention has been paid to this issue in empirical research. In this study, data from 150 Virginia nursing homes were used in multiple regression analysis to examine factors accounting for nursing home operating costs. The context of the study was the Virginia Medicaid reimbursement system, which has intermediate care and skilled nursing facility (ICF and SNF) facility-specific per diem rates, set according to facility cost histories. The analysis revealed interaction effects between ownership and other predictor variables (e.g., percentage Medicaid residents, case mix, and region), with predictor variables having different effects on cost depending on ownership type. Conclusions are drawn about the goal orientations and behavior of chain-operated, individual for-profit, and public and nonprofit facilities. The implications of these findings for long-term care reimbursement policies are discussed.