Cost analysis of the Ohio nursing home industry

This study was part of a major review of long-term care policy in the state of Ohio. The authors analyzed 1532 cost reports filed by nursing homes in 1975-1976 with the Ohio Medical Assistance (Medicaid) program. The objective was to guide policy on size (economies of scale), ownership, certification status, and reimbursement. Economies of scale were not found important: skilled nursing facilities (SNFs) offered the only evidence of operation below optimal scale, and the savings attributable to achieving optimal scale (increasing average bed size from 108 to 143) amounted to only $0.20 per patient day. Proprietary facilities were consistently less costly than voluntary or governmental facilities; however, quality measures were not available, and the largest cost differential was in direct cost where quality might be affected. Hypothesized greater efficiency in proprietary facilities could not be rejected--if accurate, the cost savings were very large ($3.92 to $9.14 per patient day for all homes together). As expected, skilled facilities were more costly than intermediate care facilities (ICFs), and the differential ($3.31 per patient day) was large enough to suggest transfer of misplaced patients. High proportional Medicaid utilization of a home tended to reduce cost, possibly because of the very low ceiling rates paid by the Ohio Medicaid program during the period of this study (1975-76 data). High utilization in general reduced average cost, presumably by spreading fixed cost.