How nursing homes behave: a multi-equation model of nursing home behavior

This paper estimates a multi-equation model of nursing home behavior using the 1973 NCHS National Nursing Home Survey for data. The paper investigates empirically the effects of public reimbursement and regulatory policies, as well as other exogenous factors, on the following dependent variables: (1) average operating cost; (2) nursing hours per patient-day; (3) an index of rehabilitation-type services; (4) the occupancy rate; (5) the mix of public and private patients; and (6) the rate charged to private patients. The results dramatize the importance of endogeneity concerns in nursing home behavior. Rate setting and many regulations are shown empirically to have unintended and often undesired consequences on cost and other policy criteria of interest. While there has been anecdotal evidence of such system-wide interdependencies, this study affirms that such possibilities must be taken seriously. Rational nursing home regulation cannot proceed apart from a comprehensive understanding of the nursing home behavioral environment.