Economic aspects of the rationing of nursing home beds

State governments, with federal subsidies under the Medicaid program, are the source of the largest share of expenditures to support patients in the long-term institutional nursing care. A major state policy tool that has been evolving is the authority to approve or deny expansions in bed capacity. This paper is an analysis of how the behavior of physicians and nursing homes operates, given present reimbursement policies, could determine the allocation of beds among patients. Both general evidence of inefficient allocation and the detailed experience in the State of Rhode Island before and after a period of rapid expansion of bed capacity lend support to the conceptual model of home-operator behavior. Some alternative structural reforms in Medicaid and in the rationing of beds are suggested in the final section.