Efficiency evaluation of skilled nursing facilities

This study employs Data Envelopment Analysis (DEA) to determine technical efficiency using skilled nursing facilities in the United States, using a 10% national sample of 324 skilled nursing facilities stratified by ownership and size cluster groupings. Results show that nonprofit and for-profit firms operate using significantly different modes of production, thus allowing the best of the for-profits to achieve a level of technical efficiency .86 times higher than the most efficient nonprofit homes. The best larger nursing homes are .89 times more efficient than the best smaller facilities, also indicating a difference in production goals and technologies. A rationale for these differences is sought through an analysis of DEA generated slacks and a logistic regression. Controlling for size and ownership in the DEA, a higher percentage of Medicare patients leads to lower efficiency, while higher occupancy and greater percentage of Medicaid patients lead to greater efficiency. Regional characteristics do not impact efficiency. It is concluded that reimbursement policies should account for differences in organizational goals created by size and ownership differentials. The great variations in efficiency demonstrate tremendous potential for cost-savings through imitation of efficient firms.