The dilemma of vacant beds: Did lenient CON policies toward hospitals make nursing homes 'sick'?

Presenter: Jennifer Troyer, University of North Carolina at Charlotte

Abstract

Government regulators use certificate-of-need (CON) licensing for multiple purposes and objectives. This study examines an initiative in Florida during much of the 1990s when CON restrictions on hospital-based skilled nursing home care were greatly relaxed in an attempt to relieve financial distress of acute care hospitals in Florida. The policy shift freed hospitals to provide lucrative post-discharge care under Medicare at their in-house skilled nursing units. In addition, we consider the period following the implementation of prospective payment for skilled nursing care for Medicare patients (1998-2001), when the relative generosity of Medicare payments for hospitals fell dramatically, changing the incentives for hospitals to provide skilled nursing care.

The consequences of CON policies during both periods for the traditionally dominant providers of care, the freestanding skilled nursing facilities, are examined in this paper. For the analysis, we create two measures of hospital-based skilled nursing facility (SNF) activity within each health service area: an annual measure of the total number of hospital-based SNF days and an annual measure of hospital-based SNF revenue in the health service area. Under the assumption that the amount of hospital-based SNF care in a market is endogenous, we instrument it using two measures: the number of patients discharged from hospitals in the health service area to SNF care and the weighted average of occupancy rates for acute care in hospitals within a health service area. Panel regression models of freestanding SNF performance are estimated with spatial autoregressive effects and nursing home fixed effects that control for unspecified sources of performance variation across homes within the industry.

Preliminary results reveal that, in the period before the implementation of prospective payment for Medicare patients (1991-1997), the freestanding nursing home industry was deprived of Medicare admissions and revenue from post-discharge patients as a result of the growth in hospital-based skilled nursing care. CON policy, together with other unfavorable industry trends, increased the financial distress of Florida’s nursing home industry during this period. However, the pecuniary gains of hospital-based skilled nursing facilities do not necessarily imply efficiency losses attributable to CON policy, if patients fare better in the hospital-based facilities. To consider this issue, we will examine the relationship again in the era of prospective payment for Medicare skilled nursing care (1998-2001), where effective reimbursement rates to hospitals were reduced more dramatically than those to freestanding nursing homes. If, in the period following the reforms, freestanding facilities begin to regain admissions and revenue, it would suggest that the hospitals that expanded skilled nursing facility services under lenient CON policies were gaining pecuniary advantages from the reimbursement system, i.e cream-skimming.On the other hand, if SNFs continued declining in patient attractiveness relative to the hospital-based facilities, that would suggest that hospitals offer unique efficiency or quality-of-care advantages relative to the traditional, free-standing facilities, and validate the policy move allowing hospital into the industry.