Trends in Medicaid nursing home reimbursement: 1978-89

Health Care Financing Review, Summer, 1993 by James H. Swan, Charlene Harrington, Leslie Grant, John Luehrs, Steve Preston

Reimbursement Rates

Table 8 reports State average SNF rates for 1981-89. The rate for the average State increased 72 percent. Variation in increases was considerable, that in South Carolina being only 7 percent (an average annual increase of only 0.9 percent). By contrast, the increase in New Hampshire was 230 percent (average annual increase of 16 percent); and 11 States had average SNF rates that more than doubled. Rates should be adjusted for inflation, however, because otherwise increasing dollar differences among States will appear solely on the basis of national inflation (and will also make the distribution of rates heteroskerdastic overtime). Accordingly, a national Consumer Price Index adjuster was used to express rates in 1983-84 dollars. This does not adjust for interstate differences in costs. Accounting for national inflation, rates still increased by about 26 percent (average annual increase of 3.0 percent). Six States showed decreases - rate increases that did not keep up with national rates of inflation.

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Table 9 gives ICF rates for the period 1978-89. The average rate increased about 68 percent. The highest and lowest increase States were the same as for SNF, with identical SNF and ICF rates. The same States showed doubling of ICF rates and SNF rates. Adjusted for inflation to 1983-84 dollars, the average increase in 23 percent, the same six States showing decreases as for adjusted SNF rates.

Analysis of Rates by Reimbursement

Methods

Methods may affect rates. Data for 1979-89 were pooled (1978 excluded because of excessive missing data) for cross-sectional time-series regression analysis of rates by methods (retrospective methods were the contrast for other methods) and use of case mix, and changes over time. Correlated error within States over time was adjusted using a random-effects model in the PANEL option of LIMDEP (Greene, 1989). Interactions of methods by time are created by multiplying method variables by measures representing numbers of years a method has been in effect. Method main effects control for rate differences at the beginning of the study period and when changes in methods occur. This should control out spurious effects, particularly resulting from a tendency to adopt methods based on existing rate levels.

This analysis relates rate differentials to reimbursement measures. This should provide evidence about the implications of different methods for constraint of rate increases. It is not meant, however, as a rigorous causal analysis (Holahan, 1985), nor an analysis of policy formation, which would consider the effects of a variety of State factors on both methods and rates.

Table 10 reports results for both SNF and ICF rates, both adjusted and unadjusted for inflation. Adjustment for inflation is needed because inflation causes proportional increases in unadjusted rates, so that unadjusted dollar amounts are farther apart, resulting in: (a) heteroskedasticity around the time line and (b) the appearance of changing rate differentials by method based solely on inflation, insofar as States already differ in rates by method.