Does prospective payment really contain nursing home costs? - Policy Impact - Statistical Data Included

Health Services Research, April, 2002 by Li-Wu Chen, Dennis G. Shea

Case Mix Indicator of Nursing Home. An indicator score was calculated for each facility using activity-of-daily-life (ADL) information. These ADLs include eating, dressing, bathing, toilet use, and transferring. For each ADL, different weights were given to patients with different degrees of functional dependence. Then ADL-specific case-mix scores accounting for patient composition were calculated for each facility. (8)

By summing all five ADL scores, a general case-mix index was obtained for each facility, ranging from 0 to 10. A higher value indicates a facility had a more severe case mix of patients in terms of their patients' functional dependence.

Organizational Structure of Nursing Homes. Using government-owned nursing homes as the reference group, two dichotomous variables (profit and nonprofit) were created to indicate the nature of ownership for nursing homes. In addition, two non-mutually-exclusive dichotomous variables were created to indicate whether a facility is hospital based and if a facility is owned by a chain organization, respectively.

Environmental Descriptors of Nursing Home Markets. A county-based Herfindahl measure was created using private patient day variable to control for the degree of competition in nursing home markets. The value ranges from 0 to 1, with higher values indicating higher concentration. Using rural facilities as the reference group, two dummy variables were created to indicate whether a facility was located in a metropolitan county and whether a facility was located in a smaller urban county, respectively. Finally, eight dummy variables were created to indicate the geographic locations of nursing homes. The facilities located in the Pacific area were used as the reference group in the regression analyses.

Dependent Variable

This study focuses on the investigation of short-term operating costs of nursing homes. The total operating cost of a facility in 1994 was created, from the SNFMDS, by summing up salary costs and other direct costs in 1994 for each facility. The logarithm form of the total cost was used in the regression analyses.

METHODS

Creation of Instrumental Measures for Nursing Home Output and Quality Variables

To resolve endogeneity, we used two-stage least square (2SLS) to create instrumental measures for the three payment-type patient day variables as well as the three process quality of care variables. The decision to focus only on these three quality variables is based on the assumption that in the short run, they are more likely to be "manipulated" (than the other four) by nursing homes in response to their financial concerns. (9) Table 1 shows the results of the first-stage regressions for these suspected endogenous variables. The ordinary least square (OLS) model was used for Medicare days, private days, catheterization rate, and physical restraint rate. The Tobit model was used to predict Medicaid days and drug error rate. (10)

We also used the Hausman test to do an empirical examination of endogeneity. The results of this test indicated that output (payment-type patient days) and quality (quality of care process) variables are not exogenous to nursing home costs (p < 0.005). (11)