The relationship of Medicaid payment rates, bed constraint policies, and risk-adjusted pressure ulcers

Health Services Research, August, 2004 by David C. Grabowski, Joseph J. Angelelli

Finally, a measure of high-Medicaid homes was constructed to examine the Medicaid payment and nursing home quality relationship in a high-Medicaid environment. In order to be categorized as a "high-Medicaid" home, the facility had to have at least 80 percent of its residents reporting Medicaid as the primary payer type, and not greater than 8 percent of either Medicare or private-pay. Thus, 2,355 homes (or 13.45 percent) out of 17,510 homes nationwide were identified as high-Medicaid homes using these criteria. Of these high-Medicaid homes, we had matching MDS quality information for 1,830 facilities.

Empirical Analyses

Theoretical work has argued that nursing homes jointly choose quality, the private-pay price and the payer mix (Norton 2000). In the reduced form, each of these dependent variables can be expressed as a function of exogenous variables such as the Medicaid payment rate. This study will employ this reduced form approach in examining the association between the Medicaid payment rate and nursing home quality. Norton (2000) observed that, in theory, an increase in the Medicaid payment rate will raise the private-pay price. If we assume the private-pay price is greater than the Medicaid payment, then an increase in the Medicaid payment rate will still decrease the overall differential between the private-pay price and the Medicaid rate, because the private-pay price will increase on a less than proportional basis (Scanlon 1980). Thus, one does not need to observe private pay prices to make meaningful inferences regarding the relationship between Medicaid payment rates and quality. Moreover, our analysis of high-Medicaid homes will effectively negate this issue by conditioning on facilities for which the private-pay price is not relevant. For all of the models, efficient estimates of the parameters are given by the weighted least squares (WLS) estimator. Because we are ultimately interested in residents within facilities rather than the facilities themselves, these importance weights take into account the number of residents within each facility.

In order to test our various hypotheses, four sets of analyses are presented below. The first model includes all facilities nationwide within the analysis. Given declining occupancy rates across many nursing home markets, this national model is assumed to test the relationship between Medicaid payment and quality in the absence of a bed constraint. The second model conditions on the most restrictive markets using the lagged tightness measure discussed above to test our second hypothesis regarding the association between Medicaid payment and nursing home quality in the presence of a binding bed constraint. The third set of analyses restricts the model to only the high-Medicaid homes using the payer mix threshold variable discussed above. This model provides a test of our third hypothesis regarding the relationship between the Medicaid payment rate and quality within high-Medicaid homes. The final set of analyses isolates the model to high-Medicaid homes that are located in the most restrictive markets to test the Medicaid rate and quality relationship in high-Medicaid homes under a bed constraint. Importantly, in interpreting the coefficients below, pressure ulcers are a negative indicator of quality (that is, a higher pressure ulcer rate entails lower quality).