Nursing home spending patterns in the 1990s: The role of nursing home competition and excess demand

Objective. To examine nursing home expenditures on clinical, hotel, and administrative activities during the 1990s and to determine the association between nursing home competition and excess demand on expenditures. Data Sources/Study Setting. Secondary data sources for 1991, 1996, and 1999 for 500 free-standing nursing homes in New York State. Study Design. A retrospective statistical analysis of nursing homes' expenditures. The dependent variables were clinical, hotel, and administrative costs in each year. Independent variables included outputs (inpatient and outpatient), wages, ownership, New York City location, and measures of competition and excess demand. Data Collection/Extraction Method. Variables were constructed from annual financial reports submitted by the nursing homes, the Patient Review Instrument and Medicare enrollment data. Principal Findings. Clinical and administrative costs have increased over the decade, while hotel expenditures have declined. Increased competition was associated with higher clinical and administrative costs while excess demand was associated with lower clinical and hotel expenditures. Conclusions. Nursing home expenditures are sensitive to competition and excess demand conditions. Policies that influence competition in nursing home markets are therefore likely to have an impact on expenditures as well.