We determine the extent to which higher costs in hospital-based skilled nursing facilities (HBSNF) can be explained by observable resident characteristics and unobservable selection effects, implying that it might be desirable to include facility characteristics in the skilled nursing facility prospective payment system (SNF PPS) for Medicare-covered stays implemented by the Balanced Budget Act of 1997 (BBA 1997). We estimate an endogenous switching model to measure the effect on costs of treatment in a HBSNF, net of differences purely attributable to selection effects and the relatively high acuity of HBSNF residents. We adjust for all resident characteristics associated with significant cost differences and develop a probit model to explain selection between hospital-based and freestanding facilities. Once the model has been estimated, we decompose the HBSNF differential into case-mix, selection, and setting effects. We find that virtually the entire HBSNF differential is attributable to setting effects with resident characteristics and selection effects playing a negligible role. In addition, we find that marginal costs associated with particular services and conditions are often lower in hospital-based than in freestanding facilities. We conclude that a prospective payment system that depends on resident characteristics and excludes consideration of facility characteristics (as mandated by BBA 1997) need not unfairly penalize HBSNFs, provided a powerful case-mix system is used and HBSNFs specialize in the care of high-acuity residents.
Learning Objectives: Participants in this session will learn to: 1. think statistically about selection effects, 2. recognize new developments in Medicare's skilled nursing facility casemix system, and 3. Explain why hospital-based nursing homes are more expensive
Keywords: Nursing Homes, Financing
Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.