The Welfare Effects of Provider Reimbursement Rates: Evidence from the Nursing Home Industry

Reductions in provider reimbursement rates for Medicare and Medicaid beneficiaries are frequently used to contain public health care spending both at the national and the state level. However, reimbursement cuts also lower the profitability of providing services to beneficiaries, which may lead providers to cut back on doctors, nurses, and other key inputs for the production of health care quality. This introduces a tradeoff between benefits from lower public health expenditures on the one hand and costs from a reduction in consumer surplus and provider profits on the other. In my paper, I investigate this tradeoff for Medicaid reimbursement rates in the nursing home industry.