Regulations in Nursing Home Markets: Estimation of a Competitive Model

The nursing home industry has been thought to face many problems: low quality, high price, and limited access. This industry is heavily regulated by state governments. Supply is restricted by the certificate-ofneed (CON) laws and Medicaid reimbursement rates are usually set lower than the private-pay prices. The purpose of this paper is to construct a structural model that can examine the effects of these policies on nursing home outcomes. The estimated model suggests that about one fourth of nursing homes used for this study face a binding bed constraint; about 11 percent of Medicaid consumers who demand for nursing home care cannot enter their first-choice nursing homes; about 2 percent of Medicaid consumers who demand for nursing home care do not enter any of the nursing homes. * Rotman School of Management, University of Toronto, [email protected]. ** Payments System Research, Federal Reserve Bank of Kansas City, [email protected]. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Kansas City or the Federal Reserve System.