Medicaid Reimbursement of Nursing Home Care (AEI studies)

The dramatic increase in the demand for nursing-home care during the past two decades can be attributed to two factors: the growing number of elderly people and the greater availability of such care under the Medicaid program, enacted in 1965. The rapid growth of the nursing-home industry was accompanied by reports of substandard care, unnecessary stays, and fraud. The author shows how the Medicaid program can stimulate more efficient and effective nursing-home care. By examining the economic implications of Medicaid reimbursement formulas, the author explains why market forces are more reliable than government agencies in minimizing costs and ensuring that nursing homes maintain the desired quality of care.

The author questions whether voters will be willing to transfer additional resources to chronically ill persons as more and more care is demanded. Community-based services and home health care have been offered as alternatives, but such services would probably increase the cost of health care.