Association for Public Policy Analysis & Management

Medicare reimbursement policies affect the access, amount, and quality of services provided to Medicare beneficiaries and also to non-Medicare ones, as the program is a large buyer of health services and the same health care provider serves patients from different payers. The existent literature and policy debates tend to focus on the effects of such policies on Medicare beneficiaries only. This study aims to broaden our understanding of how Medicare and Medicaid interact in the context of nursing homes markets. In particular, this project examines how an increase in the rate paid by Medicare to nursing homes affects the access and amount of services provided to Medicaid beneficiaries. The research hypothesis is that given the relative generosity of Medicare with respect to Medicaid fees, an increase in the Medicare rate encourage nursing homes to treat more patients with short-term skilled care needs, covered by Medicare, than patients with long-term needs which are covered mainly by Medicaid. I use as price shock the increase in Medicare rates mandated in the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act (BBRA) of 1999, and the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000. The results suggest that nursing homes already working near capacity decreased in 2.6% the number of Medicaid patients days, and increased in 4.8% the number of Medicare patients days. Moreover, facilities that were Medicaid-oriented in the pre-period (measured by the fraction of Medicare to Medicaid days) decreased in higher proportion their Medicaid days. Facilities with a fraction below one standard deviation experienced a decrease of 18% in the number of Medicaid patients days. Finally, this increase in rates also produced responses at the extensive margin, measured by the number of admissions. Facilities that were working near full capacity and that were Medicaid-oriented, decreased in 9% the number of Medicaid beneficiaries admitted. The results indicate that there are important indirect effects of Medicare reimbursement policies that should be considered in debates about long-run solution for the long-term care market in the USA.