Assignment 6-10
beegirlie61
SanterreNeun_Chapter15forassignment10.pptxChapter 15
The Long-Term
Care Industry
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The Structure of the Long-Term Care Services Industry
Long-term care:
Set of health care, personal care, and social services
Delivered over a sustained period of time
To persons who have lost, or never acquired, some degree of functional capacity, as measured by an index of functional ability
Enhances quality of life
The need for long-term care is likely to be permanent
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The Structure of the Long-Term Care Services Industry
Demand for long-term care
Basic demand (not derived demand)
Continuum of care
Occasional need for assistance to perform various household chores
Need for around-the-clock nursing care
Rehabilitation program that involves physical, occupational, and/or speech therapy
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The Structure of the Long-Term Care Services Industry
Organizational settings
Informal - friends and family members
Formal, highly intensive setting
Skilled nursing home
Intermediate care
Home health care agency
Assisted living facility
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Table 15.1 - A Measurement of the Need for Long-Term Care
| Measurement | Examples of Basic Functions |
| Activities of daily living (ADL) | Bathing Dressing Eating Getting in and out of a chair or bed |
| Instrumental activities of daily living (IADL) | Going outside the home Performing household chores Keeping track of household finances Cooking and preparing meals Using the telephone Taking medicine |
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Structure of Informal Care Providers
Feinberg et al. (2011)
Representative informal caregiver
Woman in her forties
Providing more than 20 hours of care per week
Employed full-time
Possesses at least a high school degree
Median household income -$38,000 per year
Related to the recipient, daughter and her mother
In more than 75% of the cases the caregiver does not reside with the recipient of the long-term care
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Table 15.2 - Characteristics of the Nursing Home Industry
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Figure 15.1 - Expenditure Shares for Nursing Home Services, 2010
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Structure of the Nursing Home Care Industry
Barriers to Entry
Scale economies - not a significant entry barrier
Sunk costs - do not seriously inhibit entry
Certificate of need (CON) programs
Existing nursing homes may desire CON laws because of the resulting market power
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Structure of the Nursing Home Care Industry
Nursing home industry:
Relatively large number of nursing homes with low market shares
Barriers to entry are relatively low
Typical nursing home has downward-sloping demand curve
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Structure of the Nursing Home Care Industry
Individual nursing home has very little control over price
Highly price elastic demand of private buyers
Monopolistically competitive industry
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Structure of the Home Health Care Industry
Number and characteristics of home health care providers
Home health care encompasses medical services:
Provided to individuals or families
In their place of residence
To promote, maintain, or restore health
To maximize the level of independence
While minimizing the effects of disability and illness, including terminal illness.
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Structure of the Home Health Care Industry
Buyers & users of home health care services
Expenditures = $70 billion in 2010
82.2% of all purchases – Medicare and Medicaid programs
6.4% - private insurers
7.1% - out-of-pocket expenses
4.3% - other public and private sources
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Structure of the Home Health Care Industry
Barriers to Entry
Sunk costs – not a barrier to entry
Economies of scale and scope– no impact
Government regulations
Behavioral issues
Price regulation effect of Medicaid reimbursement
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Structure of the Home Health Care Industry
Type of ownership
Impact of market competition on the behavior of nursing home care providers.
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The Conduct of the Long-Term Care Industry
The Dual Market Model of Nursing Home Pricing
Payers for nursing home care
Individual nursing home must determine
How many private-pay patients to treat
How many Medicaid patients to treat
Price charged to private payers
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Figure 15.2 - The Dual Market Model of Nursing Home Behavior
Nursing home patients (Q)
Dollars
per
unit
MC
QP
PP
QT
PM
MRP
A
B
C
DP
Of the total patients, 0QP are private pay and the remaining portion, QPQT, represents the number of Medicaid patients. Private-pay patients pay PP for nursing home care. Because the horizontal distance QPQT, representing the number of Medicaid patients admitted, is less than the horizontal distance BC, showing the number eligible for Medicaid coverage, an excess demand for Medicaid nursing home care exists in the market area.
Lines AB and AMRP represent the demand and marginal revenue curves for private-pay patients. Line segment BC represents the Medicaid reimbursement rate of PM for the number of individuals eligible for Medicaid coverage in the market area. Line segment CDP identifies the remainder of the private demand curve.
The nursing home admits 0QT patients because the marginal revenue of PM = MC.
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The Conduct of the Long-Term Care Industry
Excess demand for nursing home care
Government policies to reduce it
Raise the Medicaid reimbursement rate
Private-pay patients are required to pay a higher price
With a CON law (capacity constraint) - lower quality and raise the private-pay price
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The Conduct of the Long-Term Care Industry
Directly subsidize the costs of providing nursing home care
Reduces the marginal costs of production
Incentive to admit more Medicaid-eligible patients
Costly alternative
Higher taxes
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The Conduct of the Long-Term Care Industry
The Effect of Alternative Payment Methods
Differences in payment methods influence how individual nursing homes behave over time in terms of costs, quality of care, and patient case-mix
Retrospective cost-based reimbursement
Flat rate independent of actual facility costs
Prospective reimbursement systems
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The Conduct of the Long-Term Care Industry
Empirical evidence
Pure cost reimbursement without ceilings was associated with the highest costs (Frech and Ginsburg, 1981)
Prospective and flat-rate systems generally reduced cost growth more then retrospective payment (Holahan and Cohen, 1987)
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The Conduct of the Long-Term Care Industry
Empirical evidence
Fixed rate and prospective systems led to fewer RNs per resident and worse process quality when compared to retrospective reimbursement, Zinn (1994)
Case-mix reimbursement was found to increase the number of RNs per resident and improve process quality relative to cost reimbursement, Zinn (1994)
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The Conduct of the Long-Term Care Industry
Empirical evidence
Fixed reimbursement - more lower-skilled and fewer higher-skilled professional nurses, (Cohen and Spector,1996)
Flat-rate systems - decrease the severity of ther case-mixes through admission discrimination; decrease staffing levels (Cohen and Dubay, 1990)
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The Conduct of the Long-Term Care Industry
Scale Economies with Respect to Quality
Nursing homes
Trade-off: costs and quality of care
Severity of the trade-off depends on whether scale economies hold with respect to quality.
Empirical evidence, Gertler&Waldman (1992)
Cost function - diseconomies of scale in quality
Policies aimed at improving quality will be very costly.
Policies aimed at cost savings, can be achieved with very small reductions in quality.
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Figure 15.3 - The Cost Savings from Quality Reductions
Quality
C0
X0
Dollars
per
unit
0
A
B
C1
X1A
X1B
The graphical model suggests that quality must be sacrificed a great deal to achieve a given cost savings of C0C1 when scale economies hold. Conversely, the model indicates that quality improvements come at a much larger cost when the quality/cost relation exhibits diseconomies of scale.
Curve 0B depicts scale economies with respect to quality whereas curve 0A shows diseconomies of scale with respect to quality.
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The Conduct of the Long-Term Care Industry
Ownership and Conduct
Property rights theory
For-profit organizations: Private ownership of any residual profits
Public and not-for-profit institutions: Subject to a non-distribution constraint; less of an incentive to operate with least-cost methods of production
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The Conduct of the Long-Term Care Industry
Empirical evidence
Confirms property rights theory
For-profit nursing homes employed 4.5% fewer inputs per patient-day than otherwise comparable not-for-profit nursing homes, (Nyman and Bricker, 1989)
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The Conduct of the Long-Term Care Industry
Ownership status
Does affect the performance of nursing homes
Not-for-profit nursing homes provide higher quality of care than do for-profits, Harrington et al. (2001)
Not-for-profit nursing homes provide better quality than for-profits when asymmetric information exists (Chou, 2002)
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The Conduct of the Long-Term Care Industry
Empirical evidence
Competition from not-for-profits raises the quality of nursing home care while competition from for-profits limits inefficiency and the exercise of market power. (Grabowski and Hirth, 2003)
More quality of care might be obtained by attracting a greater percentage of not-for-profit nursing homes into many market areas(Santerre and Vernon, 2007)
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The Conduct of the Long-Term Care Industry
Market Concentration and Nursing Home Conduct:
The Price of Nursing Home Care
Pi = price charged by the individual nursing home
Ci = marginal cost of the individual nursing home
Price markup function (Pi – Ci )/ Pi
Lerner index
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The Conduct of the Long-Term Care Industry
Market Concentration and the Price
|Em| = market demand elasticity
Depends on the availability of other substitutes
|Ei| = individual nursing home’s price elasticity of demand
|Em| < |Ei|
Because of fewer alternatives
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The Conduct of the Long-Term Care Industry
Market Concentration and the Price
α - reflects the conjectural variations held by nursing homes in the market
Captures whether the typical nursing home facility expects the others to match or offset its output decision
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The Conduct of the Long-Term Care Industry
Market Concentration and the Price
α=1, nursing homes collude
Markup - depends on market elasticity alone
α=0, firms compete
Markup - depends on product differentiation
less Differentiated product means
Higher price elasticity of demand
Lower markup of price over the costs of production.
The markup
The largest when firms perfectly collude
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The Conduct of the Long-Term Care Industry
Empirical evidence, Nyman (1994)
Average markup over the Medicaid fee for a skilled nursing home facility = 18.2%
Average HHI = 2,240
A marginal change in level of market concentration - no appreciable impact on price markup
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The Conduct of the Long-Term Care Industry
Mukamel and Spector (2002)
Assume α=0
Relatively low elasticities
Comparatively high price markups to private payers
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The Conduct of the Long-Term Care Industry
Market Competition and Quality
Zinn (1994)
Increased market concentration (higher HHI)
Better quality of care, particularly process quality.
Better quality of care results when fewer nursing homes exist in a market
Greater potential competition (no entry barriers) raises quality
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The Performance of the Long-Term Care Industry
Long-term care
Associated with chronic care and care for those with disabilities
Is informal in nature; Indirect cost - forgone wages
Number and type of formal health care providers – diverse
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Expenditures on Long-Term Care
Expenditures on Long-Term Care:
Informal Expenditures on Long-Term Care
The Metropolitan Life study (1997):
$11.4 billion a year= total cost of lost productivity because of caregiving (full-time workers)
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Expenditures on Long-Term Care
Recruitment and training costs
Absenteeism costs
Cost of workday interruptions
Costs associated with an eldercare crisis
Increase in administration costs
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Expenditures on Long-Term Care
Formal Expenditures on Long-Term Care
Economic cost of long-term care – substantial
Almost two-thirds of all long-term care provided in the United States is on an informal basis
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Expenditures on Long-Term Care
Expenditures for long-term care
Both informal and formal
Account for almost one quarter of all health care expenditures in the united states
Second-largest spending category behind hospital care
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Expenditures on Long-Term Care
Private Insurance for Long-Term Care
Relatively small number of long-term insurance policies purchased:
Adverse selection
Moral hazard
Medicaid crowding out
Intertemporal risk
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Private Insurance for Long-Term Care
Adverse selection
Asymmetry of information concerning the health status of potential consumers
High-risk individuals - purchase long-term care insurance at premiums based on a pool of subscribers with better health - premiums are driven upward
Difficult for insurance companies to accurately assess risk
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Private Insurance for Long-Term Care
Moral hazard
The elderly - prefer to receive care from family in their own homes
Lower demand for long-term insurance
Desire to protect bequests to family and friends
Increase demand for long-term insurance
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Private Insurance for Long-Term Care
Medicaid crowding out
Public support for long-term care - Medicaid
Decrease the incentive to purchase private long-term care insurance
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Private Insurance for Long-Term Care
Intertemporal risk
Insurer finds it difficult to predict medical payments well into the future
Cannot diversify risk across policyholders
Increases premiums in excess of the expected payout or offer an indemnity-type insurance policy
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Table 15.4 – Consumer Price Index for Nursing Homes and Adult Day Care, 2002-2011
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Expenditures on Long-Term Care
Utilization of Long-Term Care Facilities
Concentrated among the elderly population
Two thirds – females
Extent to which the elderly rely on nursing homes for long-term care is diminishing
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Table 15.5 - Distribution of Nursing Home Residents According to Age, Gender, and Functional Status 2009
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Expenditures on Long-Term Care
What Do the Demographics Tell Us about the Future of Long-Term Care?
Increase in the demand for long-term care:
Longer life expectancies
Aging baby boom generation
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Expenditures on Long-Term Care
Demand could increase at a lower rate:
Increased longevity - no major impact on health expenditures
Disability among the elderly has decreased
Healthy elderly individual = informal supplier of long-term care
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Expenditures on Long-Term Care
Individual demand - affected by:
Rising levels of obesity
Declining health of middle-aged people
Increased incomes
Enhanced quality of care
Changes in tastes and preferences
Increased prevalence of long-term care insurance
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Implications of the Patient Protection and Affordable Care Act (PPACA) of 2010 regarding the Long-Term Care Industry
Skilled nursing home facilities under Medicare and Medicaid need to disclose information regarding ownership, accountability requirements, and expenditures
States will now be given opportunities to offer home and community-based services through Medicaid without having to apply for a waiver
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