Volume 23, Number 1 (Winter) 1988
McKay, Niccie L. 1988. "An Econometric Analysis of Costs and Scale Economies in the Nursing Home Industry." Journal of Human Resources 23(1):57-75.
This paper examines costs in the nursing home industry, an issue of concern to policymakers because Medicaid pays about half of the expenditures on nursing home care. The paper estimates two cost functions for a sample of Texas nursing homes in 1983: one assumes that all homes provide the same quality of care, the other considers quality differences. The results indicate that there are economics of scale in the production of nursing home care. This suggests that many states could serve the same number of Medicaid patients at a lower total cost is occupancy rates were higher, and that a fixed rate of reimbursement policy could lower costs.
The author is an assistant professor of economics at Texas A & M University. She would like to thank S. Charles Maurice, John Moroney, Steven Wiggins, and two anonymous referees for helpful comments. She is also grateful to the Texas Department of Human Resources and Health for supplying data on nursing homes in Texas, and to the Public Policy Resources Laboratory at Texas A & M University for financial support.
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