| The nursing home industry has been thought to face many problems: low quality, high price, and limited access. This industry is heavily regulated by the state governments. Supply is restricted by the certificate-of-need (CON) laws and the Medicaid reimbursement rates are usually set lower than the private-pay prices. The objective of this study is to examine the effects of these regulations on industry outcomes, such as prices, quality of care, access to care, and some welfare indices, by simulating counter factual policy changes. I estimate a structural model of demand and price-quality setting equations in the nursing home market in Wisconsin. Since I allow for Medicaid demand to exceed supply, I develop a method to compute it. I identify nursing homes that have a binding bed constraint and quantify the extent of rationing. According to the model, about 50% of nursing homes have a binding bed constraint and 15% of Medicaid patients who demand for nursing home care do not enter any of the nursing homes eventually.;I find that the response to a local change in CON law, which is a change in entry restriction, is different according to county characteristics, such as the number of nursing homes and market tightness. Nursing homes located in counties where less than five nursing homes exist would raise price and/or lower quality when one of the nursing homes is removed from the county; nursing homes located in counties where five or more nursing homes exist would keep price and quality constant. I also find that when Medicaid reimbursement rates are increased, nursing homes in areas where supply is relatively abundant tend to raise quality and those in areas where supply is tight tend to lower quality. Raising reimbursement rates would lessen the Medicaid patient access problem at the cost of private-pay patients. |
