Nonprofit vs. For-Profit: Allocation of Beds and Access to Care in U.S. Nursing Homes

44 Pages Posted: 30 Nov 2020

Date Written: November 27, 2020

Abstract

Motivated by empirical observations of U.S. nursing homes, we formulate a queueing network model to study nursing homes' bed allocation decisions and the resulting access to care for economically disadvantaged populations. To distinguish nonprofit from for-profit nursing homes, we incorporate altruism into a nonprofit nursing home's objective function to capture resident welfare including the blocking cost of high-margin Medicare residents and the waiting cost of low-margin Medicaid residents. Nursing homes can allocate a fixed number of beds among Medicare-dedicated, Medicaid-dedicated, and flexible beds. This model makes three predictions. First, it is generally suboptimal to allocate Medicaid-dedicated beds. Second, when the Medicaid arrival rate is sufficiently high, nonprofit nursing homes would allocate more Medicare-dedicated beds than their for-profit counterparts, thereby providing lower access to care for the Medicaid population. Third, when the Medicare arrival rate is sufficiently low, nonprofit nursing homes would allocate fewer Medicare-dedicated beds than their for-profit counterparts, thereby providing higher access to care for the Medicaid population. These theoretical predictions are validated by empirical observations of U.S. nursing homes and by a difference-in-differences (DID) analysis exploring nursing home ownership conversions from nonprofit to for-profit. Taken together, our theoretical and empirical findings inform the public that the growth of the for-profit nursing home segment does not necessarily hurt the access to care for the Medicaid population, and surprisingly, under high Medicaid demand, for-profit nursing homes might provide higher access to care than their nonprofit counterparts.

Keywords: Healthcare, Queueing Network, Nursing Homes, Nonprofit, Access to Care

Suggested Citation

Jiang, Yangzi and Lu, Lauren Xiaoyuan and Van Mieghem, Jan Albert, Nonprofit vs. For-Profit: Allocation of Beds and Access to Care in U.S. Nursing Homes (November 27, 2020). Tuck School of Business Working Paper No. 3738684, Available at SSRN: https://ssrn.com/abstract=3738684 or http://dx.doi.org/10.2139/ssrn.3738684

Yangzi Jiang (Contact Author)

Kellogg School of Management, Northwestern University ( email )

2211 Campus Dr
Evanston, IL 60208
United States

Lauren Xiaoyuan Lu

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Jan Albert Van Mieghem

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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