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

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.