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The Relationship of California’s Medicaid Reimbursement System to Nurse Staffing Levels

Mukamel, Dana B. PhD*; Kang, Taewoon PhD; Collier, Eric PhD; Harrington, Charlene PhD

doi: 10.1097/MLR.0b013e318264e4ce
Original Articles

Background: Policy initiatives at the Federal and state level are aimed at increasing staffing in nursing homes. These include direct staffing standards, public reporting, and financial incentives.

Objective: To examine the impact of California’s Medicaid reimbursement for nursing homes which includes incentives directed at staffing.

Research Design: Two-stage limited-information maximum-likelihood regressions were used to model the relationship between staffing [registered nurses (RNs), licensed practical nurses, and certified nursing assistants hours per resident day] and the Medicaid payment rate, accounting for the specific structure of the payment system, endogeneity of payment and case-mix, and controlling for facility and market characteristics.

Sample: A total of 927 California free-standing nursing homes in 2006.

Measures: The model included facility characteristics (case-mix, size, ownership, and chain affiliation), market competition and excess demand, labor supply and wages, unemployment, and female employment. The instrumental variable for Medicaid reimbursement was the peer group payment rate for 7 geographical market areas, and the instrumental variables for resident case-mix were the average county revenues for professional therapy establishments and the percent of county population aged 65 and over.

Results: Consistent with the rate incentives and rational expectation behavior, expected nursing home reimbursement rates in 2008 were associated with increased RN staffing levels in 2006 but had no relationship with licensed practical nurse and certified nursing assistant staffing. The effect was estimated at 2 minutes per $10 increase in rate.

Conclusions: The incentives in the Medicaid system impacted only RN staffing suggesting the need to improve the state’s rate setting methodology.

*Department of Medicine, Health Policy Research Institute, University of California, Irvine, CA

Department of Social and Behavioral Sciences, University of California, San Francisco, CA

The authors declare no conflict of interest.

Reprints: Dana B. Mukamel, PhD, Department of Medicine, Health Policy Research Institute, University of California, Irvine, 100 Theory, Suite 110, CA 92697-5800. E-mail:

© 2012 Lippincott Williams & Wilkins, Inc.