Nursing Home Discharges and Exhaustion of Medicare Benefits

The price sensitivity of demand for nursing home care is a subject of considerable policy interest. Standard methods for measuring price responsiveness are difficult to apply to nursing home care, since accurate price information is usually unavailable and prices may reflect unmeasured quality characteristics. We estimate price sensitivity by exploiting the dynamic price variation implicit in Medicare payment rules for nursing home care. We determine whether the hazard rate for nursing home discharge shifts in response to the price changes that occur when Medicare coverage diminishes or ends. Our findings provide strong evidence that the duration of nursing home admissions is sensitive to price.