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

Problem Definition: U.S. nursing homes allocate federal licensed beds among three categories: Medicare-dedicated beds, Medicaid-dedicated beds, and flexible beds for both populations. This article studies how nonprofit and for-profit nursing homes make bed allocation decisions and how this affects the access to care for the economically disadvantaged Medicaid population. Methodology/Results: Analyzing U.S. nursing home data during 2012-2017, we observe that nonprofit nursing homes on average have a higher proportion of Medicare-dedicated beds than for-profit ones. Motivated by this empirical pattern, we construct a queueing network model to study the bed allocation decision of a nursing home, whose objective function is formulated as the sum of its profit and its resident welfare including the costs of blocking and waiting, weighted by the degree of altruism. The higher the altruism, the more a nursing home acts like a nonprofit organization that cares not only about profit but also resident welfare. Our model generates two insights: First, when the arrival rate of prospective Medicaid residents is sufficiently high, more altruistic nursing homes set a higher proportion of Medicare-dedicated beds than less altruistic ones, thereby lowering access to care for the low-income Medicaid population. Second, when the arrival rate of prospective Medicare residents is sufficiently low, more altruistic nursing homes set a lower proportion of Medicare-dedicated beds than less altruistic ones, resulting in a higher access to care for the Medicaid population. Managerial Implications:These findings suggest that the impact of ownership type on bed allocation is heavily influenced by nursing homes' local demand mix from prospective Medicare and Medicaid residents, underscoring the importance for policymakers to consider each nursing home's market characteristics rather than developing bed regulation policies solely based on ownership type.