State medicaid nursing home reimbursement rates:: Adjusting for ancillaries

Purpose: State variation in inclusion of ancillary services in daily Medicaid nursing home reimbursement rates, versus covering ancillary costs outside of such rates, makes rate comparisons difficult, The purpose of this study is to adjust for inclusion of ancillaries when comparing Medicaid rates across states. Design and Methods: Data for 1987-1998 were drawn from a national survey of Medicaid reimbursement. Employing a random-effects model, the PANEL option in the LIMDEP software was used to estimate effects on state average Medicaid nursing facility constant-dollar rates of the inclusion in those rates of a set of ancillaries: physical therapy, occupational therapy, prescription drugs, nonprescription drugs, durable medical equipment (DME), medical supplies, and physician services. Results: Rates averaged higher when they included occupational therapy, physician services, nonprescription drugs, and both DME and medical supplies. Adjusting for the inclusion of ancillaries leads to a much different ranking of states than for unadjusted rates. Implications: Public and industry policy makers should consider the inclusion of ancillaries in rates when considering the relative adequacy of rates across states.