This paper estimates a hybrid total cost function to determine to what extent an urban/rural differential exists in home health agency expenditures in Wisconsin in 1987-1988. We find that costs are over $16 higher per visit in urban Milwaukee than in rural and small MSA counties, providing no evidence that Medicare reimbursement limits should be raised to reflect 'ruralness'. However, the cost of providing skilled nursing care exceeds both urban and rural reimbursement limits. Because rural agencies depend more on Medicare clients and provide disproportionately more skilled nursing visits, this might represent the source of any financial difficulty.
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*The authors wish to thank Anindya Sen and Paul Commins for their excellent research assistance. We also wish to thank Roger Feldman, Mike Finch, Terry Moore, Judy Sangl, John Geweke, Joseph Newhouse, and two anonymous referees for helpful comments. Any remaining errors or oversights, however, are the authors’ sole responsibility. This research was funded by the Health Care Financing Administration under HCFA Cooperative Agreement No. 99-C-99169/S-01. The conclusions are those of the authors and should not necessarily be attributed to HCFA.