Rugs and equity of access to nursing home care

Case-adjusted prospective reimbursement systems, such as resource utilization groups (RUGs), may promote nursing home cost containment, but they may do no better than existing systems at encouraging homes to admit the more dependent and thus costlier Medicaid patients, if the homes’ reluctance to admit these patients is due to a shortage of nursing home beds. Using 1983 data on Wisconsin nursing homes, this paper presents evidence that suggests that the presence of excess demand, rather than low reimbursement rates, causes nursing homes to exclude the more costly Medicaid patients. Consequently, to benefit fully from RUGs, it is necessary either to eliminate excess demand (by increasing supply or decreasing demand) or to decide which patients have priority for admission and assign reimbursement payments to these patients that significantly favor these patients. Otherwise, access to nursing home care under RUGs is left to chance.