Competition In Nursing Home Care

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The relationship between quality and competition is theoretically ambiguous in nursing home settings where prices are set by Medicare and Medicaid (Grabowski, Towns, Grabowski, & Town, 2011). However, if prices could be administratively set and greater than marginal cost, greater competition would increase the quality of healthcare (Grabowski, Towns, Grabowski, & Town, 2011). Medicare and Medicaid set the market prices for skilled and long-term care services for semi-private and private beds, price is set at one hundred and sixty-eight dollars a day for skilled care services and one hundred and ninety-nine dollars a day for long-term care services. The demand would be a straight line on the graph with the marginal revenue or price being one …show more content…
Medicare pays eighty percent of the price and Medicaid picks up the remaining twenty percent. Since, Carroll County is small relative to the total market of Tennessee, Carroll County cannot affect the market price by changing their output (Thomas & Maurice, 2010). Output would be the beds available at each organization, which is also regulated by Medicaid (Thomas & Maurice, 2010). Output is based on county need and population, same goes for nursing homes (Thomas & Maurice, 2010). Each nursing home in Tennessee must run under Medicaid and Medicare guidelines for price making the nursing homes in Carroll County price takers (Thomas & Maurice, 2010). Meaning the nursing homes in the county have no control over the price (Thomas & Maurice, 2010). If one nursing home was to close it would not be noticeable across all of Tennessee (Thomas & Maurice, 2010). However, due to the county being smaller there would be an increase in the demand for the other three nursing homes if one should close (Thomas & Maurice, 2010). Shifting the demand to the right causing a new intersection on the graph, new price, new output, and a new marginal revenue (Thomas & Maurice, …show more content…
Meaning each nursing home offers different levels of care and some are better than others (Thomas & Maurice, 2010). Giving the ones that are better than the others an imperfect advantage (Thomas & Maurice, 2010).
Finally, there are barriers that prevent new organizations from entering and exiting the nursing home market (Thomas & Maurice, 2010). Medicaid guidelines dictate the number of nursing homes allowed per a county. Medicaid numbers are based on the population census of elderly patients in the county age sixty-five and older. Once a nursing home is certified to a certain number of beds that nursing home never wants to have any beds decertified by the state because another nursing home, provided space could get certified for those beds or another nursing home could open in the county.
In summary, horizontal demand at the set price of one hundred and sixty-eight of one hundred and ninety-nine-dollar price is said to be perfectly elastic (Thomas & Maurice, 2010). Since, there are not a lot of substitutes in the area for nursing homes, the demand would be less elastic (Thomas & Maurice, 2010). However, in relation to all the nursing homes in the state of Tennessee, facing many perfect substitutes, will have a perfectly elastic demand (Thomas & Maurice,

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