The effects of managed care and prospective payment on the demand for hospital nurses: Evidence from California

Objective. To examine the effects of managed care and the prospective payme nt system on the hospital employment of registered nurses (RNs), licensed p ractical nurses (LPNs), and aides. Data Sources. Hospital-level data from California's Office of Statewide Hea lth Planning and Development (OSHPD) Hospital Disclosure Reports from 1976/ 1977 through 1994/1995. Additional information is extracted from OSHPD Pati ent Discharge Data. Study Design. Multivariate regression equations are used to estimate demand for nurses as a function of wages, hospital output, technology level, and ownership. Separate equations are estimated for RNs, LPNs, and aides for al l daily services and for medical-surgical units. instrumental variables are used to correct for the endogeneity of wages, and fixed effects are includ ed to control for unobserved differences across hospitals. Principal Findings. HMOs are associated with a lower use of LPNs and aides, and HMOs do not have a statistically significant effect on the demand for RNs. Managed care has a smaller effect on nurse staffing in medical-surgica l units than in daily service units as a whole. The prospective payment sys tem does not have a statistically significant effect on nurse staffing. Conclusions. HMOs have affected nursing employment both because HMOs have r educed the number of discharges and because of a direct relationship betwee n HMO penetration and the demand for LPNs and aides. Contrary to press repo rts, LPNs and aides have been affected more by HMOs than have registered nu rses.