State medicaid nursing home reimbursement rates: Adjusting for ancillaries

Purpose: State variation in inclusion of ancillary services in daily Medica id nursing home reimbursement rates, versus covering ancillary costs outsid e of such rates, makes rate comparisons difficult, The purpose of this stud y is to adjust for inclusion of ancillaries when comparing Medicaid rates a cross states. Design and Methods: Data for 1987-1998 were drawn from a nati onal survey of Medicaid reimbursement. Employing a random-effects model, th e PANEL option in the LIMDEP software was used to estimate effects on state average Medicaid nursing facility constant-dollar rates of the inclusion i n those rates of a set of ancillaries: physical therapy, occupational thera py, prescription drugs, nonprescription drugs, durable medical equipment (D ME), medical supplies, and physician services. Results: Rates averaged high er when they included occupational therapy, physician services, nonprescrip tion drugs, and both DME and medical supplies. Adjusting for the inclusion of ancillaries leads to a much different ranking of states than for unadjus ted rates. Implications: Public and industry policy makers should consider the inclusion of ancillaries in rates when considering the relative adequac y of rates across states.