Nursing homes and the Roemer-Feldstein hypothesis

Abstract

The theory of certification-of-need is based in large part on the Roemer-Feldstein hypothesis, which holds that demand for services is proportional to bed supply. Athough developed solely from hospital data, this hypothesis is commonly assumed to hold for nursing homes as well. In fact, a high correlation between nursing home bed supply and bed utilization does exist. However, the rate of utilization should not be judged without reference to the appropriateness of use. Analysis of nursing home placement data revealed that overplacement of patients in skilled nursing facilities decreased as bed supply increased. These results suggest that the Roemer-Feldstein hypothesis may provide an inadequate rationale for regulation of nursing home bed supply. Further developments should be based on more sophisticated notions of bed supply, should make reference to the appropriateness of services, and should be subjected to empirical verification.