Introduction

The market for nursing home care and other long-term care services is one of the most heavily regulated sectors in the US economy. Although long-term care regulations often serve secondary ends, such as controlling provider supply or regulating the price of services, the majority of these rules are designed to ensure the quality and appropriateness of services. There are different theories for the presence of regulation but a standard explanation is that they exist to address some type of market failure, such as consumers’ inability to assess, monitor and respond to low-quality care. Thus, government regulation can assist uninformed consumers by developing quality standards, evaluating whether those standards are met, and enforcing improvement when standards are not met. In addition, regulatory standards address the market and political power of nursing facilities and chains relative to residents, who are often sick, elderly and vulnerable.

While similar factors could apply to regulation of other industries, the large degree of public financing for long-term care services in the United States further justifies the extensive governmental intervention. Indeed, although the government itself owns very few long-term care facilities, the federal and state governments are the primary payers for services delivered in these settings. Medicare, a federal entitlement programme of health insurance coverage for the elderly and other protected classes, pays for the majority of post-acute (following acute hospital discharge) nursing home, home health and rehabilitative care. This programme is complemented by Medicaid, a means-tested social insurance programme for certain categories of individuals, primarily regulated and financed by the federal government but administered by the individual states. Medicaid is the primary payer for long-term services and supports, including the large majority of chronic nursing home care, in the United States.