Nonprofit vs. for Profit: Allocation of Beds and Access to Care in U.S. Nursing Homes

Problem definition: U.S. nursing homes allocate federal licensed beds among three categories: Medicare-dedicated beds, Medicaid-dedicated beds, and flexible beds for both populations. This article studies how nonprofit and for-profit nursing homes make bed allocation decisions and how this affects access to care for the economically disadvantaged Medicaid population. Methodology/results: Analyzing U.S. nursing home data during 2012–2017, we observe that nonprofit nursing homes on average had a higher Medicare-dedicated bed share than for-profit ones. Furthermore, nursing homes reduced their Medicare-dedicated bed share after being converted from nonprofit to for profit. Motivated by these empirical observations, we construct a queueing network model to study the bed allocation decision of a nursing home, whose objective function is formulated as the sum of its profit and its resident welfare, including the costs of blocking and waiting, weighted by the degree of altruism. The higher the altruism is, the more a nursing home acts like a nonprofit organization that cares about not only profit but also, resident welfare. We show that when prospective Medicaid demand is sufficiently high, more altruistic nursing homes choose a higher Medicare-dedicated bed share, thereby lowering Medicaid access; when prospective Medicare demand is sufficiently low, they choose a lower Medicare-dedicated bed share, thereby increasing Medicaid access. We further calibrate the model to predict the directional change in bed allocation following ownership conversions. Managerial implications: Contrary to common concerns, our empirical analysis shows that the expansion of the for-profit nursing home sector does not necessarily reduce access to care for the Medicaid population. Our theoretical model demonstrates that the impact of ownership type on bed allocation is shaped by the local demand mix from prospective Medicare and Medicaid residents. These findings offer actionable guidance for regulators evaluating ownership conversion requests, with our data-calibrated framework helping to inform approval decisions.

Funding: The authors acknowledge financial support from the National Natural Science Foundation of China [Grant W2433175].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2024.0937.