An analysis of the cost of providing ancillary services to skilled nursing facility patients in New York State

Currently, nursing homes can arrange for the provision of ancillary services either by providing the services directly, purchasing the services through contracts and fees, or by outside billings, in which the services are supplied by other providers who then bill Medicaid directly. Frequently, some combination of these three modes of provision is used for each ancillary service. The purpose of this study is to explore ancillary costs in a sample of nursing homes and to determine, to the extent possible, the most cost-efficient means of providing selected ancillary services (physical therapy, radiology and medical staff services). Prior to examining the impact of the mode of provision on cost levels, other facility and patient characteristics that might justifiably affect costs are identified and adjusted for. The results demonstrate that outside billing or purchasing services can be much less expensive than providing the services directly. It is suggested that all ancillary services (outside billings as well as services provided directly through contracts and fees) be included when facility-to-facility cost comparisons are made. This approach should serve as an incentive for nursing homes to seek the most cost-efficient means of providing ancillary services.