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Most empirical studies of the determinants of the quality of nursing home care find a strong relationship between poor quality and a high percentage of Medicaid patients in the nursing home. These findings are often interpreted as evidence that the reimbursement rates paid for Medicaid patients are constraining nursing homes from providing higher quality care. Alternatively, this relationship can be attributed to the presence of excess demand eliminating the need to engage in quality competition for the less lucrative Medicaid patients. This paper tests these two hypotheses using Wisconsin data from 1979 and finds evidence favoring the latter.
John A. Nyman (1988) studied this question.