Central Planning and Market Based Reforms: Evidence From Ohio’s Long-Term Care Market
In this paper, we study an interesting “cap and trade” model that the State of Ohio uses to allocate licensed LTC beds. We present a simple theoretical framework that clarifies the ways that centrally managed LTC bed markets may lead to an inefficient allocation of a fixed supply of licensed beds and makes simple predictions about the implications of allowing LTC facilities to trade buy and cell bed licenses. We use data on bed transactions in Ohio before and after Ohio allowed LTC facilities to trade beds first within counties and later between counties. Our empirical analysis suggests that relative to CON management, a cap and trade market for LTC beds: 1) improves the distribution of beds statewide; 2) likely leads to movement of beds from high-Medicaid facilities to low Medicaid facilities; 3) is unlikely to result in infrastructure investments or quality improvements for selling facilities; and 4) should be structured to encompass the largest geographic unit (ideally the entire state) rather than smaller geographic sub-units.