The Effects of Managed Care and Prospective Payment on the Demand for Hospital Nurses: Evidence from California

December 1, 1999

OBJECTIVE: To examine the effects of managed care and the prospective payment system on the hospital employment of registered nurses (RNs), licensed practical nurses (LPNs), and aides.

DATA SOURCES: Hospital-level data from California's Office of Statewide Health Planning and Development (OSHPD) Hospital Disclosure Reports from 1976/1977 through 1994/1995. Additional information is extracted from OSHPD Patient Discharge Data.

STUDY DESIGN: Multivariate regression equations are used to estimate demand for nurses as a function of wages, hospital output, technology level, and ownership. Separate equations are estimated for RNs, LPNs, and aides for all daily services and for medical-surgical units. Instrumental variables are used to correct for the endogeneity of wages, and fixed effects are included to control for unobserved differences across hospitals.

PRINCIPAL FINDINGS: HMOs are associated with a lower use of LPNs and aides, and HMOs do not have a statistically significant effect on the demand for RNs. Managed care has a smaller effect on nurse staffing in medical-surgical units than in daily service units as a whole. The prospective payment system does not have a statistically significant effect on nurse staffing.

CONCLUSIONS: HMOs have affected nursing employment both because HMOs have reduced the number of discharges and because of a direct relationship between HMO penetration and the demand for LPNs and aides. Contrary to press reports, LPNs and aides have been affected more by HMOs than have registered nurses.

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