Modelling the effects of price competition on the utilization of health manpower

The introduction of diagnosis related groups (DRGs) and resource utilization groups (RUGs) for implementing prospective reimbursement is virtually certain to increase the cost-consciousness of hospital and nursing home administrators. One potential area for cost reduction is in nurse staffing. In this paper, we describe a model which identifies minimum cost nurse staffing patterns subject to contraints on patient needs, mandated staffing requirements, and labor availability, and which is also sensitive to quality considerations. We use the model to predict shifts in nursing patterns at an upstate New York nursing home. To the degree to which this model and this nursing home are typical, we foresee general reductions in the numbers of RNs and LPNs, compensated for by an increase in the number of Aides, and cost savings in the 5-10% range. We also demonstrate that the magnitudes of these changes will depend on the tradeoff between quality and cost considerations, and will certainly vary across facilities.