Is Managed Care Effective in Long-term Care Settings? Evidence from Medicare Institutional Special Needs Plans

Nursing homes face unique financial incentives that encourage under-investment in onsite clinical capabilities and overreliance on hospitals to triage and care for residents with dementia, contributing to high levels of health care spending for this population. A proposed solution to align incentives are Institutional Special Needs Plans (I-SNPs), which combine capitated financing with plan-provided onsite clinician presence. Using 12 million resident-quarters of data from 2016-2022, we exploit the timing of nursing homes’ I-SNP contracting to instrument for plan enrollment and estimate causal effects on hospitalization and other health outcomes. We found that I-SNP enrollment reduced quarterly hospitalization rates by 3 to 4 percentage points, which equates to one third of hospitalizations relative to the sample mean. We do not find consistent evidence of an impact on other health outcomes and quality of care indicators.