Cost analysis and facility reimbursement in the long-term health care industry.

This article examines costs and develops a system of prospective reimbursement for the industry committed to long-term health care. Together with estimates of average cost functions--for purposes of determining those factors affecting the costs of long-term health care, the author examines in depth the cost effects of patient mix and facility quality. Policy implications are indicated. The article estimates cost savings and predicted improvements in facility performance resulting from adoption of a prospective reimbursement system.