To evaluate costs and effectiveness of home care and nursing homes, using the RUG-II case mix system, cost and longitudinal patient characteristic profiles were constructed on 1986 patients. Approximately 3300 nursing home residents randomly selected from the Department of Health Patient Review Instrument system and 660 home care clients selected from the Patient Assessment Tool for HomeCare database formed the basis of the study. A special data collection obtained longitudinal functional assessments for home care clients. Cost data were collected from the Department of Social Services Medicaid Management Information System.

Home care clients were younger, less functionally disabled, and had shorter length of stays than nursing home residents. Prevalence rates of medical conditions and treatments were low in both groups, but particularly low for nursing home residents. The two groups experienced few behavioral problems but a large number of home care clients had memory deficit problems.

Analysis of variance and Tukey pairwise comparisons were used to compare cost and effectiveness measures for nursing home levels (SNF, HRF) and home care programs (PCP, CHHA, LTHHCP). Effectiveness measures included the longitudinal change in functioning, hospitalization rates and predicted survival days. A parametric model was used to predict survival days. Cost measures included Medicaid and Medicare payments, costs of living and estimated informal care costs. The RUG-II case mix system controlled for different types of patients.

Home care programs were more effective at maintaining or improving physical functioning, especially initially independent patients. Home care clients had higher hospitalization rates and longer predicted survival times than nursing home residents, especially with initially independent clients. If patients were initially dependent then both groups had similar effectiveness measures.

When the cost of home care is calculated as the sum of total payments for services and living expenses, home care is less expensive than nursing home care. However, when informal care costs for home care are included, nursing home care becomes less expensive than home care. From a societal perspective, if effectiveness and costs of both settings are considered, independent patients would be placed in home care and dependent patients would be placed in nursing homes.