A study is made of the comparative behavior of for-profit and not-for-profit long-term care facilities in New York State.

A model is created of a profit maximizing facility in which there are both Medicaid and private pay patients. The demand for beds by private patients dependent on quality of care perceived. Quality in turn depends on the debility of the patients and the intensity of factors providing care. The firm must balance the additional profit from private patients with the additional cost of attracting them with higher quality.

The variables used in the model are then used to econometrically estimate derived factor demand equations for nursing personnel. Data reflecting 1979 operations of long-term care facilities in New York were used. Special attention was given to data quality and the generation of a debility index and market area characteristics for each firm.

The study showed great differences in the behavior of the two classes of facilities. The for-profit firms adjusted their quantities demanded according to the economic variables--prices and wages. The not-for-profits' demands were determined more by scale variables than economic variables. In not responding to price signals the nonprofits are not choosing economically efficient modes of production.