HLTH 8451 Week 2 Market Failure Rationale Example

A Harm Is Not Yet a Failure: Testing Each Market Failure Weimer and Vining Name Against the Composite Heat Refuge Rule for Certified Nursing Homes

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Walden University

HLTH 8451: Public Policy Analysis

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Month Day, Year

A Harm Is Not Yet a Failure: Testing Each Market Failure Weimer and Vining Name Against the Composite Heat Refuge Rule for Certified Nursing Homes

The Rule Under Review

The composite rule analyzed this term would require every nursing home certified for Medicare and Medicaid to keep a refuge area held at or below 81 degrees Fahrenheit, sized at 30 square feet per resident, on backup power for the length of any declared heat emergency. It is a composite: no federal agency has proposed it, though its temperature ceiling and space allowance are borrowed from a Florida rule adopted after residents died in a facility that lost air conditioning following Hurricane Irma (Florida Agency for Health Care Administration, 2018). Current federal requirements already ask long-term care facilities to plan for alternate energy sources that keep temperatures safe during emergencies, but they do not require a powered cooling space (42 C.F.R. § 483.73).

That residents are harmed by heat during power loss is well documented. Among Florida nursing home residents after Irma, losing power raised the odds of dying within 7 days (odds ratio 1.25) and within 30 days (odds ratio 1.12) compared with residents whose facilities kept power (Skarha et al., 2021). Harm does not by itself justify regulation, however. Weimer and Vining (2017) ask the analyst to show that a market or other private arrangement is failing to produce an efficient outcome, and that a public remedy would do better. This paper applies their taxonomy one failure at a time.

Public Goods and Natural Monopoly

Neither applies. A cooled refuge room is rival, since space used by one resident is unavailable to another, and excludable, since a facility decides who uses it. Those are the marks of a private good. Natural monopoly requires declining average costs across the relevant range of output, so that one supplier serves a market most cheaply. Some rural areas have a single nursing home, which raises a question about local market power, but that concerns market structure rather than the technology of cooling. These failures are recorded as tested and set aside.

Externalities

Advocates for heat rules would likely argue first that a facility's failure to cool imposes costs on others. The case is weaker than it appears. The people who bear most of the harm, residents, are parties to the care relationship rather than bystanders. Their harm is a quality failure within an exchange, which the taxonomy treats under information and payment problems, not as an external cost.

Some spillovers do exist. When a facility without cooling sends residents to emergency departments during a regional heat event, hospitals and ambulance services absorb the load at the moment their own capacity is under strain. Families also bear costs when they travel to check on relatives or arrange transfers. These effects are real but small relative to the direct harm, and they are diffuse enough that measuring them would require assumptions this analysis cannot support. The externality argument is therefore judged weak: it adds to the case but cannot carry it.

Information Asymmetry

Here the case is strong. Weimer and Vining (2017) distinguish goods whose quality can be judged before purchase, those judged only after use, and those whose quality remains hard to judge even after use. A nursing home's heat preparedness belongs in the last group. A family choosing a facility sees rooms on an ordinary day. It does not see whether the generator can run the air handlers, whether staff have rehearsed moving residents to a cool space, or what happened during the last outage. Public quality ratings do not report generator capacity for cooling.

The conditions of choice make the gap worse. Many admissions follow a hospital stay and are arranged in days. Among older adults who died in nursing homes, the median stay before death was five months, and more than half died within six months of placement (Kelly et al., 2010). Residents who stay so briefly cannot learn a facility's preparedness by experience and switch, and many have cognitive impairment that limits their ability to judge it at all. Health economists have long argued that uncertainty about the quality of care sets health markets apart from ordinary ones, and that nonmarket institutions arise to fill the gap. A preparedness standard is one such institution. This failure carries the rationale.

The Public Payer

Medicaid is the primary payer for most nursing home residents, and it sets daily rates administratively rather than through bargaining (Bowblis et al., 2026). This is not a classic market failure in the taxonomy; it is a distortion created by how the good is paid for. Its effect on cooling is direct. A facility that invests in a powered refuge space cannot charge Medicaid residents more for it, and its rate may not cover costs at all: in 2019 Medicaid payments covered about 82 cents per dollar of estimated Medicaid costs, and 92 percent of facilities had Medicaid costs above Medicaid payments (Bowblis et al., 2026). Grabowski (2001) found that higher Medicaid payment was associated with modest gains in some quality measures, which suggests facilities respond to payment but that the response is limited.

The distortion matters because it weakens the price signal that could otherwise reward preparedness. Even a fully informed family could not choose a better-prepared facility by paying more if the resident's stay is covered by Medicaid at a fixed rate. Information asymmetry and payment structure therefore reinforce each other.

Could the Rule Fail?

A rationale that considers only market failure is one-sided. Government can fail too, and Weimer and Vining (2017) treat that possibility as part of the same analysis. Three risks apply. First, compliance costs fall unevenly. A generator large enough to cool a refuge area costs nearly as much for a 40-bed rural facility as for a 120-bed urban one, so the burden per resident is far higher for small facilities. Facilities that already operate below cost on Medicaid residents may respond by reducing beds, selling or closing. Recent evidence shows that changes of ownership and bed reductions have become more common than outright entry and exit (Chung et al., 2026), so the burden may show up as quiet reconfiguration rather than headline closures. Second, a uniform design standard may lock in one technology when cheaper means of keeping residents cool exist. Third, survey agencies would need to verify generator capacity and refuge sizing, which adds work to inspectors already responsible for a long list of requirements.

Table 1

Results of the Market Failure Tests for the Composite Heat Refuge Rule

Government failure does not defeat the rationale, but it argues for designing the remedy carefully.

Conclusion

A rationale for federal action exists, and it rests on information asymmetry reinforced by public payment, not on externalities. That conclusion shapes what kind of remedy the rationale supports. If the problem is that preparedness cannot be observed and cannot be rewarded through price, then disclosure, a performance requirement or a design mandate could each address part of it. The government failure test argues against assuming that the most prescriptive option is best. Weeks 3 and 4 take up that question by structuring the problem and comparing alternatives.

References

Bowblis, J. R., Miller, E. A., Simpson, E., Karon, S., & Cohen, M. A. (2026). Does Medicaid cover the cost of nursing home care? Variation by ownership status, payer-mix, and staffing level. Medical Care, 64(1), 29-37. https://doi.org/10.1097/MLR.0000000000002252

Chung, J., Lepore, M., Xue, T., Broudy, R., Park, H., LeBlanc, R., & Chin, D. L. (2026). Trends and factors in nursing home closures. JAMA Health Forum, 7(7), e262492. https://doi.org/10.1001/jamahealthforum.2026.2492

Emergency preparedness, 42 C.F.R. § 483.73 (2024).

Florida Agency for Health Care Administration. (2018). Emergency environmental control for nursing homes (Fla. Admin. Code R. 59A-4.1265).

Grabowski, D. C. (2001). Medicaid reimbursement and the quality of nursing home care. Journal of Health Economics, 20(4), 549-569. https://doi.org/10.1016/S0167-6296(01)00083-2

Kelly, A., Conell-Price, J., Covinsky, K., Cenzer, I. S., Chang, A., Boscardin, W. J., & Smith, A. K. (2010). Length of stay for older adults residing in nursing homes at the end of life. Journal of the American Geriatrics Society, 58(9), 1701-1706. https://doi.org/10.1111/j.1532-5415.2010.03005.x

Skarha, J., Gordon, L., Sakib, N., June, J., Jester, D. J., Peterson, L. J., Andel, R., & Dosa, D. M. (2021). Association of power outage with mortality and hospitalizations among Florida nursing home residents after Hurricane Irma. JAMA Health Forum, 2(11), e213900. https://doi.org/10.1001/jamahealthforum.2021.3900

Weimer, D. L., & Vining, A. R. (2017). Policy analysis: Concepts and practice (6th ed.). Routledge.