Fair rental systems: paying nursing homes for capital costs.

Fair rental systems pay an imputed rent for the housing a nursing home provides for its residents. The rent is paid in place of reimbursement for capital costs covered by the system--depreciation, interest, lease payments, and return on equity capital. It is an approach that is intended to overcome the inflationary incentives of cost-based reimbursement. Several state Medicaid programs have adopted fair rental systems using different approaches. And although it is too early to tell which approach is best, one point seems clear--a fair rental system can be a distinct improvement over cost-based reimbursement, depending on design and administration.