We examined the impact of environmental factors on USA nursing homes' participation in the subacute care market. Findings suggest that the Balanced Budget Act of 1997 did not have a significant impact in the participation of nursing homes in the subacute care market from 1998 to 2000. However, there was a declining trend in the participation of nursing homes in the subacute care market after the implementation of Medicare prospective payment system (PPS). Furthermore, nursing homes with a higher proportion of Medicare residents were more likely to exit the subacute care market after PPS. Results also suggest that nursing homes have responded strategically to the environmental demand for subacute care services. Nursing homes located in markets with higher Medicare managed care penetration were more likely to offer subacute care services. Environmental munificence was also an important predictor of nursing home innovation into subacute care. Nursing homes in states with higher Medicaid reimbursement and those in less competitive markets were more likely to participate in the subacute care market.
