Cost and production functions of US nursing homes were estimated using stochastic frontier approaches based on a 7-year panel data. Efficiency predictions from estimated frontier were then used to identify potential determinants of. This research also evaluated the effects of 1997 Balanced Budget Act on nursing home efficiencies. HCRIS-SNF was the primary database for this study and the final analysis sample size was 45,430 cost reports from 6,490 freestanding nursing homes. Total staff hours per resident-day was included in the frontier models to account for quality difference among nursing homes. Log-linear and translog functional forms were both employed in this study. A TOBIT regression model was estimated in the 2nd stage regression in addition to OLS regressions. Results from this study suggested translog functional form fits the empirical data better than the log-linear functional forms and time varying decay model is better than time invariant model. This study found that over the years US nursing homes operated at 75.4% cost inefficiency and 11.7% technical inefficiency on the average. Significant determinants of efficiency included ownership, chain affiliation, MSA, Certificate of Need/Moratoria regulation, percentage of Medicare patient days, geographic region and fiscal years. It appeared that economies of scale doesn't exist in US nursing home industry. The 1997 BBA PPS didn't seem to affect either technical or cost efficiency as of 2002. The author did observe a significant structural shift of the functions in post-BBA era
