Abstract: How do patient and provider incentives affect the mode and cost of long-term care? In this paper, we develop a unified empirical and theoretical framework to separate the effects of patient and provider incentives on the timing of nursing home to community discharges. To estimate the model, we compile a unique database of half a million nursing home stays using administrative and survey data. Our analysis yields three main insights. First, Medicaid-covered residents reduce their efforts to transfer to the community due to limited cost-sharing. Second, nursing homes increase their efforts to discharge Medicaid beneficiaries when capacity binds to admit more profitable out-of-pocket payers. Third, providers react more elastically to financial incentives than patients. We find that targeting provider incentives through alternative payment models, such as episode-based reimbursement, is more effective than increasing patient cost-sharing in reducing the length of nursing home stays and in generating long-term care savings.