Recent proposals aim to relocate relatively healthy residents from nursing homes to lower-cost assisted care facilities. Such a move would have impacts on nursing home costs for two main reasons. It would decrease utilization rates and increase patient care needs, or acuity. A translog cost model is used to examine the impact that acuity and utilization have on nursing home costs. Results indicate that decreasing utilization will reduce total costs for nursing homes. However, increasing acuity will increase total costs. The total effect on nursing home costs of the change in policy is to decrease nursing home total costs but increase nursing home average costs per patient day.