Efficient health-care provision for nursing home residents is a concern in many OECD (Organization for Economic Cooperation and Development) countries. This paper analyzes whether nursing homes respond to financial incentives when deciding whether to hospitalize their residents. In Germany, reimbursements for nursing homes are reduced after a defined number of days when a resident stays in a hospital instead of a nursing home. As a result of a federal law introduced in 2008, some German states had to change the point at which reimbursements to nursing homes are reduced so that reductions are made from Day 4 instead of Day 1 of a resident's absence. This exogenously raised an incentive for the nursing homes affected to hospitalize residents especially for an expected short-term stay. This analysis exploits the introduction of the law in a difference-in-difference approach, using market-wide German-DRG files covering all hospital patients discharged from hospitals to nursing homes from 2007 to 2011. The results suggest an increase of approximately 11% in short-term hospital stays as a consequence of the longer reimbursement period introduced by the law.