Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

Improving quality of care in US nursing homes is a national priority. However, improving quality involves substantial production costs, and, during the past decade, the US nursing home industry has experienced severe financial pressure. It is unknown whether financial performance impacts quality and quality improvements. If nursing home finances are a significant predictor of quality, the recent move toward wide-spread adoption of market-based quality improvement initiatives (i.e., public reporting and pay-for-performance) may not substantially improve quality across all facilities. Additionally, if fiscal resources are necessary to achieve high performance, the performance of financially weak facilities may worsen over time as market share and financial incentives are diverted toward higher quality facilities. If this occurs, the quality gap between facilities may widen. Despite the importance of this question, the relationship between financial performance and quality is unknown and, as federal and state governments adopt market-based quality improvement initiatives, warrants further investigation.

This study explores the impact of nursing home financial performance on quality and qualtiy improvements. The analyses are conducted using 4-year (2003-2006) panel data on nursing home quality that the Centers for Medicare and Medicaid Services post on their website, Nursing Home Compare, and Medicare cost reports of 14,020 freestanding Medicare-certified nursing homes in the US. These data are linked to the Online Survey and Certification Reporting System (OSCAR) and the Area Resource Files. Facility-level fixed-effects models are employed to determine the effect of time-lagged financial performance on changes in quality. A fixed-effects with instrumental variables approach is also used to account for the potential endogeneity of financial performance with qualtiy. Financial performance is measured in three ways: profits, revenues, and expenses. Quality of care is measured using subset of Nursing Home Compare quality measures and the number of deficiency citations from annual OSCAR data. Market-level variables (i.e., county occupancy rate, per capita income, unemployment rate) are chosen as instruments to predict the financial changes over time. The effects are estimated separately according to ownership status to account for the nature of financial and operational decision which impacts quality.

Preliminary results suggest that the relationship between financial performance and selected quality measures is positive and significant. Lagged three-year average total profit margin is associated with reductions in: (1) rates of long-stay residents with physical restraints, urinary tract infections, and moderate to severe pain; (2) rates of short-stay residents with delirium, pressure sores, and moderate to severe pain; and (3) total deficiencies on substandard care. The results from the instrumental variables approach support the persistent beneficial effects of higher financial status on selected quality measures. The effects are larger in size for nonprofit facilities as those facilities may reinvest additional resources in improving quality of care.

This study contributes to an improved understanding of the impact of financial performance on quality of care in the nursing home market. This study also provides insight into the important role of financial condition in explaining quality variation, and has important implications for health care delivery and policy.