Nursing home quality and financial performance: does the racial composition of residents matter?

Between 2010 and 2050, the minority population age 65 and older is expected to increase from 20 to 42 percent of the total population of those 65 and older (U.S. Census Bureau 2008). This suggests that the racial composition of nursing home residents will become more diverse over time. While recent studies point to increased nursing home use among blacks (Ness, Ahmed, and Aronow 2004; Smith et al. 2008; Feng et al. 2011), Konetzka and Werner (2009) have documented through a systematic literature review that there are disparities in the quality of nursing home care for minority residents. Racial/ethnic disparities in quality of care may arise from minorities being concentrated in lower performing nursing homes in terms of both quality and financial performance. Although overt segregation, such as the Jim Crow laws, has been abolished in the United States for more than 40 years, de facto segregation continues to exist in the U.S. health care system. Prior research indicates that nursing home segregation exists (Smith, 1990; Smith et al. 2007; Fennell et al., 2000) and various factors may contribute to U.S. nursing home segregation. One contributing factor may be geographic/residential segregation, which may limit nursing home choice for minorities. Black nursing home residents tend to follow residential housing patterns, residing in nursing homes located in their communities (Reed, Andes, and Tobias 2001; Smith et al. 2007, 2008; and Fennell et al., 2000). However, these nursing homes may be lower performing facilities in part as a result of lower socioeconomic conditions of minority communities. Another potential contributor of nursing home segregation is the admission process of residents into nursing homes. Better performing nursing homes may selectively admit residents based on payer status and/or race. Medicaid reimbursement is generally less attractive than private pay reimbursement to nursing homes. As minorities are disproportionately covered by Medicaid, this may further limit nursing home choice and further contribute to nursing home segregation. Nursing homes that disproportionately serve black residents tend to be heavily dependent on Medicaid. As such, they are considered part of the lower tier in what has been described as a two-tiered system of nursing homes in the United States (Mor et al. 2004). Medicaid-dependent facilities are more likely to encounter financial challenges due to lack of other revenue sources (e.g., other payers or philanthropy) needed to overcome Medicaid shortfalls (Weech-Maldonado et al. 2012). As a result, nursing homes with higher proportions of black residents may lack the resources needed to invest in staffing, training, and quality improvement initiatives to promote quality of care in nursing homes. The financial resources available to nursing homes may contribute to racial/ethnic disparities, as the quality of nursing home care has been associated with the availability of resources. Previous studies have used payer mix as a proxy to describe the financial resources available to nursing homes (Mor et al. 2004; Smith et al. 2007; Cai, Mukamel, and Temkin-Greener 2010). However, this approach does not provide a complete assessment of financial performance (revenues and costs) of nursing homes. Although studies suggest that a higher proportion of black residents are associated with lower quality and financial performance in nursing homes, little is known about how financial performance affects the relationship between the racial composition of residents and the quality of care. The study reported here therefore expands on the current literature using actual measures of financial performance (revenues, expenses, operating margin, and total margin) to examine the relationship between the racial composition of nursing home residents and nursing home financial performance. In addition, the study examined whether financial performance mediates the relationship between the racial composition of residents and the quality of care in nursing homes.