The relationship between quality of care and financial performance in nursing homes.

Changes in the reimbursement structure of the Medicaid and Medicare programs have caused nursing homes to face severe revenue restraints. In the hopes of alleviating the effect of payment cutbacks on their financial performance, nursing homes have been instituting quality improvement initiatives. The goal of this study was to examine the relationships of quality of care with revenues, private-pay market share, and costs in the nursing home industry, and how these dynamics interplay to affect financial performance. This goal was achieved by using secondary data consisting of: (1) the Minimum Data Set Plus (MDS+); (2) the Health Care Information Analyst (HCIA) nursing home data set; and (3) the On-line Survey Certification of Automated Records (OSCAR) data set. Structural equation modeling (SEM) using maximum likelihood estimation was used to examine the total, direct, and indirect effects of the variables. Findings indicate that nursing homes that produce high quality care are able to achieve lower resident costs and in the process, report better financial performance than those facilities producing lower quality care. On the other hand, quality of care provided was not significantly associated with the revenues or private-pay market share of the nursing home. Overall, the total effects of quality to financial performance were positive (.055).