Nursing homes that improve their quality of care can reap financial rewards from that investment, according to a review of a federally maintained database on quality measures.

Unfortunately, the investment strategy may not work well for low-performing facilities that also have limited means to make improvements, Jeongyoung Park, Ph. D., and his colleagues wrote in the November issue of the journal Health Services Research (doi:10.1111/j.1475-6773.2010.01197.x).

"If the financial benefits of public reporting are targeted toward high-performing providers that are also well financed, [the policy] may merely direct financial resources to the providers that need these resources for quality improvement the least," wrote Dr. Park, a health services researcher at the American Board of Internal Medicine, Philadelphia, and his coauthors. "As a result, low-performing providers may improve at a slower rate or remain stagnant due to a lack of resources. ... In this way, public reporting may widen the disparities in quality between rich and poor providers."

The Nursing Home Compare tool, created and sponsored by the Centers for Medicare and Medicaid Services, was established in 2002. The site provides general information about nursing home characteristics, staffing, clinical quality measures, and inspection results. Consumers can navigate the site by geographic area and compare sites according to star ratings. Facilities receive 1-5 stars, representing quality, in each of four areas: health inspections, staffing, quality measures, and overall.

The researchers compared four financial outcomes (net resident revenue, total operating expenses, operating profit margin, and total profit margin) during two periods: 3 years before public reporting was instituted (1999-2002) and 3 years after (2003-2005). They examined the record of 6,286 Medicare-certified, freestanding facilities across the United States. Hospital nursing facilities were not included. The final analysis comprised 42,542 facility-years of data.

The study focused on changes in 15 clinical quality measures included in the Nursing Home Compare (NHC) tool, including percentage of long-stay patients, pain levels, pressure sores, depression/anxiety, incontinence, permanent urinary catheterization, mobility changes, urinary tract infections, and weight changes.

Each measure was calculated by year and facility. The results were then compared with financial performance in the periods before and after public reporting began. Facilities were considered high scoring if all 15 quality measures were above the median each year. Facilities were low scoring if all 15 clinical measures were below the median.

In the before period, 812 facilities ranked high in quality, 4,672 ranked in the middle, and 802 ranked as low. In the post-reporting period, 1,507 ranked as improved, 4,337 ranked as no change, and 442 ranked as worse. Facilities that improved after public quality reporting began averaged $8,412,762 in net resident revenues (2005 dollars). Those that didn’t improve averaged $8,206,766, and those whose quality got worse average $7,388,145.

"Generally, the high-scoring nursing homes and those that improved had better financial performance in the post-NHC period, compared with facilities that did not perform as well," the authors noted. However, facilities with increased revenues also showed increases in operating expenses "consistent with the expectation that quality improvement requires some investment of resources."

The pattern for total profit margins was not as clear, the authors wrote. "Better financial performance among facilities that improved was mostly driven by facilities where improvement led them to be ranked as high- or middle-quality facilities, while those that improved but remained low-quality did not exhibit improvements in financial performance. ... This threshold effect raises the concern that low-scoring facilities may find it increasingly difficult to respond to quality incentives over time, as substantial improvement is needed before financial rewards are experienced."

This finding "raises an important policy concern that over time, public reporting potentially reduces a low-scoring facility’s ability to further respond to quality improvement incentives" because these facilities often are poorly financed to begin with.

The analysis also identified Medicare coverage for residents as important to quality and financial return. "Our analyses indicate that the most important link between performing well on NHC and reaping financial rewards is an increase in Medicare admission," the authors wrote. "This path has face validity in that Medicare margins are known to be higher than Medicaid margins, and facilities compete to attract both Medicare and private-pay patients; this was true long before NHC. However, performing well or improving on NHC measures may give nursing homes an extra tool in attracting the more desirable residents," through marketing aimed at hospital discharge planners and families.

The study could be the basis of several key policy issues, the researchers concluded. The prospect of attracting a more lucrative patient population is a spur for nursing homes to improve their quality of care. Even if they do not achieve the highest rating, improvement translates into financial gain. But the researchers suggested, "Safeguards may be necessary to ensure that low-quality facilities have the necessary resources to improve" as well.

The study was funded by a grant from the Agency for Healthcare Research and Quality. The researchers declared no disclosures.

Nursing Homes That Invest In Quality Improvement Reap Financial Rewards