Higher Nursing Staff Wages Are Associated With Lower Operating Margins in Nursing Homes: An Instrumental Variable...

Area of Science:

• Healthcare Economics
• Nursing Home Administration
• Health Services Research

Background:

• Nursing staff are vital to nursing home (NH) operations, representing a significant portion of revenue.
• Understanding the financial impact of nursing staff wages is crucial, especially with policy proposals for increased staffing hours.

Purpose of the Study:

• To examine the relationship between nursing staff wages and NH financial performance.
• To test efficiency wage theory in the context of NH staffing.

Main Methods:

• Utilized secondary data from Payroll-Based Journal and Medicare cost reports (37,933 facility-year observations, 2020-2022).
• Employed an instrumental variable (IV) approach for registered nurse (RN) wages and ordinary least squares (OLS) for licensed practical nurse (LPN) and certified nursing assistant (CNA) wages.
• Operating margin was the dependent variable; facility-level RN, LPN, and CNA wages were independent variables.

Main Results:

• A $1 increase in RN wages correlated with a 0.70 percentage-point decrease in operating margin (P=.01).
• A $1 increase in LPN wages was associated with a 0.17-point decrease (P<.001).
• A $1 increase in CNA wages was linked to a 0.31-point decrease (P<.001).

Conclusions:

• Increased nursing staff wages are associated with reduced NH operating margins, indicating a financial challenge for the industry.
• Findings suggest a need for policy interventions, such as wage subsidies or increased Medicaid reimbursements, to support financial viability amidst workforce investments.