Doing better to do good: the impact of strategic adaptation on nursing home performance

Health Services Research, June, 2007 by Jacqueline S. Zinn, Vincent Mor, Zhanlian Feng, Orna Intrator

The performance of nursing homes, particularly with respect to the quality of care, has been the subject of public policy concern for some time (Institute of Medicine 1986, 2001). Increased regulatory scrutiny was imposed by the 1987 Nursing Home Reform Act and subsequently reinforced by the quality initiatives that began in the 1990s. More recently, the Center for Medicare and Medicaid Services (CMS) began publicly reporting quality measures for individual facilities to assist consumers in selecting a nursing home (CMS 2005). However, the vicissitudes associated with heavy reliance on public program (Medicaid and Medicare) financing has raised awareness of the importance of monitoring, in addition to quality, indicators reflecting effective economic performance (Weech-Maldonado et al. 2003). Indeed, given the increased frequency of facility closures and bankruptcies in recent years, the old adage "to do good, you have to do well" has never been more relevant for the nursing home industry (Angelelli et al. 2003; Mot et al. 2004).

The role of strategic adaptation, defined as the alignment of organizational strategy and structure, in accounting for differences in organizational performance has long generated considerable theoretical and managerial interest (Lawrence and Lorsch 1967; Child 1972; Miles and Snow 1978; Schendel and Hofer 1979; Porter 1980; Ghemawat 2001). While an ongoing process, strategic adaptation can be greatly accelerated by a relatively dramatic and visible change or set of changes in the environment. Organizations which do not adapt their strategies and restructure accordingly in anticipation or in response to these changes may jeopardize performance (Schendel and Hofer 1979; Meyer 1982; Walston and Bogne 1999).

There have been a number of studies of the determinants of strategic adaptation in health care, including nursing home care, that confirm an environmental motivation (Zajac and Shortell 1989; Shortell and Zajac 1990; Meyer, Goes, and Brooks 1993; Banaszak-Holl, Zinn, and Mor 1996; Walston and Bogue 1999; Kumar, Subramanian, and Strandholm, 2002; Luke, Walston, and Plummer 2003; Luke 2004). Some have specifically investigated the impact of strategy implementation on the performance of health care organizations (Clement 1987; Clement et al. 1997; Flood et al. 1998). However, while a topic of considerable managerial interest and policy relevance, few have considered the performance impact of strategy implementation in nursing homes (Rosko et al. 1995; Davis, Brannon, and Zinn 2001; Castle 2003). Thus, the objective of this study is to determine whether, and to what extent, strategic adaptation, exemplified here by the implementation of a subacute/ rehabilitative care services strategy in response to market demands, affects nursing home performance.

CONCEPTUAL FRAMEWORK AND HYPOTHESES

There are several different theoretical perspectives on how organizations, such as nursing homes, respond to evolving environmental pressures and demands. The resource dependence perspective emphasizes strategic choice, with organizations deemed to have the ability to interpret environmental demands and respond accordingly (Pfeffer and Salancik 1978). This perspective argues that no single organization can generate all the resources it needs for survival, requiring strategic action to ensure access to critical resources controlled by other organizations in the environment. Thus, strategic responses are aimed at lowering the level of uncertainty in the environment by securing a stable flow of resources. However, organizations that provide resources (such as referrals for nursing home care), frequently seek accommodations in return from the resource recipient. Changes in organizational structure or behavior may be required to accommodate the demands of resource providers in order to secure a stable flow of resources (Oliver 1990).

The strategic management perspective complements resource dependence theory by taking the additional step of linking environmental forces with strategic implementation (Schendel and Hofer 1979; Shortell and Zajac 1990; Luke 2004). It is explicitly concerned with performance, arguing that managers have discretion in choosing and implementing strategies to match environmental demands in ways that enhance organizational performance. This perspective argues that in high performing organizations, structure follows strategy (Schendel and Hofer 1979; Kimberly and Zajac 1985).

Changing expectations on the part of major resource providers with respect to the acuity of care provided in nursing homes represents a major source of increased environmental pressure requiring effective strategic adaptation. By providing the financial incentive to reduce hospital length of stay through early discharge, the implementation of Medicare's Diagnostic Related Groups (DRGs) for hospital reimbursement had the effect of increasing the acuity and hence the medical care requirements of residents discharged to nursing homes (Gerety et al. 1989; Cornelius et al. 1994). Compounding the DRG effect, the growth of managed care to approximately 15 percent of the Medicare eligible population by 2004 also promoted reduced hospital length of stay, intensifying the medical care needs of patients discharged to nursing homes (ManagedCareOnline 2005). Thus, due in part to shortened Medicare and managed care hospital stays, the acuity level of nursing facility residents has increased substantially (Feng et al. 2006). National trends indicate that the proportion of nursing homes with more than 11 percent of residents receiving tube feeding increased from less than 10 percent in 1991 to 20 percent in 2000. Similarly, the proportion of facilities providing intravenous and tracheotomy services increased from 14 and 21 percent, respectively, in 1991 to 37 and 24 percent in 2000 (Zinn, Mor, and Gozalo 2000). In addition, after declining from 16.1 percent in 1997 to 12.7 percent in 1999 (possibly in reaction to prospective payment implementation), the percentage of nursing home residents receiving specialized rehabilitation care rebounded to 18.6 percent in 2004.