FIN-CT11

The Effects of Nurse Staffing on Hospital Financial Performance: Competitive Versus Less Competitive Markets

Damian Everhart, MS, RN [PhD Student in Health Services Research], University of Florida - Department of Health Services Research, Management & Policy, 101 S. Newell Drive, Room 4151, P.O. Box 100195, Gainesville, FL 32610-0195, (352)-216-3930, [email protected]

Donna Neff, PhD, RN, DSNAP [Associate Professor], University of Florida - College of Nursing

Mona Al-Amin, PhD, MPH [Assistant Professor], Sawyer School of Business – Healthcare Administration Department, Suffolk University

June Nogle, PhD [Associate Research Scientist], and University of Florida - College of Medicine, Institute for Child Health Policy

Robert Weech-Maldonado, PhD, MBA [Professor and L.R. Jordan Endowed Chair] University of Alabama-Birmingham, Department of Health Services Administration

Abstract

Background—Hospitals facing financial uncertainty have sought to reduce nurse staffing as a way to increase profitability. However, nurse staffing has been found to be important in terms of

quality of patient care and nursing related outcomes. Nurse staffing can provide a competitive

advantage to hospitals and as a result better financial performance, particularly in more

competitive markets

Purpose—In this study we build on the Resource-Based View of the Firm to determine the effect of nurse staffing on total profit margin in more competitive and less competitive hospital markets

in Florida.

Methodology/Approach—By combining a Florida statewide nursing survey with the American Hospital Association Annual Survey and the Area Resource File, three separate multivariate linear

regression models were conducted to determine the effect of nurse staffing on financial

performance while accounting for market competitiveness. The analysis was limited to acute care

hospitals.

Findings—Nurse staffing levels had a positive association with financial performance (β=3.3; p=0.02) in competitive hospital markets, but no significant association was found in less

competitive hospital markets.

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HHS Public Access Author manuscript Health Care Manage Rev. Author manuscript; available in PMC 2015 August 20.

Published in final edited form as: Health Care Manage Rev. 2013 ; 38(2): 146–155. doi:10.1097/HMR.0b013e318257292b.

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Practice Implications—Hospitals in more competitive hospital markets should reconsider reducing nursing staff, as these cost cutting measures may be inefficient and negatively affect

financial performance.

Keywords

nurse staffing; hospital competition; financial performance; resource based view

Introduction

Over the past few decades, hospitals have experienced financial uncertainty due to lower

reimbursements from payers, higher acuity patients and growing competition from rival

organizations and as a result, hospitals are continually seeking ways to reduce costs (Carey,

Burgess, & Young, 2011; McCue, Mark, & Harless, 2003; Kane, Shamliyan, Mueller,

Duval, & Wilt, 2007). Given the fact that registered nurse wages and benefits constitute a

substantial portion of overall hospital costs, hospitals have attempted to reduce nurse

staffing as a means to reduce costs and increase profitability (Rivers, Tsai, & Munchus,

2005). However, empirical studies have shown that adequate nurse staffing leads to better

outcomes for both patients and nurses without adversely affecting financial performance for

hospitals (McCue et al., 2003). Using the Resource-Based View of the Firm (Barney, 1991),

this study compares the effect of nurse staffing on financial performance between more

competitive and less competitive hospital markets in Florida. Findings from this study could

assist managers and hospital administrators in differentiating between efficient and

inefficient hospital cost reductions (McKay & Deily, 2005). For instance, if nurse staffing is

contributing to higher profitability, reducing the nurse-to-patient ratios could negatively

impact both quality of care and overall profitability.

Effect of Nurse Staffing on Patient, Nurse and Financial Outcomes

Registered nurses (RNs) constitute the largest group of health care professionals in the

United States and adequate nurse staffing has been linked to measures of both patient and

nurse satisfaction, and quality of care provided to patients (Shi & Singh, 2008; Unruh,

2008). The relationship between nurse staffing and measures of patient outcomes (e.g.

failure to rescue, mortality, and falls) and nurse outcomes (e.g. satisfaction and turnover) has

received significant attention in the literature with often similar conclusions regarding

patient and nursing related outcomes. Aiken and colleagues (2002) found that the risk

adjusted 30-day mortality and failure-to-rescue rates of hospital surgical patients increased

by 7% for every one patient increase in nurse workload. A higher proportion of nurses was

associated with lower patient mortality rates (Needleman et al., 2011), lower rates of adverse

hospital events, including pressure ulcers, urinary tract infections and falls (Unruh, 2003), as

well as lower rates of other adverse patient outcomes (Mark Harless, McCue, & Xu, 2004;

Lankshear, Sheldon, & Maynard, 2005; Unruh, 2008). A meta-analysis conducted by Kane

and researchers (2007) concluded that higher RN staffing is associated with decreased risk

of hospital-related mortality, hospital acquired pneumonia and other adverse patient

outcomes. Overall, the majority of literature on nurse staffing and patient outcomes suggests

that greater levels of nurses lead to overall better patient outcomes.

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Other relevant nurse staffing studies found a significant effect of higher nurse to patient

ratios on nurse outcomes, including turnover, burnout, job dissatisfaction and intent to leave

(Larrabee et al., 2003; Shaver & Lacey, 2003; Geiger-Brown et al., 2004; Kovner, Brewer,

Wu, Cheng, & Suzuki, 2006). Much of the research on job satisfaction focused on how low

staffing levels and heavy workloads may lead to nurse dissatisfaction and an increased

likelihood nurses will leave their jobs. According to Aiken and colleagues (2002), high

patient-to-nurse ratios had a negative impact on nurse job satisfaction; nurses with higher

patient loads reporting higher levels of dissatisfaction.

The effects of nurse staffing on patient and nurse outcomes are well established in the

literature. However, when considering the impact of nurse staffing on hospital financial

outcomes, there are only a few articles that have examined this relationship (Flood & Diers,

1988; Hadley, Zuckerman, & Iezonni, 1996; Cho, Kefetan, Barkauskas, & Smith, 2003;

McCue et al., 2003; Dall, Chen, Seifert, Maddox & Hogan, 2009). Specifically, hospital

financial performance measures were limited to overall costs while excluding other

important measures such as operating and total profit margin (Flood & Diers, 1988; Hadley

et al., 1996; Cho et al., 2003). McCue et al. (2003) linked nurse staffing, quality of care and

financial performance in a longitudinal study between 1990 and 1995. While this study

found increased operating costs with higher levels of registered nurses, there were no

significant effects of nurse staffing on profit margins, which questions hospital management

practices of reducing nursing staffing during times of financial hardship (McCue et al.,

2003). In addition, Rothberg, Abraham, Lindenauer and Rose (2005) performed a cost-

effectiveness analysis on patient-to-nurse ratios, and they found that lowering the nurse

workload decreased mortality rates and led to overall cost savings. Similarly, Dall and

colleagues (2009) determined that hospitals with greater nurse staffing levels resulted in cost

savings due to reductions in hospital acquired infections, shorter lengths of stay and

improved productivity. However, there is a paucity of research examining the effect of nurse

staffing ratios on hospital performance while controlling for market characteristics. Since

market structure, and competition specifically, affects the performance of organizations in a

given industry (Porter, 1980), we investigate the impact of nurse staffing on financial

performance in competitive versus less competitive markets. This study addresses these gaps

in the nurse staffing literature. Findings from this study may be useful for managers and

hospital administrators to differentiate between efficient and inefficient cost cutting

measures (McKay & Deily, 2005) contingent on the competition in their market.

Competitive Hospital Markets

The acute care hospital market environment is generally characterized as hospitals

competing for patients, physicians, medical staff and other vital resources, as well as seeking

ways to control costs and maintain a high level of quality (Thomson, 1993; Morrisey, 2001).

Hospitals are expected to operate like other providers of multifaceted medical services,

“differentiating themselves on the basis of services provided, quality of care and other

amenities” (Morrisey, 2001, p. 194). However, hospitals in competitive markets face

differing challenges and constraints, including competition for scarce resources among

competing hospitals and other health care providers. Hospitals with a significant share of the

market in a certain geographic region may be better positioned to attract quality medical

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staff, including registered nurses (Clement, 1987). In the nursing home industry, Starkey,

Weech-Maldonado and Mor (2005) found that markets with higher levels of competition

require nursing homes to practice more competitive strategies compared to markets with

lower levels of competition. This assumption holds true for hospitals where the competitive

market structure influences the strategies hospitals pursue in order to thrive financially. For

instance, studies on hospital competition have shown that hospitals in more competitive

markets will compete on the basis of quality and more extensive services instead of

competing solely on price (Keeler, Melnick, & Zwanziger, 1999). Nurse staffing is an

integral part of this strategy. Therefore, using the Resource-Based View of the Firm, we

argue that given the importance of nurses in the overall delivery of healthcare, hospitals in

markets with higher levels of competition must successfully recruit and retain nurses to

achieve a competitive advantage over other hospitals in the market. This will have a

significant positive effect on overall hospital financial performance. Conversely, hospitals in

markets with lower levels of competition do not face the same challenges for scarce

resources and the need to compete on quality. For this reason, nurse staffing might not have

a significant impact on financial performance in less competitive markets. By maintaining a

higher nurse-to-patient ratio, hospitals will gain a competitive advantage and achieve higher

overall financial performance in a competitive hospital market.

Theoretical Framework

According to Barney (1991), a firm’s resources includes “all assets, capabilities,

organizational processes, firm attributes, information, knowledge, etc. controlled by a firm

that enable the firm to conceive of and implement strategies that improve its efficiency and

effectiveness” (p. 101). For the purposes of this study, we define firm resources as nurse

staffing ratios: nurse staffing is part of the human capital resources of a hospital (Hitt,

Bierman, Shimizu, & Kochhar, 2001). Because RNs constitute a majority of the overall

health care workforce in hospitals, nurse wages and benefits on average account for a large

proportion of hospitals’ total costs (Rivers et al., 2005). As a result, their contribution to the

human capital resource is a vital part of the efficiency and effectiveness of hospital

operations (McCue et al., 2003). In addition, a positive association between the human

capital resources of education, experience and skills and organizational outcomes, including

financial performance has been found in earlier studies (Hitt et al, 2001; Huselid, 1995).

Barney’s (1991) seminal work on the Resource-Based View of the Firm predicts that the

strategy of an organization is dependent upon the valuable resources and capabilities it

possesses, and these resources may assist in establishing a competitive advantage over rival

firms. Several assumptions must be met in order to achieve a competitive advantage,

including resource heterogeneity and imperfect immobility across firms (Barney, 1991).

Hospitals vary in their nurse staffing strategies based on differing levels of nurse “training,

experience, judgment, intelligence, knowledge, relationships and insight of the workers in

the firm” (Barney, 1991 p. 101), as well as different cultural and social complexities among

the nursing staff in various departments within the hospital (Hitt et al., 2001; Barney, 1986).

These characteristics represent a barrier to entry and mobility for other firms to replicate

their strategy. As a result, the human capital resource of nurse staffing in this case is both

causally ambiguous and socially complex, and the ability to comprehend the social

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phenomena is unknown between hospitals (Barney, 1991). Using the Resource-Based View,

Weech-Maldonado, Meret-Hanke, Neff, and Mor (2004) found a positive association

between nurse staffing and quality of care in nursing homes. Therefore, using the Resource-

Based View, we posit that hospitals with higher nurse staffing are better able to recruit and

retain nurses, and will have a competitive advantage in more competitive markets when

compared to hospitals with lower nurse staffing.

Also, for a firm to have a sustained competitive advantage, four additional assumptions must

be met, in that the resource must be valuable, rare, imperfectly imitable and not substitutable

(Barney, 1991). As previously mentioned, nurse staffing affects patient, nurse and financial

outcomes, and they are a valuable resource for hospitals and other health care facilities.

Because of the predicted U.S. nurse shortage and a fixed amount of nursing education

programs to increase the supply, hospitals must compete with rival firms for this valuable

resource (Shi & Singh, 2008). Although hospitals can replicate standardized nurse-to-patient

ratios, they would be unable to replicate the interactions among the nursing staff and aspects

of their work environment. Therefore, in addition to nurse-to-patient ratios, we incorporate

work environment as a covariate in our model, as well as an interaction term between nurse

staffing, satisfaction and work environment. This 3-way interaction will test the joint

moderating effect of nurse staffing, satisfaction and work environment on financial

performance of a hospital (Dawson & Richter, 2006). Lastly, although hospitals have tried

to substitute RNs as a means of reducing costs, studies have shown that the quality of RNs’

work is not substitutable by licensed practical nurses, nursing aides or other nursing health

care providers because of the more rigorous educational requirements and higher level of

clinical skills of RNs (Weech-Maldonado et al., 2004). As a result, based on the theoretical

framework presented in this paper, we seek to test the following hypothesis:

H1: Hospitals with higher RN-to-patient ratios that are located in more competitive

markets will have better financial performance compared to those in less competitive

markets.

Methodology

This study linked data from the American Hospital Association (AHA) Annual Survey, the

Florida Hospital Uniform Reporting System (FHURS), the Area Resource File (ARF), and

the Florida Statewide Nurse Survey for 2008. The AHA Annual Survey Database contains

national data on hospitals operating in the U.S. and covers the following areas: demographic

information, organizational structure, facilities and services, utilization data, community

orientation indicators, physician arrangements, managed care relationships, expenses and

staffing. The FHURS contains hospital financial data reported to the Florida Agency of

Health Care Administration, including hospital profile data, all balance sheet accounts, daily

hospital services and case mix data. ARF contains national county-level data on more than

6000 variables related to health professions, health care facilities, and population data. It is

collected from more than 50 sources, such as: the American Medical Association, AHA,

U.S. Census Bureau, Centers for Medicare and Medicaid Services, Bureau of Labor

Statistics, and the National Center for Health Statistics.

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The Florida Statewide Nurse Survey was conducted in 2008 using a 25% random sample of

registered nurses (49,385) licensed and residing in the state as of 2007. The sample was

obtained from a publicly available mailing list provided by the Florida Board of Nursing,

This sampling strategy, employed successfully by other researchers, is described by Aiken et

al. (2002) and Neff and colleagues (2011). The survey yielded a response rate of 39%

(N=19,471). For the analytical purposes of this study, the sample was restricted to hospital

RNs who identified themselves as employed in hospital settings, (of the 19,471 nurses: 2%

were retired, 18% reported as not employed, and 55% worked outside of hospital settings).

In addition, we used responses from nurses who reported their age between 21 and 65 years:

of the total sample, 22% of total sample reported being outside this age range and were not

included in the study sample. Therefore, 8,853 nurse surveys were included in the study

sample. Although nurses may work in more than one setting, they were instructed to identify

their primary hospital work setting from a list of all Florida hospitals present in the survey.

Nurse and hospital level data from Florida in 2008 were merged in this study. There are 251

hospitals in Florida, and we included only acute care hospitals for which there was complete

information on structural characteristics (bed size, for-profit status, length-of-stay, and nurse

staffing) from the 2008 AHA Annual Survey. We excluded any hospital with 1) less than ten

nurse respondents from a statewide nurse survey and 2) if they reported aggregated

multihospital systems data. Also, we removed all U.S. Department of Veterans Affairs and

rehabilitation and psychiatric facilities because their financial reporting and market are not

comparable to acute care hospital systems. Finally, hospitals that did not report nurse

staffing data were excluded. After accounting for these exclusion criteria, the total number

of hospitals included in this study is 121. The final sample constitutes 45% for-profit and

55% of not-for-profit hospitals in Florida, and this is comparable to 47% for-profit and 53%

not-for-profit in the total sample of Florida hospitals in the 2008 AHA dataset.

Figure 1 provides a description of the study model examining the association between nurse

staffing and financial performance depending on the competition in the market.

VARIABLES AND MEASUREMENT

Table 1 outlines study variables, operational definitions and sources of data.

Dependent Variable—The dependent variable is total profit margin, which is an overall measure of financial performance in the literature (Gapenski, 1999; Weech-Maldonado et

al., 2012). Total profit margin takes into account all revenues (operating and non-operating)

and all expenses (operating and non-operating) in an organization, and it measures the

percentage of profit a company earns in relation to total sales (Weech-Maldonado et al.,

2012). This profitability measure is useful when comparing similar organizations, such as

hospitals (Gapenski, 1999). Additionally, net income is used to calculate total profit margin,

and this is defined as total revenues minus total costs (including taxes in the case of for-

profit hospitals) (Gapenski, 1999). Both net income and total revenues were obtained from

the 2008 FHURS data. As a result, the dependent variable of total profit margin used in this

study was calculated by dividing net income by the total revenues, as depicted below:

Total Profit Margin = Net Income/Total Revenues

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Independent Variable—The independent variable is the ratio of FTE RNs per 1000 inpatient days. This variable was calculated from the AHA survey data. The ratio of RNs per

patient day is commonly used in the literature as a proxy measurement of nurse staffing

(Unruh, 2008).

Control Variables—Additional covariates in this study describe hospital organizational factors, the market environment in which the hospitals operate, and nurse factors within the

hospitals.

Hospital Organizational Factors: The organizational control variables incorporated in this model are ownership status, overall case mix, average patient length of stay, number of

hospital beds, lagged total margin performance and the ratio of fulltime RNs to fulltime

LPNs and nurse aides. In empirical studies, hospital ownership influences quality of care,

costs and overall nurse staffing (McKay & Deily, 2005). Hospitals that operate with a for-

profit status are more motivated by increasing shareholder value, and they may have

structure and process differences that would impact total margin. Overall case mix measures

the complexity of patient conditions in a given hospital’s patient population and a higher

case mix indicates a higher acuity of patients, which has an impact on hospital costs and

profitability. Average patient length of stay is a measure of hospital efficiency and number

of hospital beds reflects hospital staffing capabilities, which can result in economies of

scale. The 2007 FURS total margin was included as a lagged variable to control for past

financial performance. Lastly, the ratio of RNs to LPNs/nurse aides, calculated from AHA

data, accounts for differences in nurse staffing mix (McCue et al., 2003).

Market Factors: Florida county market factors were abstracted from the Area Resource File. Hospital competition was measured by the Herfindhal-Hirschman Index (HHI), an

indicator of market concentration that is calculated by taking the sum of hospitals’ market

shares squared in a county (Baker, 2001). Market share, which is the proportion of hospitals’

average inpatient days in relation to the total inpatient days in a given market, was

calculated from the AHA hospital dataset. Per capita income is a predictor of a hospitals’

ability to collect revenues and make a profit. Hospitals located in areas with lower per capita

income typically treat more uninsured individuals and their ability to generate a profit is

reduced (McCue et al., 2003). Location of hospital in an urban or rural setting was not added

to the models due to high correlation with hospitals in more competitive and less

competitive hospital markets.

Nursing Factors: Nurse control characteristics abstracted from the Florida Nurse Survey were aggregated to the hospital level and these include nurse reported measures of level of

education, satisfaction, hospital work environment, and intent to stay with current employer.

These variables have a significant impact on the overall staffing levels and financial

performance of hospitals. Higher educational attainment affects overall quality of patient

care (Aiken, Clarke, Sloane, Sochalski, & Silber, 2003) and financial performance of the

hospital (McCue et al., 2003). Level of education is measured as the proportion of RNs with

a Bachelor of Science in Nursing (BSN) or higher compared to nurses with an Associate

Degree or lower.

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As previously mentioned, variations in nurse satisfaction can have an impact on turnover

and overall profitability of the hospital. Nurses who are more satisfied may be more likely to

stay with their current employer, and this would reduce the costs of hiring and training new

nurses (Rivers et al., 2007). In the 2008 Florida Statewide Nurse Survey, nurses self-

reported job satisfaction via a single item scale “How satisfied are you with your job?” with

one of the 4-point likert scale responses “very satisfied, moderately satisfied, a little

dissatisfied and very dissatisfied.” This variable was dichotomized to determine the overall

level of very satisfied RNs (1 = very satisfied and 0 = all others) because we were most

interested in nurses who are very satisfied with their jobs. The percent of very satisfied

nurses in the hospital is included as a covariate.

The nurse practice environment measure was assessed using the Practice Environment Scale

of the Nursing Work Index (PES-NWI), an extensively validated instrument (Lake 2002).

Five subscales, using 31 NWI items, describe the practice environment of registered nurses

in hospitals: Nurse Participation in Hospital Affairs (e.g., “staff nurses have the opportunity

to participate on hospital and nursing committees”); Nursing Foundations for Quality of

Care (e.g., “active in-service/continuing education programs for nurses”); Nurse Manager

Ability (e.g. “supervisors are supportive of nurses”; Leadership, and Support of Nurses (e.g.,

“a supervisory staff that is supportive of the nurses”); Staffing and Resource Adequacy (e.g.,

“enough registered nurses to provide quality patient care”); and Collegial Nurse–Physician

Relations (e.g., “physicians and nurses have good working relationships”). A Likert-type

scale indicates the degree (1=strongly disagree to 4=strongly agree) to which various

organizational features are present in the practice setting. The PES-NWI subscales were

computed for each hospital by averaging the items of each subscale for all the nurses. The

Staffing and Resources subscale was excluded in our analysis because it was highly

correlated with our measure of staffing – ratio of fulltime RNs per 1000 inpatient days.

Hospitals were then stratified into tertiles based on the average across subscales. PES-NWI

scores where the lowest tertile is referred to as a ‘poor’ practice environment, the middle

tertile as ‘mixed’, and the highest tertile is termed a ‘better’ environment.

To account for the relationship between nurse satisfaction, work environment and nurse

staffing, a 3-way interaction term is incorporated to assess the moderating effect of these

covariates on hospital financial performance. This variable was operationalized by

multiplying nurse work environment, RN staffing, and percent nurses very satisfied, which

resulted in a categorical variable (1= better environment/RN staffing/very satisfied; 2=

mixed environment/RN staffing/very satisfied; and 3= poor/RN staffing/very satisfied).

Finally, we include the proportion of nurses that report an intent to stay with current

employer, and this was measured by surveying RNs on whether they planned to be with

their current employer one year from now.

Estimation Approach: The unit of analysis is the hospital level and all analyses were conducted using STATA version 11. First, descriptive statistics were conducted to determine

the distribution of the variables in the model. A correlation matrix was used to exclude

highly correlated variables and reduce the threat of multi-collinearity. To assess the impact

of nurse staffing on hospital financial performance for all hospitals in the study, multivariate

linear regression was used. When comparing more and less competitive hospital markets,

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two regression models were estimated from the 121 facilities. To determine whether

hospitals were located in more competitive or less competitive markets, the median

Herfindahl-Hirschman Index (HHI) was calculated (median HHI is 0.25), and hospitals with

an HHI score below the median were considered to be in the more competitive market (n=60

hospitals) and hospitals above the median HHI index were considered to be in a less

competitive hospital market (n=61). Multivariate linear regression was performed on these

two models to ascertain the effect of nurse staffing on financial performance in more

competitive and less competitive hospital markets.

Findings

Descriptive findings of nurse responses to the nurse survey questions are presented in Table

2 for all 121 hospitals. Only an average of 26% of nurses surveyed were reported to be

‘Very satisfied’ with their current job. A mean proportion of 39% of nurses in our survey

indicated they had at least a Bachelors degree or higher. While a mean proportion of 25.6%

of nurses indicated a ‘Better’ work environment, 43.8% indicated a ‘Poor’ work

environment. In addition, nearly 80% of RNs responded that they intend to stay with their

current employer.

Table 3 shows the descriptive statistics of the outcome, predictor and hospital/market control

variables in the model for all 121 hospitals. The mean ratio of fulltime RNs per 1000

inpatient days for our sample was 5.5, and this is comparable to the total hospitals in Florida

(n=251) with a mean of 5.6. The mean number of beds per hospital in our sample was 304,

and the mean patient length of stay was 4.68 days. The mean calculation for HHI in this

sample was 0.26, and the mean overall case mix was 1.31, and this is slightly lower than the

average severity of patients’ conditions in the total sample in the AHA hospital dataset of

1.34.

Table 4 displays the comparison between the three regression models, including all facilities

model (N=121), the more competitive model (N=60) and the less competitive hospital

model (N=61). The adjusted R-squared, which measures the variation in the outcome

variable that can be explained by the model, is 0.43 for all facilities, 0.36 for the more

competitive model and 0.59 for the less competitive model.

Hypothesis 1 stated that a higher ratio of RNs per inpatient day in more competitive hospital

markets will be positively associated with overall firm performance, and this was supported

by the data. The relationship between nurse staffing and hospital financial performance was

significant at the p< 0.05 level in the more competitive model (β=3.3; p=0.02). In other

words, an increase in 1 RN per 1000 inpatient days in a competitive market is associated

with an increase in the total profit margin. However, RN staffing ratios were not

significantly associated with financial performance in less competitive markets.

Other relevant findings from the analyses include the association of the control variable

work environment on financial performance. There was a consistent positive relationship

between self-reported better work environment and hospital financial performance in the all

facilities model (β=5.11; p< 0.05) and the more competitive model (β=13.67; p< 0.01).

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Discussion & Practice Implications

Consistent with the Resource-Based View of the Firm (Barney, 1991), findings from this

study indicate that registered nurse staffing levels have a significant impact on hospital

financial performance in more competitive markets. These findings suggest that registered

nurses are valuable resources for hospitals in more competitive markets, and higher levels of

nurse staffing contribute to overall firm performance. Therefore, there are several

implications for managers and policy-makers. First, these findings may provide additional

evidence highlighting the economic value of nursing services (Dall et al., 2009). Although a

greater proportion of RNs may initially contribute to increasing operating costs in hospitals,

cost savings and profitability in the long-run are achieved through improved productivity,

such as reductions in adverse events (e.g. nosocomial infections), decreased length of stay

and more efficient care processes (Dall et al., 2009). Given the importance of nurse staffing

on financial performance in competitive markets, managers should be cautious about

reducing nurse staffing during times of increasing financial pressures. Also, managers and

administrators should develop strategies for both retaining and recruiting nurses, as well as

balancing cost containment strategies in competitive hospital markets. Reductions in nurse

staffing may not only affect financial performance, but hospitals must also consider the

impact on quality of patient care and the nursing work environment, especially in

competitive markets where hospitals are competing on quality and price (Keeler et al.,

1999). However, these findings do not diminish the importance of nurse staffing in less

competitive markets. The non-significant findings in less competitive markets could indicate

that there are other factors influencing profitability in these hospitals. Therefore, it is

important for managers and administrators to continually evaluate nurse staffing levels to

maintain adequate staffing ratios for each hospital.

From a policy standpoint, given the scientific evidence on the impact of nursing on both

quality of care and financial outcomes, there may be a greater need for governmental

agencies to assist in maintaining an adequate supply of nurses in the United States. Although

specific nurse-to-patient ratios have not yet been established, recent nursing shortages and

ineffective policies to increase the nursing supply necessitate the need for further

interventions to ensure improved staffing levels in hospitals and other health care settings

(Shi & Singh, 2008). Additionally, the financial benefits of nursing services may also be

seen by public and private payers of medical care through prevention of hospital acquired

adverse events and reduced length of stay, which could assist in linking quality of care with

reimbursement (Dall et al., 2009).

Although not the primary focus of this study, another consideration is the impact of

perceived work environment on hospital financial performance. As previously mentioned,

there was a positive relationship between better work environment and firm financial

performance in the all facilities model (β=5.11; p=0.052) and the more competitive model

(β=13.67; p=0.012). The results of this study indicate that better nursing work environment

in hospitals could be an important factor for overall firm financial performance. This may be

due to the fact that if the work environment is poor in a competitive market, nurses have

more options to work for a competing firm, as opposed to less competitive markets where

nurses may be more constrained by their location. Further research should be conducted to

Everhart et al. Page 10

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determine the relationship between nursing work environment, nurse staffing and financial

performance among hospitals, as this may provide an understanding as to how the work

environment can influence the relationship between nurse staffing and financial

performance.

There are several limitations that must be considered for this study. First, all hospitals and

nurses surveyed were located in Florida, which limits the ability to generalize the findings to

other regions. Second, this study was a cross-sectional design with data from 2008, so there

is a limited ability to determine overall causality among the variables, and further

longitudinal research should be conducted to evaluate the relationship over time. Also, there

may be a problem with endogeneity and omitted variable bias that is contributing to overall

firm financial performance. However, this is the first study to our knowledge that combines

a statewide nurse survey with administrative hospital data to establish the effects of

individual nursing factors on hospital performance. Future research could analyze the effects

of nurse staffing on financial performance over a longer time period. Additionally, future

research could determine the effects of nurse staffing on financial performance in individual

hospital units to evaluate hospital staffing patterns within various hospital departments.

Another potential area for future inquiry is analyzing the impact of nurse staffing on a firm’s

cost and revenue to evaluate the processes that lead to greater profitability in these

organizations.

Acknowledgements

This work is a product of resources through the Blue Cross Blue Shield of Florida Center for Health Care Access, Patient Safety and Quality Outcomes at the University of Florida. This Center is a joint research and education center for the Colleges of Nursing and Public Health & Health Professions. It is supported by a generous gift from the Blue Cross Blue Shield of Florida Inc. (BCBSFL) with the ultimate goal of improving health and health care for the citizens of Florida. The Center’s faculty, staff and students are accountable for the quality and integrity of all work conducted in the Center. BCBSFL does not in any way influence or endorse the research, projects, publications or programs of the center, nor does BCBSFL necessarily support findings or recommendations from the Center.

Disclosure of Funding. This study is partially funded by a National Institute of Health (NIH) grant #NIH- NINR-1K01NR011174-01A1.

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Figure 1. Study Model

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Table 1

Variable Descriptions

Variable Definition Source of Data*

Dependent variable:

Financial Performance Total Profit Margin 2008 FHURS

Independent Variable:

RN staffing ratio RNs per 1000 inpatient days 2008 AHA

Control Variables:

Hospital Factors

Ownership status Hospital ownership status (For Profit =1, Not For Profit=0) 2008 AHA

Case Mix Overall hospital case mix 2008 FHURS

Length of Stay Average length of stay in hospitals 2008 FHURS

Hospital Bed Number Number of hospital beds 2008 FHURS

Lagged total margin The total hospital margin reported in 2007 2007 FHURS

RN – others Ratio of fulltime RNs to fulltime LPNs and nurse aides 2008 AHA

Market Factors

Herfindhal index The sum of the market share squared of hospitals in a county ARF/AHA

Per capita income Per capita income in the community ARF

Nurse Factors

Nurse Degree Nurse reported highest level of education 2008 Statewide Nurse Survey

Nurse Satisfaction Nurse reported levels of satisfaction (very satisfied =1, All others=0) 2008 Statewide Nurse Survey

Work Environment Nurse reported hospital work environment (poor, mixed, better) 2008 Statewide Nurse Survey

Intend to Stay Nurse reported intent to stay at hospital 2008 Statewide Nurse Survey

3-Way Interaction Term Interaction between work environment, satisfaction and nurse staffing (categorical variable)

2008 Statewide Nurse Survey

* AHA – American Hospital Association

FHURS – Florida Hospital Uniform Reporting System ARF – Area Resource File

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Table 2

Descriptive Statistics for Nurse Survey Control Variables (N=121)

Percentages Mean(%) SD(%) Range(%)

RNs with BSN or higher 38.94 13.47 0 – 70.89

RNs surveyed as Very Satisfied 26.02 10.31 3.23 – 57.14

RNs surveyed work environment as Better 25.62 43.83 0 – 100

RNs surveyed work environment as Mixed 30.57 46.27 0 – 100

RNs surveyed intend to stay with current employer 79.81 10.16 40 – 100

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Table 3

Descriptive Statistics for Outcome, Predictor and Hospital Control Variables (N=121)

Mean SD Range

Total Profit Margin1 1.68 7.32 −21.03 – 18.95

Ratio of Fulltime RNs per 1000 inpatient days2 5.5 2.5 1.5 – 38

Overall case mix 1.31 0.19 0.92 – 2.14

Average length of stay 4.68 0.76 3.08 – 7.42

Lagged Total Margin Rate 3.98 7.72 −33.20 – 19.64

Total Hospital Beds 304.03 291.64 15 – 2186

Ratio of Fulltime RNs to other fulltime nurses 3.27 1.44 1.33 – 11.97

County Competition Index (HHI) 0.29 0.25 0.07 – 1

County Per Capita Income $37,055 $8,964 $22332 – 57446

1 Indicates Outcome variable

2 Indicates Predictor variable

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