Hospital Cultural Competency Leadership and Training is Associated with Better Financial Performance

SUMMARY Goal: An organization’s cultural competency reflects its ongoing capacity to provide high-quality, equitable, safe, and patient-centered care. Cultural competency leadership and training (CCLT) influences organizational cultural competency, which could affect organizational performance. Policies regarding health disparities point to the need for hospitals to become culturally competent. This study aimed to explore if CCLT practices are associated with better financial performance. Methods: Using secondary data from three sources—the American Hospital Association Annual Survey, the Health Care Cost Information System, and the Area Health Resource File—a longitudinal panel study design reviewed 3,594 hospital-year observations for acute care hospitals across the United States from 2011 to 2012. CCLT, the independent variable, was measured as a summated scale of strategy, execution, implementation, and training in diversity practices. For financial performance, the operating and total margins of hospitals were measured as dependent variables. Two random-effects regression models with year- and state-fixed effects were used to examine the relationship, with hospital being the unit of analysis. Principal Findings: The descriptive statistics showed that hospitals had an average CCLT score of approximately 2 (the range was 0–4). Regression analysis indicated that an increase in the CCLT score was associated with a 0.3% and 0.4% increase in total and operating margins, respectively (p < .05). Also, with each 10 additional staffed beds, hospitals on average experienced a 0.1% increase in both total and operating margins. Overall, for-profit hospitals experienced a 2.4% higher total margin and a 4.9% higher operating margin, as compared to not-for-profit hospitals. On the contrary, government hospitals showed 1% and 5.8% lower total and operating margins, respectively. Applications to Practice: Results of our study support a business case for CCLT practices. Cultural competency makes good economic sense by helping to improve cost savings, increase market share, and enhance the efficiency of care. Therefore, healthcare leaders should consider investing in CCLT. With the growing emphasis on value-based purchasing related to patient outcomes and experience, hospitals that develop a high degree of cultural competency through CCLT can benefit from the changes in reimbursement. CCLT also affects financial performance through avoidance of costs related to employee absenteeism and turnover and improves team cohesiveness by reducing cultural conflicts. Other mechanisms by which CCLT assists in saving costs and affecting financial performance include avoidance of unnecessary readmissions and expensive hospitalizations through the proper screening of patients from diverse backgrounds. CCLT improves cultural competency and diversity management, thus creating a unique competitive advantage for hospitals.