OBJECTIVE: To examine racial differences in the risk of hospitalization for nursing home (NH) residents. DATA SOURCES: National NH Minimum Data Set, Medicare claims, and Online Survey Certification and Reporting data from 2000 were merged with independently collected Medicaid policy data. STUDY DESIGN: One hundred and fifty day follow-up of 516,082 long-stay residents. PRINCIPLE FINDINGS: 18.5 percent of white and 24.1 percent of black residents were hospitalized. Residents in NHs with high concentrations of blacks had 20 percent higher odds (95 percent confidence interval [CI]=1.15-1.25) of hospitalization than residents in NHs with no blacks. Ten-dollar increments in Medicaid rates reduced the odds of hospitalization by 4 percent (95 percent CI=0.93-1.00) for white residents and 22 percent (95 percent CI=0.69-0.87) for black residents. CONCLUSIONS: Our findings illustrate the effect of contextual forces on racial disparities in NH care.