Exposing care services to competition – effects on quality

1. Exposing care services to competition – effects on quality Work in progress Astri Drange Hole Bergen University College, Norway New Directions in Welfare II - Paris 2011

2. Motivation • Demography • Adverse change going on in the demographic structure • The elderly dependency ratio in Europe is expected to double by 2050 • Generational accounting in Norway from 1994 • Petroleum fund 1996/Government Pension Fund 2006 • Owns just over 1 percent of all global stocks • 3.200 billion NOK – more than 0.5 million N0K per capita • Strict policy rule: 4 percent real rate of return can be used per year • Resource scarcity • Necessary to consider efficiency matters • Minimize cost whilst maintaining a good quality New Directions in Welfare II - Paris 2011

3. Focus • Elderly long-term care is a municipality matter in Norway • Home based or institution based? • Focal point to provide a good quality of care • Municipal economic viability is important • Allocation policy to achieve cheaper services and increased focus on quality • Exposure to competition • This paper examines empirically if exposing the nursing home industry to competition is a means to achieve increased focus on quality in the industry New Directions in Welfare II - Paris 2011

4. Tentative conclusion • Prominent predictors of quality in the nursing home industry seem to be; number of staff, education of staff, workload, competition, centrality, unrestricted income, and required and real capacity in the region • More likely that an increase in quality will take place in public nursing homes than in nursing homes exposed to competition • Increase in workload, education, and centrality, which predict a positive impact on quality, seems to be more likely to take place in nursing homes exposed to competition than in public nursing homes New Directions in Welfare II - Paris 2011

5. Outline • Theory • Welfare economics • The Norwegian care sector • Data • Sources and restrictions, proxies, variables • Analysis • Descriptive statistics • OLS regression with cluster • Multinomial logistic regression • Concluding remarks New Directions in Welfare II - Paris 2011

6. Theory • A properly working competitive economy generates a Pareto efficient allocation of resources • This efficient allocation is not necessarily socially desirable • The real world economy is not always “properly working” • A market economy is not always efficient, let alone equitable • Government intervention to enhance economic efficiency and modify the distribution of income might be recommended • Link between a competitive economy and social welfare • The care market is not working properly, hence there should be a link between allocation policy, like exposing this market to competition, and higher social welfare for the elderly New Directions in Welfare II - Paris 2011

7. Theory • Market failures in the market for human services • Asymmetric information • Weak consumer sovereignty • The actors do not behave rationally • The price mechanism is not working • The market demand is determined by the market supply • Always a demand surplus • Allocation policy – exposure to competition • The responsibility for providing care services is divided between the public authorities and private actors • The public authorities are responsible for the allocation efficiency • The private actors are responsible for the cost efficiency New Directions in Welfare II - Paris 2011

8. Theory • Exposure to competition • The public authorities specify the product and the quality requirements and provide the funding of the production • The private actors produce the services • Tender competition • The suppliers –both private and public – bid for a contract issued by the authorities for a limited number of years • Quality of care is the most crucial competitive factor • Important to specify both the product and the quality requirements • Hence, exposure to competition implies increased focus on both the product and the quality of the product New Directions in Welfare II - Paris 2011

9. The Norwegian care sector • Privatization of the elderly care sector is not an issue • Justice and equality are important concepts in the Norwegian society • Political agreement that the authorities should promote economic and social justice • This is also institutionalized in the Norwegian welfare state • Produce goods and services and transfers money to citizens based on demographic, social and economic criteria • The Norwegian welfare state is not a nanny state • Justice includes elements of individual responsibility New Directions in Welfare II - Paris 2011

10. Data - Sources • Statistics Norway • Institutional (micro) and regional data • No open access to the micro databases • Ethical guidelines developed by the National Committee for Research Ethics in the Social Sciences and the Humanities (NSD) must be followed • Permission from this Data Inspectorate is required • Anonymity and professional secrecy requirements • A data security agreement must be signed. • Limited data availability • Proxies are defined and applied in the analysis New Directions in Welfare II - Paris 2011

11. Data - Proxies • Quality • NPR: Number of nurses in care per resident • Education • EduNwfR: Number of skilled nurses per total workforce • Workload – municipality average • WLR: Number of residents age 80+ per total number of residents • Competition - Herfindahl Index -The higher the index, the less competition • Market: Municipality • Market share: Number of beds in an institution per total number of beds in a municipality • Real capacity – municipality average • RCapR: Number of beds per population age 80+ • Required capacity – municipality average • RqCapR: Population age 80 + per total population New Directions in Welfare II - Paris 2011

12. Data – Provider category • Institutional (micro) data - 912 observations • Provider categories • Run by a municipality • Responsible for the allocation efficiency and the cost efficiency • 843observations (92.4%) • Exposed to competition • Responsible for the cost efficiency • 31 observations (3.4%) • 26 out of the 31 observations are run by a foreign company • Run by voluntary organisations or families • 38 observations (4.2%) New Directions in Welfare II - Paris 2011

13. Data – Location - Centrality • Centrality – 430 regions • Urban • Includes an urban settlement of more 50.000 citizens within a 75 minutes travel time from such an urban centre (467 observations – 51.2 percent) • Rural 2 • Includes an urban settlement of 15.000-50.000 citizens within a 60 minutes travel time from such an urban centre (182 observations – 19.9 percent) • Rural 1 • Includes an urban settlement of 5.000-15.000 citizens within a 45 minutes travel time from such an urban centre (80 observations – 8.8 percent) • Remote • Meets no requirements for travel time (184 observations – 20.1 percent) New Directions in Welfare II - Paris 2011

14. Data – Location - City New Directions in Welfare II - Paris 2011

15. Data – Financial Status • Restricted costs - municipality average • Legally imposed costs spent on provision of minimum standard services and goods based on demographic, social and economic criteria • Cost index: restricted costs per citizen per national mean of restricted costs • Unrestricted income – municipality average • Total income minus restricted costs • Income index: income minus restricted costs pluss national mean of restricted costs per citizen per national mean of restricted income • RGAFO • Register for Government Approval of Financial obligations • Legal rules requiring state review and approval of financial obligations • 49 out of 430 municipalities in the 2011 register. New Directions in Welfare II - Paris 2011

16. Descriptive statistics - Quality New Directions in Welfare II - Paris 2011

17. Descriptive statistics - Quality New Directions in Welfare II - Paris 2011

18. Descriptive statistics - Education New Directions in Welfare II - Paris 2011

19. Descriptive statistics – Size New Directions in Welfare II - Paris 2011

20. Descriptive statistics • The quality indicator NPR is highest on average in the public institutions and lowest in the institutions which are exposed to competitions • In Oslo this difference is 84 percent less than elsewhere • Much more variations in the public institutions. • The lowest NPR is in a public institution • In Oslo and in Bergen the education indicator is on average higher in the profit than in the public institutions • The biggest institutions on average are in Oslo and exposed to competition New Directions in Welfare II - Paris 2011

21. Analysis: OLS regression with cluster New Directions in Welfare II - Paris 2011

22. Analysis - results • The more staff – carers, nurses and administrators - the better quality • The smaller institution the better quality • The higher education ratio the better quality • The more real capacity in a region the better quality in an institution • The less required capacity in a the region the better quality in an institution • The more unrestricted income in the region the better quality • The more competition the better quality, but this effect is not statistical significant • The higher workload ratio the better quality • The more centrally located the institution is, the better quality • Provider category has a negative impact on quality New Directions in Welfare II - Paris 2011

23. Analysis: Multinomial logistic regression New Directions in Welfare II - Paris 2011

24. Analysis - results • It is more likely that an increase in quality will take place in a public institution than in a profit institution • The odds that an increase in the number of staff will take place in a profit institution is reduced compared to a public institution • It is more likely that an increase in the educational level of the staff will take place in a profit institution than in a public institution, but this result is not statistical significant. • The odds that an increase in workload will take place in a profit institution has increased compared to a public institution, but the result is not statistical significant. • The more centrally located an institution is, the more likely that it is a profit institution • The bigger the institution, the more likely that it is a profit institution • It is more likely that an increase in unrestricted income will take place in a public institution than in a profit institution New Directions in Welfare II - Paris 2011

25. Concluding remarks • In the literature several ways to measure quality are identified • Total number of deficiency of care in an institution • Total number of deficiency of life in an institution • The final choice of variables in this study has been restricted by the availability of data • The importance of a high educational level of the staff in both the process and the outcome of elderly care is documented in the literature . • A high proportion of trained nurses in the staff protects health and ensures safety of the residents • Hence, NPR is applied as a proxy for quality in this study New Directions in Welfare II - Paris 2011

26. Concluding remarks • In the literature several ways to measure quality are identified • Total number of deficiency of care in an institution • Total number of deficiency of life in an institution • The final choice of variables in this study has been restricted by the availability of data • The importance of a high educational level of the staff in both the process and the outcome of elderly care is documented in the literature . • A high proportion of trained nurses in the staff protects health and ensures safety of the residents • Hence, NPR is applied as a proxy for quality in this study New Directions in Welfare II - Paris 2011