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
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
Focus
•
Elderly long-term care is a municipality matter in Norway
• Home based or institution based?
•
•
Municipal economic viability is important
• Allocation policy to achieve cheaper services and increased
focus on quality
•
•
Focal point to provide a good quality of care
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
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
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
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
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
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
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
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
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
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
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
Data – Location - City
City
Population
Absolute
Institution
Percent Absolute
Percent
Oslo
575.475
12
57
6.2
Bergen
252.051
5.2
33
3.6
Tr.heim
168.257
3.5
27
2.9
20.7
117
917
12.7
Total
99.573
Norway 4.799.252
New Directions in Welfare II - Paris 2011
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
Descriptive statistics - Quality
NPR
Public
Profit
Mean
.309
.176
.263
.181
Median
.277
.156
,248
.164
St.dev
.175
.085
.088
.086
Min
Max
.019
2.271
.087
.457
.127
.530
.093
.457
810
26
37
24
n
No-profit Company
New Directions in Welfare II - Paris 2011
Descriptive statistics - Quality
NPR
Public
Profit
No-profit
Company
n
Remote
.276/.139
.225
178
Rural1
.364/.207
.312/.057
78
Rural 2
.314/.138
.256/.078
180
Urban
.302/.200
Tr.hjem
.264/.121
Bergen
.329/.312
.147/.044
.241/.091
.146/.062
33
Oslo
.216/.104
.196.105
.213/.045
.196/.105
57
.170/.090
.260/.093
.174/.092
.286/.079
New Directions in Welfare II - Paris 2011
467
27
Descriptive statistics - Education
EduNWfR
Public
Profit
No-profit
Company
Remote
.226/.069
.127
Rural1
.258/.093
.241/055
Rural 2
.244/.086
.307/.077
.347/.083
Urban
.242/.094
.236/.076
.255/.082
Tr.hjem
.229/.072
Bergen
.235/.041
.283/.109
.243/.077
.226/.063
Oslo
.193/.058
.226/.027
.242/.093
.226/.027
.238/.067
.266/.025
New Directions in Welfare II - Paris 2011
Descriptive statistics – Size
Size
Public
Profit
No-profit
Company
n
Remote
31/15.978
28
183
Rural1
35/20.966
29/12.741
80
Rural 2
40/26.185 34/42.426
34/21.920
182
Urban
49/35.012 61/43.110
65/38.265
Tr.hjem
47/32.561
42/19.096
Bergen
67/34.818 49/35.539
79/49.813
60/42.426
33
Oslo
83/55.252 102/45.781
74/28.434
102/45.781
57
65/42.846
467
27
New Directions in Welfare II - Paris 2011
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
Analysis: OLS regression with cluster
NPR
Coefficient
Workforce
.004726*** Real capacity
.248602*** Income index
Education
Size
Workload
Required cap.
n / cluster
R-square
NPR
- .006947*** Herfindahl index
.321747*** Provider dummy
-1.736624*** Location dummy
769 / 401
.8105
New Directions in Welfare II - Paris 2011
Coefficient
.118551**
.093915***
- .026845
- .019493**
.017427***
Analysis - results
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•
•
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•
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•
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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
Analysis: Multinomial logistic regression
Profit
Odds ratio
Noprofit
Odds ratio
NPR
.000167**
NPR
.099065
Workload
350.2681
.090253***
Workload
Workforce
.458314
.993668
6.206497 Education
1.107463*** Size
10.9347
1.0158
Workforce
Education
Size
Required cap.
Income index
4.57e -31**
.000149*
Centrality
6.853643*
Centrality
Required cap.
Base / n / LogL / LR chi2
Income index
1.29e-30***
1.0386
1.0543
Public / 774 /-146.6606 / 1407.33
New Directions in Welfare II - Paris 2011
Analysis - results
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•
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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
Concluding remarks
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•
•
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
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