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

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

New Directions in Welfare II - Paris 2011 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

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

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

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

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

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

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

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

New Directions in Welfare II - Paris 2011 Data – Location - City City Population Institution 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 Total 99.573 20.7 117 12.7 Norway 4.799.252 917 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 No-profit Company Mean .309 .176 .263 .181 Median .277 .156 ,248 .164 St.dev .175 .085 .088 .086 Min .019 .087 .127 .093 Max 2.271 .457 .530 n 810 26 37 24 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 .170/.090 .260/.093 .174/.092 467 Tr.hjem .264/.121 .286/.079 27 Bergen .329/.312 .147/.044 .241/.091 .146/.062 33 Oslo .216/.104 .196.105 .213/.045 .196/.105 57 New Directions in Welfare II - Paris 2011

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 .238/.067 Tr.hjem .229/.072 .266/.025 Bergen .235/.041 .283/.109 .243/.077 .226/.063 Oslo .193/.058 .226/.027 .242/.093 New Directions in Welfare II - Paris 2011

Descriptive statistics – 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 65/42.846 467 Tr.hjem 47/32.561 42/19.096 27 Bergen 67/34.818 49/35.539 79/49.813 60/42.426 33 Oslo 83/55.252 102/45.781 74/28.434 57 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 .118551** Education .248602*** Income index .093915*** Size - .006947*** Herfindahl index - .026845 Workload .321747*** Provider dummy - .019493** Required cap. -1.736624*** Location dummy .017427*** n / cluster 769 / 401 R-square .8105 New Directions in Welfare II - Paris 2011

New Directions in Welfare II - Paris 2011 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

Analysis: Multinomial logistic regression Profit Odds ratio Noprofit Odds ratio NPR .000167** .099065 Workload 350.2681 .458314 Workforce .090253*** .993668 Education 6.206497 10.9347 Size 1.107463*** 1.0158 Required cap. 4.57e -31** 1.29e-30*** Income index .000149* 1.0386 Centrality 6.853643* 1.0543 Base / n / LogL / LR chi2 Public / 774 /-146.6606 / 1407.33 New Directions in Welfare II - Paris 2011

New Directions in Welfare II - Paris 2011 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

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

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