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. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

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. 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

11. 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

12. Data – Provider category
Institutional (micro) data 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 citizens within a 75 minutes
travel time from such an urban centre (467 observations – 51.2 percent)
Rural 2
Includes an urban settlement of citizens within a 60 minutes
travel time from such an urban centre (182 observations – 19.9 percent)
Rural 1
Includes an urban settlement of 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. New Directions in Welfare II - Paris 2011
Data – Location - City
City
Population
Institution
Absolute
Percent
Oslo 12 57
6.2
Bergen
5.2 33
3.6
Tr.heim
3.5 27
2.9
Total
99.573
20.7
117
12.7
Norway
917
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
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

17. 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
.213/.045
.196/.105 57
New Directions in Welfare II - Paris 2011

18. 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

19. 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

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
NPR
Coefficient
Workforce
***
Real capacity **
Education
***
Income index
***
Size
***
Herfindahl index
Workload
***
Provider dummy **
Required cap.
***
Location dummy
***
n / cluster
769 / 401
R-square
.8105
New Directions in Welfare II - Paris 2011

22. 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

23. Analysis: Multinomial logistic regression
Profit
Odds ratio
Noprofit
Odds ratio
NPR **
Workload
Workforce
***
Education
Size
***
1.0158
Required cap.
4.57e -31**
1.29e-30***
Income index *
1.0386
Centrality *
1.0543
Base / n / LogL / LR chi Public / 774 / /
New Directions in Welfare II - Paris 2011

24. 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

25. 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

26. 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