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Long-term Care: Who should provide it, who would buy it and why it matters
Theoretical underpinnings for a discussion on the make or buy decision
Ricardo Rodrigues & Kai Leichsenringwith Juliane Winkelmann
Project commissioned by the Swedish Ministry of Health and Social Affairs
Background
Wider Background
The Project
• Review empirical findings on differences in LTC provider quality between types of ownership (public, private, non-for-profit)
• Review quality assessment, quality assurance and contracting in LTC
• Review mechanisms to facilitate flow of funds across jurisdictions
• Shift towards market-based mechanisms
• Sweden no exception: 1992 Ädel reform
• Theory lost in the fog of ideological debate
This presentation
Objectives
• Discuss findings of literature review
• What follows
Road-map
• Competition in LTC markets
• Transaction costs economics and contract design
• Public/market governance: challenges
• What‘s so special about LTC? Of knights, knaves, haves and have-nots, psychology and disable rights movement
The appeal of (competitive) markets
• Information: Prices
• Cheap: Production efficiency
• ‘I would like to have…‘: Innovation, the public gets what the public wants
• Freedom: choice (what to buy, at what price, exit)
• Invisible hand and social planner
Private firms producing homogeneous products/services
compete for the preference of informed consumers
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Source: Adam Smith (1776):13
Do competitive markets only exist in textbooks?
• LTC is heterogeneous (e.g. geography): impact of competition on diversity is ambiguous (Eaton & Lipsey, 1989; Proper & Leckie, 2011)
• … and on quality: competition over price and quality (Dranove & Satterthwhaite, 1992; 2000)
• LTC as derived demand: caring externality (Baxter et al, 2011)
• Regulated prices (Bartlett & Le Grand, 1993)
• Demand in non-monetary forms (Bartlett & Le Grand, 1993)
• Profit-maximization? Not all, not-for-profit (Newhouse, 1970; Lakdawalla & Phillipson, 1998)
‘Quasi-markets’ of care
Transactions… cost
• Principal-agent: opportunistic behaviour and contestable markets (Williamson, 1975; 1985)
• Bounded rationality: you can’t predict everything (Simon, 1957)
• But it helps if you can measure it!
High contestability
Low contestability
High measurability
Low measurability
BUY
PRODUCETasks change frequently
Quality assessment
Specific assets
Irregular demand Core
tasks
Workforce
Contracts
Source: Adapted from Preker et al (2000):784
Applying transaction costs to LTC
Theory-driven questions Answer Caveats
Tasks can be detailed ex‑ante
Danger of standardisation of care and consequent negative impact on quality of services.
Compliance is easily monitored
Need for quality assessment mechanisms or user choice. Outcomes depend on network functioning.
The market is competitive or contestable
Leasing contracts mitigate natural monopolies. Require mechanisms for provider failure or exit.
Tasks are central to the state’s mission
Demand is irregular Worst case it is possible to lease the operation of the service and make only capital investments.
Production involves economies of scale
Limited scope without seriously compromising quality. Small geographic areas a possible exception.
Private providers can better hire specialised staff
Privately hired carers may have lower wages than civil servants. Impact on staff turnover and quality.
Contracts: designing the right incentives
• Adverse selection or cream-skimming: “Sorry, we’re full”
• Moral hazard or up-coding: “Ms Jones is really worse than we thought!”
• Fixed-price contracts (e.g. call-off or block contracts): fixed price per
individual service user/number of hours
• Price independent of user’s costs: no incentive for up-coding, strong
incentive for cream-skimming
• Stable funding stream, alignment of motivations with not-for-profit
(Forder, 1997)
• Cost/quality contingent contracts (e.g. spot contracts): price
depends on profile of user
• Limited scope for cream-skimming, but huge incentive for up-
coding
Market mechanisms
• Tendering/public procurement: competition for the market
• Outsourcing: contract-out support functions
• Public-Private Partnerships: spread spending in time
• Competition: barriers to entry/exit, monopolistic competition
• User choice: monopsonic buyer, cream-skimming, equity
• User fees: money follows the user, reward providers, limit demand
• Vouchers: money follows the user, informed consumers of care, public information, price increases
Less market-like
More market-like
Public monopoly funded through taxes
User choice, paying fees that reflect costs
The NPM context
New Public Management met with different ‘Welfare Regimes’ …
• levels of welfare provision
• ‘Welfare Mix’ (e.g. role of Third Sector, cultural values)
… and public administration patterns
• strong bureaucracy based on the primacy of law (e.g. DE)
• ‘politicised’ public administration (Southern Europe)
• ‘neo-corporatist’ type of democracy with different degrees of political fragmentation (AT, BE, NL, SE)
➡ NPM as add-on to traditional public administration
Different ways to ‘quasi-markets’ in long-term care provision
• Opening the market
• DE: LTC Insurance
• New for-profit providers and traditional welfare organisations
• The end of social planning?
• Voucher system
• FR: Cheque emploi
• New for-profit providers and traditional welfare organisations
• Competitive tendering
• IT: the Cooperative movement
• SE: private commercial providers (some cooperatives: child care)
• NL: merging non-profit providers
New and additional regulation tasks• Accreditation guidelines
• service specifications
• Tendering and contracting• standardisation vs. innovation
• negotiation skills
• regional/local variations
• pricing
• Quality assurance• proxy indicators
• challenges to measure quality in long-term care
• outcome-orientation
The ‘hybridisation’ of providers and new types of welfare mixes
Commercial market providers• Public-private
partnerships• Corporate Social
Responsibility …
Public providers• Purchaser-provider
split• Public-private
partnerships• ‘Public social
enterprises’
Third sector• Social enterprises• Cooperatives• ‘non-profit’ Srl.• self-help groups
Households• as purchasers• as employers (‘do-it-yourself welfare’)• as employees
‘Grey market’• self-employed• precarious care work
Excursus:LTC as an unregulated market• Increasing purchasing power and competitive
disadvantages
• The case of migrant carers as live-in personal carers
• Social innovation or textbook competitive markets?
• Perceived as win-win situation for all
• Moonlighting, black markets and precarious care work
• Regulation in the midst of the ‘life-world’
• Self-employed personal carers as a functional equivalent to family care
• Migration law, labour law, professional law, competition rules
• Quality assurance
• Connecting informal and formal care
What’s so special about LTC?
• Empowerment of users: agency, control, intrinsic value of choice (Collopy, 1995, Fine & Glendinning, 2005, Clarke et al, 2005, 2007)
• Limits to choice: framing, prospect theory, hyperbolic discounting, distress purchasing, psychological costs of regret, social norms (Kahneman & Tversky, 1979; Granovetter, 1985; Schwarz, 2004; Dowding & John, 2008)
• Equity: is choice louder than voice? The role of social capital, informed choices and cream-skimming (Hirschman, 1970; Le Grand, 2007; Glendinning, 2008; Greve, 2009)
• Motivations: extrinsic motivations (cash) may turn knights (not-for-profit) into knaves (selfish behaviour) (Williamson, 1993; Frey, 1998; Enjolras, 2009)
• Coordinated care: network, collaboration, continuum of care (Leichsenring et al, 2013)
Conclusions
1. Make or buy? Not just economics, LTC is different
2. Disability critique and market-structure
3. Make or buy? An empirical question
4. Salient issues:• Sufficient funding
• Barriers to entry/exit and switching costs
• The role of information
• Contract design
• Mixed-economy of care provision
• Social cohesion, equity of access, agency
5. Analysing national ‘quasi-markets’: starting points and path-dependency
What’s next?
WP 1Literature review
COMPLETED
WP 2Quasi-marketsCase-studiesUS, UK, DK, DE, AT, NL
ONGOING
WP 3Quality assessment
WP 4Governance structure and funding flows
WP 5Final Report Conclusions
ONGOING
Expert workshopJan 2014
Final EventMid-2014