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

BackgroundWider 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 LTCTheory-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 different2. Disability critique and market-structure3. Make or buy? An empirical question4. 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

ONGOINGExpert

workshopJan 2014

Final EventMid-2014