Ownership, quality and prices of nursing homes in Australia: Why greater private sector participation did not improve performance

Highlights

• Market-oriented reforms have been introduced in Australian aged care since 2013.

• We examine whether greater private-sector participation results in better outcomes.

• We find government-owned facilities provide higher quality and charge lower prices.

• Without addressing market failures, greater private-sector participation does not yield superior outcomes.

Abstract

Objective

This study examines whether greater private-sector participation in aged care can lead to better outcomes by comparing quality of care and prices of residential aged care facilities across three ownership types: government-owned, private not-for-profit and for- profit facilities. Australia, like many other countries, has been implementing market-oriented reforms aiming to promote greater consumer choice and increase the role of markets and private-sector participation in aged care.

Methods

Using retrospective facility-level data, the study relates several measures of quality of care and a measure of price to ownership types while controlling for facility characteristics. The data covered six financial years (2013/14–2018/19) and contained 2,900 residential aged-care facilities, capturing almost all facilities in Australia. About 55% were private not-for-profit, 30% private for-profit and 15% government-owned.

Results

Government-owned facilities provide higher quality of care in most quality measures and charge the lowest average price than private for-profit and not-for-profit facilities.

Discussion

Reforms promoting private-sector participation in aged care are unlikely to result in effective competition to drive quality up or prices down unless sources of market failure are addressed. In Australia, the lack of public reporting of quality and the complex pricing structure are key issues that prevent market forces and consumer choice from working as intended.

Introduction

Privatisation, market-oriented reforms, consumer choice, and greater private-sector participation have been a notable recent development of the aged care sector in many countries [4,6,11,14]. In Australia, the government has implemented a series of market-oriented reforms since passing the Aged Care Act 2013 [19]. The aims were to promote greater consumer choice and increase the role of markets and private sector participation [9]. It is believed that the reforms would help to improve nursing home care by enhancing efficiency and containing costs for the sector.

In economics, it has been argued that under regulated prices, more competition will in principle lead to better quality as providers strive to attract customers by offering better products and more variety of services [12,27]. Empirical evidence has been mixed in markets for hospital care [12] and nursing home care [29]. This can arise because of market failures, e.g., consumers may have limited information on quality, unable to respond to quality differences, or have few alternatives to choose from.

As the role of markets and private participation increases, it is important to ask whether better quality care and/or lower prices have been delivered. This question is highly relevant for countries that experienced similar changes, such as England, where 84 per cent of the nursing homes beds are provided by private sector in 2019 and three of the biggest five providers are private equity funded [3], Sweden and Denmark, which have attempted to introduce competition through privatization of publicly owned nursing homes and allowing the entry of private operators [15], [28], Japan and South Korea which have seen a rapid expansion of for-profit nursing homes [7,20], and Canada, which has introduced market-oriented restructuring in the province of Ontario [26].

The question takes on greater importance and urgency for Australia following a series of widely reported events of mistreatment of nursing home residents. A Royal Commission investigation, concluded in 2021, has called for fundamental and systemic reforms of the sector [24]. The objective of this paper is to compare differences in quality and prices by ownership type, specifically across government-owned, private not-for-profit and for-profit facilities. Using a wide array of quality indicators covering different domains, and by constructing a measure of price, we aim to shed light on the performance of providers across ownership type in Australia.

Evidence about the performance of aged care sector in Australia has been scarce, primarily due to the lack of data. Some earlier work in Australia compared the performance of aged care providers in Australia and reported lower quality of care in for-profit than not-for-profit and government-operated facilities [1,2,10,17,18]. King and Martin [18] examined staffing and found that for-profit facilities tend to have fewer staff per bed, younger patient care assistants, greater use of agency staff and higher staff turnover than not-for-profit facilities, but caution that the differences are small. Ellis and Howe [10] and Baldwin et al. [2] examined sanctions imposed on providers that fail to meet compliance standards and found that for-profit providers were more at risk of having sanctions imposed.

Internationally, several reviews covering different time periods and countries have concluded that for-profit nursing homes on balance tend to deliver lower quality of care than not-for-profit providers (e.g., [8,13,14,25]). A few recent studies have shown that for-profit providers perform better than not-for-profit providers in some quality dimensions but not in others [5], [15]. We contribute to the literature by updating and expanding the evidence on the performance of Australia's aged care sector using updated data on multiple quality measures covering a diverse range of quality domains. We also add to the evidence on price differences across ownership types, which has not been well understood in the literature.