Available online 17 November 2022

Abstract

In Australia, the US and Europe, policy makers use markets to incentivise aged care providers to produce greater quality care. The Australian Government announced in 2021 that it would further increase market forces in residential aged care to improve quality. The proposals respond to poor quality found within residential aged care, with overuse of psychotropic medications and physical constraints, social isolation and neglect. This paper outlines the market-oriented reforms the Government seeks to implement, including the policy development pathway over the last two decades. It refers to a theoretical model of provider behaviour under administered prices, and empirical research on the impact of similar market-oriented reforms delivered elsewhere, to highlight the reforms' strengths, weaknesses, and potential market outcomes. This paper concludes by identifying additional reforms that could better incentivise care quality and offers lessons to countries that have sought to marketise their nursing home care sectors.

Introduction

We prospectively analyse market-oriented reforms in Australia's residential aged care sector, announced by the Australian Government in 2021, and expected to be implemented from 2021-2025 across three phases. We use a theoretical model developed by Gaynor and Town, [1] and empirical research on market-oriented reforms in other countries, to assess their strengths, weaknesses, potential market outcomes, and suggest other reforms that could further incentivise care quality. We offer lessons for other countries that have sought to marketise their nursing home sectors, such as the US, England, Germany, Ireland and Finland, [2] by outlining how choice, price, number of providers and provider efficiency are likely to interact to incentivise care quality.

Section snippetsContext

Market-oriented aged care reforms have sought to provide individuals with the agency and autonomy to choose their services since the 1990s. [3] Different programmes have been implemented, such as ‘consumer-directed care (CDC)’ in Australia, ‘individual or personal budgets’ in the UK, and ‘cash for care’ in the US. [3 4] Governments have sought to help consumers choose nursing home care based on quality through publicly available quality information. Examples include the Nursing Home Care

Market characteristics

Residential aged care housed 242,612 Australians in 2018-19, delivered by 873 providers managing 2,717 facilities. The Government funds 73 per cent of residential aged care costs, [26] although reviews suggest greater proportion should be funded by consumers. [18] Prices for care services are set by the Government, while prices for daily living activities and accommodation are capped.

Around 22 per cent of all beds are owned by the top 10 largest providers, with seven providers owned by

The road to competition reform

While the Aged Care Act 1997 created Australia's modern aged care sector, market-oriented reforms have been recommended since its introduction. A review of the Aged Care Act 1997 in 2004 recommended a quality star rating system and allowing consumers to access residential aged care by taking a voucher to any provider. [30] A 2005 Senate Inquiry also recommended a star rating system and greater transparency by requiring providers to publish more information on service descriptions, physical

Conceptual framework

We used the Nash equilibrium model developed by Gaynor and Town [1] to assess the strengths and weakness of the 2021 reforms against market characteristics most likely to impact quality. We focus on their model for markets with regulated prices, given prices for residential aged care services are set by the Government. This model assumes providers maximise profit with respect to quality. It holds for both for-profit and not-for-profit providers, as the latter also extracts a non-pecuniary value

Increasing the sensitivity of demand to quality

A marginal change in provider profits with respect to quality is expected to increase if consumer demand and market share are more responsive to quality. [1] This can be achieved by providing relevant and clear information on quality, and retaining a solid accreditation, monitoring, and enforcement safety net to assure minimum standards. [41]

Providing transparent quality information can increase quality, although typically not across all quality indicators. A significant improvement in two

Conclusion

OECD governments are aware of the potential impact on service costs and budgets from an increasingly aged population. [68] Equity and fairness are unlikely to result through aged care markets without some government regulation. [69] This justifies the important role government plays in moderating these markets.

The Australian Government seeks to reduce market failure in residential aged care by introducing a star rating system and increasing competition. These are supported by stronger quality

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Table 1

Conflict of interest

None.

Acknowledgments

None.

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