Long-term Care: Who should provide it, who would buy it and why it matters

1. 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 Leichsenring with Juliane Winkelmann Project commissioned by the Swedish Ministry of Health and Social Affairs

2. 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

3. 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

4. The appeal of (competitive) markets • Private firms producing homogeneous products/services compete for the preference of informed consumers • 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 “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

5. 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

6. 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 Contracts High measurability BUY Workforce Specific assets Quality assessment Irregular demand Core tasks PRODUCE Tasks change frequently Low measurability Source: Adapted from Preker et al (2000):784

7. Applying transaction costs to LTC

8. 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

9. Market mechanisms Public monopoly funded through taxes User choice, paying fees that reflect costs • 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

10. 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

11. 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

12. 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

13. 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 • ‘Grey market’ • self-employed • precarious care work • Households • aspurchasers • asemployers (‘do-it-yourself welfare’) • asemployees

14. 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

15. 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)

16. Conclusions • Make or buy? Not just economics, LTC is different • Disability critique and market-structure • Make or buy? An empirical question • 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 • Analysing national ‘quasi-markets’: starting points and path-dependency

17. What’s next? WP 4 Governance structure and funding flows WP 2 Quasi-markets Case-studies US, UK, DK, DE, AT, NL WP 1 Literature review ONGOING COMPLETED WP 3 Quality assessment WP 5 Final Report Conclusions Expert workshop Jan 2014 ONGOING Final Event Mid-2014