Competitive market forces have failed to reduce the costs of elderly care or achieve quality outcomes because there is insufficient price transparency and the ability to switch providers, according to an analysis by the Melbourne Institute.

The research paper, Does Competition in Elderly Care Work Better?, published this week by the University of Melbourne’s Applied Economics Group, revealed that residential care for the elderly has not become more affordable or of better quality despite the targets of the 2013 Australian Government reforms introducing the competition.

Based on anonymized data submitted to the Royal Commission on the Quality and Safety of Elderly Care, he said competition varied from region to region but there was “no ‘clear association between competition and quality of care or price’.

“There is no evidence that competition has had a significant impact on quality and prices,” the newspaper said.

The measures to determine the quality of care were hours of registered nursing care, use of psychotropic drugs, premature death, assaults and complaints. None correlated with competition, except for the hiring of RNs.

“Taken together, our results suggest that market forces have failed to produce desirable results in the residential senior care sector,” the newspaper says.

“Market failures occur when market mechanisms fail to result in efficient allocation of resources and better outcomes.

“Competition should encourage providers to innovate, be more efficient and provide better quality services at a lower price. But this can only happen if the information on quality and prices is transparent, so that consumers can choose the best and cheapest suppliers.

“Neither is true for the residential senior care industry in Australia. “

He found that there was nine times more competition in cities than in regions. But, nearly a decade after the changes aimed at increasing market players, urban competition had actually diminished slightly.

Economists highlighted the Royal Commission’s call for more funding, but said that alone would not solve the challenges of caring for the elderly.

“Policies should focus on increasing transparency and increasing regulation of suppliers,” they said.

Instead, they called for a public rating system and quality care indicators so consumers can have more information on which to choose a provider.

“Such a system would allow older people and their families to make meaningful comparisons of the quality and safety performance of services and providers,” they said.

“Second, price transparency, or the lack of it, is another source of market failure that requires policy action. The current pricing structure should be simplified so that consumers can compare products and services from different suppliers with reasonable ease. A government controlled and managed comparison website is a solid alternative.

They called for an independent advocate for older people when seeking senior care, saying this could be a mandatory role in home care services.

Economists also said that if consumer choice is not able to stimulate competition, additional government regulation will be needed. They suggested a pay-for-performance system that links quality to funding.



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