Q&A
Were you able to adequately control for variation in revenue earned from RADs and variation in facility costs across regions? There may be some confounding given reduced revenue and high costs are evident in rural and remote areas where there is also a lack of competition?
We control for variation across regions using small area (SA3) dummies in the regression analysis. This should remove the confounding caused by cost differences between cities vs rural and remote regions. It is less clear whether this will also take care of the variation in revenue earned from RADs, since there could still be variation in RADs within an SA3.
A large part of the 'price' is fixed by determination, so the most important component of variation is in the accommodation component. Rural areas tend to have lower competition and lower accommodation payments, so how do you untangle that?
As mentioned in the response above, we control for urban-rural differences by using SA3 dummies, essentially restricting the comparison within a small area. The results essentially come from within-SA3 variation in competition.
Is there evidence from other markets suggesting stronger correlation of quality and price to competition in other aged care markets? (e.g. NZ, UK).
Yes, in some US and UK studies we did see stronger results. See our recent review paper published in The Gerontologist.
Aside from imperfect information for consumers leading to market failure, do you have any views on the impact of the Aged Care Approval Round on competition?
ACAR effectively restricts the supply of aged care places in an ACPR (Aged Care Planning Region), so in this way it does restrict new entries and competition.
Inherent to the market-based system of aged care is that providers are incentivised to prioritise profit over care. With profit as a driving incentive, providers will probably do whatever they can to work around any new regulations that are introduced (e.g. star ratings) while still focusing on profit. Any thoughts on how we can direct the priorities of providers towards maximising quality of care rather than profit?
If consumer choice is to remain the central plank of our aged care policy, then improving the flow of information on quality is essential to make competition work. Providers would have to strive to provide better quality at lower prices if there is effective competition, since providers that fail to do so would be unable to survive in the market. In short, if there is effective competition, providers' priority would be to provide high-quality care, and this is not necessarily inconsistent with making a reasonable return.
The results suggest there is some strong competition between facilities but this does not impact quality. Do you think providers have the capacity to invest in more quality given price caps?
Yes, we think so, from the variation in quality levels between government-owned, not-for-profit and for-profit providers. Despite charging the lowest average price, government-owned providers were able to provide higher quality on average when compared to not-for-profit and for-profit providers. This suggests there is room for improvement for the latter two types of providers, despite the price caps. It should be stressed that even within the same provider type, say for-profit providers, there is also variation in quality.