Government-owned aged care facilities provide higher quality of care and charge a lower average price than for-profit and not-for-profit facilities, University of Melbourne research has found.

The researchers from the Melbourne Institute of Applied Economic and Social Research used data under contract from the Royal Commission into Aged Care Quality and Safety to look into how competition impacts quality of care and prices in residential aged care.

They also looked at the links between ownership type – government, for-profit or not-for-profit – and quality and price, with results published in Health Policy this month.

Lead researcher Associate Professor Jongsay Yong from the University of Melbourne said they found the aged care market was not competitive.

“Consumers have difficulty finding information about quality and prices are really complicated to work out. So if you are a consumer and you don’t know what the price is, you can’t work out the quality and you can’t make informed choice,” Associate Professor Yong told Australian Ageing Agenda.

Associate Professor Jongsay Yong

The research found that government-owned facilities charge lower prices and scored better on some quality measures including emergency department transfers, falls, dementia hospitalisations, pressure injuries, adverse medication events, total hours of care and care hours with a registered nurse.

However, government-owned facilities on average had more reported assaults per resident than their private sector counterparts.

Associate Professor Yong said a reason for lower prices and better quality of care in government-owned facilities is that the profit motive is stronger in the private sector.

“The private sector needs to make a return for shareholders, and we know that even for not-for-profit operators, they behave pretty much like for-profits. So in that sense, there is a stronger incentive to cut costs,” said Associate Professor Yong, principal research fellow at the University of Melbourne.

“If you’re trying to cut costs, and there is no constraint on your quality and prices – in other words because a consumer can’t choose because they have no information about quality and they can’t work out prices – [providers] can lower their quality in order to achieve a lower cost base for that,” he said.

“That’s the prime reason why for-profits tend to have higher prices and the lowest quality. But we can’t rule out publicly run operators might receive more subsidies.”

However, he said the research didn’t look at this and while it is a possibility, it is unlikely it be a major factor.

“The other possibility is that there might be some tighter regulations on the on publicly run operators. We know that some states have mandated staff ratios under state-run nursing homes. So that’s particularly the case in Victoria. This sort of regulation [does] not apply to the privately run operators.”

Need for greater transparency

The findings highlight market failures and the need to look at how aged care is run in Australia, Associate Professor Yong said.

“If we try to rely on the market to allocate funding and resources in this sector, then we have to seriously look at how to get the market working.

“One thing is you have to let people be able to tell what the quality of a particular aged care home is, you need to let people work out in a straightforward way what prices they are paying. So right now, these two elements aren’t there in our sector,” he said.

Aged care providers need to be more transparent about their prices and their quality, Associate Professor Yong said.

“One of the difficulties I think in the past is that whenever governments try to audit quality, there’s much opaqueness there. And I think this is contributed by the reluctance of providers to be upfront about their quality.

“And that’s understandable. Nobody likes government to poke their nose around their operations and to see how you run your place. But that sort of mindset will have to change,” he said.

Access the studies Competition, prices and quality of residential aged care in Australia and Ownership, quality and prices of nursing homes in Australia: Why greater private sector participation did not improve performance.

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2 Comments

  1. To exclude funding variances and financial sustainability between government and non-government Providers weakens the validity of this research. Non-government Providers don’t simply “cut costs” – they have to survive within the constraints of funding.

  2. I’m sorry but what a load of academic rubbish! Government operated aged care facilities receive additional funding via the state taxpayer and whilst the “price to consumers” may be lower – the cost to the taxpayer is considerably higher. And these people get paid to produce such illogical conclusions.

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