Market Structure and Long-Term Care
Private and public markets for long-term care have expanded rapidly in the last decade, especially for home and community-based services. Demographic change and trends to more care in the home mean that policymakers are grappling with the ability of the formal care sector to meet increasing demand at a reasonable cost, and to provide high quality care in the nursing home setting when care in the home is not an option. Policies have been enacted to address cost and quality concerns. To address cost concerns, a prospective payment system for Medicare home health care was adopted, to standardize costs and to reduce incentives toward over utilization of services. To address quality concerns, public reporting for Medicare-certified nursing homes was adopted, which allows consumers to sort on quality while potentially incentivizing low quality providers to improve quality. And yet, contrary to the intent of these policies, costs have continued to rise and quality has not significantly improved. Market structure may help explain the unexpected demand and supply responses we have observed. Supply responses, in particular, may depend on the ability of providers to react. Responses may depend on ownership of the provider’s firm, on the decision-making structure of the provider’s firm, with chain ownership indicating a centralized decision making structure and finally, on the level of competition in the provider’s market. In this session, three papers explore the response of providers to cost containment and quality enhancement policies, considering carefully the market structure considerations that providers face.