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Competition, prices and quality of residential aged care in Australia

Aged care

Ou Yang, Jongsay Yong, Yuting Zhang and Anthony Scott

Abstract: We quantify competition in Australia’s residential aged care sector and study how competition is associated with the quality of care and prices in the sector. Competition is defined three ways: the number of competitors within 10 km radius of the facility; the distance (in km) to the third closest competing facility; and Herfindahl-Hirschman index based on market share of facilities within 10 km. We further examine whether quality and price differ by ownership types (government owned, for profit and not for profit), after controlling for competition. We find that more competition is not associated with better quality or lower prices. Government-owned facilities, in comparison to for-profit and not-for-profit facilities, are found to provide higher quality in some domains but not in others yet tend to charge lower prices than other ownership types. The results indicate the possibility of market failures in aged care. Two key sources of market failures, the lack of public reporting of quality of care and price transparency, should be addressed as policy priorities before competition can work in residential aged care markets.

Keywords: Nursing home completion; Aged care quality; Aged care prices; Australia.


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