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1
Chapter 44. The Growth and Consequences of Quasi-markets in Long-
term Care
David Palomera and Margarita León, Universitat Autònoma Barcelona
Pre-print version
To cite this: Palomera, D. and León, M. (2023). The Growth and Consequences of Quasi-
markets in Long-term Care. In Daly, M., Birgit Pfau-Effinger, B., Gilbert, N. & Besharov,
D. (Eds.), The Oxford Handbook of Family Policy over the Life Course. (pp. 961-978).
Oxford: Oxford University Press.
Abstract
This chapter investigates how the extension of markets in Western Europe’s long-term
care (LTC) systems has shaped the provision of care over the most recent decades. The
chapter pays attention to the provision of formal LTC, with a special focus on public and
private relationships, taking into consideration the relevance of national and regional
contexts. The chapter outlines present relevant conflicts that quasi-markets and New
Public Management (NPM) logics have brought to care economies. It shows the extent
to which the impact of quasi-markets on care provision is mediated by specific market
dynamics, such as who is available to provide good quality care and political economy
contexts, including power relations between different actors. The chapter’s last section
explores the introduction of quasi-markets in nursing homes in Germany, Italy, Spain,
and the United Kingdom in relation to two main issues: the impact of market structures
and concentration dynamics on determining outcomes and the capacity to monitor,
regulate, and hold private actors accountable in these four countries. The authors draw
the conclusion that concentration dynamics in the nursing home sector should be carefully
assessed, especially when it comes to understanding how investment capacity and capital
accumulation affects public control. The exploration of recent quasi-market dynamics in
the nursing home sector of the four countries studied here poses the fundamental question
of how to reconcile the interests of powerful market actors and the responsibility of the
state toward providing for good social care for all.
Keywords: long-term care, LTC, quasi-markets, market structures, nursing home sector,
social care
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1. Introduction
Marketization refers to an increase in price-based competition between providers; this
usually leads to privatization, that is, an increase in provision carried out by non-
government providers (Krachler and Greer 2015). Since the late 1980s and early 1990s
marketization strategies have been introduced by governments across the globe to
purposely limit state intervention, reduce taxation and promote the merits of individual
choice and responsibility. Markets have substantially changed the way in which welfare
states function, but the degree and manner of marketization vary significantly across
countries, as well as across different welfare state domains. Right-wing governments have
willingly pushed forward neoliberal agendas but, as Gingrich (2011) rightly argues,
market reforms are not just about the relative power of the Right. Left-wing governments
have also been introducing pro-market reforms for quite some time now, although with
seemingly different goals. For progressive governments, pro-market reforms respond to
pressures on demand. In some instances, mostly in health and social care, growing
demand due to an ageing population has clashed with severe budgetary constraints. In
other cases, the general public’s discontent with excessive administrative bureaucracy,
scarce accountability and a rigid, uniform model has spurred policymakers to introduce
changes in the functioning of the welfare state. Although the left has by and large
maintained its commitment to a strong solidaristic welfare state, it has opened itself up to
markets as a way of introducing social services that are more diversified and oriented to
individual needs, by providing solutions that aim to be more tailor-made and less one-
size-fits-all. Ultimately, a more diversified public/private supply has been seen as a good
way to respond to existing pressures. As Gingrich (2011) points out, the strongly
normative pro-market versus anti-market debate does not leave space to reach an
understanding of how market reforms were introduced with seemingly different goals and
have led to very different results. Furthermore, as we know, welfare state reforms are
path-dependent, with different institutional structures prompting different kinds of
reforms. Both the capacity to ‘resist’ marketization and the capacity of markets to break
into policy domains controlled by the state vary depending on these pre-existing
structures.
In contrast to what happened to other key pillars of the welfare state, such as pensions,
health care or education, most European social care systems expanded at a time in which
the finances of public systems were under increasing pressure and calling for more social
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spending (via higher taxation) was becoming increasingly difficult to sustain politically.
Thus, the marketization trend coincided with the expansion of LTC systems in Europe,
within a context of increasing tensions between universalization and strong budgetary
limitations (León et al., 2014). Precisely because of the combination of financial hurdles
on the one hand and pressures to expand and improve on the other, many welfare states
combined a more pluralistic LTC system with tighter targeting mechanisms, which often
implied a re-definition of needs (Rostgaard and Szebehely, 2012). In addition to an
increase in the participation of private agents in the provision of care, the externalization
trend, together with a more pluralistic system of delivering care, also fostered the growth
of informally paid-for markets. In a number of countries, the public sector has been
actively involved in the creation of cash-for-care schemes that give users the chance to
freely purchase care. In Southern and Central Europe this has given rise to an unregulated
market with a low-paid, mostly immigrant workforce (Van Hooren 2014).
In this chapter we investigate how the extension of markets in western Europe’s LTC
systems has shaped the provision of care over the most recent decades. We pay attention
to the provision of formal LTC with a special focus on public and private relationships,
taking into consideration the relevance of national and regional contexts. We present
relevant conflicts that quasi-markets and New Public Management (NPM) logics have
brought to care economies. We also show the extent to which the impact of quasi-markets
on care provision is mediated by specific market dynamics (who is available to provide
good quality care) and political economy contexts (power relations between different
actors). Looking at the nursing home sector we conclude that the dynamics towards
ownership concentration in this sector should be carefully assessed, especially when it
comes to understanding how investment capacity and capital accumulation affect public
control.
The chapter is structured as follows. The next section overviews the main ideational
drivers behind the introduction of quasi-markets in the delivery and management of
welfare services. Section three studies the historical and institutional context in which
quasi-markets where introduced and depicts differences and similarities in different
welfare regimes in western Europe, with special focus placed on LTC. After decades of
introduction of quasi-markets in personal services, section four reviews the theoretical
and empirical literatures for what they say about the implications of the introduction of
4
quasi-markets in personal services, including dubious gains in efficiency, poor labour
conditions, inequality and growth and imbalances in power relations, especially due to
tendencies of market concentration. Section five takes forward some of these critiques
and studies them in the case of nursing homes, using as reference points Germany, Italy,
Spain and UK. Compared to the provision of other social services, where non-profit
providers dominate provision, in these four countries the asset specificities of nursing
homes and the mix with private market allows the generation of important cash flows,
attracting international investment. Therefore, it is here where we can gain important
insights regarding the dynamics and limitations that quasi-markets have with respect to
the introduction of for-profit motives in welfare state provision. Section six concludes
with a short overview.
2. Quasi-markets: conceptual definition and main ideational drivers
The quasi-market as a concept refers to the idea of introducing market principles into the
provision of goods and services. It leads to the introduction of new, usually rather
complex, public-private relationships in the provision of public services. Quasi-markets
differ from conventional markets in that, on the supply side, competition is not directed
only to maximize profits and services are not necessarily privately owned. On the demand
side, purchase is not always expressed in monetary terms (e.g. vouchers) and the
immediate consumer might delegate choice to a third party (social services, health
authorities, etc.) (Le Grand, 1991). Therefore, quasi-markets mainly refer to the
constraints of introducing market principles in personal services where the public sector
plays a significant role. As we will see later in the chapter there are various ways in which
market principles can be introduced, from a cash-nexus in public service delivery and/or
private actors in regulated public service delivery to externalization by allowing private
management of publicly-owned services.
Quasi-markets gained widespread attention in the 1990s, when states started to withdraw
from their role as producers of goods and services, and NPM ideals began to transform
public administrations. NPM is key to understanding how quasi-markets have been
developed, with the focus they place on quality control, the separation of the purchasing
and provider functions, customer choice and competitive tendering (Rostgaard, 2014, p.
198). Similarly to NPM, the quasi-market concept is rooted in rational choice theories,
which have traditionally signalled the pitfalls of the state as a direct provider, especially
for sensitive areas such as social and educational services. As we will see in the pages
5
that follow, in many countries, quasi-markets and NPM became a powerful ideational
frame that managed to change well-established organizational arrangements in public
service delivery.
The main prescription of quasi-market theorists is that public servants should meet
demand for personal services in the most efficient way possible, including the use of
prices and market competition as tools. According to standard economic theory,
individualism and consumer sovereignty ideals lead to efficient equilibria: consumers
will be satisfied, and inefficient producers will be expelled from the market. By contrast,
centralized state provision is seen as being burdened with a bureaucratized management
and politicized public servants: all this hindering innovation, efficiency and quality (Le
Grand 1991).
Theorists of quasi-markets assume that introducing market principles to personal services
requires maintaining a certain degree of public regulation, given that the recipients of
such services might not have all the information required to choose providers and cannot
always express their desires, especially if they are of advanced age or experience ill
health. In addition, demand is satisfied not only through the client paying the provider
directly, but either indirectly through vouchers given by the government to citizens or
through direct public transfers to providers. Given these constraints and the limitations of
public regulation, as we will discuss later, the mission-oriented non-profit sector is
considered the best kind of partner for governments to work with, one that is more aligned
with the public interest of providing quality over generating profits in sensitive sectors
(Besley and Ghatak, 2003).
In sum, quasi-markets are part of the neoclassical philosophy that aims to put individual
satisfaction as the central goal or quest, based on utilitarian principles that have dominated
economic thought since the nineteenth century. According to this liberal legacy,
economic incentives and competition between self-interested individuals, usually aiming
to maximize profits, should foster efficiency, quality and innovation while overcoming
bureaucracy in social services where markets have not been developed and where moral
bonds prevail.
3. Quasi-market introduction in different welfare state regimes
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As already argued in the introduction to this chapter, whilst market reforms have been
introduced by governments of different colours, their goals have differed and, as a
consequence, so have their outcomes. To an important extent, differences in outcomes
can also be explained by different welfare state regime configurations, which are
themselves a product of historic public-private relationships (Esping-Andersen 1990:
109), and also by the type of service under discussion: education, health or social care
might each have a different symbolic or moral value in different countries and regions
(Amirkhanyan, 2007). This section will examine the introduction of quasi-markets across
a range of welfare state settings.
Social care in the Nordic countries is often described as belonging to the public service
model, where the state retains the main responsibility for the organization, provision and
financing of care (Rostgaard 2014, p. 183). Universalism is the main principle sustaining
this model, with good quality, affordable, flexible and accessible public services being
financed via general taxation. In these countries, LTC systems have been universalized
since the 1970s, and political commitment to the socialization of care has always
remained strong. In Denmark and Sweden, LTC dates back to the 1950s and was subject
to systematic expansion in the decades up to the 1990s (Ranci and Pavolini 2013, p. 270).
These countries already had an extensive and intensive network of direct and
decentralized public provision in place when quasi-market ideas were introduced into
their administrations; this made them more ‘resilient’ to privatization dynamics.
However, the marketization trend did penetrate the Nordic model, replacing the fully
public service model with a more hybrid one (Rostgaard 2014, p. 184). During the 1990s,
increasing financial constraints, debates about deinstitutionalization and calls for more
diversified provision, coming especially from organized movements for the rights of
disabled people, triggered a gradual change in the public/private mix. The number of non-
profit and for-profit organizations grew, but public institutions continued to dominate the
sector (Eikas and Selle 2002; Meagher and Szebehely 2013; Harrington et al., 2017).
Comparatively speaking, public spending has always remained strong in the Nordic
countries. There, increased marketization also was introduced via NPM principles
employed in the organization of social services. Greater choice of service providers and
types of benefits (including cash-for-care options) brought about more participation from
private providers. In the case of Denmark, for instance, Rostgaard explains that under
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NPM needs assessments became more standardized, thus leaving less room for
professional opinions and carer flexibility (2014, p. 199).
In the liberal welfare model, the state takes responsibility for care for the elderly on a
needs basis, which is very different from the universal approach of the Nordic countries.
The subsidiary role of the state in providing LTC has resulted in weak public regulation
and coordination mechanisms, which have in turn paved the way for a relatively easy
penetration of the market. In England, for instance, reforms introduced by conservative
governments as early as the 1980s made it easier for eligible means-tested beneficiaries
to obtain social assistance funding to pay for private residential and nursing home care.
This demand-driven voucher system led to a sharp rise in the participation of the private
sector in home care provision, going from 2% in 1992 to 60% in 2001 (Glendinning 2013,
p. 186). Direct public care delivery has been progressively scaled down over time. As a
result of these reforms, there is now a high prevalence of private organizations (over 85%
of residential care places), high devolution to the local level, and weak coordination
mechanisms (Daly 2020).
In Continental and Southern Europe, social care systems were either residual or non-
existent until the 1990s. The strong role of the family in caring for its older members
meant that long-term care was not fully identified as an essential service that needed to
be protected by the state, and thus public involvement in the direct provision of services
remained limited. This meant that governments could introduce market reforms as a way
of expanding coverage without generating serious political or social tensions. In countries
like Italy or Spain the very weak regulatory framework firstly paved the way for private
for-profit and not-for-profit actors to take on an important share of formal care delivery;
secondly, it created a significant informal market sustained by the work of mostly
immigrant women in private homes. In many countries, the 2008 economic crisis
accelerated the marketization of care (through cash-for-care schemes and the
privatization of institutional care).
4. Quasi-markets dilemmas: theoretical and empirical lessons
After decades of quasi-market introduction in western Europe, laissez-faire utopias of the
advocates of quasi-markets have clashed with the fears of more critical voices. Scholars
from new institutional economics and public policy research have raised concerns about
the practical application and limits of quasi-markets. Studies have examined efficiency
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gains (and the methodological limitations to measure these), labour conditions, quality of
service, inequality, capacity for innovation and imbalances in the power relations between
the private and the public sector.
1
Each one of these aspects is examined briefly from both
a theoretical and empirical perspective. This section serves the purpose of creating an
analytical framework to assess quasi-market introduction in LTC, which will be applied
in the subsequent section.
1
Also, transversal to these issues is the effect of quasi-markets on participation and democratic
processes.
9
Figure 1: Categories of interest regarding quasi-market introduction in LTC
Source: own elaboration
In terms of efficiency, the contracting-out of personal services requires the creation of
incomplete contracts, meaning that there are serious limitations suffered by the principal
(the public sector) in selecting, monitoring and holding the agent (the private provider)
to account.2 The main reasons for this relate to information asymmetries, where the agent
is permitted to underperform because the principal must take on numerous transaction
costs to monitor performance. In addition, the benefits of contracting-out will also depend
on the situation of the market, the institutional or regulatory regime and any existing
informal rules and bounded rationality that put serious limits on market competition and
public control (North 1984; Sclar 2001, p. 100; Petersen et al., 2017). Given the
complexity of public administrations and service provision in modern welfare states,
including the rise of NPM, it should be of no surprise that quasi-markets might lead to
even higher transaction costs (i.e. bureaucracy), therefore creating the very opposite of
the efficiency effects intended when introducing them.
However, while the theory clearly signals potential problems, in practice, there are serious
methodological issues in evaluating and comparing overall costs between alternative
2
See Sclar (2001) pages 101-121 for a brief explanation of the problems of contracting-out services
raised by new institutional economics.
Categories of interest
regarding quasi-market
introduction in LTC
Efficiency
Methodological limitations
Labour standards
Innovation
Quality
Inequality
Power relations between
stakeholders
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provisions. Data and measurement deficiencies, especially in personal services, make it
difficult to perform clear-cut economic calculations, especially when it comes to
calculating overheads (Sclar 2001, p. 65; Petersen et al., 2017). But even if we merely
consider the reduction of direct costs, which is something that is relatively easy to
calculate, the literature provides mixed results regarding the benefits of quasi-markets
(Bel and Fageda 2008), especially when it comes to social services (Petersen et al., 2017).
Usually, if there are net economic benefits from quasi-markets, these are limited to
specific departments, economic sectors and situations, which are dependent on time and
context. Given that organizational restructuring is usually an effort that absorbs a
considerable amount of time and resources, the introduction of quasi-markets (or its
reversal in case of failure) is a costly process which causes much political and
administrative friction. In this sense, the cases studied in Sclar (2001) show us that
internal restructuring of public organizations can lead to optimal and efficient outcomes,
both in terms of costs and efficiency, without the need to externalize to private actors.
In the realm of the welfare state, the lowering of labour standards because of cost-
efficiency pressures has been signalled as negatively affecting the quality of service in
labour-intensive sectors such as LTC (León et al., 2014). We find clear evidence in the
literature that outsourcing and externalization of personal services leads to lower labour
standards, less job satisfaction and higher turnover rates. It also triggers union
fragmentation and the creation of non-standard forms of contracts (Domberger and
Jensen, 1997; Vrangbæek et al., 2015). According to several studies, these features are
more prevalent in for-profit management (Choi et al., 2012; Wendsche et al., 2016). It is
not surprising, therefore, that quasi-markets have created labour supply problems in
domains such as health and social care. The COVID-19 pandemic has further exacerbated
this problem (Daly 2020).
When it comes to quality standards, empirical studies usually assess quasi-market
introduction by comparing public non-profits and for-profit organizations. In this vein,
Comondore et al. (2009) conducted a meta-analysis of 82 studies. They found higher
quality in non-profit nursing homes in staffing, prevalence of pressure ulcers, physical
restraint use, and governmental regulatory assessments deficiencies. However, only the
differences in the first two categories were statistically significant. With respect to public
nursing homes, it is worth mentioning the study of Amirkhanyan (2008), who finds that
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facilities that change from public to for-profit ownership perform comparatively worse in
quality standards. However, the majority of such empirical studies are USA-based, most
probably due to data availability. Extrapolations to the European context should therefore
be undertaken with care. Also, it is important to take into account different types of for-
profits, especially when it comes to their size. A relevant study in this direction is that of
Harrington et al. (2017), who conducted an analysis of the 5 largest for-profit chains in
Canada, Norway, Sweden, the UK and the US. In the US all 5 chains have lower quality
standards than the national averages. In Europe, some of these chains have been through
recent scandals, with the cities of Oslo and Bergen in Norway deciding in 2015 not to
renew some of these management contracts.
In the face of quality problems of providers, we should expect consumers to exercise their
sovereignty in punishing bad performers. However, users often have no capacity to easily
switch poor-quality providers for higher quality ones, particularly in residential care.
Continuity of care is important for them and exiting can be a costly strategy (Brennan et
al., 2012). Furthermore, consumerist views on social care also pose problems when it
comes to innovation, as there are no market mechanisms to reward innovative agents that
improve care provision. In this respect, the role of the public sector in funding and
controlling quality seems fundamental. Nevertheless, as we will see in Section 5,
increasing monitoring and public control present problems of their own, as governments
that have difficulties monitoring intangible aspects of quality, such as emotional care,
might incorrectly incentivize cost-cutting strategies (Winblad et al., 2017). Proponents of
quasi-markets also seem to downplay the capacity of the public sector in fostering
innovation. Others, such as the economist Mazzucato (2011, 2015), claim that in order to
reach optimal outcomes from a societal point of view, a role for the state in shaping
markets is essential.
One of the biggest threats of market expansion in personal services is the potential effect
on inequality. The theorists of quasi-markets have warned that consumer sovereignty
requires market information, but that this is not equally distributed (Le Grand, 1991). An
increasing focus on choice favours those with more resources and education, giving them
an advantage in navigating the system, and therefore rendering them more able to
purchase higher quality products and services (Eika, 2006 in Brennan et al., 2012).
12
Similarly, by promoting decentralization, inequalities in different geographical areas’ tax
bases might translate into varying service provisions between poorer and richer regions.
Furthermore, quasi-market introduction has also to be considered as part of a wider
political agenda. By setting efficiency as their top priority, public officials have shown a
tendency to ignore quality-related problems, growing inequalities and segregation in key
public services such as education and health (Bradley and Taylor 2002; Lundalh 2002;
Isaksson et al., 2015). This challenges the generalized idea of the quasi-market theorists
that a neutral regulator can look after broad redistribution issues when dealing with
public-private relationships.
Finally, inequality, quality, labour standards and innovation issues have to also be seen
at the macro level, in the power relations between governments that contracted out
services and the private providers who run them. The growing presence of for-profit
actors presents serious risks to the policy-making process and the ability of governments
to control such providers. Neither standard economic theory nor new institutional
economics contemplate power relations, but some authors have rightly pointed out that
institutional agreements are actually designed to distribute power between agents (Hart
1995, p. 5). In this sense, it might be problematic that quasi-markets, along with increased
out-sourcing, have advocated for decentralization and autonomy at the local level. By
treating the state as a monolithic entity capable of enforcing contracts everywhere and
anywhere, they have disregarded the fact that local governments are financially and
technically weaker than national governments in the regulation of public-private
agreements (Miraftab 2003).
In sum, the alleged efficiency gains of introducing market principles into the provision of
goods and services are contestable and should be assessed very carefully. Different
complementary and dynamic factors play a part in problems that might arise when for-
profit firms enter into the provision of basic welfare state services. In the next section we
take a closer look at quasi-markets in the nursing care sector in a number of European
countries.
5. Quasi-markets in nursing homes: an institutional and political economy
analysis
5.1. Investment levels and market structure in selected countries
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Here we analyse two relevant concerns drawn from the previous section: firstly, the
influence of market structures and concentration dynamics on determining LTC outcomes
and stablishing different power relationships; secondly, the capacity of public servants at
different government levels to monitor, regulate and hold private actors accountable. We
focus on the general dynamics in four countries: Germany, Italy, Spain and United
Kingdom.
As we see in Table 1, bed coverage varies significantly across the countries and time.
Looking at the trends in public expenditure levels, measured as Purchasing Power
Standard units per inhabitant over 65 years of age, Germany has made significant
advancements, while Spain and Italy have only increased slightly and the UK has
experienced declines. Combining the trends in total bed coverage and public expenditure,
we can conclude that the former has hardly advanced without the latter and that the 2009
crisis had a significant impact in decreasing either coverage or spending in both Spain
and the UK. Furthermore, the evolution of the UK seems to indicate a
deinstitutionalization process.
Provision in these four countries had traditionally been dominated by local governments
and non-profit (often church-based) providers. These organizations acted somewhat like
government partners through long-standing, informal, local agreement in which social
services professionals had certain discretionary powers. Since the 2000s public nursing
homes have either decreased or remained stagnant in numbers. In the UK (England) for-
profit providers control over 80% of total provision; in Italy and Germany non-profits are
still the dominant actor, with 58% and 55% of total nursing homes respectively, but their
shares have been declining; and in Spain, while there is no national data, local data of
different regions show that for-profits have an increasing and bigger share than non-
profits and most of public nursing homes have their management externalized through
public tendering (Palomera 2020).
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Table 1: Marketization in Nursing Homes
Germany
UK
Spain
Italy
Public and private bed coverage in long-term care facilities (per 1, 000 inhabitants of
+65 years old)
2005
49.3
56.4
19.2
15
2009
50.5
54.6
29.4
16.8
2013
54
50
44.9*
18.5
2017
54.4
45.6
43.9
18.6
Government and compulsory schemes financing in residential long-term care
facilities (PPS per inhabitant of +65 years old)**
2005
792.6
-
356.1
2009
795.2
-
533.9
2013
920.6
1078.1
487.6
425.6
2017
1123.2
1004.6
514.3
428.8
Share of nursing home beds owned by the private sector (for-profit and not-for
profits)**
2003
92%
-
74%
56%
2017
95%
97%
73%
79%
Sources: own elaboration with data from Eurostat, OECD, Eurofound (2017), León et al. (2021
forthcoming), and IPPR (2019). *Part of the increase in bed capacity between 2009 and 2013 is explained
by measurement changes after 2009. ** We use the System of Health Accounts (SHA 2011) in Eurostat
and the provider category HP.2 “Residential long-term care facilities”. *** Given the lack of data on
ownership status figures should be treated as approximations.
5.2. Increasing dominance of multinationals and investment funds
While an important consolidation of nursing home chains had already begun in the 1990s,
in recent decades global investors and large for-profit providers have shown an increasing
interest in the sector, compared to a stagnant and falling share of non-profit actors
(Eurofound 2017) and relatively small nursing homes, such as in the UK (IPPR 2019).
Today, in the UK, the top five providers control 35% of all nursing home beds
(Harrington et al., 2017). In Germany, the transaction volume in the care market reached
3 billion euros in 2016 and the top five providers control 11% of the market (CBRE,
2017). In the case of Italy, 70% of investment in Italian nursing homes in 2018 came from
15
just five investors (PwC, 2020). And in Spain, seven operators manage more than 50,000
beds (Cushman and Wakefield, 2019). It is worth mentioning that many of these providers
are multinational companies and investment funds that seek short-term profits for
shareholders through huge financial operations and by managing public services.
Two major factors at different government levels are facilitating the dominance of large
for-profit companies in the sector. The first one relates to changes in the public sector
organizational culture, and the second one relates to economic dynamics and policies.
Firstly, a fertile ground was created by the expansion of a more formalized LTC system
in the 1990s, with higher standardization and efficiency rules under NPM. An increase in
public spending in LTC has been accompanied by an extension of control and evaluation
mechanisms that require a continuous generation of information, therefore favouring
bureaucratic quality control systems that have efficiency evaluation at the core. In this
context quasi-market introduction in LTC favours larger actors (both for-profit and non-
profit) that are able to establish standardized procedures at low cost and fulfil bureaucratic
procedures, especially in public tendering. Qualitative studies show that smaller
organizations have difficulties in meeting such bureaucratic logics and new requirements
(Ulsperger and Knottnerus 2008). In this sense, new investments under public-private
partnerships have usually hinged on the construction and management of larger nursing
home facilities, which might profit from greater economies of scale.
A second reason for the rise of big for-profit providers is the 2008 financial crisis, which
led to an investment environment that propelled market concentration. Ageing societies
and increasing (or at least constant) public spending on LTC makes the nursing home
sector a relatively risk-free and profitable sector compared to other productive areas,
especially after the construction bubble burst in Spain and elsewhere in 2008. In Italy,
Spain and the UK austerity policies put limits on public funding, froze public prices and
delayed payments from local governments, therefore benefitting actors which have a
greater capacity to cut costs and to access credit in order to absorb losses. In turn,
inequalities in access to credit have been exacerbated by central banks, which have used
quantitative easing to fuel financial markets with cheap credit. Another comparative
advantage of multinationals and investment funds is their complex, global corporate
strategies; these help them reduce their tax bills and allows them to mount aggressive
16
investment schemes. For instance, it is common to conduct debt-led purchases of nursing
homes in order to transfer the debt to subsidiaries, and also to use tax havens in the
European Union itself (Burns et al., 2016; Rico, 2020).
Increase in competition and frozen public prices should make us wonder how smaller
private providers, both for-profit and non-profit organizations, will be able to survive
financially in the sector, especially if they want to attend to lower-income users. In this
situation, many providers are pressured to partner with other organizations and increase
in size, adopt homogenous managerial styles aimed at maximizing margins, or sell their
infrastructure (especially in cities where land is more valuable). The ethnography carried
out by of Rodriquez (2014, p. 37) is of especial interest to see how non-profit firms need
to engage in business practices consistent with that of for-profit providers to survive
organizationally. He suggests that the reason for this tendency is competition, financial
uncertainty, and dependency on the workings of governments’ medical reimbursement
systems, which do not take into account community activities. Although his study covers
only the US, all three factors are in some way relevant for the countries used as examples
here, also when it comes to the dependency of nursing homes on the institutional
structures of reimbursement systems.
However, in the countries studied the non-profit sector and small for-profit providers still
retain an important presence, forming a fragmented and variable ecosystem in every
region and town, marked by many small and medium-sized nursing homes. Given the
lack of public provision and pressing demand, as well as the commitment of public
servants to continue relations with well established actors in the field, alternative
contractual solutions are found for these providers. Here, the 2014/24/EU Directive
imposed new rules to further standardize and limit discrimination rules in public
tendering in European countries. However, it also explicitly exempted personal services
and social services from following these rules, leaving a door open for national and
regional governments to transpose the Directive with their own regulations. Therefore,
when it comes to the public-private mix, in the EU regional and local governments have
some degree of discretionary powers to place social clauses above economic ones, and
favour those actors that despite not setting the lowest price might provide other social
returns.
17
The question regarding which actors should governments partner with remains open,
given the great variability of factors that are independent of ownership type but that
determine outcomes. In the end, as Kruse et al. (2020) theorize, different ideal types of
management can reign in nursing homes – market, bureaucracy, professionalism and care
logics. Which logics are followed by each type of provider might greatly depend on
contextual factors such as physical and institutional structures, history and culture of each
region. For instance, the organizational culture, the size of the building, and type of
managers are among the factors to take into account in this regard. In terms of quality,
big nursing homes might have difficulties in providing a homely environment. For
instance, the qualitative evidence of Kruse et al. (2020) for the Netherlands shows that,
compared to large bureaucratized non-profit providers, small for-profit provision in
smaller facilities might have more opportunities for giving person-oriented care,
especially when it comes to time to provide care. In this sense, it is significant that in the
UK smaller nursing and residential facilities are rated significantly better than bigger ones
(CQC 2017).
Nevertheless, when it comes to observable health quality outcomes, increased size might
be beneficial to develop and expand good practices. For instance, Anderson et al (2003)
showed in their empirical study that bigger nursing homes in the state of Texas, US, had
fewer problems with restraint use. They explain this by virtue of the generation of
information flows and the capacity to self-organize according to the information
available. Therefore, their study empirically debunks the idea that top-down leadership is
better for resident outcomes. Analysing nursing homes as adaptative complex systems,
they find that managers’ experience and tenure are important factors in improving
residents’ outcomes. Of course, we do not know which type of managers are hired by new
big for-profit organizations to run their nursing homes. We can expect that they can afford
well experienced and highly qualified managers in the nursing home sector. Nevertheless,
managers in these organizations will also be pressured to generate short-run profits for
their employers, maybe putting quality at risk.
5.3. The limits to monitoring and accountability
In the face of the increasing presence of powerful for-profit actors in the sector, can the
public sector effectively monitor firms and hold them accountable? Given the limitations
18
for stakeholder participation under NPM styles, centred as they are around procedures
and formal outcomes, the quality of a privatized provision depends highly on choosing
the right providers by the public sector and increasing spending on monitoring (i.e. higher
transaction costs). As for picking the right providers, traditional competitive
procurements heavily focused on monetary costs and formal quality standards have
serious limitations for various reasons (Brennan et al., 2012; Winblad et al., 2017;
Palomera 2020). While public procurement keeps prices per bed down through
competition, once a contract has been won it is easy for providers to cut corners on non-
observable quality standards and other non-tangible aspects in nursing homes. In addition,
the nursing home sector has low reputation mechanisms, especially because public
procurement law, drawing on EU directives, makes it difficult to take previous
experiences into account in procurement rounds (here again the 2014/24/EU directive
regulates the possibility of establishing non-standard forms of contractual relationships
in social services). Thirdly, as mentioned in section four, the elderly need service
continuity, which makes it difficult to terminate contracts or change providers.
In terms of monitoring by the public sector, Choiniere et al.(2016) found that in the
countries with the highest levels of for-profit ownership, such as the UK, there are
standardized, complex and deterrence-based regulatory systems in place, as well as strong
regulatory enforcement. Despite this, serious lapses in standards and evidence of abuse
have led to changes in national public inspection processes and to increases in their
funding. Germany has a more transparent rating system, but the system still fails to
differentiate between levels of quality; this has prompted experts and care associations to
demand a review of the evaluation criteria (Choiniere et al., 2016). And when it comes
to monitoring labour standards, Choiniere et al. (2016) point out that even in UK and
Germany, with apparently strong monitoring systems in place, quality indicators have not
been extended to key issues such as staff education levels, workload or training. In Spain,
data protection rules prevent access to this information.
In any case while increased funding for monitoring might serve to improve some quality
indicators, the low risk of a contract being terminated makes inspections rather a poor
tool for solving structural problems in the sector. Even if terminated, the same providers
repeatedly win the same or similar contracts in the same or another administration (Sclar
2001). This is especially relevant in the nursing home sector, where institutional
19
fragmentation works against the creation of a coordinated information system capable of
helping administrations to detect and deter opportunistic providers from winning
contracts.
Finally, the international nature of corporations creates further threats to monitoring and
accountability in quasi-markets. Multinationals, although they each act as a single unit of
command optimizing world-wide operations for efficiencies, market share and profits, do
not exist as single entities under the law (Ruggie 2018). This creates enormous barriers
towards making the ‘parent company’ accountable, which is especially relevant given
their propensity to take risks. As mentioned above, parent companies tend to debt-charge
nursing home subsidiaries, increasing their risks of bankruptcy (Burns et al., 2016). At
the same time, there is an expectation that governments would bail them out if necessary
in order to preserve the continuation of service. These types of practices can put regional
and local governments at risk, given their insufficient technical and legal capacities to
challenge these actors. In this vein, Innes (2017, 00:30:05), when commentating on the
UK case, states that quasi-markets and supply-driven reforms in personal services
“threaten not only the basic accountability of the state and the principle that the
government can reverse failing or unpopular policies […] the trouble is that we find
ourselves in a territory having created not just business constituencies determined to see
the perpetuation of these policies but also businesses on whom the state is already
structurally dependent”.
20
6. Conclusions
Markets have been a key piece in the transformation of welfare states since the late 1980s
and early 1990s. For some governments, market reforms have offered an opportunity to
limit state intervention in welfare services; for others, a more diversified public/private
supply appeared to be a good way to respond to increasing demand without dismantling
the welfare state. In this chapter we have carried out a critical overview of the main
arguments in favour of marketization and the main criticisms of those arguments. We also
looked at how marketization has been implemented in different care regimes.
To a significant extent, differences in market reform outcomes between the Nordic,
liberal, Continental and Southern European countries can be related to different welfare
state regime constellations, which are themselves a product of historic public-private
relationships. The last part of our chapter investigated how quasi-markets play out in the
specific domain of residential care in four European countries: Germany, Italy, Spain and
UK. Despite the fact that these four countries belong to different welfare state traditions,
the increasing presence of for-profit actors is a common trend in all of them. Many of
these providers are multinationals using investment funds that seek short-term profits for
shareholders through large financial operations. The growing presence of these private
actors runs in parallel to a decreasing or stagnant presence of not-for-profit actors in the
nursing home sector. The 2008 financial crisis created a favourable environment for these
market concentration dynamics in residential care, among other reasons because more
limited public funding gave advantage to firms that could easily access credit. Rising
privatization, and especially the penetration of global investors and large for-profit actors
into the ‘nursing home business’ hinders states’ capacity to effectively monitor these
firms and hold them accountable. It also creates difficulties for monitoring labour
standards and for apportioning value to care work that has no immediate translation into
measurable, time-specific tasks. The real question is whether the system is delivering
proper care to enough people. An exploration of the most recent trends of quasi-markets
in the nursing sector of four European countries poses the fundamental question of how
to reconcile the interests of powerful market actors and the state’s responsibility towards
some of the most vulnerable people in our society.
21
Finally, although we have not analysed the Covid-19 crisis in this chapter, post-pandemic
studies trying to grasp the reasons behind the lack of an appropriate response in nursing
homes in some countries will probably direct critical attention to political discussions of
some of the quasi-market related problems discussed in this chapter. The ways in which
market structures and dynamics shape outcomes and the limits to holding private actors
accountable should be part of any long-term strategy with regard to the future of the care
economy.
Acknowledgements
For this contribution David Palomera received financial support from the Universities
and Research Department of the Government of Catalonia [Grant number: 2020FI_B1
00049]
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