Market Daze

Can the property companies that run rest homes provide effective care?


Listener: 14 November, 2013


Keywords: Regulation & Taxation; Retirement Policy; Social Policy;


I have had to visit a number of rest homes for the elderly. Such visits can be pretty draining. The one positive is the caring and concerned staff – extraordinarily so, given we pay them miserable wages and they are often overworked.


So I was much astonished – and shocked – when a woman visiting a rest home found, on three occasions, her 69-year-old mother covered in her own faeces. The official investigation concluded that there was a “failure to fully comply” with eight health and disability services standards. I take it there was insufficient auditing by the Ministry of Health and the district health board, which set the standards.


The rest-home owner promptly sacked its manager, and the authorities, I understand, have tightened their supervision of the residential homes.


As this outraged citizen subsided into being an economist, I realised this was yet another example of light-handed regulation in which the authorities were relying on the market and reputation to enforce their standards.


This column has drawn attention to many other examples, including leaky buildings, workplace accidents, telecommunications and electricity pricing and finance company collapses. Add residential care to the list – and there will be more. When the failure has become too apparent, we take action, but they keep happening elsewhere.


Trade Minister Tim Groser has expressed disappointment over the food safety record of the Ministry of Primary Industries. A government funding squeeze meant there were not enough resources to do a proper job.


That is probably a factor in other failures, too. But more fundamentally, we are lazy, or ideological, when thinking about regulating markets that lack a coherent framework.


My economist’s instinct is to ask why standard market regulation went wrong. We normally assume that consumers can monitor the services provided to them and respond when there is failure. That is not possible for a 69-year-old with dementia. She was lucky to have a caring daughter regularly visiting her.


My impression is that many rest-home residents are not so often visited – for good reasons (the family lives elsewhere or does not exist) and for sad ones. The casual way that the failing rest home recorded visitor concerns suggests that there were insufficient visitors to pose a threat. One wonders whether there are other care failures that are not picked up because of the absence of visitors and perfunctory external auditing.


About the same time as the rest home was in the news, the Productivity Commission released an issues paper on the design and operation of government regulatory regimes. It is a strange paper riddled with high-flown notions but bereft of any specific examples. I found it of no use for the sorts of regulatory issues I work on. Like Sherlock Holmes, I need facts. The report reminds me of the economist who read the Kama Sutra a dozen times but had never been out with a woman.


As I pondered further on rest-home care, I realised that – as with many health services – the consumer (the resident) and the funder (primarily the government) are different entities. That means the normal market mechanism, in which the supplier is paid by the consumer, doesn’t apply.


I then recalled that when I was shopping around for a rest home, one rating system listed not-for-profit organisations as the top suppliers. That may not be true of all districts. Nor does it mean all for-profit organisations provide poor quality care. I was impressed at the time by some family-run rest homes.


Some of the biggest residential care suppliers are essentially property companies – at least that is the way they present themselves to investors. I do not have difficulties with property companies providing property, but I am not sure they can effectively provide residential care on the side.


I wonder whether there might not be benefits from separating the two. It may well be that residents (and taxpayers) will get a better deal if the property companies lease their buildings to agencies with a care culture, rather than one of building management.


This is a tentative proposal – devising regulatory frameworks requires a lot of skill. But the elderly deserve a better deal.