The care and support services being examined in this strategy are predominantly delivered through market-based models. When done well, competition and contestability in a market can improve service quality, encourage innovation, increase consumer choice and reduce prices.
However, these markets have not worked well in all cases. Thin markets (discussed under Goal 1: Quality care and support) refer to inadequate market provision for certain populations or in certain regions. In thin markets, some people requiring care and support may miss out on services, or be forced into services that do not meet their needs (including services that are far away from their home).
Thin markets are a persistent issue in care and support. Many approaches to intervene and shape thin markets have been tried with mixed success. A cross-care and support economy policy approach, with support for community-driven solutions (the most likely to be successful), will give Government a stronger footing to address thin markets.
In some sectors viability concerns are more widespread. While it is appropriate in a market model that the financial viability of any individual provider is not guaranteed, widespread poor financial performance indicates a problem in policy and program settings. Without effective intervention and market stewardship, issues like this can result in under-provision of essential services.
The importance of quality and stability
Market-based systems involve inherent trade-offs. One benefit of markets is that lower quality or less productive providers are driven to exit the market because of competition from stronger providers. However, stability is also important in care and support markets, as the closure of a provider can be very disruptive to the people accessing care and support services. For example, if a residential aged care facility closes, it affects more than care and support; it impacts where people live.
Good market stewardship is needed to drive quality and maintain an appropriate level of stability in the market. It must ensure all providers are incentivised to innovate to improve quality and reduce costs, as this will serve the market overall. These actions lead to a more efficient delivery of services, benefiting consumers and taxpayers. Incentivising providers also enhances the sustainability of the care and support system.
In a market-based model, provider profitability is important. It stimulates further willingness to invest in more services, in renewed facilities and in innovation that could drive quality and more productive services. The presence of market failures in the care and support economy can result in an undersupply of quality care and support services.88 The absence of long-term financial viability can potentially exacerbate these existing market failures and result in a further lack of investment, potentially leading to a vicious cycle of undersupply of care and support services.
Strong, responsive market stewardship
Care and support markets are not like regular markets in a number of important ways. For a start, government usually sets the price and/or amount of services consumed and decides who can access them. Then, consumers rarely face the full cost of the service, distorting price cues.
Additionally, in many cases there are rules about who can become a service provider in the market. Low competition and contestability mean service users can’t (or don’t readily) change provider. As a result, inefficient or poor quality services can persist. All of this means that competition-driven market incentives and dynamics don’t always work to achieve efficient outcomes.
The Australian Government will be a good steward of these markets. The role of market stewardship is to ensure the market is delivering policy objectives, including by addressing market deficiencies or failures and by creating incentives that shape market behaviour towards desired outcomes. In today’s care and support economy, good market stewardship might include:
- optimising the entry of high-quality providers
- ensuring that service users are heard and listened to by both providers and market stewards
- monitoring and adjusting funding models to ensure they drive the desired behaviour and outcomes
- promoting transparency
- developing tailored solutions where the national model is not appropriate, for example to meet users’ needs in local or regional areas.
Market stewardship involves examining the impacts of funding models and other program settings, and adjusting and refining these so the settings encourage more effective service delivery. Market stewardship strategies are being developed for the aged care and the ECEC sectors, and market stewardship is led by the National Disability Insurance Agency for the NDIS.
It is important to remember that none of the services being examined in this Strategy operate in a vacuum. Government programs are, in effect, competing with each other to secure services for their target cohorts. For example, the policy and program settings for the NDIS and aged care, especially the pricing of services, put pressure on the market for veterans’ services. The unintended consequence of this misaligned pricing can be underservicing of the veteran population. Therefore, market stewardship strategies for care and support services need to consider the flow on effects to other sectors which will require enhanced coordination across government departments.
Objective 3.3
Funding models support market sustainability, job quality for workers, and quality care and support, including consumer choice and control.
How will we get there?
Market stewardship is core business for the Australian Government, and these care and support markets in particular need market stewardship that considers cross-sectoral impacts. The multitude of policy and payment settings makes these markets complex. Even small weaknesses in the incentive structure can have large distorting effects that adversely impact service users, workers and the market.
A Pricing and Market Design Action Plan will be developed to outline changes to better align incentives and contribute to well-functioning care and support markets. This will be informed by expert advice on market design and, rather than being a one-time policy change, will require monitoring market responses to incentives.
- Market failures in care and support economy refer to information asymmetry, externalities, and the presence of public goods.Return to footnote 88 ↩