Competition and quality in German ambulatory long-term care: Where labour supply matters more than prices

This paper analyses the effect of competition on the quality of ambulatory long-term care (LTC) services in Germany, which supported 24 percent of the 4.1 million care dependent people in 2019 (21 percent received stationary care, 55 percent informal care). Ambulatory care is politically and individually preferred over stationary care and there are low barriers to entry, while there is little evidence on the effects of competition in this market. In this study, We challenge the theoretical prediction that competition increases quality when prices are regulated. This adds to previous research on UK nursing homes that identified price competition as the relevant mechanism. We use four waves of publicly available quality data of 14,000 ambulatory care units in Germany, reported between 2011 and 2019. To examine causal effects, we apply an instrumental variable approach and look at different quality and competition measures. We show that quality decreases in competition despite the fact that ambulatory care prices are regulated. That is why we examine a new mechanism in a second step and show that nursing staff shortage is correlated with competition and lower quality in German ambulatory LTC. Introducing competition should therefore be accompanied by respective support for more qualified nursing personnel to circumvent adverse quality effects.