Market mechanisms among nursing homes: a correlation analysis of price, quality, and demand

Background and aims Market failure can occur in any area of the economy due to inadequate price functions on competition or a low elasticity of demand. In this study, the correlation between quality, price, and demand in terms of a functioning market of nursing homes was examined. Methods The study data were obtained from 542 quality assessments of nursing homes in Germany. In addition to quality outcomes, data about prices and occupancy rates for nursing homes were collected. Descriptive statistics and nonparametric, bivariate tests were calculated. Results The occupancy rates of all nursing homes in this study were above 50 %. The average price for a bed in a nursing home was about 2209 € per month. The bivariate analysis showed no significant correlations between price and quality, or between price and capacity utilization, that is, occupancy rates. A weak significant relationship was shown only between occupancy rates and quality. Discussion and conclusion A low elasticity of demand was determined. A price function could not be determined. The results suggest a regional market failure in the nursing home market. The results were opposite to previous studies in Germany and at the same time conform to results from studies in the USA.