Labour supply in the home care industry (1)
Health Policy 76 (2006) 144–155
Labour supply in the home care industry: A case study
in a Dutch region
Elly J. Breedveld a,∗ , Bert R. Meijboom b , Aad A. de Roo b
a
Thebe/Tilburg University, PO Box 1035, 5004 Tilburg, BA, Netherlands
b Tilburg University, PO Box 90153, 5000 Tilburg, LE, Netherlands
Abstract
Health organizations have started to become more market-driven. Therefore, it is important for health organizations to analyse
the competitive dynamics of their industrial structure. However, relevant theories and models have mainly been developed for
organizations acting in the profit sector. In this paper, we adapt Porter’s ‘five forces model’ to the home care industry. In particular,
we modify the (determinants of the) bargaining power of labour suppliers. We then apply the modified Porter-model to the home
care industry in the Netherlands for the period of 1987–1997 with special attention for labour supply.The new instrument clarifies
the complexity of the supply chains and value systems of the home care industry. As can be illustrated by developments in the
home care industry in the province of North Brabant during the 1990s, competition between home care providers has influenced
labour market relations, but so do other factors as well. Between 1987 and 1997, the bargaining power of labour suppliers was
relatively limited. After 1997, however, the demand for home care personnel has increased strongly. In spite of the present
economic recession, scarcity on this labour market seems to prevail in the longer term due to a growing demand for home care
services.
© 2005 Elsevier Ireland Ltd. All rights reserved.
Keywords: Competitive analysis; Strategic management; Labour supply; Home care
1. Introduction
Since the 1980s, the Dutch health and home care
policy can be characterized by efforts to introduce more
competition and ‘business risks’ for insurers and health
care providers. In the home care industry, the government stimulated competition in several ways and
Corresponding author. Tel.: +31 13 5947299.
E-mail addresses: [email protected] (E.J. Breedveld),
[email protected] (B.R. Meijboom), [email protected]
(A.A. de Roo).
∗
reduced the home care organizations’ protected status.
For example, since 1994 new entrants have been admitted to the home care market whereas the domains and
markets used to be strictly defined and divided with no
free entrance for new suppliers. As a result, self-evident
certainties on the budget as well as on the sales side have
come under pressure. More and more, home care organizations have to compete for clients and money and
become more market-driven. Thus, managers in home
care are confronted with a new task, namely to guarantee the viability and continuity of their organization and
to create a surplus (the difference between revenues
0168-8510/$ – see front matter © 2005 Elsevier Ireland Ltd. All rights reserved.
doi:10.1016/j.healthpol.2005.05.007
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
and expenditures) in order to survive in a more competitive market. More specifically, as labour accounts for a
large part of the costs of home care providers, one might
wonder how the strategic position of suppliers of labour
with respect to these home care providers has evolved
and what consequences this has had for the position
and ‘profitability’ of the organizations within that
sector.
Because of the shift towards more market-driven
behaviour of this traditionally non-profit sector,
we propose to use a modified version of Porter’s
well-known five forces model [1]. In its original form,
this model accounts for rivalry among existing firms,
bargaining power of buyers, threat of new entrants,
threat of substitute products or services, and bargaining
power of suppliers. Using an extended version of this
tool, we will analyse the Dutch home care industry
in the province of North Brabant during the period
1987–1997. The year 1987 marks the birth of the idea
to introduce competitive elements into the health care
sector as a whole. By 1997, the functioning of the
market mechanism in the home care industry was temporarily frozen, until the year 2001, when the market
mechanism experienced a revival. In the analysis of
structural changes in the home care industry, specific
attention will be paid to the strategic position of labour
suppliers and its effect on profitability and social
benefits. It should be noted that, since the present
study is concerned with a specific industry within a
certain country, Porter’s famous ‘Diamond model’ [2],
which addresses issues of international competitiveness, was considered much less appropriate for our
purposes.
The empirical application of the modified ‘five
forces model’ encompasses an explorative analytical
description, rather than an explanation, of the changes
in the dynamics in the home care industry structure.
The type of research that is applied is the case study
[3], as we offer an empirical enquiry in which:
1. A contemporary phenomenon is investigated within
its real-life context.
2. The boundaries between phenomenon and context
are not clearly evident at all times.
3. Multiple sources of evidence are used.
For the purpose of this research the home care industry is functionally defined to include all types of organizations that offer professional services at any moment
145
in the area of nursing and/or physical or domestic care
at the home of physically ill, infirm or elderly people.
Organizations that provide care services for the mentally ill or mentally of physically disabled are excluded
from this study.
The paper is structured as follows. First, we will
sketch the macro-environment which forms the context of the central question and show the importance
and usefulness of business-oriented instruments for
analysing structural changes in the originally typically
non-profit home care industry. Second, we present
an instrument derived from a set of tools originally
developed for market sectors and adapted and extended
here for use in the home care industry. The description of the extended instrument is followed by the
application in our case environment. Some insights for
the home care industry as a whole will be presented
first, before we analyse the influence of suppliers on
the labour market in more detail. We end up with
conclusions.
2. Towards a more competitive environment
As in other European countries [4], major health
care reforms in the Netherlands were initiated at the
end of the 1980s. In this paper, the focus is on the period
1987–1997. In the year 1987, the ‘Dekker committee’ advised shifting policy from a (central) planning
approach to a more market-oriented approach with
more responsibilities and (financial) risks for health
insurers and health care providers [5].
In the 1970s and 1980s health care costs increased
rapidly. To illustrate [1], expressed in millions of
Dutch guilders, the expenses for home care grew from
513 to 2561 between 1974 and 1987, and in 1998
it had become 4330. Until 1987, the reimbursement
mechanism could be characterized as open-end
financing without a macro budget, so there were
hardly any incentives for health care organizations
to behave efficiently and in a goal-oriented manner.
Furthermore, few possibilities for substitution existed
and there was no freedom for patients to receive health
care service suited to their particular needs.
The Dekker committee advised ‘regulated competition’ as a solution to these problems. In the home care
industry, the government stimulated competition in
several ways, for example by allowing new entrants on
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the home care market and the introduction of Personal
Budgets (in Dutch: Persoons Gebonden Budget,
abbreviated PGB). More specifically, the Dutch health
insurance system (AWBZ) started to offer not only
care in kind but also Personal Budgets (cash). The
insured are given a budget in order to contract and
pay health care services themselves. Personal Budgets
are intended to create a possibility for patients/clients
to buy care from providers of their own choice
[6].
Although the radical reform plans were toned down
in 1994, when a new government introduced a mixture of several incentives, the Dutch health and home
care policy since the 1980s can be characterized by
efforts to introduce more competition and ‘business
risks’ for insurers and health care providers. By 1997
the functioning of the market mechanism in the home
care industry was temporarily frozen.
Before making an analysis of the transitions in the
home care industry in North Brabant, the (prevailing)
macro-environment will be described. This covers the
political, economic, social, cultural, and technological
developments between 1987 and 1997, including the
demographic and epidemiological trends. These trends
have a strong impact on the industry structure. Specifically, the following influences can be distinguished
[7,8]:
• Demographic and epidemiological. The number of
elderly people in North Brabant increased, in particular the number of elderly single women. Also the
number of people with chronic diseases increased.
This caused a growing demand for complex types of
home care. The growth in demand was also caused
by technological and socio-cultural trends and
government policy, which stimulated a shift from
intramural to extramural care. The growth in demand
for (complex) home care services potentially
reduced mutual competition among the suppliers.
• Economic. The growth in demand for home care
services was not matched by a growth in financial
resources. Consequently, scarcity caused an increase
in rivalry between home care providers. In addition,
intramural organizations also faced scarcity. This
stimulated a shift to extramural care and increased
the potential threat of new entrants on the home care
market. At the same time, a decrease of hospital
beds meant a decreasing threat of substitutes of
home care. In contrast to Porter’s thesis that lack of
substitutes will lower the intensity of competition,
the home care industry in North Brabant shows
the opposite: the lack of financial resources and
substitute services increases the social pressure on
home care organizations to produce more, without
an increase in their revenues (because of the budget
system). The home care organizations’ surplus is
thus reduced.
• Socio-cultural. Increasing individualization and
emancipation stimulated demand quantitatively as
well as qualitatively. The client asks for ‘customized
care’. New entrants used the opportunities to sell new
types of home care, sometimes in joint venture with
other complementary providers within in the sector.
• Political/regulatory. Policy measures play an important role in stimulating competitive forces. Policy
measures that reduced the home care organizations’
protected status and stimulated competitive forces
are:
◦ The admission of new entrants to the home care
market since 1994 (before, the domains and
markets were strictly defined and divided with
no free entrance for new suppliers).
◦ The reduction of the existing home care organizations’ budget guarantee by 5% in 1995. The
initial idea was to reduce budget guarantees
slowly up to 35%. However, this was never
reached, because the government decided to
freeze the market mechanism in 1997 because of
disequilibria in the market.
◦ Abolition of the Health Insurance Fund (so-called
Sickness Fund) obligation to sign contracts with
home care providers.
◦ Introduction of tariff caps instead of fixed tariffs.
◦ Introduction of competitive elements in the
tender for supply contracts and subsidies for
possible market entrants.
These developments in the macro-environment
contributed to the restructuring of the home care
industry and set the stage for a potentially more
competitive environment for organizations providing
home care. Having described the macro-environment
of the home care industry, we now turn to an economic
theory that could be appropriate for a more structured
analysis of the emerging competitive atmosphere
between 1987 and 1997.
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
3. Theoretical background
147
4. Threat of new entrants.
5. Suppliers of substitute products or services.
In the previous section, we have described changes
in the environment that urged health organizations to
analyse the competitive dynamics of their industrial
structure. However, relevant theories and models
have mainly been developed for organizations acting
in the profit sector. As a consequence, strategic
management models for non-profit organizations are
hardly available.
The stronger each of these forces within an industry,
the stronger the intensity of competition and therefore
the less the industry provides opportunities for organizations to achieve profits. However, because of the
specific characteristics of non-profit health organizations, the model has to be modified before we apply it
in our case environment.
3.1. Extant literature
3.3. Instrument for analysis: the Porter-plus model
For an extensive review of economic and management theories at the level of industries, we refer to
Breedveld [1]. See also Rumelt et al. [9], Scott [10] and
Fahey and Narayanan [11]. Breedveld [1] concludes
that, in this literature, certain tools and techniques are
available that, probably in some adapted form, could
help to analyse the restructuring of non-profit industries towards market orientation. More specifically, the
‘strategic management approach’ has produced, among
other tools, several techniques to analyse competitive
markets from the perspective of individual organizations and their performance (profitability). In addition,
the ‘industrial organization approach’ provides applicable frameworks to analyse competitive markets and
firm behaviour in relation to social benefits [12,13].
As a first step, Porter’s model has to be extended by
two additional forces:
3.2. Porter’s five forces model
In this paper, Porter’s five forces model is taken
as the starting-point to analyse the emerging competitive atmosphere between 1987 and 1997 in the Dutch
home care industry [14,15]. Porter’s five forces model
is one of the most influential management tools for
strategic industry analysis. The model applies insights
from industrial organization theory to analyse the competitive environment on the level of business units.
The basic proposition of Porter’s five forces model is
that organizational performance mainly depends on the
industry structure. In turn, the industry structure is composed of five main forces that determine its intensity of
competition:
1. Existing rivalry among firms.
2. The bargaining power of buyers.
3. The bargaining power of suppliers.
• The influence of the government.
• The relations with suppliers of complementary products or services.
In Porter’s model, the government indirectly influences the structure and profitability of an industry through the central five forces. However, several
authors distinguish a more direct role of the government
as a separate competitive force [16,17]. The second
force consists of products that add value by simultaneous consumption [18]. In addition, Porter’s model
is complemented by two other elements, i.e. macrofactors and organizational strategy. In our opinion,
the structure of industries cannot be well understood
without incorporating these elements in the analytic
framework. In fact, this extension is in line with the
structure-conduct-performance paradigm in industrial
organization theory [13]. In our framework, we also
take into account the consequences of industry structures, i.e., organizational and industrial performance
(profitability) on the one hand and social benefits (for
buyers) on the other hand.
The above-mentioned additions to Porter’s model
are generic, in the sense that they are not only relevant
to the health care sector, but also to other (profit)
industries. The next question is how to apply the
modified Porter model to the specific conditions of the
home care industry. The answer to this question lays
in a thorough analysis of the differences between the
profit and non-profit industry, in particular the home
care industry. One important discrepancy concerns
the financial system of the home care industry, which,
in the time interval under consideration, was mainly
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publicly financed. In contrast, the privately financed
home care organizations seem to be more similar to the
profit industry and are therefore expected to fit more
closely into Porter’s original forces model. In practice,
however, the distinction between publicly and privately funded home care organizations appears rather
small.
The major adaptation of Porter’s model necessary
before it can be applied to both types of the home care
organizations is to add the bargaining power of the following three actors to the model, in the form of three
additional competitive forces:
• The roles of the ‘gatekeepers’ (who determine the
type and amount of service needed and direct clients
to service providers).
• The suppliers of (sequential) complementary products.
• The providers of financial sources in the home care
industry.
These three additional forces can be further clarified
as follows. In many health care systems, gatekeepers,
clients, and financial institutions have separate roles.
These roles correspond with the essential distinction
between ‘deciding, consuming, and paying’ for health
care services. In contrast to the profit sector, where
the decision to consume, the actual consumption, and
the payment for the consumption are concentrated
in the same actor, these actions are often distributed
among three different actors in the health care
sector.
Furthermore, within the home care industry it is
difficult to specifically apply the value chain concept,
since the ‘assembly of services’ cannot be clearly
defined. Actors within the supply chain deliver their
services directly to the customer (patients), but without
delivering these (sub)services to each other. Consequently, the value chain of the home care industry
is rather limited, as inputs (personnel and capital)
are directly shifted to the customer with interference
by only home care organizations. Nevertheless,
suppliers of services that are sequential to the home
care services, like nursing homes and hospitals, have
become increasingly important. They partly regulate
client flows and consequently determine the home
care organizations’ opportunities to generate turnover
and surplus. Because of this influence, they are added
as an additional competitive force to Porter’s model.
Finally, insurance companies govern the financial
flows that accompany the flow of service along the supply chain (Fig. 1).
In many other countries, these adaptations of the
model will be the same for the health care sector. With
respect to the home care organizations that are fully
based on public funding, the adaptation of Porter’s
model is taken one step further. This is necessary
Fig. 1. The Porter-plus model.
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
because of the following characteristics of publicly
financed (non-profit) home care organizations.
Firstly, Porter’s assumption on profit maximization
on behalf of shareholders does not apply. Instead,
publicly financed home care organizations deal with
a dual concept of profit making. On the one hand,
budgets need to be spent as efficiently as possible.
Secondly, financial surpluses are supposed to contribute to additional social benefits, in terms of quality
(differentiation of products, ‘customized care’) and
access to care (serving more patients within the same
budget). Consequently, Porter’s model needs to be
supplemented with the social perspective and the
common interests of the home care industry.
Secondly, organizations in the Dutch home care
industry are not operating in an environment where
price signals coordinate processes (prices are fixed).
As a result, increasing competition will not influence
prices but costs and revenues. Decreasing revenues
(because of competition) in combination with stable
or increasing costs will put the home care organizations’ potential surpluses under pressure. The same
holds for increasing costs in combination with stable or
decreasing revenues. Moreover, movements towards a
price mechanism are about to emerge within the publicly financed sector of the home care industry, by, for
instance, tariff caps (instead of fixed tariffs) and output financing. Clearly, these trends will narrow the gap
between Porter’s model of industry competition and the
structure of home care industry.
149
In the next subsection, we will elaborate one of
the elements of the Porter-plus model in more detail,
namely the bargaining power of suppliers on labour
markets. As employees account for many of the costs
of home care organizations, the bargaining power of
labour suppliers is an important competitive force that
influences surpluses of organizations in the home care
industry.
3.4. Bargaining power of suppliers of labour
Assuming no changes in the other dimensions, an
increase of the bargaining power of labour suppliers may lead to more competition and a decrease in
the ‘profitability’ of health organizations. Therefore,
analysing changes in the labour supply is relevant for
managers in the health care sector. Porter brings up several determinants of the bargaining power of suppliers,
whether it be investors of capital, suppliers of materials
or labour suppliers (Fig. 2).
It is important to specify these determinants of the
specific conditions of the home care industry and make
them fit for use in our (non-profit) setting. Here, we
focus on the power of suppliers of labour. The individual (potential) employees that deliver labour are represented by their labour unions, which negotiate about
collective labour agreements and, among other things,
make wage agreements. When there is a tight labour
market, home care suppliers will have to compete with
one another for employees. This may increase costs or
Fig. 2. Determinants of the bargaining power of suppliers.
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E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
Fig. 3. Determinants of the bargaining power of labour suppliers in the home care industry.
wages and go at the expense of the surplus of home care
organizations. This will definitely be the case when
the increase in wages cannot be compensated for in
the budget agreements with financiers. Besides, lack of
labour makes it more difficult for home care organizations to increase production and revenues. Depending
on the bargaining power of employees, the pressure
on the home care supplier’s surplus will be more or
less serious. The determinants of employee bargaining
power in the home care industry (after Porter) will be
summarized in Fig. 3.
4. Empirical results
Earlier in the paper, developments in the macroenvironment of the home care industry were described.
Subsequently, we presented the Porter-plus model. This
instrument is based on Porter’s five forces model, which
originally was developed for market sectors and has
been adapted and extended here for use in the home
care industry. Now we turn to the empirical part of the
paper. This comprises the application of the Porter-plus
model in our case environment. Some insights for the
home care industry as a whole will be presented first,
followed by a more detailed analysis of the influence
of suppliers on the labour market.
4.1. Generic insights following from application
of Porter-plus model
The period 1987–1997 was dynamic in terms of
competition and achieved surpluses. Applying Porter’s
model, the following forces appeared to have been most
influential:
• The threat of new entrants was stimulated by policy
measures to lower barriers to enter the market and
lower barriers for financiers to switch between care
providers.
• The bargaining power of financiers (health insurers)
was increased because of the increased opportunities
for financiers to switch between care providers.
• The bargaining power of clients was increased
by extending their choice options among health
providers by allowing them to allocate a PGB (see
earlier).
• The rivalry between competitors was increased by
the entry of new suppliers of home care services,
the increased bargaining power of financiers, limited budget growth in relation to the strong growth
in demand, and less cooperative behaviour between
home care suppliers.
• The direct influence of the government put home
care organizations’ surpluses under pressure mainly
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
by keeping budgets limited compared to the increase
in demand. The surplus of home care suppliers also
decreased as policy pressures stimulated complementary suppliers and gatekeepers to divert patients
away from intramural care towards home care.
• The threat of substitutes decreased by the forces
described previously, thereby increasing the pressure on home care institutes to provide more services
without receiving more revenues. This reduced the
organizations’ surplus.
If we picture the situation of the home care industry
in North Brabant in the year 1997, competitive forces
did indeed increase, but the intensity of competition
was still rather modest. Home care organizations that
serve the so-called AWBZ-market (obligatory national
insurance for long-term diseases, the so-called first
compartment of the insurance system) retain their
strong bargaining position towards financiers and
patients. In this part of the sector, the threat of new
entrants and mutual rivalry is limited. One important
reason for this is the strategic behaviour of the home
care organizations. Mergers and alliances created
regional monopolistic positions for these organizations, thereby partly eliminating new competition. In
addition, the organizations strategically cooperated
with financiers and complementary suppliers. Home
care organizations that (also) serve the so-called
second compartment of the insurance system (sickness
fund or privately insured home care) did experience
a strong increase in competition. In particular, the
insurance companies gained a strong bargaining
position within the industry structure.
4.2. Labour supply
The increase in the influence of several competitive
forces between 1987 and 1997 put home care organizations’ surpluses under pressure. Limited budgets due
to government cost containment policy, new entrants,
an increase in the bargaining power of financiers and
clients forced home care organizations to squeeze
their costs in order to survive in a more competitive
market.
An important question is what consequences this
had for the (potential) employees of home care organizations. Was it possible to shift the threat of financial
losses for home care organizations on to employees, as
151
partly happened to clients through growing waiting lists
and rationing of care? This question coincides with that
of the bargaining power of labour suppliers in relation
to the bargaining power of the buyers, in this case the
home care organizations. In the following subsections,
we present the changes between 1987 and 1997, the
situation in 1997, and finally the effects on personnel
and profitability of home care organizations.
4.3. Changes in the bargaining power of labour
suppliers between 1987 and 1997
The application of determinants of bargaining power
of labour suppliers shows that between 1987 and
1997 their buying power somewhat increased as a
consequence of several determinants. Especially the
decreased importance of home care organizations for
the market of employee services plays an important part
(determinant 3 in Fig. 3). In the time interval under
consideration, private (commercial) home care suppliers were allowed to enter the collectively financed
home care market. Also, the number of home care organizations on the privately financed market increased
(see Table 1). Because of this, the alternative possible choices for (potential) employees to offer their
services increased. This enhances the competition for
personnel between existing home care organizations
and newcomers, and with this, the bargaining power of
employees. Besides, the threat of forward integration of
employees grew (determinant 7 in Fig. 3). The introduction and gradual increase in the system of PGB’s
made private set-ups more attractive for employees, to
offer their services to clients with a personal budget.
However, more determinants seem to have contributed to a decrease in the bargaining power of labour
suppliers. If we take stock of the situation in 1997, we
can conclude that the bargaining power of labour suppliers in that year was relatively limited in relation to
the buying power of home care organizations. The most
important determinants that contribute to this situation
will be mentioned hereafter.
• There was a relatively high concentration of existing
home care organizations in the province (determinant 1 in Fig. 3). A huge number of mergers between
1987 and 1997 resulted in regional monopolies of
home care organizations (see Table 1). Because
of this, (potential) employees who did not want to
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Table 1
Number of home care organizations and employees in the Netherlands and the province of North Brabant between 1987 and 1997
Number of existing home care organizations with a
licence for the collectively financed market
Number of new entrants with a licence for the
collectively financed market
Number of home care organization on privately financed
market
Number of nursing and caring employees in home care
Number of full time equivalents
1987
1990
1994
1995
1996
1997
North Brabant
40
40
22
19
19
14
Netherlands
North Brabant
407
0
318
0
127
0
119
1
117
4
111
4
Netherlands
North Brabant
0
–
0
–
–
29
–
–
–
–
25
36
Netherlands
Netherlands
117.032
50.066
128.655
48.579
129.208
47.102
130.763
47.790
Sources: [19,23,24].
travel far to their employer/clients had relatively
few possible choices to offer their services.
• There was no serious shortage on the labour market
in 1997 (determinant 2). The home care organizations were still provided with ‘sufficient’ input. The
supply of labour was sufficient in relation to the
relatively limited demand for labour as caused by
tight budgets (see Table 1: the limited demand for
labour appears from the relatively limited growth
of the number of employed persons in the nursing
and caring professions in the home care sector
and a relatively stable number of full-time jobs)
[19].
• Although the number of new entrants on the collectively and privately financed home care market
increased (see Table 1), the existing home care
providers were still the most important buyers of
the services of labour suppliers (determinant 3). In
1997 only 5% (maximum) of the total workforce in
home care worked for the new entrants. In addition,
the existing home care organizations strategically
anticipated on the loss of employees to private
(commercial) new entrants by setting up private
organizations themselves.
Compared to other sectors in health care, the home
care sector is one of the most important employers
for nursing and caring personnel in the health care
sector. In 1996, about 35% of nursing and caring
employees worked in the home care sector, about
20% in hospitals, 26% in nursing and elderly homes
[19]. See also Hingstman et al. [20]. Although
competition among these different employers
might occur, this was still limited in 1997 because
shortages on the labour market were not yet severe.
• The influence of the system of PGB’s and forward integration of (potential) employees was
limited (determinant 7). Research has shown that
competition for employees between home care
organizations and PGB holders was not that strong
[21]. In most cases, it is about paid informal care or
re-entrants in the labour market and no personnel is
taken away from existing home care organizations.
• Costs of labour were high compared to the total
costs of home care organizations (around 80%)
(determinant 8). This renders home care organizations more price-sensitive. Although the price
of labour in the home care market is regulated
by labour unions and employers’ organizations
in collective labour agreements, a cost reduction
can be realized by a shift from more expensive to
relatively cheap workers. For certain occupational
groups, in particular the (highly educated) nurses,
this means a weakening of their bargaining power.
Summing up, home care organizations hardly have
to compete for personnel in 1997, firstly because the
number of new entrants was limited and secondly
because enough personnel was still available. The relative power position of home care institutions in 1997
makes it possible, in principle, to shift the (threatening) financial losses with which they were confronted
in the time interval under consideration, on to (potential) employees.
We conclude this empirical section with a subsection
on the effects of the structural features of the competitive environment on personnel and profitability of home
care organizations.
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Table 2
Changes in the vacancy rate in the home care industry in the Netherlands between 1997 and 2001
Vacancy rate, general
Health care and welfare sector
Home care
1997
1998
1999
2000
2001
1.2
1.2
1.6
1.9
1.9
2.5
2.1
2.7
2.5
3.2
0.5
0.7
0.8
1.0
1.0
1.3
1.3
1.4
Vacancy rate, difficult to fulfil
Health care and welfare sector
Home care
Source: [20].
4.4. Effects on personnel and profitability of home
care organizations
Particularly in the mid-1990s, home care organizations were confronted with financial losses caused by
increased competition and tight budgets. The existing
home care organizations’ budgets were cut by 5% to
give room to new entrants. Research in the province
of North Brabant has shown that home care organizations were able to limit the financial losses by shifting
them on to employees [1]. An increase in productivity
and cost-cutting measures hit the suppliers of labour in
several ways.
• Many organizations made labour relations more flexible, on the one hand to control costs, on the other
hand to be able to realize a customer-oriented supply
of care. Examples of more flexibility are: temporary
contracts, min-max contracts (with a minimum and a
maximum number of working hours), 0 h contracts,
increased input of temporary workers, a decrease
in the number of working hours in employee contracts. Some organizations even had redundancies.
Because of this, the degree of security for employees decreased.
• The realization of savings on personnel by technological aid supplies.
• A move from relatively expensive to cheaper personnel [19]. Many home care organizations replaced
part of their personnel in paid employment by ‘alpha
assistants’ who are not employed by the organization. A shift also took place from nursing to caring
personnel (lower level of professionalism) [22].
• The consequence of a smaller number of hours
per client (rationing) was less attention and time
for the client while work pressure for the personnel increased. Moreover, the labour satisfaction
decreased as a consequence of the introduction of the
‘Taylorian work methods’, implying the registration
of patient care minute by minute.
The shift of costs on to employees is consistent with
the relatively strong power position of home care organizations in 1997. Since then, however, the bargaining
power of labour suppliers improved, primarily as a
consequence of the increased tightening of the labour
market. Furthermore, the government allowed an
increase of the budgets in an attempt to resolve waiting
lists problems. As a consequence, labour demand
increased. The number of persons employed in the
home care sector increased, but the number of (hard
to fill) vacancies increased as well (see Table 2) [20].
Moreover, since 2001 the importance of the existing home care providers for employees has dwindled
because of the increasing number of private suppliers
and a growth of the PGB system. Although we did not
research the labour conditions and circumstances of
employees after 1997, one can assume that these have
improved because of the improvement in the bargaining power of labour suppliers after 1997.
5. Conclusion
In this paper, we addressed the general question of
how government initiatives to introduce more competition and ‘business risks’ for insurers and health care
providers have affected the Dutch home care industry.
In particular, we elaborated on the role of labour supply
in the home care industry as one of the important forces
within the sector. Empirically, we focused on the home
care industry in the province of North Brabant during
the 1990s to illustrate the developments with regard to
labour supply and the changing nature of the sector.
154
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
At the outset of the paper, we have described
changes in the macro-environment that stimulated
health organizations to analyse the competitive dynamics of their industrial structure and to behave more
business-oriented. As a result, the Dutch home care
sector is shifting towards more business-orientated
behaviour and attitudes. This is partly due to the governmental stimulus towards more internal competition.
Consequently, instruments of strategic management –
which originally stem from the profit sector – become
increasingly important for the home care industry, as it
is losing its pure character of a non-profit sector. Still,
the core strategic management tool for analysing industry competitiveness, Porters’ five forces model, had to
be adapted and extended significantly for use in the
home care industry.
Basically, this extension implies adding the influence of five additional competitive forces:
• Direct influence of the government.
• Relations with suppliers of complementary products
or services.
• Bargaining power of ‘gatekeepers’ (who determine
the type and amount of service needed and direct
clients to service providers).
• Bargaining power of suppliers of (sequential) complementary products.
• Bargaining power of providers of financial sources
in the home care industry.
This way, the modified Porter-model appears to
be useful for analysing the restructuring of the home
care industry in the Netherlands. The instrument helps
to understand the structural changes in the home
care industry, given its difficult task to sustain social
benefits against pressures to initiate economic and
strategic actions. The instruments also demonstrate
the complexity of the supply chains and value systems
of the industry, i.e., the specific role and position
of complementary health care suppliers and the
interdependency between all actors. This complexity
and interdependency also influences the labour supply
as one of the important forces in the competitive
environment of home care organizations.
What is the distinctive role of labour supply within
our tailored strategic management model of the home
care industry? In theory, it makes sense to consider
labour forces (in particular the current and potential
home care employees) as an important ‘supply force’
within the home care industry. Vacancies, unemployment, wages and labour conditions reflect the status of
the labour market for home care personnel.
Application of the Porter-plus model to the home
care industry in the Netherlands shows that the influence of suppliers of labour slightly increased between
1987 and 1997. This is especially caused by a decreasing dependence of potential labour suppliers on existing home care organizations only and a growing threat
of forward integration. However, more determinants
seem to have contributed to a decrease in the bargaining
power of labour suppliers. If we take stock of the situation in 1997, we can conclude that the bargaining power
of labour suppliers in that year was relatively limited. A
number of factors contributed to this situation: the concentration of home care organizations caused by strategic mergers, no serious shortages on the labour market,
limited budgets of home care organizations, relatively
high labour costs, and the importance of existing home
care providers as buyers of the services of labour
suppliers.
However, within the constellation of competitive forces, the bargaining power of the home care
workforce became stronger after 1997. Since then,
home care organizations have experienced substantial
budget increases to solve waiting lists. This has caused
a growing demand for labour, while the supply side
of the labour market had lagged behind for a number
of years. In spite of the present economic recession,
scarcity on the labour market for home care personnel
seems to prevail in the longer term, due to a growing
demand for home care services.
Acknowledgements
The authors are grateful to Ronald Batenburg and
Geertje Verbraak for providing several comments and
suggestions on earlier versions of this paper. An earlier version of this paper was presented at the EHMA
conference in Sicily in 2003.
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Labour supply in the home care industry: A case study
in a Dutch region
Elly J. Breedveld a,∗ , Bert R. Meijboom b , Aad A. de Roo b
a
Thebe/Tilburg University, PO Box 1035, 5004 Tilburg, BA, Netherlands
b Tilburg University, PO Box 90153, 5000 Tilburg, LE, Netherlands
Abstract
Health organizations have started to become more market-driven. Therefore, it is important for health organizations to analyse
the competitive dynamics of their industrial structure. However, relevant theories and models have mainly been developed for
organizations acting in the profit sector. In this paper, we adapt Porter’s ‘five forces model’ to the home care industry. In particular,
we modify the (determinants of the) bargaining power of labour suppliers. We then apply the modified Porter-model to the home
care industry in the Netherlands for the period of 1987–1997 with special attention for labour supply.The new instrument clarifies
the complexity of the supply chains and value systems of the home care industry. As can be illustrated by developments in the
home care industry in the province of North Brabant during the 1990s, competition between home care providers has influenced
labour market relations, but so do other factors as well. Between 1987 and 1997, the bargaining power of labour suppliers was
relatively limited. After 1997, however, the demand for home care personnel has increased strongly. In spite of the present
economic recession, scarcity on this labour market seems to prevail in the longer term due to a growing demand for home care
services.
© 2005 Elsevier Ireland Ltd. All rights reserved.
Keywords: Competitive analysis; Strategic management; Labour supply; Home care
1. Introduction
Since the 1980s, the Dutch health and home care
policy can be characterized by efforts to introduce more
competition and ‘business risks’ for insurers and health
care providers. In the home care industry, the government stimulated competition in several ways and
Corresponding author. Tel.: +31 13 5947299.
E-mail addresses: [email protected] (E.J. Breedveld),
[email protected] (B.R. Meijboom), [email protected]
(A.A. de Roo).
∗
reduced the home care organizations’ protected status.
For example, since 1994 new entrants have been admitted to the home care market whereas the domains and
markets used to be strictly defined and divided with no
free entrance for new suppliers. As a result, self-evident
certainties on the budget as well as on the sales side have
come under pressure. More and more, home care organizations have to compete for clients and money and
become more market-driven. Thus, managers in home
care are confronted with a new task, namely to guarantee the viability and continuity of their organization and
to create a surplus (the difference between revenues
0168-8510/$ – see front matter © 2005 Elsevier Ireland Ltd. All rights reserved.
doi:10.1016/j.healthpol.2005.05.007
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
and expenditures) in order to survive in a more competitive market. More specifically, as labour accounts for a
large part of the costs of home care providers, one might
wonder how the strategic position of suppliers of labour
with respect to these home care providers has evolved
and what consequences this has had for the position
and ‘profitability’ of the organizations within that
sector.
Because of the shift towards more market-driven
behaviour of this traditionally non-profit sector,
we propose to use a modified version of Porter’s
well-known five forces model [1]. In its original form,
this model accounts for rivalry among existing firms,
bargaining power of buyers, threat of new entrants,
threat of substitute products or services, and bargaining
power of suppliers. Using an extended version of this
tool, we will analyse the Dutch home care industry
in the province of North Brabant during the period
1987–1997. The year 1987 marks the birth of the idea
to introduce competitive elements into the health care
sector as a whole. By 1997, the functioning of the
market mechanism in the home care industry was temporarily frozen, until the year 2001, when the market
mechanism experienced a revival. In the analysis of
structural changes in the home care industry, specific
attention will be paid to the strategic position of labour
suppliers and its effect on profitability and social
benefits. It should be noted that, since the present
study is concerned with a specific industry within a
certain country, Porter’s famous ‘Diamond model’ [2],
which addresses issues of international competitiveness, was considered much less appropriate for our
purposes.
The empirical application of the modified ‘five
forces model’ encompasses an explorative analytical
description, rather than an explanation, of the changes
in the dynamics in the home care industry structure.
The type of research that is applied is the case study
[3], as we offer an empirical enquiry in which:
1. A contemporary phenomenon is investigated within
its real-life context.
2. The boundaries between phenomenon and context
are not clearly evident at all times.
3. Multiple sources of evidence are used.
For the purpose of this research the home care industry is functionally defined to include all types of organizations that offer professional services at any moment
145
in the area of nursing and/or physical or domestic care
at the home of physically ill, infirm or elderly people.
Organizations that provide care services for the mentally ill or mentally of physically disabled are excluded
from this study.
The paper is structured as follows. First, we will
sketch the macro-environment which forms the context of the central question and show the importance
and usefulness of business-oriented instruments for
analysing structural changes in the originally typically
non-profit home care industry. Second, we present
an instrument derived from a set of tools originally
developed for market sectors and adapted and extended
here for use in the home care industry. The description of the extended instrument is followed by the
application in our case environment. Some insights for
the home care industry as a whole will be presented
first, before we analyse the influence of suppliers on
the labour market in more detail. We end up with
conclusions.
2. Towards a more competitive environment
As in other European countries [4], major health
care reforms in the Netherlands were initiated at the
end of the 1980s. In this paper, the focus is on the period
1987–1997. In the year 1987, the ‘Dekker committee’ advised shifting policy from a (central) planning
approach to a more market-oriented approach with
more responsibilities and (financial) risks for health
insurers and health care providers [5].
In the 1970s and 1980s health care costs increased
rapidly. To illustrate [1], expressed in millions of
Dutch guilders, the expenses for home care grew from
513 to 2561 between 1974 and 1987, and in 1998
it had become 4330. Until 1987, the reimbursement
mechanism could be characterized as open-end
financing without a macro budget, so there were
hardly any incentives for health care organizations
to behave efficiently and in a goal-oriented manner.
Furthermore, few possibilities for substitution existed
and there was no freedom for patients to receive health
care service suited to their particular needs.
The Dekker committee advised ‘regulated competition’ as a solution to these problems. In the home care
industry, the government stimulated competition in
several ways, for example by allowing new entrants on
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E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
the home care market and the introduction of Personal
Budgets (in Dutch: Persoons Gebonden Budget,
abbreviated PGB). More specifically, the Dutch health
insurance system (AWBZ) started to offer not only
care in kind but also Personal Budgets (cash). The
insured are given a budget in order to contract and
pay health care services themselves. Personal Budgets
are intended to create a possibility for patients/clients
to buy care from providers of their own choice
[6].
Although the radical reform plans were toned down
in 1994, when a new government introduced a mixture of several incentives, the Dutch health and home
care policy since the 1980s can be characterized by
efforts to introduce more competition and ‘business
risks’ for insurers and health care providers. By 1997
the functioning of the market mechanism in the home
care industry was temporarily frozen.
Before making an analysis of the transitions in the
home care industry in North Brabant, the (prevailing)
macro-environment will be described. This covers the
political, economic, social, cultural, and technological
developments between 1987 and 1997, including the
demographic and epidemiological trends. These trends
have a strong impact on the industry structure. Specifically, the following influences can be distinguished
[7,8]:
• Demographic and epidemiological. The number of
elderly people in North Brabant increased, in particular the number of elderly single women. Also the
number of people with chronic diseases increased.
This caused a growing demand for complex types of
home care. The growth in demand was also caused
by technological and socio-cultural trends and
government policy, which stimulated a shift from
intramural to extramural care. The growth in demand
for (complex) home care services potentially
reduced mutual competition among the suppliers.
• Economic. The growth in demand for home care
services was not matched by a growth in financial
resources. Consequently, scarcity caused an increase
in rivalry between home care providers. In addition,
intramural organizations also faced scarcity. This
stimulated a shift to extramural care and increased
the potential threat of new entrants on the home care
market. At the same time, a decrease of hospital
beds meant a decreasing threat of substitutes of
home care. In contrast to Porter’s thesis that lack of
substitutes will lower the intensity of competition,
the home care industry in North Brabant shows
the opposite: the lack of financial resources and
substitute services increases the social pressure on
home care organizations to produce more, without
an increase in their revenues (because of the budget
system). The home care organizations’ surplus is
thus reduced.
• Socio-cultural. Increasing individualization and
emancipation stimulated demand quantitatively as
well as qualitatively. The client asks for ‘customized
care’. New entrants used the opportunities to sell new
types of home care, sometimes in joint venture with
other complementary providers within in the sector.
• Political/regulatory. Policy measures play an important role in stimulating competitive forces. Policy
measures that reduced the home care organizations’
protected status and stimulated competitive forces
are:
◦ The admission of new entrants to the home care
market since 1994 (before, the domains and
markets were strictly defined and divided with
no free entrance for new suppliers).
◦ The reduction of the existing home care organizations’ budget guarantee by 5% in 1995. The
initial idea was to reduce budget guarantees
slowly up to 35%. However, this was never
reached, because the government decided to
freeze the market mechanism in 1997 because of
disequilibria in the market.
◦ Abolition of the Health Insurance Fund (so-called
Sickness Fund) obligation to sign contracts with
home care providers.
◦ Introduction of tariff caps instead of fixed tariffs.
◦ Introduction of competitive elements in the
tender for supply contracts and subsidies for
possible market entrants.
These developments in the macro-environment
contributed to the restructuring of the home care
industry and set the stage for a potentially more
competitive environment for organizations providing
home care. Having described the macro-environment
of the home care industry, we now turn to an economic
theory that could be appropriate for a more structured
analysis of the emerging competitive atmosphere
between 1987 and 1997.
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
3. Theoretical background
147
4. Threat of new entrants.
5. Suppliers of substitute products or services.
In the previous section, we have described changes
in the environment that urged health organizations to
analyse the competitive dynamics of their industrial
structure. However, relevant theories and models
have mainly been developed for organizations acting
in the profit sector. As a consequence, strategic
management models for non-profit organizations are
hardly available.
The stronger each of these forces within an industry,
the stronger the intensity of competition and therefore
the less the industry provides opportunities for organizations to achieve profits. However, because of the
specific characteristics of non-profit health organizations, the model has to be modified before we apply it
in our case environment.
3.1. Extant literature
3.3. Instrument for analysis: the Porter-plus model
For an extensive review of economic and management theories at the level of industries, we refer to
Breedveld [1]. See also Rumelt et al. [9], Scott [10] and
Fahey and Narayanan [11]. Breedveld [1] concludes
that, in this literature, certain tools and techniques are
available that, probably in some adapted form, could
help to analyse the restructuring of non-profit industries towards market orientation. More specifically, the
‘strategic management approach’ has produced, among
other tools, several techniques to analyse competitive
markets from the perspective of individual organizations and their performance (profitability). In addition,
the ‘industrial organization approach’ provides applicable frameworks to analyse competitive markets and
firm behaviour in relation to social benefits [12,13].
As a first step, Porter’s model has to be extended by
two additional forces:
3.2. Porter’s five forces model
In this paper, Porter’s five forces model is taken
as the starting-point to analyse the emerging competitive atmosphere between 1987 and 1997 in the Dutch
home care industry [14,15]. Porter’s five forces model
is one of the most influential management tools for
strategic industry analysis. The model applies insights
from industrial organization theory to analyse the competitive environment on the level of business units.
The basic proposition of Porter’s five forces model is
that organizational performance mainly depends on the
industry structure. In turn, the industry structure is composed of five main forces that determine its intensity of
competition:
1. Existing rivalry among firms.
2. The bargaining power of buyers.
3. The bargaining power of suppliers.
• The influence of the government.
• The relations with suppliers of complementary products or services.
In Porter’s model, the government indirectly influences the structure and profitability of an industry through the central five forces. However, several
authors distinguish a more direct role of the government
as a separate competitive force [16,17]. The second
force consists of products that add value by simultaneous consumption [18]. In addition, Porter’s model
is complemented by two other elements, i.e. macrofactors and organizational strategy. In our opinion,
the structure of industries cannot be well understood
without incorporating these elements in the analytic
framework. In fact, this extension is in line with the
structure-conduct-performance paradigm in industrial
organization theory [13]. In our framework, we also
take into account the consequences of industry structures, i.e., organizational and industrial performance
(profitability) on the one hand and social benefits (for
buyers) on the other hand.
The above-mentioned additions to Porter’s model
are generic, in the sense that they are not only relevant
to the health care sector, but also to other (profit)
industries. The next question is how to apply the
modified Porter model to the specific conditions of the
home care industry. The answer to this question lays
in a thorough analysis of the differences between the
profit and non-profit industry, in particular the home
care industry. One important discrepancy concerns
the financial system of the home care industry, which,
in the time interval under consideration, was mainly
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E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
publicly financed. In contrast, the privately financed
home care organizations seem to be more similar to the
profit industry and are therefore expected to fit more
closely into Porter’s original forces model. In practice,
however, the distinction between publicly and privately funded home care organizations appears rather
small.
The major adaptation of Porter’s model necessary
before it can be applied to both types of the home care
organizations is to add the bargaining power of the following three actors to the model, in the form of three
additional competitive forces:
• The roles of the ‘gatekeepers’ (who determine the
type and amount of service needed and direct clients
to service providers).
• The suppliers of (sequential) complementary products.
• The providers of financial sources in the home care
industry.
These three additional forces can be further clarified
as follows. In many health care systems, gatekeepers,
clients, and financial institutions have separate roles.
These roles correspond with the essential distinction
between ‘deciding, consuming, and paying’ for health
care services. In contrast to the profit sector, where
the decision to consume, the actual consumption, and
the payment for the consumption are concentrated
in the same actor, these actions are often distributed
among three different actors in the health care
sector.
Furthermore, within the home care industry it is
difficult to specifically apply the value chain concept,
since the ‘assembly of services’ cannot be clearly
defined. Actors within the supply chain deliver their
services directly to the customer (patients), but without
delivering these (sub)services to each other. Consequently, the value chain of the home care industry
is rather limited, as inputs (personnel and capital)
are directly shifted to the customer with interference
by only home care organizations. Nevertheless,
suppliers of services that are sequential to the home
care services, like nursing homes and hospitals, have
become increasingly important. They partly regulate
client flows and consequently determine the home
care organizations’ opportunities to generate turnover
and surplus. Because of this influence, they are added
as an additional competitive force to Porter’s model.
Finally, insurance companies govern the financial
flows that accompany the flow of service along the supply chain (Fig. 1).
In many other countries, these adaptations of the
model will be the same for the health care sector. With
respect to the home care organizations that are fully
based on public funding, the adaptation of Porter’s
model is taken one step further. This is necessary
Fig. 1. The Porter-plus model.
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
because of the following characteristics of publicly
financed (non-profit) home care organizations.
Firstly, Porter’s assumption on profit maximization
on behalf of shareholders does not apply. Instead,
publicly financed home care organizations deal with
a dual concept of profit making. On the one hand,
budgets need to be spent as efficiently as possible.
Secondly, financial surpluses are supposed to contribute to additional social benefits, in terms of quality
(differentiation of products, ‘customized care’) and
access to care (serving more patients within the same
budget). Consequently, Porter’s model needs to be
supplemented with the social perspective and the
common interests of the home care industry.
Secondly, organizations in the Dutch home care
industry are not operating in an environment where
price signals coordinate processes (prices are fixed).
As a result, increasing competition will not influence
prices but costs and revenues. Decreasing revenues
(because of competition) in combination with stable
or increasing costs will put the home care organizations’ potential surpluses under pressure. The same
holds for increasing costs in combination with stable or
decreasing revenues. Moreover, movements towards a
price mechanism are about to emerge within the publicly financed sector of the home care industry, by, for
instance, tariff caps (instead of fixed tariffs) and output financing. Clearly, these trends will narrow the gap
between Porter’s model of industry competition and the
structure of home care industry.
149
In the next subsection, we will elaborate one of
the elements of the Porter-plus model in more detail,
namely the bargaining power of suppliers on labour
markets. As employees account for many of the costs
of home care organizations, the bargaining power of
labour suppliers is an important competitive force that
influences surpluses of organizations in the home care
industry.
3.4. Bargaining power of suppliers of labour
Assuming no changes in the other dimensions, an
increase of the bargaining power of labour suppliers may lead to more competition and a decrease in
the ‘profitability’ of health organizations. Therefore,
analysing changes in the labour supply is relevant for
managers in the health care sector. Porter brings up several determinants of the bargaining power of suppliers,
whether it be investors of capital, suppliers of materials
or labour suppliers (Fig. 2).
It is important to specify these determinants of the
specific conditions of the home care industry and make
them fit for use in our (non-profit) setting. Here, we
focus on the power of suppliers of labour. The individual (potential) employees that deliver labour are represented by their labour unions, which negotiate about
collective labour agreements and, among other things,
make wage agreements. When there is a tight labour
market, home care suppliers will have to compete with
one another for employees. This may increase costs or
Fig. 2. Determinants of the bargaining power of suppliers.
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E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
Fig. 3. Determinants of the bargaining power of labour suppliers in the home care industry.
wages and go at the expense of the surplus of home care
organizations. This will definitely be the case when
the increase in wages cannot be compensated for in
the budget agreements with financiers. Besides, lack of
labour makes it more difficult for home care organizations to increase production and revenues. Depending
on the bargaining power of employees, the pressure
on the home care supplier’s surplus will be more or
less serious. The determinants of employee bargaining
power in the home care industry (after Porter) will be
summarized in Fig. 3.
4. Empirical results
Earlier in the paper, developments in the macroenvironment of the home care industry were described.
Subsequently, we presented the Porter-plus model. This
instrument is based on Porter’s five forces model, which
originally was developed for market sectors and has
been adapted and extended here for use in the home
care industry. Now we turn to the empirical part of the
paper. This comprises the application of the Porter-plus
model in our case environment. Some insights for the
home care industry as a whole will be presented first,
followed by a more detailed analysis of the influence
of suppliers on the labour market.
4.1. Generic insights following from application
of Porter-plus model
The period 1987–1997 was dynamic in terms of
competition and achieved surpluses. Applying Porter’s
model, the following forces appeared to have been most
influential:
• The threat of new entrants was stimulated by policy
measures to lower barriers to enter the market and
lower barriers for financiers to switch between care
providers.
• The bargaining power of financiers (health insurers)
was increased because of the increased opportunities
for financiers to switch between care providers.
• The bargaining power of clients was increased
by extending their choice options among health
providers by allowing them to allocate a PGB (see
earlier).
• The rivalry between competitors was increased by
the entry of new suppliers of home care services,
the increased bargaining power of financiers, limited budget growth in relation to the strong growth
in demand, and less cooperative behaviour between
home care suppliers.
• The direct influence of the government put home
care organizations’ surpluses under pressure mainly
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
by keeping budgets limited compared to the increase
in demand. The surplus of home care suppliers also
decreased as policy pressures stimulated complementary suppliers and gatekeepers to divert patients
away from intramural care towards home care.
• The threat of substitutes decreased by the forces
described previously, thereby increasing the pressure on home care institutes to provide more services
without receiving more revenues. This reduced the
organizations’ surplus.
If we picture the situation of the home care industry
in North Brabant in the year 1997, competitive forces
did indeed increase, but the intensity of competition
was still rather modest. Home care organizations that
serve the so-called AWBZ-market (obligatory national
insurance for long-term diseases, the so-called first
compartment of the insurance system) retain their
strong bargaining position towards financiers and
patients. In this part of the sector, the threat of new
entrants and mutual rivalry is limited. One important
reason for this is the strategic behaviour of the home
care organizations. Mergers and alliances created
regional monopolistic positions for these organizations, thereby partly eliminating new competition. In
addition, the organizations strategically cooperated
with financiers and complementary suppliers. Home
care organizations that (also) serve the so-called
second compartment of the insurance system (sickness
fund or privately insured home care) did experience
a strong increase in competition. In particular, the
insurance companies gained a strong bargaining
position within the industry structure.
4.2. Labour supply
The increase in the influence of several competitive
forces between 1987 and 1997 put home care organizations’ surpluses under pressure. Limited budgets due
to government cost containment policy, new entrants,
an increase in the bargaining power of financiers and
clients forced home care organizations to squeeze
their costs in order to survive in a more competitive
market.
An important question is what consequences this
had for the (potential) employees of home care organizations. Was it possible to shift the threat of financial
losses for home care organizations on to employees, as
151
partly happened to clients through growing waiting lists
and rationing of care? This question coincides with that
of the bargaining power of labour suppliers in relation
to the bargaining power of the buyers, in this case the
home care organizations. In the following subsections,
we present the changes between 1987 and 1997, the
situation in 1997, and finally the effects on personnel
and profitability of home care organizations.
4.3. Changes in the bargaining power of labour
suppliers between 1987 and 1997
The application of determinants of bargaining power
of labour suppliers shows that between 1987 and
1997 their buying power somewhat increased as a
consequence of several determinants. Especially the
decreased importance of home care organizations for
the market of employee services plays an important part
(determinant 3 in Fig. 3). In the time interval under
consideration, private (commercial) home care suppliers were allowed to enter the collectively financed
home care market. Also, the number of home care organizations on the privately financed market increased
(see Table 1). Because of this, the alternative possible choices for (potential) employees to offer their
services increased. This enhances the competition for
personnel between existing home care organizations
and newcomers, and with this, the bargaining power of
employees. Besides, the threat of forward integration of
employees grew (determinant 7 in Fig. 3). The introduction and gradual increase in the system of PGB’s
made private set-ups more attractive for employees, to
offer their services to clients with a personal budget.
However, more determinants seem to have contributed to a decrease in the bargaining power of labour
suppliers. If we take stock of the situation in 1997, we
can conclude that the bargaining power of labour suppliers in that year was relatively limited in relation to
the buying power of home care organizations. The most
important determinants that contribute to this situation
will be mentioned hereafter.
• There was a relatively high concentration of existing
home care organizations in the province (determinant 1 in Fig. 3). A huge number of mergers between
1987 and 1997 resulted in regional monopolies of
home care organizations (see Table 1). Because
of this, (potential) employees who did not want to
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E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
Table 1
Number of home care organizations and employees in the Netherlands and the province of North Brabant between 1987 and 1997
Number of existing home care organizations with a
licence for the collectively financed market
Number of new entrants with a licence for the
collectively financed market
Number of home care organization on privately financed
market
Number of nursing and caring employees in home care
Number of full time equivalents
1987
1990
1994
1995
1996
1997
North Brabant
40
40
22
19
19
14
Netherlands
North Brabant
407
0
318
0
127
0
119
1
117
4
111
4
Netherlands
North Brabant
0
–
0
–
–
29
–
–
–
–
25
36
Netherlands
Netherlands
117.032
50.066
128.655
48.579
129.208
47.102
130.763
47.790
Sources: [19,23,24].
travel far to their employer/clients had relatively
few possible choices to offer their services.
• There was no serious shortage on the labour market
in 1997 (determinant 2). The home care organizations were still provided with ‘sufficient’ input. The
supply of labour was sufficient in relation to the
relatively limited demand for labour as caused by
tight budgets (see Table 1: the limited demand for
labour appears from the relatively limited growth
of the number of employed persons in the nursing
and caring professions in the home care sector
and a relatively stable number of full-time jobs)
[19].
• Although the number of new entrants on the collectively and privately financed home care market
increased (see Table 1), the existing home care
providers were still the most important buyers of
the services of labour suppliers (determinant 3). In
1997 only 5% (maximum) of the total workforce in
home care worked for the new entrants. In addition,
the existing home care organizations strategically
anticipated on the loss of employees to private
(commercial) new entrants by setting up private
organizations themselves.
Compared to other sectors in health care, the home
care sector is one of the most important employers
for nursing and caring personnel in the health care
sector. In 1996, about 35% of nursing and caring
employees worked in the home care sector, about
20% in hospitals, 26% in nursing and elderly homes
[19]. See also Hingstman et al. [20]. Although
competition among these different employers
might occur, this was still limited in 1997 because
shortages on the labour market were not yet severe.
• The influence of the system of PGB’s and forward integration of (potential) employees was
limited (determinant 7). Research has shown that
competition for employees between home care
organizations and PGB holders was not that strong
[21]. In most cases, it is about paid informal care or
re-entrants in the labour market and no personnel is
taken away from existing home care organizations.
• Costs of labour were high compared to the total
costs of home care organizations (around 80%)
(determinant 8). This renders home care organizations more price-sensitive. Although the price
of labour in the home care market is regulated
by labour unions and employers’ organizations
in collective labour agreements, a cost reduction
can be realized by a shift from more expensive to
relatively cheap workers. For certain occupational
groups, in particular the (highly educated) nurses,
this means a weakening of their bargaining power.
Summing up, home care organizations hardly have
to compete for personnel in 1997, firstly because the
number of new entrants was limited and secondly
because enough personnel was still available. The relative power position of home care institutions in 1997
makes it possible, in principle, to shift the (threatening) financial losses with which they were confronted
in the time interval under consideration, on to (potential) employees.
We conclude this empirical section with a subsection
on the effects of the structural features of the competitive environment on personnel and profitability of home
care organizations.
153
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
Table 2
Changes in the vacancy rate in the home care industry in the Netherlands between 1997 and 2001
Vacancy rate, general
Health care and welfare sector
Home care
1997
1998
1999
2000
2001
1.2
1.2
1.6
1.9
1.9
2.5
2.1
2.7
2.5
3.2
0.5
0.7
0.8
1.0
1.0
1.3
1.3
1.4
Vacancy rate, difficult to fulfil
Health care and welfare sector
Home care
Source: [20].
4.4. Effects on personnel and profitability of home
care organizations
Particularly in the mid-1990s, home care organizations were confronted with financial losses caused by
increased competition and tight budgets. The existing
home care organizations’ budgets were cut by 5% to
give room to new entrants. Research in the province
of North Brabant has shown that home care organizations were able to limit the financial losses by shifting
them on to employees [1]. An increase in productivity
and cost-cutting measures hit the suppliers of labour in
several ways.
• Many organizations made labour relations more flexible, on the one hand to control costs, on the other
hand to be able to realize a customer-oriented supply
of care. Examples of more flexibility are: temporary
contracts, min-max contracts (with a minimum and a
maximum number of working hours), 0 h contracts,
increased input of temporary workers, a decrease
in the number of working hours in employee contracts. Some organizations even had redundancies.
Because of this, the degree of security for employees decreased.
• The realization of savings on personnel by technological aid supplies.
• A move from relatively expensive to cheaper personnel [19]. Many home care organizations replaced
part of their personnel in paid employment by ‘alpha
assistants’ who are not employed by the organization. A shift also took place from nursing to caring
personnel (lower level of professionalism) [22].
• The consequence of a smaller number of hours
per client (rationing) was less attention and time
for the client while work pressure for the personnel increased. Moreover, the labour satisfaction
decreased as a consequence of the introduction of the
‘Taylorian work methods’, implying the registration
of patient care minute by minute.
The shift of costs on to employees is consistent with
the relatively strong power position of home care organizations in 1997. Since then, however, the bargaining
power of labour suppliers improved, primarily as a
consequence of the increased tightening of the labour
market. Furthermore, the government allowed an
increase of the budgets in an attempt to resolve waiting
lists problems. As a consequence, labour demand
increased. The number of persons employed in the
home care sector increased, but the number of (hard
to fill) vacancies increased as well (see Table 2) [20].
Moreover, since 2001 the importance of the existing home care providers for employees has dwindled
because of the increasing number of private suppliers
and a growth of the PGB system. Although we did not
research the labour conditions and circumstances of
employees after 1997, one can assume that these have
improved because of the improvement in the bargaining power of labour suppliers after 1997.
5. Conclusion
In this paper, we addressed the general question of
how government initiatives to introduce more competition and ‘business risks’ for insurers and health care
providers have affected the Dutch home care industry.
In particular, we elaborated on the role of labour supply
in the home care industry as one of the important forces
within the sector. Empirically, we focused on the home
care industry in the province of North Brabant during
the 1990s to illustrate the developments with regard to
labour supply and the changing nature of the sector.
154
E.J. Breedveld et al. / Health Policy 76 (2006) 144–155
At the outset of the paper, we have described
changes in the macro-environment that stimulated
health organizations to analyse the competitive dynamics of their industrial structure and to behave more
business-oriented. As a result, the Dutch home care
sector is shifting towards more business-orientated
behaviour and attitudes. This is partly due to the governmental stimulus towards more internal competition.
Consequently, instruments of strategic management –
which originally stem from the profit sector – become
increasingly important for the home care industry, as it
is losing its pure character of a non-profit sector. Still,
the core strategic management tool for analysing industry competitiveness, Porters’ five forces model, had to
be adapted and extended significantly for use in the
home care industry.
Basically, this extension implies adding the influence of five additional competitive forces:
• Direct influence of the government.
• Relations with suppliers of complementary products
or services.
• Bargaining power of ‘gatekeepers’ (who determine
the type and amount of service needed and direct
clients to service providers).
• Bargaining power of suppliers of (sequential) complementary products.
• Bargaining power of providers of financial sources
in the home care industry.
This way, the modified Porter-model appears to
be useful for analysing the restructuring of the home
care industry in the Netherlands. The instrument helps
to understand the structural changes in the home
care industry, given its difficult task to sustain social
benefits against pressures to initiate economic and
strategic actions. The instruments also demonstrate
the complexity of the supply chains and value systems
of the industry, i.e., the specific role and position
of complementary health care suppliers and the
interdependency between all actors. This complexity
and interdependency also influences the labour supply
as one of the important forces in the competitive
environment of home care organizations.
What is the distinctive role of labour supply within
our tailored strategic management model of the home
care industry? In theory, it makes sense to consider
labour forces (in particular the current and potential
home care employees) as an important ‘supply force’
within the home care industry. Vacancies, unemployment, wages and labour conditions reflect the status of
the labour market for home care personnel.
Application of the Porter-plus model to the home
care industry in the Netherlands shows that the influence of suppliers of labour slightly increased between
1987 and 1997. This is especially caused by a decreasing dependence of potential labour suppliers on existing home care organizations only and a growing threat
of forward integration. However, more determinants
seem to have contributed to a decrease in the bargaining
power of labour suppliers. If we take stock of the situation in 1997, we can conclude that the bargaining power
of labour suppliers in that year was relatively limited. A
number of factors contributed to this situation: the concentration of home care organizations caused by strategic mergers, no serious shortages on the labour market,
limited budgets of home care organizations, relatively
high labour costs, and the importance of existing home
care providers as buyers of the services of labour
suppliers.
However, within the constellation of competitive forces, the bargaining power of the home care
workforce became stronger after 1997. Since then,
home care organizations have experienced substantial
budget increases to solve waiting lists. This has caused
a growing demand for labour, while the supply side
of the labour market had lagged behind for a number
of years. In spite of the present economic recession,
scarcity on the labour market for home care personnel
seems to prevail in the longer term, due to a growing
demand for home care services.
Acknowledgements
The authors are grateful to Ronald Batenburg and
Geertje Verbraak for providing several comments and
suggestions on earlier versions of this paper. An earlier version of this paper was presented at the EHMA
conference in Sicily in 2003.
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