Australian aged care business models, service providers’ governing board characteristics and service quality: an empirical analysis

Given the demographical trend of an ageing population, the importance that needs to be given to the aged care service provision is globally well recognised. However, in recent years, the Australian aged care sector has faced unprecedented challenges including significant funding reforms and regulatory policy changes, escalating employee costs, and a falling level of public trust among older Australians and their families. Furthermore, the claim of the Royal Commission into Aged Care Quality and Safety’s (2021) final report which states that the aged care system in Australia has reached a crisis point necessitates a better understanding of the business models, governance mechanisms and care quality of the service providers within the sector. This thesis presents a study of the identification of business models based on the extent of resource dependence and the associations among the type of business models, governing board characteristics, and service quality of not-for-profit (NFP) residential aged care (RAC) service providers in Australia. The thesis follows a ‘thesis by papers’ format. The first paper, guided by Resource Dependence Theory (RDT) (Pfeffer and Salancik 1978) and Configuration Theory (Meyer et al. 1993), sets out to identify the business model typologies of NFP RAC service providers in Australia based on the extent of their dependence on external non-market resources (government funding and volunteer support). Drawing on RDT (Pfeffer and Salancik 1978), the second paper then investigates whether there are any associations between the type of business model and governing board characteristics of the NFP RAC service providers. The third paper identifies whether the NFP RAC service providers’ non-compliance with quality standards (which is used as a proxy to measure aged care service quality) is influenced by the type of business model and governing board characteristics, using both Agency Theory (Fama and Jensen 1983) and RDT (Pfeffer and Salancik 1978) as theoretical lenses. The initial point of data collection for this thesis is the Annual Information Sheet (AIS) 2019 (data available as of 30th June 2021) of 244 NFP RAC service providers in Australia, as found on the Australian Charities and Not-for-profits Commission (ACNC) website. Further data were collected from annual reports, websites and newsletters of the service providers. In addition, data related to non-compliance with quality standards are collected from the ‘My Aged Care’ quality checker portal, which is established and governed by the Australian government to help in providing information about government-funded aged care services. Furthermore, for qualitative content analysis, documents were gathered from publicly available documents, more specifically, publications that were available on the website of the Aged Care Quality and Safety Commission. Data analyses for the three papers are based on cluster analysis, multinomial logistic regression analysis, Poisson regression analysis and qualitative content analysis. The findings of this thesis reveal the presence of three types of business models, namely: Revenue Balanced, Revenue Concentrated and Revenue Differentiated Models. These business models are significantly different in terms of their dependence on government funding, revenue concentration, volunteer involvement in the workforce, and the level of financial performance and risk. Furthermore, the findings indicate that there is a significant association between governing board characteristics (such as board size, board involvement, and board diversity) and the business model of the service providers. In addition, it is revealed that the service providers’ service quality is significantly influenced by the types of business models and, to a certain extent, governing board characteristics. As a whole, this thesis provides empirical and theoretical evidence that not only shows that the extent of dependence on different revenue sources and volunteer involvement leads to different business model configurations, but also the influence of the governing board characteristics on business models in the NFP RAC organisations; which, in turn, impact the service quality of those organisations. These findings contribute to both literature and practice in several distinct ways. Firstly, by identifying and addressing the extent of resource dependence on business model classification in the most significant aged care sub-sectors in Australia (the NFP RAC sector), this thesis adds to the literature on aged care sector business models (e.g., Nusem et al. 2017). Secondly, the findings extend knowledge on the use of two intertwined and complementary theories, configuration and resource dependence theories, which have been only limitedly used in combination in the typological classification literature (see for example, Margiono et al. 2018). Thirdly, the findings on a significant association between business model clusters and governing board characteristics further emphasise and contribute to prior literature that contends that the governing board is the custodian of the business model in an organisation (see for example, Walker and Wyse 2021). Fourthly, the finding about the impact of the type of business models and governing board characteristics on service quality will add to the aged care service quality literature, which has received less attention within the healthcare literature (Eagar et al. 2019). Apart from these contributions to the literature, with the use of the information available in a database related to financial data and drawing on variables that are unique to the RAC subsector for business model clustering, this thesis also makes a methodological contribution. Moreover, the findings contribute to certain policy implications. For instance, by providing insights into business model typologies based on resource dependence, governing board characteristics and their performance impact in the Australian NFP RAC sector, the findings of this thesis could assist policymakers in the development of policies related to aged care funding, volunteer involvement (e.g., revenue structure, volunteer ratio and the type of work that they can involve), and governing board characteristics such as necessary skills and experience of directors, board involvement, special committees in the board, and board size. Finally, the findings have practical implications in terms of informing residents and their families when choosing RAC organisations, as they can pay closer scrutiny to the revenue structure, workforce mix, financial sustainability and service quality, and make choices based on the understanding of potential risks and benefits of the service providers in each business model.