Long-term care and hospital utilisation by older people: an analysis of substitution rates

Older people are intensive users of hospital and long-term care services. This paper explores the extent to which these services are substitutes. A small area analysis was used with both care home and (tariff cost-weighted) hospital utilisation for older people aggregated to electoral wards in England. Health and social-care structural equations were specified using a theoretical model. The estimation accounted for the skewed and censored nature of the data. For health utilisation, both a fixed effects instrumental variables GMM model and a generalised estimating equations (GEE) model were fitted, the later on a log dependent variable with predicted values of social care utilisation used to account for endogeneity (bootstrapping was used to derive standard errors). In addition to a GMM model, the social-care estimation used both two-part and tobit models (also with predicted health utilisation and bootstrapping). The results indicate that for each additional £1 spent on care homes, hospital expenditure falls by £0.35. Also, £1 additional hospital spend corresponds to just over £0.35 reduction on care home spend. With these cost substitution effects offsetting, a transfer of resources to care homes is efficient if the resultant outcome gain is greater than the outcome loss from reduced hospital use.