2017 Price Controls Review

Consultationon NDIS pricingarrangements

Discussion paper

March 2017

  1. Key information and how to respond

The National Disability Insurance Scheme (NDIS) is changing the way disability services are delivered by creating a new marketplace in which participants have unprecedented choice in the services they receive. The National Disability Insurance Agency (NDIA) is the steward for this new marketplace, and during transition hasa role in ensuring that the market operates in a way that helps the NDIS achieve its objectives. As part of this role, the NDIA applies price controls (along with related arrangements; e.g. service definitions and payment rules) to a range of supports that can be purchased under the NDIS.

The NDIA monitors pricecontrols through its annual price review to ensure that the NDIS is delivering value for money and fostering choice and innovation in the marketplace. The purpose of this document is to seek feedback on areas of interest for the 2017 price review. The questionspresented are based on the feedback received from stakeholders during 2016 price review,and further participant and provider feedback received by the NDIA over the past 12 months.

1.1.Focus for this review

The NDIA undertakes regular reviews of the Price Guide to ensure that pricing arrangements align with the requirements of the market through transition. If you are not familiar with the Price Guide it can be found on the NDIS website at -

This review will focus on:

  • the levels of price controls for supportsunder the categories of ‘assistance with self-care activities’ and ‘assistance to access community, social and recreational activities’ (attendant care);
  • simplification of shared care price controls; and
  • other specificupdates to pricing arrangements.
  • Items not within scope

The NDIA is happy to receive feedback on any aspect of NDIS pricing arrangements, to inform this and future price reviews; however, this price review is not the only project that could have financial implications for support providers and other stakeholders. The NDIA also conducts separate reviews that consider broader market issues, including participant funding. To avoid overlap, this review will generally not consider changes to pricing arrangements that would be best addressed in a broader market review. Current examples include:

  • employment supports;
  • school transport, and
  • specialist disability accommodation.
  • Provider Benchmarking Project

Separately from this price review, the NDIA working with disability support providers and peak bodies to establish an industry benchmarking function.

This benchmarking function will be run by an independent survey manager, which will collect financial and non-financial data from contributing providers. This information will be de-identified and aggregated to protect providers. The NDIA will not have access to individual provider data, and participating in the benchmarking surveys will be completely voluntary.

Benchmarking data will give providers and the NDIA a better understanding of the operating costs of providers under the NDIS. The NDIA will receive reports from the survey manager that will be used to inform its decisions (e.g. participant funding and price controls). Participating providers will also receive an individualised report, allowing comparison of their results with industry peers and best practice, to assist providers in moving to the NDIS participant-based funding model.

1.2.Responding to this consultation

The NDIA has provided questions throughout the paper(in grey boxes)to help target feedback; however, respondents are welcome to comment more broadly. Where possible, please provide evidence and examples to support your views. Examples from your own business experience, or that of your members would be of particular interest.

The NDIA will review responses along with evidence collected through market monitoring and research, when evaluating potential amendments to pricing that may benefit the participants, the market and the NDIS. Feedback from providers not reflected in changes to the 2017 Price Guide will be noted and may be included as part of future price reviews.

Information on how to respond to this discussion paper can be found in section5. The deadline for submissions is 13April 2017.

1.3.Structure of this document

This document is structured as follows:

  • section two explains why the NDIA sets price controls and undertakes price reviews;
  • section three sets out the questions that the NDIA is investigating in this price review, and possible approachesfor addressing them;
  • section four discusses price banding – a potential new approach to price controls – which is being considered for future price reviews; and
  • section five explains how stakeholders can respond to this consultation and the next steps in the price review process.
  1. Background on NDIA price reviews

This section provides an overview of the role of price controls in the NDIS and sets out the purpose of the price review process.

The NDIS represents a once in a generation change to how disability supports are delivered. Before the NDIS, government funding arrangements for the disability sector were typically programmatic, predominantly in the form of block funding from government directly to disability providers.[1]

The NDIS aims to create:[2]

an efficient and sustainable marketplace through a diverse and competitive range of suppliers who are able to meet the structural changes created by a consumer driven market.

The NDIS aims to ensure that participants have choice and control over their supports and support providers, and to give providers the freedom to attract participants with innovative and high quality products and services. The growth in the market for supports is expected to be substantial in the early years of the NDIS.

The NDIA has a role as a market steward of the NDIS market during the transition to a competitive, open, individually-commissionedmarket for disability supports, noting that:

  • the transition from block funding to a market approach requires careful management; and
  • some of the markets created may require some form of economic regulation, even after the transition is complete.

The NDIA’s approach recognises that the operation of the NDIS market is not yet mature and that:

  • consumers are adapting to the new market and learning to exercise choice, and to express their individual needs; and
  • the matching of providers offering services, and participants wanting supports, is still evolving.
  • Role of price controls in the NDIS

During transition, price controls are in place to ensure that participants receive value for money in the supports and services that they receive.

There are currently two forms of price control used by the NDIA:

  • price limits, which aremaximum prices that providers can charge for a particular support; and
  • price benchmarks that indicate the NDIA’s view of the cost of efficient service delivery, which should achievable by most providers. Benchmarks act as thresholds that,if exceeded, trigger requirements for additional justification or review by the NDIA.

Price controls are part of a broader set of pricing arrangements, which includes definitions of the services subject to price controls, and payment rules. Thesearrangementsare considered together when assessing the appropriateness of price controls as part ofthe review process.

2.1.1.Rationale for imposing price controls

Price controls may be required where providers have substantial market power.[3] Where this is true, providersmight otherwise be incentivised to set excessive prices (i.e. above the level that would occur in a competitive market).This may happen because:

  • participants may not have sufficient information to make effective choices – participants need information on the quality and price of serviceto make effective choices about the best provider for them. This means providershave less incentive to improve their services if this information is not availableas participants won’t use their power as consumers to ask for these improvements;
  • participants may have insufficient incentives to look for alternative providers – certain aspects of the NDIS may mean that participants do not receive the full benefits of switching to lower cost providers and therefore may not actively seek out alternative providers. For example, a participant has less incentive to save money on a given support item if the remaining budget cannot be spent on other products or services;
  • there is a lack of choice of providers coupled with barriers to entry – for example, markets for highly specialised supports may have a small number of providers and high entry costs that act as barriers to new entrants; or
  • there are high costs to switching providers – switching costs are those associated with changing provider or supports, including both financial and social costs. For example, many supports provided under the NDIS are highly personal in nature and so a strong relationship is established with the provider over time. This creates resistance to switching providers and may limit competition.

Substantial market power may lead to higher prices and/or lower quality services for participants. Price limits can help to ensure that prices do not rise too far above the competitive level for providers that have substantial market power, whilst allowing competition to occur between those providers that do not.

Price limits are not needed when there is enough competition between providersto encourage efficiency.In this case, prices are set in accordance with costs and providers will meet consumers’ demand for quality and variety.Therefore, the role of price controls should diminishas the NDIS develops and markets for supports become more competitive.

In the roll-out phase of the NDIS, the NDIA is adopting a cautious approach to price controls in the absence of information on the competitiveness of markets for supports.The NDIA will periodically assess the role of price controls, examining whether changes may help the NDIS to achieve its objectives.

2.1.2.Characteristics of effective price controls

The NDIA aims to set price limits that maximise the value for money to participants over the long run. This requires a careful balancing of the costs and benefits of price limits, including:

  • a price cap that is as low as possible (but still achievable by providers) could give participants the best value for money in the short run; but
  • a price cap that is higher than the theoretically efficient levelpotentially leads to:

greater flexibility for providers to offer a variety of services, including higher quality services with higher prices; and

reduced risk thatsome providers may not be able to recover their efficient costs and/or that prices are not high enough to attract new support providers to the disability sector.[4]

The challenge for the NDIA is setting the appropriate price controls that reach a balance of these factors. These effects are set out in Table 1.

Table 1: The effects of setting a price cap too high or low

Too low / Too high
Providers / Providers cannot recover their costs, and may exit the market, and new providersmay not enter.
Providers cannot offer higher quality services at a higher price. / Providers that do not face competition are able to set prices that are substantially above the competitive level.
Participants / Some participants are unable to find providers that are willing to provide services through the NDIS for services that are in their budgets.
In the long run, services might be more expensive or lower quality, because providers have not invested in new and/or better service models. / Some participants are charged a price that is above the competitive level and so cannot purchase as many services as they would otherwise be able to.

2.2.Purpose of price reviews

The purpose of a price review is to examine whether the price controls are supporting the NDIA’s market stewardship objectives. Price reviews help ensure that the NDIS is best achieving these objectives by:

  • promoting transparent decision making with regards to changes to price controls;
  • updating price related controls to reflect changes in underlying costs and market changes;
  • addressing issues with price controls that have emerged since the previous review;
  • reducing regulatory burden of the NDIS over time, where appropriate; and
  • providing forward-guidance to the market on future NDIA plans regarding price controls.

The NDIA’s approach to pricing is evolving. The NDIA expects that as the NDIS matures, better data will enable price controls to be refined and price limits will be changed or removed. Some arrangements have already been significantly updated since the beginning of the NDIS trial as the NDIA has responded to market feedback.

The price review is an opportunity to assess the price controls for supports provided through the NDIS. It is the NDIA’s aim to continue to review price controls to ensure prices and support categories remain appropriate over time.

  1. Questions for the2017 price review

The NDIA is focussing on two areas in the 2017 price review:

  • the price limits for attendant care– discussed in section 3.1; and
  • the classification of services under group based community activities – discussed in section 3.2.

The NDIA is also proposing to make numerous other smaller improvements for the 2017 Price Guide, whichwill not be reviewed in detail through the impact assessment process, and are set out in section 3.3.An impact assessment may be undertaken to explore theseproposed changes further if feedback demonstrates that these changes may cause substantial negative impacts that the NDIA may not have considered.

The feedback received through the consultation process will form an important part of the decision on whether or not to implement the options proposed below.

3.1.Price limits for attendant care and related individual supports

Attendantcare supports are currently subject to a price limit. There are different price limits for the provision of self-care activities at different times of day, i.e. daytime, evening, Saturdays, Sundays and public holidays, and by the complexity of the care required, i.e.standard and higher needs.

3.1.1.Areas of interest

Feedback from stakeholders has identified twoareas of interest in pricing for attendant care:

  • price levels not being sufficient to recover reasonable costs, including sufficient allowance for profit, incurred by support providers; and
  • a lack of transparency on the assumptions and methodology used to calculate price controls (which could affect discussion about how price arrangements relate to other parts of the NDIS, as well as debate about the price controls themselves).

These are examined further below.

The level of price limits for attendant care

NDIA currently sets price limits on the hourly rates providers are able to charge for attendant care.

The NDIA sets prices for attendant care using a bottom up cost model (hourly rate model) based on the national industry award.[5]These rates are then cross-checked against rates under schemes covering similar services, such as the Transport Accident Commission (TAC) in Victoria.

Some stakeholders have expressed concerns with regards to the current price limits for attendant care, such as:

  • the current price levels are not sufficient for providers to recover their costs;
  • there is inconsistency in price limits across similar supports that may be creating perverse incentives for providers, such as centre based care and different group based care ratios; and
  • price limits for the provision of overnight supports may not be consistent with other rates.

Transparency around inputs and assumptions

The NDIA previously issued guidance on the approach to determining the prices for attendant care in 2014.[6]Going forward the NDIA intends to provide greater transparency in how this model works and its use in determining pricing arrangements to:

  • ensure that price capsare set at the appropriate level;
  • allow the sector to provide greater input into the model; and
  • help providers understand how price capsare determined and how it may change in future.
  • NDIA approachand request for feedback

As part of the current price review, the NDIA is planning to:

  • review the methodology and approach when setting price limits for attendant care and revise the hourly rate model used to estimate the cost of providing these services by a reasonably efficient provider; and
  • encourage transparency by consulting with stakeholders on the assumptions underpinning the calculation of price limits for attendant care.

The NDIA seeks feedback from stakeholder in two areas:

  • the approach to setting price limits; and
  • the assumptions to be used in the hourly rate model.

Approach to setting price limits

The NDIA aims to set price limits that maximise value of money for participants over the long run, which requires a careful balancing of the benefits and costs of tighter and looser price limits, as set out in section 2.1. The NDIA proposes to set price limits with reference to the efficient costs that a provider incurs in providing these supports.