Personal Care and Community Participation 2016/17 Price Review

Personal Care and Community Participation 2016/17 Price Review

Discussion Paper

22March2016

Contents

1.Key information and how to respond

1.1Targeted focus for this review

1.2How you can contribute to this study

1.3Structure of this Discussion Paper

2.Purpose and key steps in this review

2.1Objectives of the price review

2.2Overview of price review approach

3.Need for price controls

3.1Value for money

3.2Risks in setting price controls

4.Supported Independent Living

4.1Existing definitions and descriptions

4.2Implementation rules and conventions

4.3Price structure

5.Group-based activities

5.1Existing definitions and descriptions

5.2Implementation rules and conventions

5.3Price structure

6.Measures to reflect higher intensity and complex needs

6.1Intensity mechanisms for group-based activities

6.2Intensity mechanisms for Supported Independent Living

6.3Measures to reflect complex needs

7.How to make a submission

7.1Information sought by the NDIA

8.How to prepare a submission

9.How to lodge a submission

1.Key information and how to respond

The National Disability Insurance Agency (NDIA) currently sets price limits for some supports and services, along with rules about how these price limits apply in the payment systemfor the National Disability Insurance Scheme(NDIS). These arrangementsare designed to deliver positive outcomes for NDIS participants while taking into account market risks, such as service gaps in local areas as providers adjust to market-driven business models.

This Discussion Paper is part of a review of pricing arrangements for some Personal Care and Community Participation supports.

As part of this review, we would likeparticipants, providers and other stakeholders to submit their views and evidence about current price controls and options for change.

1.1Targeted focus for this review

This review is scheduled for completion in May 2016,with a view to applying any consequential changes to NDIS prices from 1 July onwards[1]. This timetable is designed to give providers as much notice as possible of the pricing arrangements that will apply in 2016/17.

The NDIA is unable to review all NDIS pricing arrangements in that timeframe.Instead, we are reviewing areas of NDIS pricing that have been identified in previous stakeholder engagements as high priority[2].

This price review focusses on the following support types:

Supported Independent Living
Group-based community, social and recreational activities

For each type of support the price review will cover three components of existing pricing arrangements:

Support definitions, descriptions and classifications
Measures that reflect more intense and/or complex needs
Price structures, levels and implementation rules that apply to the support

In addition, the NDIA will explicitly consider whether changes to pricing arrangements for Supported Independent Living and group-based activities are likely to impact/undermine the purpose or effectiveness of price controls for Personal Care supports.

1.2How you can contribute to this study

The NDIA is seeking feedback from interested stakeholders in response to this Discussion Paper. The closing date for submissions is Monday11 April, 2016. Section 7outlines how you can make a submission.

1.2.1What evidence is the NDIA seeking?

The purpose of the NDIA’s price review is to consider whether changes to existing price controls could result in material improvements to the value received by participants when purchasing supports under the NDIS. In this context, ‘value’ means the extent to which participants can achieve the outcomes that they are seeking as part of their NDIS support packages. The NDIA is interested in your views about what aspects of the price controls relating to those supports identified in section 1.1 are working well and what aspects are problematic, which could include commercial issues, clarity/usefulness of information or consequences for service delivery. In order for the NDIA to consider changes to the pricing arrangements, we need to understand why any problems or concerns have arisen — as such, we need evidence as well as views.

The NDIA is particularly interested in responses to the questions listed in section 7 of this Discussion Paper.These questions relate to:

Alignment of the descriptions and definitions of supports contained in the Price Guide with sector practices, including what people are asking for from service providers
Clarity of implementation rules and conventions (such as assumed staff to participant ratios, travel time etc.)
Alignment of existing definitions and descriptions of higher needs with provider experience in supplying supports to higher needs participants
Any constraints faced by providers in supplying supports that participants value that are as a result of existing descriptions, definitions and implementation rules. For example, does the current definition of Supported Independent Living allow providers sufficient scopeto develop innovative supports in this area?

At the most basic level, evidence can simply be an outline of the circumstances around a problem you have experienced and what impact those problems are having on you and/or your organisation. For example, your organisation may be seeking to provide a support to a participant that is broadly in line with the description contained in the NDIA Price Guide, but appears to be precluded by a particular implementation rule.

More detailed evidence could include outlining why a particular price control is unnecessary, or how your organisation would be able to provide a particular support to a participant at relatively lower cost if a price control were altered.

1.3Structure of this Discussion Paper

The remainder of this Discussion Paper is structured as follows:

Section 2 describes the objectives for this review, and describes the key steps in the review process.
Section 3 outlines why the NDIA implements price controls and highlights a number of the risks that will be taken into account when setting price limits.
Section 4 outlines current definitions and descriptions for Supported Independent Living, discusses the current pricing arrangements and outlines areas where the NDIA seeks input from interested stakeholders.
Section 5 summaries definitions and descriptions of group-based activities and outlines current pricing arrangements. A number of topics where the NDIA would appreciate stakeholder feedback are also noted.
Section 6 addresses current measures used by the NDIA to reflect different levels of need across Supported Independent Living and group-based activities. Those areas where the NDIA is seeking particular feedback are also listed.
Section 7 provides detailed guidance on how to make a submission in response to this discussion paper.

2.Purpose and key steps in this review

2.1Objectives of the price review

The NDIA has three main objectives for this price review:

Ensure that definitions and descriptions of supports in the Price Guide[3] accurately reflect the supports that participants are seeking in order to meet their goals. This is important because price limits should be for supports that are actually being provided in the ‘real world’. If supports are not defined and described as accurately as possible, there is a risk that the wording contained in the Price Guide, rather than the goals and preferences of Scheme participants, shapes the market for supports.
Ensure that current pricing arrangements strike an appropriate balance between allowing providers to recover the costs of service provision and creating incentives for providers to deliver supports efficiently.
Identify the package of changes that could be feasibly implemented in time for the 2016/17 financial year, and those issues that are more suitably addressed in future price reviews.

A ‘threshold test’ for any proposed reform to pricing arrangements is the extent to which a change would result in a relative improvement in current arrangements. In considering options, the NDIA must be mindful of the disruption and transaction costs that would be imposed on providers and participants from any change, the potential risks to sector stability associated with changes to price levels and the extent to which the expected benefits from implementing change would outweigh the costs.

2.2Overview of price review approach

The NDIA intends to undertake price reviews on a regular basis to ensure that pricing arrangements remain consistent with the broader objectives of the NDIS, and are not a barrier to providers delivering supports that are valued by participants.

Given the short time frame for this review, the NDIA is applying the following process:

January 2016 – Commenced price review

February 2016–Undertook desktop analysis of pricing arrangements and engaged in targeted consultation with providers

March 2016 – Release this Discussion Paper and invite submissions from interested stakeholders

April 2016 – Prepare advice to the NDIA executive on options to improve existing price controls for supports that are in scope for this price review

May 2016 – Notify sector of outcomes from 2016/17 price review, including any changes to pricing arrangements endorsed by the NDIA executive

July 2016 – 2016/17 Price Guide takes effect

3.Need for price controls

The NDIA currently exercises control over prices that can be charged for the provision of some NDIS supports, where these controls will lead to better value for participants. For many support types, prices are not subject to explicit regulation by the NDIA.

For the purposes of this price review the term ‘price controls’ captures a broad range of instruments that are, or could be, used by the NDIA with respect to prices. The combination of controls for a given service will depend on the nature of that service, and the characteristics of the relevant markets to deliver it. The controls include:

Definitions and descriptions – The NDIA communicates to the sector the supports and services it intends to fund under the NDIS in various ways, including the Price Guide. Through defining particular support services, the NDIA ensures that funds are directed to services and supports that contribute to Scheme objectives.

Quality and safeguards – Service providers in the NDIS are subject to quality and safeguards standards. A nationally consistent Quality and Safeguards Framework will be introduced by the Commonwealth Department of Social Services. Currently, providers must comply with quality and safeguard regulations that exist in the State or Territory in which the support is being delivered.

Approval thresholds – For some supports and services, providers are free to charge a price below or up to a pre-determined approval threshold. However, providers must provide an evidence-based quote if they wish to charge a price higher than the benchmark.In these cases, an NDIA delegate determines whether the quote is a reasonable cost for supplying the support.
Price limits – For services subject to a price limit, providers are permitted to charge up to the limit set by the NDIA. Providers are free to charge prices lower than the limit. It is generally accepted that the price limit is firm and negotiation is not possible.

Implementation rules–A number of the support items explicitly assume that providers are supplying supports in accordance with certain operating parameters. For example, separate price limits for ‘group-based community, social and recreational activities’ apply for differing staff ratios (see section 5.3).

The NDIA has determined that there is a need for the above price controls as the NDIS is rolled out across Australia. There is an expectation that some of the instruments outlined above will be progressively relaxed as markets for supports exhibit evidence that price controls are no longer necessary.

3.1Value for money

Themain reason to regulate a range of NDIA prices is to ensure value for money is obtained from the expenditure of public funds under the NDIS[4].

The use of price limits and price benchmarks is common across similar insurance schemes in Australia. For example, both the Transport Accident Commission and the Lifetime Care and Support Authority have fee schedules in place for a number of support services.

Implementation of the NDIS at full scheme scale will approximately double public sector funding provided to the disability support services sector. As a result the NDIA is expected to put in place processes and frameworks to ensure value for money is obtained from the provision of supports to participants.

There are two main instruments being used by the NDIA in this respect. The first is to implement a Quality and Safeguards Framework[5] for the supply of supports by providers. This framework will ensure that supports are provided to participants at an acceptable level of quality, recognising that quality has different dimensions across the wide range of supports that are available under the NDIS, and for the varying levels of participant need.

The second is through identifying the costs that would be incurred by an efficient provider whenproviding supports to the standards set in the Quality and Safeguards Framework.

There are thousands of providers of disability support services in Australia. Price controls would not normally be required in a sector with that many suppliers. Policymakers would instead rely on the process or competitionto‘reveal’ the efficient price for supplying particular supports.

However, because there havehistorically been such high levels of unmet demand in the disability support services sector,providers have not been required to competefor ‘customers’. Participants were also typically directed to particular providers (or a small panel of providers), prior to the relatively recent introduction of individualised support packages in some jurisdictions. This means that some key drivers of competitionhave been missing: providers do not feel sustained pressure to compete on price, and participants do not have clear incentives to look for, and choose, the providers that offer the best value for money.

Compounding this,the majority of providers have been either not-for-profit organisations[6] or State Government departments directly providing services. In many cases, the funding models for these services have not included specific requirementsto measure efficiency of service delivery, nor have they supplied the tools and/or additional funding to make these measurements. Donors have often seen operation reviews as not ‘core’ to the mission of the NFP.Where funding has been provided by governments, management has had little incentive to improve efficiency, because providers have typically been required to return any surplus in funding to government.

In recognition of these characteristics, the NDIA has put in place price limits and approval thresholds (where feasible) to ‘mimic’ the pressure that would exist in a competitive market. In a market that is driven by consumer choice, cost efficiency, efficient allocation of resources and productivity improvements over time will be important factors for providers in operating successfully under the NDIS.

Where price limits have been set by the NDIA, a transition pathway has been developed that allows providers to progressively implement changes to operations and work practices over a number of years in order to meet the efficient price limits that have been set.This is consistent with the market stewardship role of the NDIA.

In time, the NDIA is of the view that price limits may no longer be required, as providers benefit from the implementation of efficiency changes and the existing supply/demand imbalance unwinds as the Scheme reaches maturity.

3.2Risks in setting price controls

While there are benefits from setting price controls, the NDIA is mindful of the associated risks.

The NDIA risks unnecessarily disrupting existing markets through setting prices inaccurately. If price limits are set too high (relative to an efficient benchmark) providers will not face adequate incentives to review practices and operations in an effort to be more efficient. As a result, participants, and the Scheme in general, would not get value for money from expenditure on supports. On the other hand, if price limits were set too low, providers would be unable to recover even efficient costs.This could result in a significant share of providers leaving the sector and/or a lack of new investment in disability services.

Setting the level of a price limit to only recover efficient costs could also disrupt supply if the majority of providers have cost structures well above efficient costs. If inefficient providers are not given sufficient time to transition to the efficient price level, supply in the short term might be unnecessarily constrained as inefficient providers are driven out of the sector.

The NDIA must also be mindful of the transaction costs imposed on the sector from changes to current price control settings. The NDIA should have an adequate degree of confidence that proposed changes will deliver benefits that outweigh the transaction costs.

4.Supported Independent Living

4.1Existing definitions and descriptions

The NDIA currently defines Supported Independent Living (SIL) as including personalcare and other assistance to enable a participant to live in a secure, independent environment in the community. SIL incorporates assistance with and/or supervising tasks of daily life in a shared living environment or other domicile of the participant’s choice.