NDIS Review Conversation Series: Paper No. 14

Market stewardship: finding the sweet spot

Key points

• The establishment of the NDIS necessitated the emergence of a market for supports, which is still developing and continues to have many characteristics of an immature market
• The language of market is problematic for a Scheme like the NDIS, because it leans into the transactional, not the transformational, and commodifies participants. It is better to focus on the language of community
• The main way the NDIA fulfils its market stewardship role is through price regulation, but, in practice, the price caps effectively operate as set prices, which strips out any real prospect for supplier diversity
• The current approach to price regulation has implications for what we get from the market, including the quality of what is on offer
• Significant investment is needed in the capacity of NDIS participants as purchasers who can help shape the future market
• NDIS participants can better shape the market if they are assigned genuine flexibility and accountability in their individual budgets
• NDIS participants can better shape a market that delivers high impact services if there is a comprehensive investment in participant voice in service design, both nationally and locally
• The Scheme will likely benefit from a careful introduction of outcome-based payments
• Responses to areas of market failure or ‘thin markets’ should be based on community development imperatives because people and organisations attached to communities are more likely to create sustainable long-term solutions than enticements for external providers

 

The establishment of the National Disability Insurance Scheme (NDIS) and its utilisation of individualised plans and funded supports was, in part, designed to move away from previous arrangements where government funders purchased disability supports directly from providers without the involvement of the intended beneficiary of those supports. The idea of NDIS individual plans and budgets was to give participants more choice and control about the supports they receive and who supplies them. In effect, this necessitated the emergence of a new type of market in disability supports and services. Although the Scheme is now entering its second decade of operation, the NDIS market is yet to mature and retains a number of commissioning features that predate the Scheme, resulting in no significant change in the services offered, which remain disability-focused rather than integrated with mainstream support sector markets.

The NDIS market also continues to present a range of challenges including areas of market failure or ‘thin markets’, in relation to geographic issues (for example, rural and remote areas), demographic issues (for example, supports for First Nations people), and service-type issues (for example, late-night supports, and supports for people with more complex needs). These thin markets create significant safeguarding risks and also compromise progress to Scheme outcomes in social and economic participation. Another market problem is the vexed issue of how to regulate pricing, and how this appears to have resulted in low product or service differentiation leading to what we term ‘vanilla markets’ in many types of support.

Most alarmingly perhaps, the NDIS market 10 years on still includes many of the commissioning features that predated the NDIS and for which, arguably, the NDIS was intended to be the antidote. This includes block purchasing of services, most evident through the Supported Independent Living (SIL) funding channel. The aggregate impact of the current NDIS market is that it largely comprises service offers that are not delivering transformational benefits for participants in line with the Scheme’s goal of social and economic participation. Instead, the market comprises service offers that deliver transactional benefits at best, and often in segregated or non-inclusive circumstances. In 2011, the Productivity Commission foresaw some issues with the ‘consumer choice model’ it was proposing, but also offered an optimistic view of how the characteristics of markets would ensure well-funded, high quality, innovative, and best practice supports would become the backbone of the disability sector once providers and participants were ‘“unshackled” from block funding’.^[i]     

Given the challenges encountered, significant attention has focused on the appropriate role of governments and the National Disability Insurance Agency (NDIA) in guiding the NDIS market through its development, maturation, and beyond. Effective ‘market stewardship’ is now recognised as essential for the NDIS to deliver on its original promise, but what this looks like is still unsettled.^[ii] While the NDIS was never intended to be a fully laissez-faire marketplace, how much intervention and in what forms is difficult to calibrate. Nevertheless, there appears to be a growing consensus the NDIA is yet to find the ‘sweet spot’ in its market stewardship role. Further, its trials of alternative funding models to address ‘thin markets’ have so far produced mixed results as to their effectiveness.^[iii]

In this final paper in our NDIS Review Conversation Series, we consider issues in the NDIS market and how the NDIA undertakes its market stewardship role. First, we explore the unease inherent in applying market language to the Scheme overall and, more specifically, to participants, many of whom have come to feel commodified within the NDIS market model. As recently as this week, in one of our focus groups, the perception of being reduced to a commodity, and the consequences of feeling this way, emerged as a major theme in discussions. Then, we address how price regulation has impacted on what is available in the NDIS market. We set out the importance of investing in the capacity of participants as purchasers to ensure they can positively influence the market’s direction, for example by being empowered to demand high-quality, high-impact supports, services, and products. Finally, we contemplate areas of market failure and argue local grassroots approaches based in community development imperatives offer the best way forward for affected participants to access the supports they need.

What is meant by ‘market stewardship’?

In many markets for social supports or personal care, governments utilise tools to guide or influence how the market operates to ensure it fulfills their objectives. This is particularly the case when governments are the main source of money for the services or products offered within the market. Yet, there is an unease that arises when the state and the market come together in the delivery of essential state-funded services. Even under an ‘insurance model’, the NDIS market is no different. Many NDIS participants are uncomfortable with the extent to which they feel the market has turned them into commodities rather than citizens. For example, NDIS participants eligible for Specialist Disability Accommodation (SDA) or Supported Independent Living (SIL) are effectively reduced to, and judged on, their funding level category as this dictates the extent to which they fulfil the market and cost recovery imperatives of providers.

In many respects, the use of market-orientated language under the NDIS does not adequately capture what it is the Scheme is supposed to deliver. If the Scheme’s goal is to lift people into social and economic participation, and, by association, into genuine, valued belonging, then the NDIA is not stewarding a market; it is stewarding a community response. Market language reinforces the transactional characteristics of the Scheme, where for a particular price, a particular person shows up at a particular time to provide a particular service. But, as discussed in the third paper in this Series, transactional benefits do not automatically deliver on Scheme goals and there is little evidence that participants have certainty in those services.

However, if we reach for the language of ‘community’ rather than ‘market’, there is a better context for NDIS commissioning, because social and economic participation are grounded in the idea of ‘community’. Therefore, instead of seeing the NDIA as the steward of a market, we can see the NDIA as a steward of formal community responses, at least those responses for which NDIS funds are intended to be used (as opposed to mainstream formal community responses, such as healthcare, education, housing, and similar). Using community as context instead of market, helps to frame the NDIA’s ‘market stewardship’ role as one of ensuring the community of formal responses deliver on the objectives of the Scheme. Where that community fails to do so, the NDIA, as steward, needs to take decisive steps given the importance of these formal community responses to the lives of Australians living with disability.

Using the language of ‘community’ not ‘market’ can change how the stewardship role is undertaken because, in effect, the change of use of language signals a change in the paradigm from market development to community development. This is worthy of reflection, given the market stewardship has tended to be ‘underdeveloped’ and in need of improvement during the first 10 years of the Scheme.^[iv]

NDIS price regulation and its impact on what we get from the ‘market’

The NDIA regards its price regulation function as central to how it performs its market stewardship role.^[v] Ironically, one purpose of price regulation is to ensure the market operates efficiently and Scheme costs are sustainable, yet excessive inflation has emerged as a major problem for the NDIS. Additionally, there is currently no clear link between the use of price regulation largely based on hourly rates of payment and the value of what is delivered in terms of achieving the Scheme’s objectives.^[vi]

About 80 per cent of NDIS payments made between October and December 2022 were price-limited.^[vii] NDIS Pricing Arrangements and Price Limits^[viii] control what can be charged for each type of support and are intended to operate as caps meaning providers and participants can negotiate lower prices. In theory, price would be one of the elements on which providers compete for customers in an open competitive marketplace. In practice, providers overwhelmingly treat the Support Catalogue,^[ix] which lists the price limit for each line item that can be claimed under the Scheme, as a set price even if they offer the same support, service, or product to non-NDIS participants at a lower charge. Seemingly, supply is yet to match demand for many supports so operating at the price limit does not reduce a provider’s ability to attract customers. All of this means the NDIS market does not operate as a typical competitive marketplace and this has significant implications for the Scheme.

Although there are more than 800 line items in the Support Catalogue, some support categories have a very limited range of items and prices that can be charged. Often, price differentiation relates to the day of the week or time period when a support occurs, whether the support occurs in-person or not, and whether costs such as travel can be covered. More substantive characteristics of supports, such as the nature and quality of what is provided, the level of expertise of the person offering the support, and the outcomes achieved receive much less attention, notwithstanding a few exceptions. One of the consequences of this has been the emergence of what can be referred to as ‘vanilla markets’ in many support categories, whereby, although a participant can choose between providers, there is little diversity in what they offer. Where a market operates under set prices for limited line items this disincentivises providers from product differentiation, flexibility and adaptability to customer needs, innovation, and the emergence of unique or novel offerings.

It is also possible the cost of operating as a provider in some support categories is not fully reflected in the current price limits meaning some providers have little choice but to charge the price cap. A recent National Disability Services (NDS) survey found 83 per cent of providers hold concerns about their ability to operate under the current price limits, sparking concerns about an imminent exodus of providers from the NDIS market.^[x] As self-reported perceptions that cannot be untied from providers’ interests, it is difficult to test the veracity of this finding. Perceptions surveys usually have more value in tracking how sentiments fluctuate over time in response to specific market factors than as baseline data on the extent of an issue. Certainly, the numerous examples of non-NDIS participants being charged less than participants in the Scheme would tend to indicate the real costs of some supports are much lower than the price caps. Additionally, arguments suggesting higher prices reflect the report-writing demands of the Scheme, are voided when participants are charged for this in addition to the supports provided.

Another problem of price caps is that they create a market that does not include providers who want to offer a higher-priced, higher impact service. For example, say a provider operates a methodology that is highly effective at lifting a participant into sustained, mainstream, waged employment. And say the costs of the service per hour is 50 per cent more than the price cap. The proposition is ‘we cost more but we can deliver a measurably much stronger outcome for you’. There are other aspects of life where this option is available in the market, whether it is the market for healthcare, kitchenware, or anything else in between. Yet this option is not available in the NDIS market because of price caps. And it removes the possibility of the participant shaping the market in favour of higher impact services, which also could cost the NDIS less in the longer term.

Consequently, price regulation requires an investment in high quality data collection and curation to inform robust transparent cost models that reflect the genuine cost of providing a support, service, or product, and of achieving high-impact outcomes. Such models need to be able to account for a range of variations including the nuances of location and distance and variations in staff costs based on experience and qualifications. In the NDIS context, the differences in costs incurred between sole traders and larger providers also requires consideration. This deeper work should ensure price regulation is an effective stewardship tool to bring the NDIS market to greater maturity and provide assurance that high-quality, high-impact supports are being delivered. As the market is further developed, it may become possible to gradually step back from intensive price regulation in the future, although general oversight and accountability will always be necessary. Without this investment over the short to medium term, there is a risk that price regulations are applied too bluntly and result in perverse market outcomes.  

Empowering purchasers to drive market responsiveness: capacity-building

Markets work best when they are responsive to consumer choices and needs. The magnitude of the transition from the old block-funded model of disability support to an NDIS ‘marketplace’ built around participant choice and individual purchasing power cannot be overstated. Irrespective of its many merits, this has represented a profound change and required significant adjustments to ways of operating and behaving. While much attention has focused on how prepared providers have been to engage in the new market, it is also essential that Scheme participants are equipped with the knowledge and skills they need to make the best choices about how to use their budgets in this marketplace, and with what transactional and transformational benefits in mind.

Typically, consumer choice and purchasing power could be expected to ensure low-quality providers must improve or otherwise exit a marketplace while high-quality providers attract customers and do well. However, in order to exercise the consumer power that drives this outcome, NDIS participants need to know how the market works, what good quality service provision looks like, and what a reasonable price is to pay. An analogy can be drawn to street markets where locals who are experienced and informed through regular interactions are much better placed to haggle for a fair price than a tourist visiting for the first time; hence many stallholders effectively operate dual pricing schemes. In this way, participants encountering the NDIS marketplace tend to assume the position of the ‘tourist’, according to the above analogy, and it takes time and support to reach the level of a savvy local who is familiar with what is on offer, where to buy it, and how much to pay.

For the NDIS, this means there must be an investment in the capacity of participants to engage in the marketplace. This includes having a clear vision of a life of social and economic participation, weighing up the best balance between transactional and transformational benefits, and then exercising informed choice about who might best be able to deliver those benefits, so that the highest value is obtained from their NDIS budgets. This investment in capacity-building also includes supported decision-making approaches, as well as how best to ask for, and access, mainstream community resources and opportunities that reduce pressure on their NDIS budget. We note the numbers of participants under-utilising their plan budgets – with a national average underspend of 25 per cent between October 2022 and March 2023^[xi] – is likely to be, in part, a symptom of inadequate investment in supporting participants to engage effectively with the market in order to access the supports they need. Similarly, participant purchases of services very similar in nature to those they were accessing pre-NDIS (or having those purchases made on their behalf, for example through SIL group living purchases) are symptomatic of a substantial underinvestment in participant capacity-building for their role in the ’market’.

Empowering purchasers to drive market responsiveness: budget flexibility and accountability

Over and above capacity-building, it is important to consider whether the current system settings make it possible for participants to shape the market. Currently, some of the constraints on what participants are allowed to spend their budgets on may actually be hampering good outcomes. Added to this is the issue of the appearance of there being little to no consequence for a participant spending all their budget before the end of the budget term, because more funds appear to flow as a result, contributing to what is termed ‘intraplan inflation’^[xii]. While there may be reasons why a particular participant might reasonably need additional funds midway through their current budgeted plan, there is a high risk some participants may be less diligent and less discerning in their purchase choices when there is no adverse consequence; a poor purchase choice simply results in a budget top-up down the track.

As an alternative, we think there will be more effective market development in pursuit of genuine outcomes if participants are given much greater flexibility in how they can use their budget and greater accountability for staying within the budget. We think this will help unlock the power of participants to find the best possible value from their budget and be in sharp contrast to the current SIL arrangement where an agreed budget sits with the provider and where the participants have no detailed say in the choices made within that budget.

Empowering purchasers to drive market responsiveness: voice and choice

When thinking about participant influence on the market, some might argue this can be achieved by making sure there are a range of options for people to choose from. In this way, it might be argued participant choice shapes the market. However, the range of options might not be impactful in support of Scheme goals, and just because the participant had a choice, it does not mean the participant’s goals, and the Scheme goals, will be met. We have made a similar point earlier in this paper, in relation to ‘vanilla’ markets. If we are to see alternative service responses emerge that have a greater chance of delivering social and economic participation, then it is important the participant voice is central to that design process because they have the greatest stake in the outcome.

As market steward, this means the NDIA needs to invest in service design. Though welcome, it will not be enough for the NDIA, as steward, to simply assert the importance of there being alternatives to group homes, shared day programs, and the like. The NDIA also needs to invest in bringing this about. This is not only about the important co-design work at a system level where participant voices are present in deliberations about the Scheme’s general settings, for example in home and living supports. It is also about what happens to the local participant, locally. How might the NDIA assist a group of NDIS participants currently sharing a group house to imagine what alternatives might be possible, to build a collective or individual service design that works for them and for the social and economic participation imperative, and then take this to the market for providers to respond. In this way, in the context of the Scheme goal of social and economic participation, a smaller choice of providers offering services that have been designed through the participant voice, will be a more effective market than a larger choice of providers offering services that do not reflect the participant voice in their design.

Market stewardship using outcomes as a lever

Some, including NDIS Minister Bill Shorten, have recently suggested that an approach where Scheme payments are more closely tied to the outcomes achieved for participants may help address some of the above concerns, particularly those regarding quality.^[xiii] Outcome payments are an attractive idea because they are a good way for the steward to give a clear signal about what is wanted from the market/community. While holding providers accountable for delivering impact is essential, such an approach is not without its challenges. It is possible for a high-quality provider to work hard on behalf of a participant and still not achieve the intended outcome because of forces that may be largely outside their control. As a result, outcome payments could deter providers from offering supports to participants they perceive to have more complex needs or circumstances, something that may be already occurring in relation to Positive Behaviour Supports (PBS) as we highlighted in the twelfth paper in this Series.

These unintended consequences will need to be carefully navigated when considering a framework of outcomes payments. Elements might include regulating providers on their capacity to make impact, including through a demonstration of delivering on Scheme values and objectives at a holistic level rather than in each individual case. Certainly, the focus here must be on provider accountability and continuous improvement, not compliance for compliance’s sake. A further element might include making outcomes payments based on the aggregate impact of the provider’s work across a number of NDIS participants, and which also takes into account the degree of complexity in that population (to avoid providers only working with participants for whom the provider deems it easier to deliver outcomes).

Thinking about market failures

The NDIS market has developed at different rates across the country and there are areas of market failure or ‘thin markets’. In regional, rural, and remote areas, the NDIS faces similar challenges to the health sector: comparatively lower demand compared to metropolitan areas and spread widely, often across vast distances. By introducing an individualised funding model, demand risk has been added to the equation for would-be providers contemplating whether to deliver services in a location: will actual demand live up to anticipated demand? Given the increased costs associated with regional service provision, such as employing fly-in-fly-out workers, the prospect of demand risk has arguably contributed to a further thinning of already sparse markets.

For First Nations communities, the challenges mentioned above are further exacerbated. According to the NDIS Review’s paper entitled ‘Alternative commissioning for remote and First Nations communities’ published in June, more than one in three participants who have been in the Scheme for more than a year are not accessing their funded daily living supports while more than one in four are not accessing their funded therapy supports.^[xiv] With limited options to choose from, First Nations participants often receive services ‘delivered by professionals that are qualified or subjected to non-cultural scrutiny, perpetuating interactions that are culturally unsafe, therapeutically inadequate and considered rigorous only from a mainstream, Western lens.’^[xv]

When a part of the NDIS market fails, the potential consequences are severe; not only are the Scheme’s objectives unlikely to be met, but it can also mean fundamental human rights are not upheld and people are placed at risk. Therefore, options to address market failures must be carefully considered and closely monitored when implemented to ensure adverse outcomes are avoided. Robust data is required to identify and address areas of need not being met by the market. Once market gaps are identified, it is likely the most effective solutions will be found by focusing on community development imperatives through local knowledge, skills, ideas, and connections. This is an illustration how the language of community is a more potent guide for the NDIS steward than the language of market¸ because it may be more impactful to resolve ‘thin market’ issues by calling on elements of community development rather than elements of market development. This is because grassroots led responses are key to resolving the NDIS ‘thin market’ problems. People with strong attachments to their communities are more likely to stay engaged over the long term and produce more sustainable outcomes. Although there may be some need for specialists to fly or drive into communities, the core of any solution should be embedded within the local context. In most communities, there are likely to be important sources of knowledge, experience, and leadership, to assist the emergence of these types of solutions, whether it be active local leaders, community or First Nations organisations, local governments, and similar. At JFA Purple Orange, we have personnel who have been involved in such development in other jurisdictions and we have seen the power of the community-led solutions that emerge in response to ‘thin markets’.

Therefore, if sustainable long-term solutions to market failures are most likely to emerge from within local communities themselves, what does the NDIA’s market stewardship role look like? Given the NDIS represents such a profound shift in roles and responsibilities, these solutions are unlikely to emerge organically. So, an effective stewardship role involves connecting, facilitating, coordinating, and supporting the mobilisation of local leadership in pursuit of grassroots solutions, undertaken with the strong mandate of the NDIA but located on the ground in local communities.

As one example, this could be accomplished through the characteristics of the reshaped Local Area Coordinator (LAC) role. Throughout this Series, we have emphasised the need to rethink the nature of the LAC role and how it is commissioned. In the second paper, we identified an LAC role that stands alongside a participant as they navigate the NDIS pathway funded through individual plan budgets. We can also imagine a particular version of the LAC role in response to thin markets, where the LAC undertakes their work in vision-building, community connection, and brokerage, not on behalf of one NDIS participant, but on behalf of a community where there are a number of NDIS participants. As such, the solution that is then developed is as much about that community as it is about the NDIS participants, and that community will likely include people living with disability not on the Scheme, the so-called ‘Tier 2’.

As such, investment in LACs to perform a community broker-type role to work with local communities affected by NDIS market failures to create bespoke, community-led solutions, offers strong prospects for addressing unmet needs. In some cases, this might involve integrated solutions that address gaps not just in the provision of NDIS supports, but also in other social services, such as those for older people, and also broader local issues such as unemployment and low levels of community amenities. For example, for a remote community First Nations participant whose support needs include a high level of laundry, the more sustainable solution might not be an individual washer-dryer for that person, but a launderette for the whole community.

The NDIA has been trialling a number of alternative commissioning approaches including direct, integrated, and community commissioning.^[xvi] The focus of these trials is on contestability in the commissioning as a substitute for competition in the market. All seem to involve enticing existing providers into communities to fill market gaps. Under this approach, it is unlikely the enticement could ever be withdrawn because the provider/s would simply exit as well. Therefore, the grassroots approach to developing solutions from within communities, as outlined above, would likely be more durable and sustainable than these trial approaches. Additionally, despite being labelled as ‘community commissioning’, the application of this option to address gaps in supports can still cover large geographical areas resulting in decision-making that is generally removed from the most affected participants. For example, the proposed ‘Far North Queensland (FNQ) Connect’ approach covers 21 Local Government Areas (LGAs) under a ‘Leadership Table’ that includes government and provider stakeholders alongside people with lived experience of disability and First Nations representatives. Its impact is yet to be ascertained, but this should be measured against an alternative grassroots community development approach to ensure the most effective models are identified.

Conclusion

The NDIS market has not yet matured. To get there, we need to equip the more than 610,000 participants^[xvii] to know what high quality supports are and demand they get them. Poor quality providers should be managed out of the market so that better ones can thrive. Where there is market failure or ‘thin markets’, the focus should be on local community responses, based on community development imperatives. Enticing external providers into these markets is not a sustainable long-term solution. Instead, people and organisations with strong attachments to communities affected by market failure should be supported and resourced to develop their own solutions from within. The NDIA has a mandate to underpin this work, but it is essential the support is provided on the ground, with a reformed LAC approach probably best placed to deliver this outcome. The NDIS has achieved much in its first 10 years, however there are also many important lessons to learn as we chart the course for the next decade and beyond. For one, the Scheme must be about impact, not commodification.

 

This is the final paper in our NDIS Review Conversation Series. We will be compiling the papers, together with commentary drawn from all the input received in response, into a comprehensive document that we will share in early September.

We acknowledge the generous feedback and insights offered to us throughout this Series, which have challenged, confirmed, and/or greatly enhanced our contemplation of the many challenges faced by the NDIS in the context of the current Review. We hope this Series has made a valuable contribution to the process and to the future of the much-needed Scheme.

 

► Join the conversation at our To The POint webinar

Tell us what you think about market stewardship in the NDIS, share your ideas for reform, and help raise expectations about what the NDIS Review can deliver at our final To The POint webinar on Monday, 28 August 2023 at 12:30pm ACST (that is, 1pm AEST and 11am in the West). The webinar will run for 45 minutes and feature Robbi Williams, CEO of JFA Purple Orange, discussing this Paper. Attendees will have the opportunity to ask questions and provide their feedback on issues in the NDIS market and how they can be solved.

Register to join the To The POint webinar here.

Join the conversation on Facebook: www.facebook.com/groups/tothepointpurpleorange/

Plus, follow us on Linkedin, Facebook, or Twitter: @JFAPurpleOrange

► Our NDIS Review Conversation Series

With the NDIS Review underway, JFA Purple Orange is publishing a series of papers to help stimulate conversations about the future of the Scheme. Each fortnight, we will tackle a different topic of reform that we think is critical to the work of the NDIS Review. We strongly believe that the NDIS is an essential component of ensuring that Australians living with disability get a fair go at what life has to offer, but it must be strengthened and sustained. We are committed to playing a constructive role in developing ideas for reform that ensure the Scheme delivers on its original promise.

► About us

JFA Purple Orange is an independent social profit organisation based in South Australia that undertakes systemic policy analysis and advocacy across a range of issues affecting people living with disability and their families. We also host a range of peer networks for people living with disability including people living with intellectual disability, physical and sensory disability, younger people, people from culturally and linguistically diverse backgrounds, and people in regional South Australia. Our work is characterised by co-design and informed by a model called Citizenhood.

► Media enquiries

If you would like to republish this paper or interview Robbi Williams, CEO of JFA Purple Orange, about it, please contact Marissa on (08) 8373 3833 or email marissab@juliafarr.org.au.

 

Footnotes