NDIS Pricing – New Research Confirms Risks to Service Users

The NDIS is a critical part of the Australian disability system but it is not the entire system. If the economics of the NDIS are not fixed, including in relation to the roll out of the new scheme, then another important part of the Australian disability system — the service providers — will likely collapse or withdraw from disability service delivery. Of course, the risk here is borne by the service users who rely on disability service providers to support them in their everyday lives.

Over the past two years, Penny Knight and I have worked with National Disability Services (NDS) to examine the sustainability of the disability services sector. The primary driver for this examination has been the advent of the NDIS, however, last year we reported that there was a significant minority of not-for-profit disability services providers that were subject to considerable financial stress prior to participating in the NDIS. This year, we have confirmed that this cohort continues to struggle financially and are concerned that, as the NDIS rolls out more fully, collapse of many of these organisations may occur or they may simply withdraw from disability service delivery.

The research undertaken is based on the 2014/15 and 2015/16 financial years and follows a panel of 180 disability providers nationally, ranging from large Australia-wide organisations through to smaller niche or local players. UWA’s longitudinal research approach plays an important role in monitoring the transformation of the sector. Key findings of the report also include a decline of panel members’ rating of their own organisation’s financial performance and declining optimism in future financial survival.

The research, which has informed the Australian Productivity Commission in its recent review of the NDIS and its current pricing structures, aims to assist in facilitating the development of policy that fosters a strong and efficient supply of disability services and supports the achievement of the objectives of the NDIS. Indeed, the importance of this work has led the Productivity Commission to recommend that the study be continued.

In short, this research aims to provide government, service providers and the broader community with detailed information on the supply and sustainability of disability services in Australia. We have identified that if the NDIS is going to deliver, it will have to adjust its pricing model. While many of these organisations are reporting that they are profitable, this profitability is declining and disability services organisations rely heavily on donations and bequests to balance their books.

Indeed, without donations and bequests, profitability is virtually extinguished in the aggregate. Further, many of these organisations also provide human services (such as aged care) in addition to their disability services and the lack of profitability in their disability services operations may lead many to abandon the provision of these services in order to reduce financial risk to the remaining mission-centric activities they undertake. Thus, poor pricing under the NDIS might incentivise providers to drop their disability services rather than risk financial calamity.

While organisational respondents fully support the potential of the NDIS policy, many are experiencing financial stress and concern about the viably of their disability services and do not expect to meet demand for services in 2016/17.

The key question for government policy makers is whether the sector has sufficient, suitable and available assets to fund the change. Further, it is questionable whether it has sufficient change management capacity, and if there is enough incentive to encourage the level of investment needed to build the sector in this context. In other words, the roll out of the NDIS is not subject to an industry plan nor is there adequate co-operation between disability service providers and the NDIA which would allow for a balanced, certain and sustainable NDIS in the interest of service users.

About the author: Dr David Gilchrist is a chartered accountant and an economic historian. He holds a PhD in economics from the University of Notre Dame Australia and is currently professor of accounting at the University of Western Australia. He was foundation director of the Curtin Not-for-profit Initiative for five years. He currently holds a number of industry roles including as chairman of Nulsen Disability Services, a director of BaxterLawley Advisory, a member of Chartered Accountants Australia and New Zealand’s National Not-for-profit Advisory Committee, a member of the Australian Charities and Not-for-profits Commission Advisory Board and of the Australian Accounting Standards Board Academic Advisory Panel.