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NDIS Pricing Arrangements: What does it mean for providers – a business model perspective?

The NDIS represents a significant change to the way disability services are delivered in Australia. The new regime will provide greater funding to deliver better lifestyle outcomes for those impacted by disabilities. Here, Grant Thornton discusses what this means for the business model of providers.

 

We all understand that under the NDIS services will be acquired on a discretionary basis by the consumer, at the rates either proscribed or agreed, limiting pricing flexibility.

This will require providers to develop business models that allow services to be provided within the available prices.

Current models that are aligned to block funding without regard for markets and customers won’t make the grade. This is supported by evidence coming out of Europe and the UK, where similar changes have demolished the not-for-profit sector, and where many consumers are receiving less service than they did before.

 

 

What aspects of your business model need to be reviewed?

Let’s start with the big-ticket items:

  • The value proposition, that intrinsic aspect of your business that entices consumers to buy from you, at the expense of your competitors.
     
  • How you capture clients. Where do they come from and what do you do to on-board and retain them? What relationships deliver them to you and what channels are used to secure them? Are there some consumers who will create high value for you, and are there others who create less value? What effort will you put into these segments?
     
  • What are you going to do? What are the daily activities of your people now, what do they need to be in the future, and how do you encourage them to increase their productivity? What skills and capabilities will make sure you are successful in the future?
     
  • What other products and services do you need to generate the revenue you are chasing; how will you procure them and what systems and processes will make your operations more efficient and effective?
     

These set up the fundamental parameters of organisational design that will enable Boards and Executives to define their business and create a new model that is sustainable in the future.

This requires a clear strategy and an understanding of the desired culture.
 

Pricing and costing – there is a difference

With a ‘fixed’ price regime, a key element of creating a sustainable organisation is understanding the costs of doing business.

This includes direct and indirect costs, as well as fixed and variable costs – the volume equation needs to be analysed and factored into the overall model. That is: How much do you need to sell to breakeven, and how much do you need to sell to make the target surplus for future investment?

A key aspect of understanding profitability and sustainability will therefore be to understand costs.

 

 

Key elements of costing include:

  • matching the capability and experience of the employee with the service to be provided, and NOT over-servicing
     
  • ensuring that staff are fully utilised, providing the maximum possible face-to-face time that is chargeable, while allowing time for administration training etc.
     
  • utilising technology to ensure that travel time and other ‘downtime’ is minimised.


An example of how costs can blow out if the utilisation of staff deteriorates is provided in the table below.


Table 1. Labour utilisation


 


 

The effects of labour utilisation can significantly impact profitability and sustainability

 

What does all this mean for providers?

Here are the key activities providers can undertake in preparation for the implementation of the NDIS (and to ensure sustainability):

  • Check your business model to ensure that it will stand up to variable revenue and competition.
     
  • Evaluate the willingness and commitment of your culture to change from a block funded model (where over-servicing is OK), to a fee-for-service model where levels of services will be limited by prescribed pricing.
     
  • Assess what your staff currently do (where do they spend their time), and then apply the relevant pricing guide to that time spent. This allows you to test your likely revenue in an NDIS world.
     
  • Build up cost models of labour to be applied to delivering services. Include where all services delivered at an enterprise level are aggregated into an enterprise funding model. This needs to consider where efficiencies can be extracted and how technologies will improve productivity.
     
  • Understand the market, that is, who are your competitors (they might be friends now), and who is likely to compete under a free market arrangement where consumers get to choose.
     

 

Key takeaways

Change and competition are coming HERE!!!... and time is ticking for organisations to adapt to the emerging competitive environment.

What can you do now?

  • Review the culture and assess change readiness and resilience.
     
  • Revise your strategy with a commercial focus rather than a traditional not-for-profit process.
     
  • Develop a business model that is sustainable and stress test it using scenario planning or other techniques.
     
  • Put your customer FIRST, that is in the centre of your model.

 


 

NDIS Background Information

The NDIS represents a significant change to the way disability services are delivered in Australia.

The new regime will provide greater funding to deliver better lifestyle outcomes for those impacted by disabilities.

Funding is provided for three support purpose categories:

  • CORE – A support that enables a participant to complete activities of daily living and enables them to work towards their goals and meet their objectives
     
  • CAPITAL – An investment, such as assistive technologies, equipment and home or vehicle modifications, funding for capital costs (e.g. to pay for specialist disability accommodation), and
     
  • CAPACITY BUILDING - A support that enables a participant to build their independence and skills.
     

These stated purposes are supported by the NDIS Outcomes Framework. The Framework aligns eight domains that have been developed to measure goal attainment for individual participants and overall performance of the Scheme.

These Domains help participants think about goals in different life areas. They assist planners to explore where supports in these areas already exist and where further supports are required.

The following table aligns the Support Purposes with Outcomes and support categories.
 

Pricing

In many cases prices for services are prescribed under the NDIS.

The following is an exert of the pricing guide issue from 1 July 2016.

 

 


 

About the author

Darrell Price, Grant Thornton

Associate Director, Operational Advisory

Seniors Living, Disabilities Aged and Community Care

D +61 7 3222 0387

T +61 7 3222 0200

M +61 404 991 866

E darrell.price@au.gt.com

 

Darrell has 30 years’ experience in professional services, the commercial, not for profit and public sectors in Australia. He has a strong track record in developing trusted relationships, leading strategic development, change, transformation, business optimisation and commercialisation in both external and client side roles.

Through effective engagement and focussed facilitation processes, Darrell has worked with disability service providers, aged and community care organisations to improve profitability and prepare for change.

Darrell is the President of a not for profit mental health organisation preparing for the introduction of the NDIS.


 

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