The Cost of Mission
18 June 2018 at 5:16 pm
Not-for-profit disability services providers in Australia are being left wondering if they can afford to be true to their mission, writes Gabriela Di Perna, principal at Baxter Lawley.
The National Disability Insurance Scheme (NDIS) has led to individualised funding for people with a disability, who now exercise choice and control over what they buy, from whom, and when.
However, providers now are left to decide whether to agree to provide the services requested at the available prices (be they NDIS price caps or other market constraints).
The recently published Independent Pricing Review arrives at the following obvious conclusion: “If prices are set too high, this will encourage the supply of supports, but reduce the purchasing power of participants and negatively impact the sustainability of the NDIS. If prices are set too low, this could lead to a supply shortfall in the market and compromise participant outcomes.”
What needs to be considered however, is that the NDIS scheme does not have an infinite budget.
McKinsey’s findings include that prices are, on balance, too low. While high prices are blamed for negatively impacting the sustainability of the NDIS, the real problem is an insufficient budget for the scheme, according to Scott Bywaters, accounting specialist of the National Performance Benchmark Project. This is pushing organisations to face the tough choice between reducing service quality to levels they feel compromise client outcomes and their organisation’s mission or stopping the provision of some services altogether.
The National Performance Benchmark Project led by Professor David Gilchrist and Penny Knight has been monitoring and reporting on change within the disability sector in Australia since 2015. The study records the financial performance of 150 organisations across Australia and shows that profit margins are low or non-existent for about half of all organisations. Profit is critical to sustainability and for organisations to change to meet NDIS requirements.
It is not surprising that costing and pricing expertise is currently in high demand among disability service providers; they are tasked with making a decision about whether or not to provide services that are at the heart of their mission when the provision of those services may threaten the viability of their organisation.
NFP providers are faced with the following options:
- provide loss-making services on an exception basis to meet mission;
- cross subsidise services;
- provide services as “loss leaders” to grow or protect market share, with a view to increasing prices later when it becomes “deregulated”.
The latter strategy being the most precarious – there is no likelihood of a deregulated market being achieved soon and maybe not ever.
The question is – why should mission-centric service providers be forced to absorb the gap between their target price and the achievable price under the NDIS, and in doing so, risk the sustainability of their organisations? Shouldn’t the NDIS framework be amended to avoid the need for resource strapped NFPs to carry this burden while the government gets its act together?
At some point in the next year or two these organisations will fail, with the resulting loss of assets, intellectual property and experience, all of which will have to be replaced at a cost to the taxpayer.
More importantly, while the NDIA keeps touting it’s message that “all will be fine – the market will prevail”, there is growing evidence that many people with disability are already receiving worse or no service due to lack of supply.
It doesn’t take another consulting project to work out that eventually government will have to pay the true cost of service.
About the author: Gabriela Di Perna is a principal consultant at BaxterLawley. As an experienced project manager she specialises in the strategic management and execution of customer service delivery. She has a track record of business structure improvement and process innovation and has held executive project roles in finance and the not-for-profit sector primarily in the areas of operations, strategic planning and change management. Previously Gabriela was managing Access and Inclusion Community Service Delivery for National Disability Services (NDS), overseeing direct service delivery to more than 90,000 customers in WA.