Payment and pricing frameworks to improve incentives for the delivery of quality supports

There are opportunities to improve how price caps are set
Providers are incentivised for quantity rather than quality
The Panel’s vision: A new pricing and payments approach is needed to improve incentives for providers to deliver quality supports to participants
Recommendation 11: Reform pricing and payments frameworks to improve incentives for providers to deliver quality supports to participants

NDIS markets are not like other markets. They are social markets. Finding and buying NDIS supports is different to going to the supermarket or choosing a service like an internet provider. This means the role of government in stewarding NDIS markets must also be different.

There are opportunities to improve how price caps are set

Most NDIS supports have a maximum price or price cap. In 2022-23, around 83 per cent of payments were subject to a price cap.¹⁸⁷ Price caps aim to prevent large providers from using their market power to drive up prices and help ensure services are value for money. However, the way price caps are set is creating issues in the NDIS market:

The blunt and non-transparent way price caps are set is not helping providers respond to the needs of participants or encouraging market confidence or innovation. We’ve heard from some providers this also makes it hard to invest in the capability of workers.
While price caps are slightly higher for participants with complex needs, past reviews have heard that the current price caps don’t do a good job at supporting access for participants with complex needs.

We know that providers often charge participants at the maximum price. In the NDIA’s 2020-21 Financial Benchmarking Survey, over four in five providers (83 per cent) reported always setting prices at the price cap. A small share of providers (16 per cent) said that they ‘sometimes’ set prices below the price limit.¹⁸⁸

We also heard from participants, families and carers that it is difficult to find supports that are below the price cap.

NDIA staff have a misinformed perception that participants (especially those who self-manage) hold significant power to negotiate with providers in relation to fees charged. Providers simply refuse to provide service and move on to the next participant.

- Carer¹⁸⁹

Providers respond to incentives embedded within pricing and payment rules. For example, when participants purchase low cost assistive technology (that is, assistive technology under $1,500) they do not require a quote and only require written advice from an assistive technology advisor for ‘higher risk’ items. We see a spike in transactions at the $1,500 threshold. Between July 2020 and June 2023, 62 per cent more transactions were made just below the threshold - that is, between $1,401 and $1,500 - compared with transactions made between $1,301 and $1,400.¹⁹⁰

We also know participants may not change their provider when prices change. So, there is little reason for providers to compete by lowering the price or improving the quality of supports.

We have heard from the sector about the National Disability Insurance Agency’s (NDIA) inherent conflict of interest in setting price caps when it is also responsible for the sustainability of the scheme. Providers have also long expressed concern about the lack of transparency in the way prices are set.

The current price setting mechanism, which is an annual review undertaken by the NDIA, is perceived as being a fast and incomplete review mechanism that does not fully utilise stakeholder feedback or undertake a full analysis of the factors that are currently influencing the NDIS market and delivery of NDIS services. There is also a perception that NDIA’s Annual Pricing Review is impacted by overall NDIA budget constraints in its final decision making. While budgetary impacts must be a key consideration, it should be transparently accounted for as an element of overall decision making, which does not occur currently.

- Occupational Therapy Australia¹⁹¹

Providers are incentivised for quantity rather than quality

For most NDIS supports, providers get paid for each support they provide. For example, they get paid a certain amount for an hour of support. We call this ‘fee-for-service’.

Fee-for-service is an easy way to pay providers. However, it means providers benefit when they increase the number of supports to participants - even if these extra supports do not improve outcomes. Providers may not benefit when they help a participant to be more connected to community and need fewer supports. This way of paying providers can place pressure on the total cost of the scheme.

Currently providers are paid based on the services they provide, rather the benefits of those services to participants. Providers should be rewarded for helping to achieve participant goals. This would benefit the providers who provide high-quality services, and it increases the focus for Government, the NDIS and providers on building the long-term capabilities of participants.

- Get Skilled Access ¹⁹¹

Fee-for-service arrangements may also contribute to a lack of investment in provider and workforce capability and quality assurance. Where providers are incentivised to prioritise more services over and above quality assurance, people with disability bear the consequences. This includes funding consequences (through over-servicing) and safety and quality consequences (as providers are incentivised to limit resources).

- Women with Disabilities Australia ¹⁹³

The Panel’s vision: A new pricing and payments approach is needed to improve incentives for providers to deliver quality supports to participants

Price caps should continue to help ensure the NDIS market is sustainable, not drive up prices, and that services are value for money. But, the way price caps are set should be improved.

The process for setting price caps should be clear, transparent and be based on the market price for delivering supports, including any costs associated with regulation (see Recommendation 17), with robust information on the cost and amount participants are being charged. This would help ensure quality providers remain viable in the NDIS market.

Price caps should also better reflect the differences in the costs for delivering supports to participants with more complex needs and in different regions and in group-based settings. Further differentiations of price caps, as long as they are well understood and are accessible through the centralised online platform (see Action 10.1), would help ensure participants can access quality supports, and help providers to respond to the needs of participants and invest in the capability of their workers.

Over time, changing how prices are set and providers are paid - or the ‘pricing and payments framework’ - would help the NDIS market work better.

Providers should be paid in different ways to reflect the differences in the types of supports provided. Using a mix of payment approaches would better reward providers for helping participants to achieve their goals and to be more connected to community. This will improve outcomes for participants and reduce cost pressure on the scheme over time.

The Department of Social Services (DSS) and the NDIA would actively monitor and evaluate changes in payments to providers to ensure these new payment approaches are improving outcomes for participants. They would also work closely with the Independent Health and Aged Care Pricing Authority, who would independently advise on NDIS pricing to ensure greater alignment of pricing across the care and support sector.

Opportunities to shift away from the current fee-for-service approach, where providers are paid for each hour of support delivered, should be carefully explored and tested. Instead, there may be opportunities to reduce incentives for providers to ‘over-service’ - that is, to deliver more supports than needed. This could include looking at ways to better define pathways of support and to pay providers for delivering a group of supports or a range of activities rather than individual hours of support. We call this an ‘activity-based payment’.

One-off and irregular supports - including assistive technology and other capital supports - should continue to be paid on a fee-for-service basis.

For shared living supports, where participants and their chosen provider have an ongoing relationship and the level of support needs are more well known, providers should be paid an enrolment payment (see Action 9.2). The enrolment payment should be designed with participants and could incorporate a small outcome-based payment, which could initially reflect a simple measure of a participant’s satisfaction with their provider.

Following the development of an outcomes framework, outcome-based payments should be more widely designed, tested and evaluated to reward providers for achieving participant outcomes. If successful, outcome based payments could be ‘mixed’ or ‘blended’ with other payment models and be applied across a range of supports.

Participants should get a better deal for capital supports (such as assistive technology) through ‘preferred provider’ arrangements, where the NDIA would negotiate with providers about how much these supports cost and the services the providers would deliver. DSS and the NDIA should also look for opportunities to work across government agencies to align prices across the care and support sector and better leverage government buying power.

Taken together, the improvements in how prices are set and how providers are paid should, over time, more clearly reward the best outcomes for participants, as well as helping participants truly exercise informed choice and control.

Recommendation 11: Reform pricing and payments frameworks to improve incentives for providers to deliver quality supports to participants

* Legislative change required

Action 11.1*: The Department of Social Services should develop a new NDIS pricing and payments framework to be administered by the National Disability Insurance Agency and the Independent Health and Aged Care Pricing Authority, including better ways to pay providers to promote the delivery of efficient and quality supports and continuity of supply. The new framework should enable price caps to reflect the market price for delivering supports, including for participants with more complex needs, in different regions, in group-based settings, costs associated with training, workers compensation, liability insurances and other indirect labour costs. The implementation of the framework should be data-driven with strengthened requirements for providers, with appropriate exemptions for smaller and enrolled only providers, to disclose relevant financial information and the prices they charge. The framework should also enable payment approaches that strengthen incentives for providers to deliver ‘value-based’ supports that help participants to achieve outcomes. As part of the new framework, fully self-managed participants or their nominees who are capable of and choose to manage their own funding should not be subject to price caps.
Action 11.2: The National Disability Insurance Agency should progressively roll-out preferred provider arrangements for capital supports to better leverage its buying power and streamline access for participants. This should include home modifications, assistive technology and consumables. Preferred providers should be paid a fee-for-service payment negotiated by the National Disability Insurance Agency (NDIA), reflecting the one-off, irregular and more transactional nature of capital supports. The NDIA should consider opportunities to work with other government agencies to further increase buying power across government-funded programs. Preferred provider arrangements should also include, where relevant, published, user-friendly, and standardised service agreements covering maintenance and servicing, as well as loan arrangements for assistive technology required for short periods.
Action 11.3*: The Australian Government should transition responsibility for advising on NDIS pricing to the Independent Health and Aged Care Pricing Authority to strengthen transparency, predictability and alignment. The Independent Health and Aged Care Pricing Authority (IHACPA) should be responsible for advising on suitable indicators of the market price and price caps for relevant NDIS supports. IHACPA should consult with the Department of Social Services, the NDIA, the National Disability Supports Quality and Safeguards Commission, state and territory governments, and the broader sector when advising the Australian Government on prices.
Expanding the remit of IHACPA to include NDIS pricing would support greater alignment across the care and support sector and ensure government does not compete with itself and makes better use of its buying power across sectors.
Action 11.4: The Australian Government should review and refine the pricing and payments framework once underpinning reforms have been implemented. This should consider the suitability of the framework based on changes in the NDIS market that result from implementing reforms to participant budget setting, dedicated and graduated assistance with navigating the NDIS, information including quality and safety measures, and improved incentives for providers. It should also evaluate the outcomes and functioning of the self-managed market, with improved data and market visibility through fully electronic payments (see Action 10.3).

Payment and pricing frameworks to improve incentives for the delivery of quality supports

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There are opportunities to improve how price caps are set

Providers are incentivised for quantity rather than quality