Clearly there is a need to move away from the past over reliance on pure competition and the current pricing and payments approach, which is not transparent and applied bluntly.
When designing market-based service delivery approaches, governments must understand the nature of participants, supports and providers. A mix of market tools should be applied (Section 2). We are considering how market coordination, settings and alternative commissioning can be better used to achieve a responsive and well-functioning NDIS market. Even so, pricing and payment approaches will remain central to the functioning of the NDIS market.
The current price caps were planned to be a transitionary measure
There has been a long held view that prices should be deregulated once the NDIS market is mature.
Prices should only be regulated as narrowly and for as short a time as possible.
The NDIA’s 2019 Pricing Strategy lays out a four-step transition approach for pricing '… aimed at maintaining and increasing market supply, assisting in the transition of the NDIS to full roll out and helping markets grow to a more mature state in the future, while recognising the need for financial sustainability' (Figure 15). (Figure 15).[72]
The NDIA’s approach seeks to decrease the level of pricing intervention – moving from the current ‘heavy handed’ price setting and approval to more ‘light touch’ price monitoring and information provision. However, this transition process has not progressed, and it is not clear that price deregulation should be prioritised at this time.
Figure 15. NDIA’s transition steps for removing price caps … has barriers hindering progress at each step
Price monitoring and comparisons in the NDIA is limited due to incomplete information and systems (outlined in Section 1).
The NDIA’s Pricing Arrangement and Price Limits document is the only comprehensive price list that is publically available. But it is not easy for participants to understand, and only outlines what the price caps and rules are. There is no requirement for providers to publish a price list for the full set of services they offer – the only exception is providers claiming TTP for certain supports.
This contrast with other social services, where price information is more readily available to consumers and governments. For example, the aged care Home Care Package Program requires providers to publish a price list on the My Aged Care website for the full set of services they offer.[73] The NDIA has suggested that neither the NDIA nor NDIS Commission are able to require providers to publish their prices.
More than a decade ago, in 2007, price disclosure arrangements were introduced in the Pharmaceutical Benefits Scheme (PBS).[74]Suppliers of certain medicines on the PBS were required to disclose the actual prices at which their medicines were sold – including both their sales revenue and volume. Critically, the arrangements included a feedback loop that allowed the prices of PBS-listed medicines to be adjusted to better reflect the average actual prices paid by pharmacies.
Past reviews have suggested progressing towards a ‘light touch’ price monitoring approach with greater transparency …
Removing price caps would help to address unintended supply gaps and allow providers to compete on quality as well as price (Section 3).
Setting inappropriate price caps can affect access to supports and the sustainability of support provision, create uncertainty that can deter investment, and impede the development of new forms of supports.
Figure 17. Previous work on pricing and payments in the NDIS
… but price monitoring, on its own, may not be sufficient
Under current settings in the NDIS, removing price caps could place substantial pressure on scheme costs.
As outlined in Section 1, participants are likely to be less responsive to prices in a social market (like the NDIS) than in the private market. Providers may act to increase demand for their supports, even when these do not represent value of money or improve outcomes. This could be particularly true when participants rely on the professional opinions of providers.
The bureaucracy of NDIS and its outrageous and free-wheeling price guide increases have allowed service providers to charge optimal rates without any obligation to adjusting their support services to the needs of their clients. NDIS has become a business model for service providers to take advantage of the never-ending funding from client, without having to answer for whether or not they are improving services to the benefit of the participant..
While improved transparency on prices and quality is critical to improve market functioning, these reforms will not provide the competitive pressure needed to address the financial incentives without price caps.
Where providers and participants can seek an increase to budgets, removing price caps is likely to lead to increased costs, without an associated improvement to outcomes for participants. Without competitive pressures in the scheme, this risks a potential ratcheting effect where providers bid up the price of supports (Figure 18).
As supports become more profitable for providers, under a fee-for-service approach, price deregulation could also have a volume ratcheting effect. Providers would face even greater financial incentives to deliver more supports, regardless of outcomes or benefits to participants, than they do currently.
Figure 18. The risk of a price and volume ratchet effect[77]
