The NDIS was established to empower participants to engage directly with their chosen providers on what services they receive, and what price they would pay.
Done well, this market‑based approach would allow providers to receive signals from participants about what supports they value. Providers would compete and have flexibility to implement innovations that could best meet participants’ needs and preferences.
The NDIS market, however, is not yet working for all participants.
An over-reliance on competition has seen some participants face persistent service gaps (including those in remote and First Nations communities) and a loss of social capital. Competition in the NDIS market will not always be possible. For some NDIS services, participants and communities, contestable arrangements could better support access while ensuring providers are responsive to the needs of participants.
Poor market outcomes are also being driven by a lack of accessible and timely information coupled with difficulties in navigating and coordinating supports. The effectiveness of market intermediaries is unclear. Poor market design also means the incentives for providers are not aligned to participants’ and governments’ interests.
Governments cannot manage government-funded ‘social markets’ – such as the NDIS – in the same way as they would manage ‘private markets’. For social markets to function well, governments need to monitor and, when necessary, intervene using a mix of market-based tools. In the NDIS, however, only a very limited number of market-based tools are currently actively used by governments.
Governments have relied on price caps to incentivise providers to operate ‘efficiently’ in the NDIS market
Around 80% of NDIS payments between October and December 2022 were subject to a price cap. Price caps are applied bluntly in the scheme, which has limited the development of a responsive and innovative market.
Current price caps aim to encourage providers to operate ‘efficiently’. However, some stakeholders suggest current price caps do not support the supply of services to participants with more complex needs. Some providers also suggest they are unable to invest in the capability of their workforce under current pricing arrangements and where workers can leave and set up as independent contractors or join online platforms. This exacerbates workforce retention challenges.
Providers also have little incentive to compete on price or quality. Price caps act more as a ‘price anchor’ than a ‘price ceiling’. Participants purchase supports using their NDIS funding, and may be less sensitive to prices than they would be in a ‘private market’.
Price caps and other price controls are therefore an important constraint on how much participants are charged and will continue to be needed over the short and medium term. There are, however, significant opportunities to improve how price caps are set.
Fee-for-service payments in the NDIS are easy to administer and understand, but reward providers for each hour of service they deliver, regardless of the ‘value’ for participants
Considering different approaches to the current fee-for-service payments (such as, outcome payments) could better align incentives for providers with the interests of participants and governments to promote the delivery of ‘value-based’ supports.
Approaches where participants ‘enrol’ with a provider for a period could strengthen the focus on providers’ relationship with participants and encourage them to invest in participants’ capability. Enrolment approaches also have the potential to stabilise the demand profile for providers and assist providers to rely less on a casual workforce.
But different payment approaches need to be considered carefully to avoid introducing perverse incentives for providers and to maintain participant choice.
Previous reviews suggested in the long-term replacing price caps with ‘light touch’ price monitoring and greater transparency on prices and quality
Improved transparency on prices and quality is critical. However, on its own this will not provide the competitive pressure needed to improve supply and competition. Price deregulation risks a potential ‘ratcheting effect’ where providers increase the price of, and volume of, supports. This could adversely affect scheme sustainability and affordability.
Foundational reforms are needed to realise the benefits of a market-based approach. This could include ensuring participants are supported to be active consumers in NDIS markets and providers are incentivised to improve outcomes for participants. Governments have a clear and transparent strategy for the NDIS market. Using contestable approaches could also help achieve better outcomes in some NDIS sub-markets.
This paper identifies a number of focus areas for further consultation. Over the months ahead, we will continue to consult participants, providers, workers, unions, disability representative and carer organisations, disability service providers and other disability sector stakeholders. This will help us better understand these focus areas and how the overarching market approach and pricing and payment approaches may improve participant outcomes and scheme sustainability.
