NDIS Provider Readiness – Calm before the Storm? by Jonathan Price

Background
Synergy Group Australia / Keogh Bay Consulting (Synergy) have been working successfully with large numbers of disability service providers over the past 10 years and recently have been delivering advisory services to 25 Australian Disability Enterprises (ADEs) through round one of the Department of Social Services’ (DSS) ‘National Disability Insurance Scheme (NDIS) Transition Consultations’ grant funding program (the funding program). The findings from across the projects were very interesting (well, for a data geek like me) and perhaps provide some insight into the state of provider readiness for transition to the NDIS.

Location of ADEs
The ADEs we worked with are located across Australia:

Most of the ADEs that we have been working were located in outer metropolitan or regional areas of Australia. In addition, most of the ADEs were relatively small (employing less than 50 supported employees).

Our capability in delivering ADE advisory services
Synergy / Keogh Bay maintains a large team of consultants experienced in working with ADEs and other disability service providers across Australia. In delivering services to the 25 ADEs, Synergy operated five distinct teams of experienced consultants that were in regular contact so that they could share experiences to leverage the learnings from each ADE. Each team could also draw on the specific expertise of Synergy and Keogh Bay specialists where required for services such as demographic analysis, IT readiness assessments, wage data analysis, costing and marketing.

Key themes emerging from the project
The key themes that emerged from our ADE advisory services projects included the following:

Financial viability
Our review of the financial statements of the 25 ADEs found that 55 per cent (14) of ADEs returned a deficit for the 2015-16 financial year while only 45 per cent (11) returning a net profit. This indicates that many service providers are experiencing financial difficulties under ‘business as usual’ conditions without even factoring in the challenges of transition to the NDIS.

Key factors impacting future viability
Financial and current state analysis of participating ADEs identified the following key factors that could impact on future viability:

1) Supported Employee Wages – The potential change to a new wage assessment tool was identified by ADEs (and supported by our financial modelling) as a key risk to future ADE profitability. Our key findings in respect of wage were as follows:

(a) Type of tool used –- Six out of the 25 ADEs have already transitioned to the Supported Wage System wage tool. Of the remainder, 10 used the Skillsmaster tool, 8 used Greenacres and one ADE used their own productivity-based wage assessment tool.

(b) Average level of wage –The average supported employee wage under the SWS tool tend to be significantly higher than the average for the two other most commonly used wage assessment tools, Skillsmaster and Greenacres.
In comparison with the award rate, these average wage rates across our (admittedly very small) sample of ADEs were as follows:
– Supported Wage System (SWS) – approximately 54 per cent of the award wage;
– Skillsmaster – approximately 25 percent of the award wage; and
– Greenacres – approximately 24 percent of the award wage.
It is important to note that there were wide variances in the level of wages paid across different ADEs using the same wage tool. For example, the average level of wages compared to the award at ADEs using the Greeacres tool ranged from 19 per cent to 27 per cent. Whereas the average level of wages at ADEs using the Skillsmaster tool ranged from 20 per cent to 64 per cent of the award; and for ADEs that used the SWS tool the average wage ranged from 28 per cent to 80 per cent of the award.

(c) Impact of a change in wage assessment tool – The potential transition to a future new wage tool that resulted in significantly higher levels of supported employee wage rates would be likely to have significant negative impact on the financial viability of most ADEs. Indeed, for many ADEs such a change would be likely to move them from a position of returning a modest profit to a significant deficit.

(d) Impact of an increase in wages on the DSP – Many ADE’s management and staff expressed concern as to the impact that increased wages could have on supported employee’s ability to qualify for a DSP. Synergy has no evidence as to whether this concern is reasonable or not but the concern exists nonetheless.

2) NDIS pricing and transition –  Given that NDIS prices are matched with those of case-based funding there is no significant short-term impact on the current operating model of ADEs from the transition to NDIS pricing. However, there have been individual ADEs that have (or will) be impacted significantly (positively or negatively) by the move from case-based funding to NDIS pricing. For example:

3) Appetite for widening range of services under NDIS –  We found that there was a great deal of interest across most ADEs in widening the range of services provided to the existing cohort of supported employees under the NDIS. Most interest was in:
·        School Leavers Employment Support (SLES);
·        Day Options Services;
·        Individual Employment Support;
·        Life Skills Training;
·        Plan Management; and
·        Transport.
However, the absence of any clear guidance on what these price items involve and any guidelines on how they will be delivered has caused concern on the part of ADEs considering provision of such services.

4) Marketing –  There was a general lack of understanding across ADEs in understanding how they will / should market their services, both to commercial and NDIS clients. In particular, at there is a need to quantify the existing supports provided by the ADE to supported employees as well as formalising an approach to communicating these supports and services to supported employees and their families.
5) Current State Analysis reports have often resulted in structural change –  For some ADEs our Current State Analysis reports resulted in the downsizing of business lines, closure of business lines or outlets and in one case significant restructuring of the entire ADE. In many cases the financial modelling of the impact of key change events is the catalyst for strategic change within ADEs.
6) Improving the viability of existing business lines –  Following our Current State Analysis activity we have often been requested by ADEs to develop strategies to improve the viability of existing business lines. These strategies can include activities such as:
·        Development of costing and pricing tools;
·        Merger of business outlets;
·        Changing of work rosters and the number and hours worked by employees;
·        Review of production processes; and
·        Calculation of full costs of production.
7) Alternative business lines –  Many Boards have been interested in alternative business lines operated by other ADEs and Synergy have routinely run workshops with management and Board members where we have explored the pros and cons of different business lines.
8) Feasibility analysis –  Feasibility analysis and studies have been a key element in the Future State Analysis and Strategic Analysis stages of our projects. Most of our work centred on undertaking feasibility studies for ADEs on alternative business lines and NDIS service options. Some of these provided great opportunities for ADEs to enter new, potentially more profitable, markets.  Others…..not so much.
9) Succession planning –  Another major risk for smaller ADEs is the challenge posed by succession planning where the CEO / GM leaves or takes ill. This risk was clear at a number of the ADEs visited by Synergy and was exacerbated by the absence of documented procedures and controls in respect of key organisational functions.
10) Consideration of merger as an option to maximise benefits of NDIS –  Discussions with the boards of several smaller ADEs found that real consideration is being given to the possibility of mergers with (or takeovers by) larger organisation to achieve economies of scale and specialist skills that may enable an organisation the thrive in an NDIS environment.
Overall Summary
In my experience, the key areas that ADEs and other service providers will need to develop and work on in advance of the transition to the NDIS are as follows:

Overall, its going to be an exciting time for the ADE sector with significant opportunities on the horizon, but it is also likely to be a period of significant market flux with provider expansion, closure, takeovers and new entrants the new norm for the sector under the NDIS.  Those providers that prepare well in advance and understand what the change will mean for their organisation and region will generally be best placed to make the most of life under the NDIS.
For more info on our NDIS provider readiness services or indeed for a general chat contact Jonathan Price on jonathan.price@keoghbayconsulting.com.au or 0423765437.