The more things change…?

The NDIS was promoted as a way to “turbocharge” innovation in disability services. Can you name your top 10 NDIS game changing innovations? How about 3 really significant innovations in the way people with disability are supported?

The NDIS has knocked down the prescriptive service models set by governments over the past decades. But if the NDIS has taken away the barriers to offering the services that people with disability need, why haven’t we seen the development of radically new services?

After all, the numbers are getting big: we now have $1.2 billion in funding committed by the NDIS for the 20,000 people in the trial sites. Yet as we reach almost 3 years of an NDIS world, the services available to people with disability look mighty similar to those we saw back in 2012.

Was it really the case that the old disability system offered all the right services that people with disability wanted but we just needed to offer more of them? We don’t think so. We think that people with disability want to be supported in very different ways.

So why are we more than a little stuck? At Disability Services Consulting we have been working with some of the most progressive providers and we have identified four key ‘innovation blockers’.

Blocker #1: Paying for the hour, rather than the outcome

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“[The agency] doesn’t specifically fund services but we give money to people to choose the services that best meet their needs – that will drive innovation,” –Bruce Bonyhady, NDIA Chair.

The NDIS pays for services based on how many hours (or units) of service delivered. Deliver an hour of group-based social activities, get paid $13.73 per participant. In public policy speak this is paying for ‘outputs’ (aka, services delivered).

But does this set the right framework for enabling service providers to offer the best support model possible?

In the example of group-based social activity above, the participant’s goal is not to attend NDIS-funded social activities: their goal is to develop a group of friends and social connections. When the NDIS pays providers based on the output, the provider has an incentive to continue to deliver the service. What we want is providers to help people actually achieve their goals and not just deliver services into eternity.

A person with disability and a provider might come up with a great idea for how they can develop a group of friends and social connections. It might cost twice as much but only require a quarter of the time. This innovation is cheaper for the NDIS and delivers a better outcome for the participant. Yet the provider can only charge for the hours of service actually delivered and the hourly rate for this activity is capped at $13.77. So instead of trialling this innovative approach that is better for everyone, the provider will tell the participant they can’t change the way their service is delivered and stick with the old way of delivering services.

Service providers wanting to be innovative experience this problem across a whole range of areas. Many service providers are asking themselves: what is the incentive to invest in new ways of supporting people such as using lower cost online technology that we can’t charge for, when that means replacing face-to-face services that we can charge for?

What should we be doing? Funding outputs will preserve a way of thinking that is focused on services and constrain innovative practice. So,

  • the NDIA should start piloting outcome-based funding. This will encourage service providers to offer new pathways to achieving the outcome.
  • Organisations should be exploring all the ways they could achieve desired outcomes and negotiate with the NDIA for different payment structures for innovative services. (If this isn’t possible, organisations can try and get ahead of the game by finding other funders to pay for this, see below)
  • Philanthropic funders/investors should be seeking out organisations with these innovative ideas that aren’t being funded by NDIA. This will assist providers be first movers in radically new services and catalyse system-wide reform .
  • Participants and families can challenge providers to examine how their service is meeting their desired outcomes.

Blocker #2: Organisations aren’t able to capture the value created by service innovation

Why would services invest in better service design if they can’t charge any more for an hour of better service?

When providers invest in innovation it creates value for participants/NDIA, but providers are not able to capture any of the value they create. The better quality service improves the lives of participants (better decision-making and life planning skills through the new curriculum) and the NDIA’s bottom line (better skills for participants means lower lifetime costs for the NDIA. Yet the provider captures none of this value (in the private sector the new service would charge a higher price to repay the cost of investing in the service redesign).

Think about a provider that is already charging the maximum amount for, say, helping people with disability to develop decision making and planning skills ($41.18 per hour) and just breaking even. The provider knows that investing $250,000 in developing an evidence based decision-making and planning curriculum would help them to deliver a much better quality service. But after investing in service re-design in how they support people, they can’t charge any more for the service even if participants think it is much better and the results show it is more effective.

In a world of capped prices, providers do not benefit financially from better quality services. The only financial incentive to innovate is when there is competition from better quality providers. This thinking will keep a lid on innovation by only ever encouraging providers to be better than their competitors. They should be striving to offer the very best service they possibly can.

What should we be doing? To encourage service innovation, participants need to be able to reward services that invest in innovation.

  • Organizations should be investing more to improve the quality of their service and apply insurance thinking to how their service innovation reduces lifetime costs.
  • The NDIA needs to find a better balance in its approach to pricing, between keeping price inflation under control and enabling organizations to invest in innovation.
  • Participants and families are the best marketers for services and should reward performance by saying positive things about the provider on social media and to friends and family.
  • Philanthropists and investors can be designing creative funding models to encourage services to focus on outcomes.

Blocker #3: Innovation is expensive & small organisations aren’t collaborating to invest in innovation

Innovation doesn’t just happen. Organizations need to dedicate time to co-designing with people with disability. Collecting the evidence of what works. Trialling new services. Going back to the drawing board and starting again. Prototyping services. Spending the first 6 or 12 months making a loss before they turn a profit.

All this search and development (R&D) is expensive. Really expensive. Across all industries in Australia we spend 2.13% of revenue on R&D.

Organisations with big revenues are more likely to be able to invest in innovation. Spending a modest 1.5% of revenue on R&D for an organisation with a $1 million NDIS turnover is $15,000. That doesn’t go far in investing in good co-design and trialling a new service that might start off by making a loss. Organisations with a $20 million NDIS turnover could invest $300,000 in innovation per annum – that starts to become viable for investing in service innovation and re-design. Clearly big organisations have a massive advantage to be able to invest in innovation in an NDIS world.

A healthy NDIS market cannot exist with just big providers. For people with disability to get the best outcomes from the NDIS, big providers, medium and small providers will all exist alongside individuals and small teams that don’t work for any organisation.

For individuals and small and medium providers to deliver high quality services they will need to invest in innovation. The financial support for private sector small businesses to pay for innovation—tax breaks for innovation and R&D spending—don’t exist for non-profits.

Small and medium organisations need to be working together on designing and redesigning services if they want to get a good innovation result. Think about what can be achieved if 25 organisations across the country each individually spend staff time or pay consultants to tell them what the evidence says about how to deliver social skills development; compared with 25 organisations jointly commissioning this research together. Working together allows organizations to spend less and get a much better result.

What should we be doing? To enable investments in innovation we need to be able to aggregate investments in innovation.

  • Organisations need to pool their innovation resources, especially small and medium size organisations (especially when the consortium includes organizations that operate in different geographic markets and do not compete for participants!).
  • The NDIS Sector Development Fund could be used to bring services together to collaborate and jointly commission work that is released publicly and benefits all providers.
  • Philanthropists and investors can play a role in funding the small and medium end of the sector to collaborate and invest in innovation.

Blocker #4: The well is (almost) dry for new venture funding

Designing and re-designing services, developing a workforce, building online platforms and delivery channels. These are all expensive, and completely essential for many new services that will come about in the NDIS. But who is paying for these upfront? Who takes the risk of funding these investments not knowing if they will pay off?

One thing is certain, it’s not the NDIS. At least not directly. The NDIS won’t be making grants to pay for a service provider to develop an online platform for a service, they won’t be giving grants to buy cars to transport staff or minivans to transport staff and clients. In the NDIS world organisations have to cash flow all these expenses and pay for them through the fees they get receive for delivering services to NDIS participants.

Decades of a charity model of social service provision has left most non-profits with almost no savings to invest in new services. NDS recently found that 42% of services operated at a loss. The reality is that most existing non-profits can’t invest in their own expansions or service re-design.

Existing providers that are asset rich are being highly risk adverse. Non-profit boards are reluctant to sell off property to raise funds to start up new ventures within their organisations. This is ironic, given that in a demand driven NDIS world these big organisations risk losing their market share to new providers who pop up offering new and better services that these big organisations could have developed themselves if they’d been willing to take a risk.

External sources of venture funding do exist, but are currently very small in relative terms. Social Ventures Australia have a Venture Philanthropy Fund; Foresters Community Finance operate a variety of funds. The NSW Industry Development Fund has advice for non profits that want to borrow money. Crowdfunding is another option, with StartSomeGood and Dreamstarter. Certainly, HireUp’s ability to attract $2.5m in late 2015 has started to generate more interest in venture capital for NDIS ventures.

The well for capital to invest in new NDIS services is almost dry. The NDIS budget is $22 billion per year. Even if just 1.5% of this budget was being spent on innovation, we are talking about $330 million per annum to pay for things that aren’t generating any immediate profit. That’s $1 billion dollars every 3 years. This is way beyond the financing current capacity of organisational reserves, the venture philanthropy sector and crowdsourcing.

If the existing non-profit sector can’t find the funds to invest in developing and rolling out new and innovative services, who will?

Private for profit companies know how to access finance to invest in developing platforms and new businesses. Borrowing or investing money to deliver new and innovative services is the bread and butter for the private sector.

If the non-profit sector continues to starved for capital, the private sector will come in with its access to finance and offer services the rest of the sector has never been able to afford. The same goes if asset-rich organisations chooses to be risk‑adverse and never put its money on the line to invest in designing and redesigning its services.

What should we be doing? Innovation is about taking risks and successful NDIS providers will have to be much more open to taking financial risks.

  • Organizations need to lift their horizon from the cash they have in the bank, to the potential for developing amazing services. Work backwards from there to find money to co-design with people with disability, test and prototype, and then work on finding finance to expand it.
  • Philanthropy and investors (including banks) need to take the NDIS financing needs seriously. We need a much bigger capital market that can do everything from lending a small organisation money to purchase a car through to lending enough to bankroll a state-wide (or nation-wide) expansion of a successful program.

Where does this leave us?

Ultimately, these barriers are combining to stifle or block innovation in the NDIS. This reduces the options for people with disability. It also means the NDIS is more expensive if better quality, lower cost services aren’t able to make it to the NDIS market.

The NDIS is a huge opportunity for innovation and service reform. We could be making more of the opportunity. The NDIA could more effectively enable service providers to be genuinely innovative through pricing and payment changes. And organisations wanting to deliver new or better services can be collaborating to get better bang for buck in their innovation spending. Organizations can also be more creative about how they use NDIS pricing and payments to fund service improvements. Organisations will have a massive first-mover advantage if they can overcome these barriers.

And all this isn’t to say that money is the only motivator of service providers. Clearly most service providers are motivated by wanting to deliver a better service that helps people with disability achieve their goals and aspirations. But this doesn’t happen without funding – good services cost money and if there’s no money to invest or no way to recoup these investments the reality is that they won’t happen. Ignoring the innovation funding question stifles innovation and reduces the choices available to people with disability.

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