Ensuring Australia’s economic sustainability
National goal: Build an effective and efficient market for NGOs to deliver Australia’s $70 billion human services (child care, housing, disability, families, community and aged care) through a fee-for-service arrangement, rather than grant payments in advance.
This new funding model should create better outcomes for fewer dollars – putting Government in the role of price maker.
The new funding regime has already been implemented within the children and family sector in some jurisdictions, and is now being considered in remote and regional programs. It will eventually be the new funding model for the National Disability and Insurance Scheme (NDIS), the largest transformation of the Human Services sector in Australia’s history, with some $12-14 billion being spent over the forward estimates.
Human services issues
Radical change to the traditional funding model
This is a fundamental shift in how NGOs operate their businesses models and maintain service levels to some of the most vulnerable members of our community. Governments at all levels have traditionally funded NGOs through block grant funding, paid in advance.
The new fee-for-service arrangement aims to drive to a more efficient market by creating a specific fee for a service, rather than giving an upfront block of money for the provider to deliver the services. Previously the NGO made the price and the government paid. Now, the government will become the price maker.
NGOs will need to change their business models
Traditionally, NGOs have received block grant funding from Federal and State Governments, usually paid three months in advance. This funding model has provided NGOs with budget certainty. Now, many NGOs are anxious about the future fee for service model and its cash flow implications.
Smaller NGOs unprepared for the change
Feedback from some smaller NGOs has been that they will need to borrow more capital to underpin their operations to maintain cash flow for staff, overheads and infrastructure payments. This has interest cost implications and requires more sophisticated processes, better technology and greater financial capability for NGOs to cope with the delay between outgoing payments and incoming cash.
Government officials agree that NGOs will require more sophisticated systems to meet the future challenges. However, they also point out that respective governments have invested heavily in developing the work force, and past grant funding should have allowed for infrastructure and systems establishment.
In contrast, NGOs say that, in many instances, grant funding had to be ‘pooled’ to meet the individual needs of persons with disability, similar to a commune arrangement, and philanthropic donations had to be used to meet the gaps in payments for services. Therefore, NGOs have forgone investing in infrastructure, business process and workforce capability/ capacity to meet this funding gap.
Particular challenges for NDIS
NDIS is a paradigm shift in how disability services are delivered in Australia, moving from a rationing of untailored services to services tailored for the individual. Persons with a disability will pay for services on a fee-for-service basis either from NGOs, the private sector or specific individuals.
However, NGOs are concerned that the fee-for-service regime will require a greater knowledge about the disability market, in terms of service requirements, demand volume and the location of persons with disability.
“We will welcome the empowering of persons with a disability to directly purchase services, but we just simply need to understand the type of services required, demand and where this demand is now and in the future. If we are going to a free market where demand and supply meet, then we need to understand the demand drivers.”
CEO of a small NGO
Government has respond by stating that the NDIS will be piloted in a number of sites around Australia until these types of transition risks are mitigated.
Human services recommendations
Based on our experience in the sector, we believe small to medium NGOs will struggle to operate in a fee for service payment regime. To address this issue, we recommend Government does more to prepare the market for the new funding model. This is not just about building workforce capability, but building the capability and capacity of NGOs to deliver under the new funding model.
To help NGOs transition, we recommend Federal Government, via Disability Care Australia, supports NGOs to prepare for the new funding paradigm via:
- Demand Analysis: identify the different service types and volume of service in different regions, now and into the future, and make this data available to NGOs.
- NGO Maturity Assessment: develop an assessment tool to assist NGOs in building their capability and capacity for strategy, governance and cash management, allowing them to sustain their operations now and into the future.
- Accreditation Scheme: implement an accreditation scheme beyond the current respective state accreditation frameworks, ensuring quality services are delivered consistently to some of our most vulnerable community members.
Human services conclusion
Fee-for-service is an optimum funding model for NGO delivery of Human Services, with the potential to deliver better services more efficiently. However, even mature NGO markets will need substantial support to transition to the new regime.