Uncertainty and low prices are driving the fact that demand is not keeping up with supply. Speaking generally about the performance of the provider sector at the NDS NSW Conference recently, University of Western Australia lead investigator, Penny Knight said the next 24 months are likely to be crucial if providers are unable to meet demand for services. “This obviously has significant policy implications and real life implications for people with disability,” she said.
Less than half of disability service providers surveyed for the State of the Disability Sector Report 2017 could meet all demand and the outlook for 2018 suggests the supply gap will continue to widen with only 43 per cent, compared to 53 per cent in 2016, expected to meet demand. This affects not only investment into the sector, but also organisations investing into the sector as well, Knight said. “In terms of forecast the same is true with expectations of capacity, because if prices are high organisations will flow into the service, if prices and profit margins are low then the fallout is noticeable.”
More alarmingly, one in 10 is considering pulling out of providing services to the disability sector entirely. “The reality is that many suppliers are providing a broad range of services, not just disability, such as mental health and childhood services, support, so the barriers to entering and exiting the disability sector are quite low.”
Knight said while this suggest a combination of factors are causing stress in the sector why, with all the money and optimism flowing in from the NDIS is the industry, that always shows 100 per cent support of the policy initiative, not responding? And why are organisations not growing in order to keep up with supply? One of the key issues is profitability with nearly half reporting either making a profit or breaking even and 20 per cent making a loss.
Is it normal for organisations to make a loss? “The answer is yes as it is not unusual for many to make losses up to three or four years in a row on the basis of investing and developing while in transition,” she said. “However, this has implications for the future investment of the sector and whether this is sustainable, and, given the complex changes within the sector, is debatable.” According to the report only four in 10 disability service providers rate their financial position as ‘strong’ or ‘very strong’ and two-thirds worry they won’t be able to provide services at NDIS prices. In short, business confidence has dampened.
“Until we see some potential change in profitability and expectations of growth it is going to be a struggle to attract major investment into the sector. Without positivity there will be an ongoing issue with increasing supply. What we are seeing are early signs of is a polarisation of sector profit, with some making profits and some making losses, and few in the middle of the curve.”
Government in negative territory
Sentiment towards government handling of the NDIS has become increasingly negative in the past year with 74 per cent of survey respondents ‘disagree’ or ‘strongly disagree’ that government is anticipating or responding to the needs of organisations. In 2016, 58 per cent of respondents disagreed or strongly disagreed that the National Disability Insurance Agency (NDIA) is working well with providers. This increased to 67 per cent this year.
“Clearly, the NDIA needs to be more engaged in the sector with the policy environment remaining uncertain. It comes back to sustainability of the financial investment,” Knight said.
“In summary, low profit expectations is impacting sustainability in the market. Next year will be critical for the sector with a lot of organisations struggling as they move to transition with profitability options becoming more extreme. Despite this, there is optimism with the industry keen to get the NDIS right.”