Calculation on NDIS price ‘totally broken’, say providers

Disability service providers are demanding a $2bn-a-year top-up to fix a major ‘mathematical error’ in how prices are set by the agency running the National Disability Insurance Scheme.

The $40bn-a-year NDIS scheme is on track to blow out to more than $100bn a year by 2034-35.

Disability service providers are demanding a $2bn-a-year top-up to fix a major “mathematical error” in how prices are set by the agency running the Nat­ional Disability Insurance Scheme, which is leading to thousands of providers being underpaid by up to 10 per cent and becoming “financially unviable”. 

In a call that undermines Labor’s goal of slashing the NDIS’s annual growth to 8 per cent within two years, industry leaders and data analysts allege the set of assumptions underpinning the Disability Support Worker cost model are “completely broken”.

The $40bn-a-year scheme is on track to blow out to more than $100bn a year by 2034-35, with the government seeking to rein in costs by cracking down on fraud and rorts, while also moving to stop participants being able to endlessly top up their plans.

Aruma chief executive Martin Laverty revealed that during his time as a National Disability ­Insurance Agency board director between 2013 and 2021, concerns around the DSW cost model were raised with him directly.

“I passed those concerns that the calculations were wrong on to the agency,” he said. “They have been aware of this for several years. Temporary Adjustment Payments, the last of which ceased on 30 June (this year), band-aided over incorrect price calculations for a while but the funding error is now contributing to service exits across the not-for-profit sector.”

My Supports chief executive Andrew Young, who raised the issue with Dr Laverty nearly five years ago, said implementing the formula in this way was “like taking an Olympian who has won second place in every race and saying they are second overall”.

Aruma chief executive Martin Laverty. Picture: Nikki Davis-Jones

“In fact they would win the gold medal by hundreds of points,” Dr Young said.

The way the NDIA sets prices for the scheme is by taking the top 25 per cent of organisations performing most efficiently and benchmarking price caps against them. However, the agency uses this “25th percentile” model across a number of variables for cost – including employee allowances, overheads and staff utilisation – rather than bench­mark-ing against the “total cost” of doing business.

Michael Bink, chief executive of an NDIS data collection and benchmarking service called Ability Roundtable, agreed the tool being used to calculate providers’ cost was “broken”.

“It’s broken in terms of some of the assumptions that it makes, we don’t think are credible,” he said. “For them to say you should be the top 25 per cent not just in the overall price, but you’ve got to be in the top 25 per cent in terms of staff utilisation, the productivity of staff … for an organisation to be in the top 25 per cent in terms of all these different kind of elements of cost is no longer being in the top 25 per cent, it’s the top 6 per cent and that’s basically impossible for a whole sector to get there.”

Dr Young said fixing the problem would cost about $2bn a year – an estimation Mr Bink said was “about right”.

NDIS Minister Bill Shorten said disability support workers were “worth every cent” and his government had invested in increasing their wages by nearly 15 per cent.

“I meet regularly with unions and employers to talk about how we can improve conditions for disability support workers and make it a more attractive career for more people to enter,” he said.

The concerns around pricing follow an NDIA decision in June to lift price limits by 3.19 per cent, which peak bodies declared was as good as a “price cut” given it did not reflect the ballooning costs faced by organisations.

A survey by peak body National Disability Services found that as a result of the pricing review decision, nearly three-­quarters of providers were considering shutting their doors,

At the same time as it announced its latest pricing decision, the NDIA revealed it would appoint an independent expert to “oversee a review of the NDIS pricing structure” over the next 12 months.

Dr Young said the review was “the first public acknowledgment of payment calculation flaws, but continued to kick the solution down the road”.

“The agency continues to tell providers they’re inefficient because they can’t measure up to the prices set by the NDIS cost model, even though the NDIA knows full well the model is wrong,” he said. “This NDIA is now directly gas-lighting providers about ­pricing.”

Dr Laverty said the fault in how prices were calculated was seeing Aruma alone lose “several million dollars” a year.

“The Disability Support Worker cost model funds four weeks’ annual leave; the National Employment Standard requires that we pay five weeks,” he said.

“And that gap is equal to the loss suffered by my organisation last financial year.”