ILO Lift-off – A provider perspective and a warning
December 13, 2021
We know the agency is seeking to balance the scheme and there is a strong chance this balance will be achieved by a SIL to ILO transition. So, ILO is coming and we should be thrilled about it. ILO will facilitate a much more personalised, natural and goal oriented support for people with a disability. Are you ready for the change?
As we’ve seen in prior articles, the ILO model is funded drastically differently to a typical SIL model, which accounts for 27% of scheme expenditure. For providers, a SIL program offers funding stability as the contact hours are high and customers often stay engaged for long periods, given it is their home. This begs the question – what will happen to these SIL providers if there is a major ILO uptake?
One way to gauge the potential ILO uptake is by looking at the size of the current SIL market and the numbers required to move across to ILO in order to balance the scheme. We’ve run the Monte Carlo simulation so you don’t have to. Key assumptions we’ve considered within the simulation include; customers coming in and out of ILO, the likely ratio and funding intensity of those customers in SIL and the likely ILO funding model.
Our model suggests that 13,319 customers, or 57% of the SIL cohort will need to transition to ILO in order for the scheme to balance. While the agency has great intentions, and is doing a stellar job of managing an extremely complex organisation, let us consider what it would look like if the agency were able to achieve 50% of the modelled transitions within a 3 year period.
Based on the assumption that ILO participants would have resided in either a 1 to 1, 1 to 2 or 1 to 3 SIL setting, we have outlined below the implied hourly cost savings (note: this is based on the 230k benchmark price):
As you can see, the agency has strong incentives to focus on higher intensity placements. Whether customers in 1:4 and 1:5 settings can be supported at the lower cost bands remains to be seen. However, it is important to remember that the decision to transition from SIL to ILO ultimately lies with the participant. While our simulation and figures outlined above utilise an average expected ILO funding figure, we expect these averages to be relatively consistent.
Considering the ILO model will skew to moderate intensity, this gives us a reasonable set of implications to consider. Let’s assume the average SIL provider loses 20% of its customers, and 50% of its incoming customer pool over the next 3 years. The first thing to note is that customer reduction behaves radically differently in SIL compared to other markets. The expenses incurred by SIL programs are almost perfectly inflexible, as client plans don’t change with changes to the support ratio. Vacancy risks within SIL have serious consequences for those organisations who find themselves with empty rooms. In the average 1:2 setting, a single customer leaving will result in a program loss of $93,000 annually. In a 1:3 setting, it will result in an average annual loss of $65,000, if a second client were to leave this would result in an annual loss of $250,000.
If we look at the average program size of our SIL Provider Index, (Empathia group maintains a SIL provider index that evaluates not for profit SIL performance) this would generate losses of $1,044,000 annually until the houses can be consolidated or closed. This issue is likely to be exacerbated by a significant reduction in new customers to SIL as the intensity of the ILO rollout increases.
If we look at the average cash reserves of our SIL Provider Index then the situation gets much worse. Many of our organisations do not have the assets to survive an unmanaged SIL to ILO transition. The vacancy risk will simply eliminate their working capital as they outlay wages for vastly reduced revenue.
We strongly recommend that providers assess the risk of an ILO transition and put in place mitigation strategies.
If this is something we can assist with please get in touch.
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