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How can a QSC compliance notice lead to growth?

Emily Keast — Mon, 12 Dec 2022 23:58:47 +0000

How can a QSC compliance notice lead to growth?

December 13, 2022

In most markets, we expect government enforcement actions to present serious risks and challenges to businesses. Even the threat of an investigation can derail business goals, damage reputation, and significantly reduce customer confidence.

Therefore, assuming the auditing agency is effective, it is reasonable to conclude that any compliance and enforcement actions speak to underlying quality issues in the organisation. But, unsurprisingly and concerningly, this does not appear to be the case in the NDIS.

In this article, we review the revenue growth of organisations between 2021 and 2022; however, this time, we split the cohort based on whether they had received a compliance notice from the NDIS Quality and Safeguards Commission. Again, the results will shock you.

Empathia Group compared eight organisations with a combined 2022 revenue of $1.4 billion and compared the average growth between organisations that have and have not received compliance notices. The results speak for themselves:

Revenue growth and growth rate between cohorts

Compliance Status	2022 Revenue	2021 Revenue	Average Growth
Compliance Notice	$ 885,046,539.00	$ 832,737,230.00	5.76%
No Notice	$ 513,596,630.00	$ 507,378,423.39	1.30%

There is no other way to put it; organisations with notices generated 443% more growth in the period.

A quick note on methodology, we originally wanted a matched pairs design, and this is as close as we could get. However, as it turns out, some of the largest providers have received notices, and it wasn’t easy to find comparators of similar size. It is also important to note that there is significant variation in how these organisations are run but to see such a stark distinction has concerning implications.

We need to talk about quality

There is an objective lack of concrete quality metrics in the NDIS. Even if they did exist, it is doubtful that they would reliably communicate them to stakeholders. You can see this for yourself when you search for services on common aggregators like Karista; in our searches, nearly all reviews show five stars. These results shouldn’t be possible in a market where there are real differences in client outcomes.

Despite this gap, you would still expect that the negative publicity generated by enforcement action would flow through to end users and be at least marginally visible in metrics. Discovering the opposite is concerning.

From our perspective, this is unacceptable, considering that the Organisation for Economic Co-operation and Development (OECD) consider Australia’s general enforcement environment quite effective. Clearly, we’re not advancing the equality agenda if markets for people with disability don’t function like everyone else’s.

Why don’t outcomes matter in the NDIS?

While there are many disappointing reasons why client outcomes aren’t being prioritised, the following two are particularly frightening, and should drive industry action.

1. Conflicted intermediaries are the norm in the NDIS

A brief review of the NDIS registered provider list will show that nearly 100% of support coordination providers are registered for other services. It also won’t shock you to discover that internal referral rates are much higher than chance would dictate.

This is not a provider driven issue. Instead, it’s a classical game theory issue, where providers can’t afford not to refer internally since their competitors will happily accept their referrals while maximising their own internal flow.

While we’re aware of some organisations that take their stance on independence seriously, we know there is overwhelming bias across the sector. If the Agency would like to prove us wrong, it would be extremely simple to reveal this for core segments. For example, in Supported Independent Living (SIL) it is just a matter of providing placements within the year, that had support coordinators prior to the placement, by provider and coordinator. This can be completely anonymised, and we will do the analysis for free.

2. Participants, families, and advocates do not have good data to use in making purchasing decisions

Most products within the NDIS are relational services where it is challenging to evaluate anticipated quality. Many NDIS participants don’t have a say in who they work with or get an opportunity to meet them beforehand. Even if they could, the best interview processes only explain 0.58% of performance variation (Schmidt and Hunter 2006), which means that service provision, in the best case, is a leap of faith.

Consider that a UK study demonstrated that the average person spends 40.5 days deciding on their next car purchase. This process involves watching endless YouTube reviews and taking several test drives. Consumers have easy access to objective data on fuel efficiency, and vehicle reliability – they can even test out the cup holders. Disability support is a crucial component of someone’s life, and the quality difference has tremendous impacts.

We need real data now and we need objective evidence that when an intermediary is utilised, that the customer’s preferences have been matched to this data.

What could this look like?

Human services are complicated, and the end product is a confluence of many factors across an individual’s time in an organisation.

When we endorse organisations, we expect the following benchmarks to be met:

● Adequate induction
● Safe staff engagement levels
● Adequate staff supervision
● Adequate staff training
● Strong, active governance
● Evidence of practice leadership
● Evidence of the pursuit of outcomes that matter to the client
● Effective behaviour management controls

It isn’t a matter of having effective policy. While desktop auditing is an important part, we’re most interested in the rate of the above benchmarks in sites. Without rates, there are no benchmarks, and of course, we cluster around five stars for all services.

Nevertheless, many NDIS participants do not require support to make purchasing decisions and will freely and actively move between providers. We don’t want to get in their way at all.

However, for those needing assistance, we urgently need real data, unbiased intermediaries, and a strong framework for an evidenced, supported decision making process.

If you’re interested in understanding the real quality of your organisation, book a call or reach out to our team.

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Board members of NDIS providers need to see these 2022 results

Emily Keast — Mon, 05 Dec 2022 03:28:24 +0000

Board members of NDIS providers need to see these 2022 results

December 5, 2022

It’s annual report season, and some worrying early indicators suggest that 2022 was a terrible year for providers. Our data set indicates that providers have experienced significant losses, business reduction, and consistent restructuring.

In the meantime, executive salaries have increased, which isn’t a great look for our sector, especially considering we are part way through a Royal Commission in addition to an impending review into the NDIS. This article explores how bad it is, what went wrong, and what we can do about it.

Losses upon losses

For this article, we created a composite of three NDIS providers who account for $1.5 billion in revenue, including $948 million in NDIS revenue. These large players are an essential barometer of the health of the NDIS provider space.

The three providers reported a combined loss of $15 million, with only one posting a minuscule 0.78% margin. These results are a far cry from the exorbitant profits we’ve seen in the media recently.

Worse still, one of these providers reported a -35% return on net assets (RoNA), which is a worrying indicator that there are not too many years like this left in the tank.

Little NDIS growth

Only one of these major providers reported NDIS growth greater than 1%, lending more evidence to a continuing theme that customers prefer smaller providers. Indeed, losing significant sums (which we assume the business invested in clients) and posting limited growth suggests something is profoundly wrong with the customer value proposition.

Worrying notes

We were troubled by provisions in the financials for substantial redundancies (100 staff) in one organisation, and a $5 million underpayment in another. This concerning data coincides with combined executive payments of $11.2 million, reflecting a 5.78% increase from prior periods.

Indeed, $6.2 million was accounted for by just 17 executives (an inflated estimate of executives, given turnover). Careful readers of annual reports will notice a strong negative correlation between executive compensation and organisational results.

So, how bad is it?

These providers reported combined profits of ~$40 million this time last year. The prior figure reflected substantial job keeper payments, but this year includes significant COVID-19 relief payments. In fact, without COVID-19 relief payments, one provider would have made a $27 million loss for a RoNA of -65%, which is absolutely disastrous.

Clearly, many providers faced severe COVID-19 disruptions, which have had tremendous operating effects. As a result, many of these providers are now making substantial reductions to their staff in an attempt to address their operational positions.

Factors driving these results

These trends have deep seeded causes that reach back into the scheme’s inception and beyond. For example, in many organisations we see an undifferentiated multi-service offer across broad geographies. Concurrently, large acquisitions further complicated organisational cultures by integrating multiple management structures, including former government departments.

This situation necessitates an explosion of middle management to attempt to maintain a consistent culture. Occasionally, we see the emergence of “mini departments” in these organisations that can make it challenging to adapt to the fast pace and thin margins of the NDIS. We believe that this round of annual reporting, coupled with news of large restructures, signals a potentially seismic shift in these organisations.

I’m in this boat. What do I do?

Many of the affected providers have significant Supported Independent Living (SIL) vacancies and inefficient overhead structures that limit their viability. A careful review of their annual report indicates that they haven’t discovered a reportable source of excellent client outcomes, so inefficiency, vacancies, and roster leakages likely explain most of these shortfalls. Some of these providers are undertaking large-scale restructures to address runaway costs; only time will tell if they have gone far enough.

You may recall the DSA administration matter. A detailed reading reveals that their affairs went south quickly, with a fair work matter and revenue reductions becoming insurmountable.

We urge Boards and executives to get an in-depth handle on their site operating metrics and overhead distribution mechanisms:

Accurately accrued site-based financial statements must reflect the underlying reality of the program.
Comprehensive lead management tools should give management a strong indication of when vacancy issues will be resolved locally.
Organisations must understand that value is accrued on the frontline, and they are responsible for understanding the value (or burden) offered by support services, and how it compares to the industry and the disability cost model.

The DSA administration demonstrated that no organisation is too big to fail. As a result, many organisations have developed viable structures that enable them to post healthy margins and respond rapidly to changes in the NDIS.

The latter will be crucial as we approach the outcome of the Royal Commission and independent review into the NDIS. In the event of a major insolvency, providers will likely line up to accept new customers. For us, this result is devastating as it disrupts the crucial relationships formed between people with a disability and those who support them.

Empathia Group provide expertise in evaluating the performance of NDIS organisations, including benchmarking back-office expenses and processes. If this article has resonated with you, please book a call or reach out to our team to discuss.

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Why NDIS product strategy is almost always wrong

Emily Keast — Thu, 13 Oct 2022 00:02:53 +0000

Why NDIS product strategy is almost always wrong

October 13, 2022

The truth is that NDIS product strategy is almost always wrong.

Many of our readers think this is a bold claim. However, the following article might convince you otherwise.

In a typical not-for-profit setting, an organisation’s strategic plan usually looks something like this:

At “Disability Not-for-Profit Services”, we will deliver:

First-rate customer experience
Successful teams and leadership
Customer and product growth
Expanding our social impact

Of course, subgoals sit beneath each major goal, and the organisation treats this process as a loosely monitored project plan often subject to last-minute crunches.

This is not how a strategy works.

Sonia Marciano of NYU Stern School of Business captures this problem brilliantly with the concept of product feature variability and weight.

Let’s say your Supported Independent Living business is entering the Sydney market for the first time. You will need certain inclusions, such as a robust incident management process. This process is a high-weight critical system required to perform the service. However, it is also low-variance because it varries little between competitors. Therefore, it can not serve as a point of difference. We call these inclusions table stakes.

On the other hand, having good quality staff is just as important but varies considerably between and within organisations. Therefore, staff quality is a high-weight and high-variance product feature.

Given that we all work within the NDIS, and the Disability Support Worker Cost Model (DSWCM), figuring out what features you ‘overinvest’ in can substantially impact your competitiveness. The chart below visualizes how certain ‘features’ are perceived by customers.

The grey feature may be staff quality, as it is important (high-weight) but also has high variance; therefore, this is the feature that warrants over-investment. The blue feature could be an incident management system, our table stakes. This system is important (high-weight) but does not vary enough to influence purchasing decisions (low-variance). Finally, the yellow feature isn’t particularly important to your customers (low-weight) and varies minimally among competitors (low-variance).

This seems obvious, but product variance will impact the increasingly competitive SIL market. If your competitors establish what is of high importance to customers and strategically invest in those high-variance components, it will be challenging to compete. The other major issue is that organisations commit the cardinal sins of competitive strategy:

Overinvesting in attributes with low weight
Overinvesting in attributes with low variance
Underinvesting in high-weight attributes
Underinvesting in attributes that are high weight and high variance.

Going all in on the essential attributes that matter most to your customers and vary between businesses is at the heart of competitive strategy. Unfortunately, many organisations don’t understand how their customers perceive their product features and can’t begin the critical strategic work of organisational alignment to these features.

The second challenge of framing your strategy is within the context of your organisation, segment, and preferences. Lafley and Martin address this circular issue well through their simplified strategic cascade:

The long and short of this is you can’t design winning products unless you understand the specific market subsegment you intend to serve. Indeed, organisations must realise that perceived weight and variance of product features will vary between submarkets. Therefore a standard offer will likely lose out to something specific to these individual weights.

The other strategic consideration organisations must take is “can I deliver a winning product in this market?”. The actual product design comes after sub-segment selection, which will typically look at growth rates, margin, and cost to enter. Once you’re clear on those three issues, you then need to seriously consider if you can put the right capabilities and systems in place to reliably deliver the high-variance inclusions you have designed. If you can’t, it’s time to move back up the cascade and re-evaluate the “Where will we play” to determine new markets in line with your guiding aspirations. The exact process is then followed to determine if you can deliver a winning product in that market.

Finally, strategy is about trade-offs, and that’s why it’s so crucial to understanding what is most important to your segment. The DSWCM means you can’t be in first place for every conceivable product feature. You will make losses, especially if your nearest competitor has traded off other features, forcing you to overinvest in their speciality. At the same time, you carry the rest of your over-investment.

To do strategy well, you need to understand your customer as completely as possible. This means going on the journey of segmentation, capability review, and quantifying customer perceived weight and variance. If you get these three things right, you’re well on your way to sustained competitive advantage.

On the other hand, if you stick to the script and pursue “we’re going to be the best at every feature”, there is simply no way you’ll manage within the DSWCM.

One of the major reasons the NDIS space has failed to innovate is that very few organisations have made deliberate trade-offs. HireUp is one case where the customer has tacitly traded off staff supervision for access to more affordable and controllable staff. In a robust marketplace, customers can make their own trade-off decisions between competing organisations with different offers.

Based on Christine Bigby’s work, we expect that there will be a cohort of customers who make the exact opposite trade-off and choose organisations that have present and technical front-line leaders. And that is precisely the point, HireUp can’t offer cheaper support and win the supervision sensitive segment.

However, middle-of-the-road offers will struggle to win on any high-value domain, and their position in the market will likely be the rubbish bin.

If you are interested in discussing your strategy and how to position your business differently in the NDIS market, book a call or reach out to our team.

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ILO works, customers want it, so why aren’t we offering it?

Emily Keast — Wed, 06 Jul 2022 00:37:22 +0000

ILO works, customers want it, so why aren’t we offering it?

July 6, 2022

The current state of ILO

Many in the NDIS have considered Individualised Living Options (ILO) as the source of community integration that the scheme initially promised.

In most cases, ILO creates a fundamental re-orienting of the accommodation arrangement where people can truly experience their communities and social inclusion.

However, the data continues to demonstrate that ILO still represents a vanishingly small amount of accommodation payments, and the growth is limited in both a rate and absolute sense. In this article, we review the ILO market from a data-driven perspective.

The data doesn’t lie

Firstly, with our focus on the stats, we accumulated several NDIS data sets that finally allow us to understand the trajectory of the ILO market.

In a previous article, we calculated what full-scale ILO maturity would look like if we achieved Western Australian (WA) rates nationally. However, it appears that it will take some time before we get there.

ILO Exploration and Design grew from 522 participants purchasing in December 2021, to 684 in March 2022. This is a 31% growth rate, which when annualised is quite impressive.

However, this Exploration and Design activity only translated to an additional 41 customers purchasing the ILO support model between quarters (9%, 473 to 514). This number is quite concerning as it is indicative of a relatively high Exploration and Design failure rate.

At Empathia Group, we’ve been concerned about this issue since the original inception of ILO. At this growth rate, it will take a further 6 years before we achieve the WA rate nationally.

Of course, the scheme would need to maintain this rate at scale, which doesn’t appear possible given the limited host and co-resident sourcing infrastructure in the sector. We believe that significant interventions in this space will be needed to achieve ILO saturation consistent with customer demand.

It should be noted that the NDIS data sets are annualised, so we can’t make inferences about the success rate between quarters and what the average Exploration and Design time is. Still, we can make some inferences about the relative success rates between states.

Exploration and Design
State	Dec-21	Mar-22	Growth	Growth Rate	Success
NSW	144	204	60	41.7%	4.17%
QLD	119	147	28	23.5%	0.00%
SA	40	46	6	15.0%	17.50%
VIC	125	156	31	24.8%	8.00%
WA	80	114	34	42.5%	23.75%
Total	508	667	159	29.5%	8.27%

The Exploration and Design data demonstrates that there has been substantial growth in this area in the quarter. New South Wales (NSW) has experienced significant growth in this support area, with WA also enjoying substantial increases.

The “success” metric is highly confounded, but we’re attempting to capture “how much of last quarter’s Exploration and Design activity translated into actual increases in support model purchases”. This will be heavily affected by the timing in the annualised data (some people may still be using the same Exploration and Design package across quarters), and support model increases originated in prior quarters. But what we see is quite interesting:

ILO Support Model
State	Dec-21	Mar-22	Growth	Growth Rate
NSW	44	50	6	13.6%
QLD	37	37	0	0.0%
SA	43	50	7	16.3%
VIC	63	73	10	15.9%
WA	277	296	19	6.9%
Total	464	506	42	10.5%

There are material differences between the size of the Exploration and Design cohorts and the actual increase in support model purchases. Interestingly, WA continues to maintain the highest “success rate”, which likely reflects their existing host and co-resident matching infrastructure, which we believe is a major limiting factor in newer markets.

WA experienced the most significant growth in an absolute sense, but this reflected a lower rate of growth given the considerable denominator. However, given that WA accounts for only 10% of the national accommodation spending, they still have a decisive edge in the ILO market. This difference demonstrates a real demand for ILO products, and they simply aren’t provided at the scale required for the national market.

We find it concerning that WA contributed 45% to the ILO Support Model growth between quarters, with exceedingly marginal amounts found in the populous states nationally.

Our view is that this data demonstrates that ILO isn’t growing at a rate that can deliver this brilliant solution to community living at the rate customers expect.

As far as we can tell, there isn’t much difference between the WA folk and the rest of Australians (although some in WA will dispute this point), and the higher saturation in WA reflects genuine demand for what we consider to be an outstanding product.

Queensland (QLD) and NSW need to up their game when it comes to ILO, even though Victoria (VIC) and South Australia (SA) aren’t performing much better.

Incredible client outcomes are possible

In the coming weeks, we will provide you with two brilliant ILO success stories from a small but exceptional NSW provider. Indeed, while this provider is relatively small, their dynamic team managed two extremely successful ILO implementations that have created excellent social and community improvements and delivered genuine improvements to quality-of-life outcomes for these customers.

This provider did not possess extensive infrastructure and was still able to deploy this product using a combination based on a solid commitment to their customers and a willingness to learn. We are yet to identify major barriers to ILO other than the will of providers.

An important detail to note in these cases is that both models utilised the “co-resident” model, which we initially expected to have lower uptake than the “host” model. While the current data format doesn’t allow us to identify different purchase patterns, we aim to generate our own data to inform you about the ILO models’ relative success rates.

The key takeaway

We find it interesting that despite a worsening environment for Supported Independent Living (SIL) providers, our modelling and work with customers demonstrates that ILO is viable for providers and attractive for both hosts and co-residents.

Indeed, ILO can give providers access to scaling effects that are excluded under the unit rate-based attendant care models. Given that 1. ILO works 2. Customers want it, and 3. Providers can offer it sustainably; we’re eager to work with providers to assist them in deploying this excellent solution.

If you enjoyed our analysis or have your own view about the major barriers to entering the ILO market, we’d love to hear your thoughts.

As always, if you’d like to explore working with us, don’t hesitate to reach out

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The big SIL providers are still struggling

Emily Keast — Tue, 14 Jun 2022 23:00:00 +0000

The big SIL providers are still struggling

June 15, 2022

NDIS Quarterly Report Analysis

It’s benchmarking time again. This quarter, we consolidated the 2022 Supported Independent Living (SIL) data to review the performance of the biggest providers, and most are still struggling.

Because we’ve seen significant government transfers this year, we decided to remove providers subject to the largest transfer volume which reveals the underlying market performance.

Provider	2020 (mil)	2021 (mil)	2022 (mil)	Growth
Endeavour	$ 95.00	$ 98.00	$ 86.00	-12%
Northcott	$ 121.00	$ 118.00	$ 122.00	3%
CPA	$ 88.00	$ 112.00	$ 112.00	0%
Minda	$ 67.00	$ 73.00	$ 70.00	-4%
The Disability Trust	$ 50.00	$ 72.00	$ 69.00	-4%
Activ	$ 27.00	$ 47.00	$ 54.00	15%
CPL	$ 60.00	$ 70.00	$ 69.00	-1%
Total	$ 508.00	$ 590.00	$ 582.00	-1.36%

To be fair, it’s been a tough year for the major providers as they felt the full effect of cost savings measures in SIL. While the SIL market grew by 6.01%, the average of our provider set was -1.36%, this demonstrates the grim reality that growth is becoming more difficult, and larger providers are facing considerable disadvantages.

Growth By Government Transfers

The providers we excluded from our set came with an interesting caveat in the quarterly report:

“The top three providers listed in particular have had growth in participants that relate to former Victorian in-kind participants.”

So, given the remaining 7 had, on average, shrinking programs, how much of the SIL growth could have been government transfers? When we deduct the growth of the top 3 providers, it indicates that 56% of SIL growth probably came from government transfers.

Interestingly, these top 3 providers accounted for 56% of all SIL growth in 2022. Outside of this, growth for SIL was just 2.65%. It is worth noting that this figure is still substantially larger than the performance of the non-transfer top 10.

This leads us to think about the providers who are growing in this turbulent market, and what strategies they are undertaking to succeed.

Strategy 1: Lead Management Optimisation

Clearly, Activ is the main exception to the broader SIL trend. Their growth has been exceptional, and here’s our theory as to why…

Although Activ operates in Western Australia (a less congested and mature market), it is still seated in a state where little unmet need was observed, given the robustness of the WA model. We dug into their annual report and discovered a sentiment that we think explains some of their success:

“To ensure that we consistently deliver outcomes that support independence for even more people with disability in Western Australia, we made some changes to our customer intake teams, adding a dedicated onboarding team to better assist new customers to access our services. This team will be instrumental in improving customer experience and facilitating growth.”

The focus on optimising lead management is a theme we’ve consistently noticed among providers who are successfully and sustainably growing their SIL business.

These growing providers are:

Noticing that customers now have access to multiple offers (2500+ SIL providers in 2022 compared to 935 in 2019)
Understanding the difficulties customers and their support network face when comparing SIL offers that communicate little differences
Recognising that if their lead management process is slow, or leaking, their potential customers will inevitably be engaged by other organisations with a better enquiry and intake process.

What does this strategy look like in practice? We recommend committing to responding to your leads within 2 hours of the documentation being received.

This expedient and respectful commitment signals to customers that their enquiry is highly valued, and they no longer need to continue their search. In fact, support coordinators we’ve spoken to indicate that they will consider at least 5 offers, and those that delay for weeks simply aren’t considered in what could be an urgent placement decision for their client.

Strategy 2: Lean Structure and Competitive Pricing

Another theme that commonly emerges is the effect of leadership distance. The CEOs and directors of smaller organisations we work with know their customers’ names, preferences, and undertake frequent informal contact.

This contact is felt and seen, which is reflected in accountable workplace cultures and a strong familial sense. Larger providers may struggle to compete with this, and they’ll likely need to lean on their scale, efficiency, and capacity for investment to offer different values to the customer.

The new changes to the SIL funding model provides lean organisations with the ability to offer lower prices or more support to customers who may be sensitive to this fact for the first time. The previous model allocated the exact level of need at the NDIS unit price in the Roster Of Care (ROC). However, now the ROC is seemingly divorced from the funding amount, it’s possible that customers are becoming price sensitive for the first time.

What does this strategy look like in practice? Regardless of the size of your organisation, we recommend leaders make an effort to have face-to-face interactions with your customers on a regular basis. This contact presents critical opportunities for two-way dialogue with your customers, and it won’t go unnoticed.

It’s time to reject the broader opinion in the sector that says it isn’t possible and get ready to compete on price. Considering the top 10 providers only account for 19% of total SIL volume, we believe it’s highly likely that this price pressure will be allowed to develop into the competitive landscape.

Strategy 3: Specialisation

We’ve also seen the emergence of highly specialised providers that dominate their niche customer segments. A provider we work with specialises in complex care by providing highly skilled staff with expert leadership. This model leans on complexity funding, however their expertise and capacity attract support coordinators in their network who almost always reach out with customers that meet their risk profile.

What does this strategy look like in practice? If you’re willing to pursue a specialisation strategy, we recommend firstly undertaking a competitor analysis to identify potential opportunities. Are any of your competitors focusing specifically on niche customer segments such as high complex care, autism, or psychosocial disability? If the answer is no, turn your best suited niche into a unique value proposition (UVP).

The Bottom Line

The SIL data tells a compelling story about the nature of our market. Growth has been slow, and most of it is accounted for by government transfers. We expect that a growth trend of 2.65% will continue into the next quarter. While larger providers appear to be at a distinct disadvantage, those with robust lead management processes are able to resist this trend. Smaller providers continue to retain an edge, likely because they are closer to their customers, are more responsive, and can specialise and build strong referral networks.

If your SIL business is on the wrong side of these growth metrics, you need to take your UVP and lead management processes seriously. As for larger providers, we challenge you to consider how your scale can offer different values to your customers.

Finally, price competition is likely coming, and some providers are ready now. If your organisation needs support in preparing, or bringing a differentiation strategy to life, contact our team today.

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The state of ILO and where it is going

Emily Keast — Fri, 18 Feb 2022 10:43:00 +0000

The state of ILO and where it is going

February 18, 2022

ILO can seem like a brilliant but distant concept for people outside of WA. There is a good reason for this. Of the ~$50,000,000 spent on ILO last year, 74% was spent in WA. This isn’t unusual, given that WA largely pioneered and operationalised the ILO model.

The WA experience provides insight into how ILO might mature across Australia. In WA, ILO accounted for 5.36% of all accommodation based committed supports (SIL and ILO), while across the rest of Australia, it accounted for 0.23%. This extreme gap is accounted for by the fact that the WA ILO model is relatively mature – what happens if the rest of Australia achieves ILO maturity?

If the rest of the market catches up with ILO, then the implied maturity size of ILO is ~$310,000,000 annually. This is quite a substantial dent to put in the already shrinking SIL market. Indeed, our reading of the NDIS actuarial review suggests that ILO maturity isn’t accounted for in their SIL placement trajectory. While full ILO deployment would displace an additional ~900 potential SIL participants, it is challenging to model ILO entry into the future. However, we know that ILO is likely to impact the projected ~1200 SIL clients entering each year.

For the rest of Australia to catch up with WA, ILO would serve approximately 3000 customers, up from the current base of just 196 people using ILO support model payments outside of WA. Perhaps more curiously, ILO Exploration and Design was used by just 522 people in Australia last year, suggesting that the market must make deliberate efforts to catch up with our western counterparts.

The ILO exploration model comprised average payments of $2,000 per participant. This equates to roughly 20 hours of coordination effort to complete the ILO exploration forms and identify the appropriate supports for a customer. This number seems reasonable for Empathia Group based on our ILO service model design.

It does appear that the agency is making a concerted effort to kick start ILO. For example, in WA, the ratio of Stage 1 customers to stage 2 customers is just 28%, suggesting some degree of maturity. Nationally, this ratio is 225%, implying that ILO is in the ramp-up phase in the rest of Australia.

The type of people accessing ILO support is broadly similar to other NDIS cohorts. As expected, 55% of ILO users are people living with an Intellectual Disability or Down Syndrome, consistent with their SIL user rate.

ABI typically attracts large support payments, which likely relates to specialised care services. An interesting finding is the psychosocial payment structure, which reflects much lower intensity. However, this data is probably skewed by a much lower presentation rate.

The WA ILO arrangement provides those outside of WA with some interesting perspectives on what customers expect in ILO. For example, host arrangements were twice as common as co-residency arrangements but attracted 50% less funding than co-residency arrangements. This is potentially an artefact of high support rosters in a co-resident arrangement.

Our aim in writing this article was to reveal the mechanics of ILO to the rest of Australia. ILO is in full swing in WA, and the trends nationally suggest a ramp up elsewhere. Empathia Group’s view is that the WA cohort is not structurally different, and therefore many more national customers can enjoy the community-based living option offered by ILO.

Empathia Group understands that there is much trepidation about ILO in the sector. However, we believe this article demonstrates that the presentation rates and funding packages are sustainable for many NDIS organisations. Our view is that this represents an excellent opportunity for providers who have the core competencies to facilitate a more community based and natural living environment for their customers.

Interested to learn more about ILO? Click through to our ILO information page.

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Where do new SIL customers come from?

Emily Keast — Thu, 13 Jan 2022 12:39:00 +0000

Where do new SIL customers come from?

January 13, 2022

When I first saw this table I started to worry:

Does this table suggest that in 2021-2022 Q1, only an additional 11 participants had SIL in their plans? You’re likely thinking the same thing I did – how is this possible? And our readers would know that it isn’t – we have previously reported that 327 customers entered SIL in the same period (and that was also from the NDIA).

Fortunately, the NDIA provided a minor footnote for extremely eager readers of their material:

I don’t know how many people are reading the footnotes, but that doesn’t matter because we’ll keep reading them for you.

This footnote provides a helpful insight into the market dynamics of SIL. In effect, we now know that SIL increased by 327 people, but only 11 had SIL registered in their first plan.

This marks a significant change from the scheme’s inception. Many of you will have likely assisted someone who inquired about SIL but hadn’t yet engaged with the agency. I personally set up distinct onboarding workflows for these groups. As a result, the likelihood of this transaction is now extremely low.

This information gives us some insight into where we are likely to encounter SIL enquiries in terms of their NDIS journey. Your SIL customers are likely to have a far greater knowledge of the NDIS and a much better understanding of market dynamics and their bargaining power.

This also means that nearly all SIL customers will have an experience with a provider under their belt, and there is a good chance that this provider, in fact, provides SIL. While support coordinators are renowned for their remarkable impartiality in the face of all kinds of perverse incentives, the fact remains that if this person isn’t in your service, someone may have already had a conversation with them about SIL.

Many service providers we have worked with run community participation at a considerable loss. CFO’s should consider community participation and COS as part of the customer lifecycle. If your service is excellent, this positive impression is likely to weigh into the SIL decision.

It also confirms something that many of our readers suspect or know. Referral business will likely drive SIL growth, which fundamentally rearranges the marketing equation. Of course, many providers have developed excellent web presences (we love the Scope service finder), but this is likely not driving new business. Instead, the purchasing decision is likely being made or assisted by someone who understands the industry and has at least some tacit knowledge of service quality and reputation.

Market sizing for differentiation

The other thing this table demonstrates is that there is considerable scope for specialised offers. The psychosocial and Autism markets combined are worth nearly $2billion annually (assuming their average package is consistent with the broader scheme). Our view is that it is becoming increasingly viable to develop specialised products for these markets, even their submarkets. If you are interested in understanding the size of your SIL program in relation to the total market size, then why not try out our free growth calculator.

Intellectual disability

As you likely know, intellectual disabilities dominate the SIL space at 54% of the cohort. Indeed, much of the SIL experience is designed around this cohort or carried forward from the ADHC days. Unfortunately, Empathia Group has seen very little innovation around this cohort, which has led to views that SIL for ID is a commodity, interchangeable and fungible. We disagree with this view, and we want to outline a fundamental tension between large and small providers that could be an unrecoverable disadvantage.

We work with a provider whose managing director has committed to individually and in person, reviewing every customer’s goals and soliciting feedback fortnightly. In the Royal Commission, we saw time and time again that larger providers are so complex that it is more or less impossible for them to replicate this commitment. We believe that this is precisely the personal relationship and accountability that sets certain providers apart. It is impossible to deliver this at a certain scale from our perspective. We want to get your views about whether or not this would be valuable to new SIL customers entering the market. We would also appreciate your opinions as to whether this is in any way deployable at larger providers. If you like numbers – would you be prepared to tell us how much of the purchasing decision this product “feature” is likely to represent?

We spend a lot of time thinking about and deploying competitive advantages in the SIL and ILO space. If you would like to see how you stack up, consider using our SIL growth calculator to evaluate your performance, or try our free SIL assessment to evaluate how your marketing, finance and HR functions drive SIL growth.

This is the end of our SIL market series. We’ll be doing deep dives into differentiation, competitive advantage and employee retention. So you can expect data and no fluff.

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Is the Supported Independent Living market flatlining?

Emily Keast — Tue, 04 Jan 2022 12:28:00 +0000

Is the Supported Independent Living market flatlining?

January 4, 2022

The SIL market is reaching an inflection point that will change market dynamics.

Our last article demonstrated that new customer growth is slowing in the SIL market. This article is number two in our SIL market series, and we will evaluate the total size of the SIL market and the implications for providers.

The two drivers of total committed supports are SIL customers and average SIL plan sizes. Total committed supports and the average package size are plotted below:

You’re looking at the average SIL included package decreasing since December 2020. It peaked at $351,591 and currently sits at $346,434. In fact, over the previous 12 months, 43% of customers had their SIL plan decreased by 5% or more. Prior to late 2020 SIL plans increased year on year, far above the inflation rate. Our two variables taken together show a significant slowing of total market growth for SIL.

While the agency’s reports are information-rich, they’re not interpreted from a provider perspective. So we’ve broken down the implications of this for providers.

In a previous article, we demonstrated that a selected group of major providers enjoyed average growth rates of 28.3% in 2019/2020. Much of this growth was predicated on the SIL market, and many organisational plans are contingent on this expansion pattern. Below we show the inflation-adjusted growth rate of the SIL market since 2017:

Even in 2020, the average growth rate per quarter was 5.4%. When adjusting for inflation, the last quarter was 0.66%. We’ve said it before, the game is changing. If your SIL growth strategy is based on dynamics from 2019 or before, we believe it is essential that you reconfigure your plans for the new SIL market.

This encroaching flatline gets even more interesting when you consider market dynamics. For example, there are currently 2099 vacancies listed on GoNest, which doesn’t even represent the total market for SIL vacancies. Suppose the vacancies expect revenue equivalent to the average plan size. In that case, there is a $727 million gap in the market that providers have been conditioned to expect that they could grow into (some portion is reflected by genuine customer movement). Instead, the market only expanded by $58 million in the last quarter when adjusted for inflation.

With SIL plans decreasing on average and the total number of people entering SIL grinding to a halt, SIL providers should begin preparing for the “new” market. However, it is not all doom and gloom.

The good news

Now and then, the agency releases a gem that gives a real insight into market behaviour, this chart shows 18-24 year old SIL movements:

You might be thinking, “do these guys read every stat the agency releases?”. We don’t… we read them twice.

What this chart shows is that the net customers in SIL barely moved in the 18-24 year old cohort. But what is fascinating is that the turnover rate was nearly 30%. So while the market isn’t growing like it used to, there is still an enormous opportunity to grow if you offer a great product. Customers are entering the market. They are just being netted off by customers exiting the market.

The takeaway is that market expansion ended, and incidental growth will likely end with it. We expect the total size of the market to remain constant or slowly decline. However, there is still an excellent opportunity to attract new customers. We are entering a zero-sum game where the providers will be competing over a static or declining customer pool. Is your organisation ready for intense direct competition?

We stress that this is good for customers and good for organisations with great products and know their path to market.

On growth

You’ve probably guessed that growth is important to us at Empathia Group. But we believe it is just as important for providers and participants. Firstly, vacancies are incredibly damaging to providers, given the expenses are inflexible due to fixed plan ratios. Our modelling suggests that the average vacancy generates an average loss of $65,000 in a 1:3 setting. Providers need a stable flow of customers to minimise their vacancies and perform acceptable placement matching and risk mitigation. Indeed, marginal growth can be dangerous in SIL, given the perverse placement incentives it creates.

Growth is also what drives scale. The NDIS Disability Support Worker Cost model offers providers a 2% margin and a 10.5% cost for overhead. As we’ve explored, overhead rarely scales continuously. It has discrete bumps that require revenue to “catch up”. It can be painful for providers to get caught in between overhead cycles. Some of the better overhead reducing systems require a degree of scale to deploy, or at least an expectation of growth to pass a successful business case.

Most importantly, we believe that when the best providers grow, it is in the best interest of NDIS participants. As discussed, scale facilitates the systems that offer our customers the best value. It also enables far better placement matching options, ensuring people can live in a comfortable setting of their choice. Finally, it is scale that influences the innovation cycle and fosters a surplus for providers to take risks with new products.

What can you do?

The businesses we work with know that the market is changing and are adjusting their plans accordingly. The have developed real points of difference and are leveraging them with their referral networks. They know packages are decreasing and they are working on their structure, models and value chain. Finally, they know that zero-sum is approaching, so they are optimising their intake processes to be fail proof and responsive. In short, they’re ready for the other side of the growth curve.

If you are a provider looking to grow in the new SIL market, why not take our SIL Growth Assessment. You will receive an obligation free report outlining your organisation’s current ability to perform in the rapidly changing market.

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The one chart that explains the state of SIL

Emily Keast — Tue, 28 Dec 2021 12:12:00 +0000

The one chart that explains the state of SIL

December 28, 2021

Have you ever thought about where the SIL market is going? Let us tell you.

Let’s take some time to unpack this chart. We’re looking at the number of new participants entering SIL per quarter since June 2017. We’re currently at the red dot.

Only 327 additional participants had SIL entered into their plan in the last quarter. Consider that the average in 2020 was 610, and the average in 2019 was 1349. Does 327 still sound like a lot of participants to you who might be interested in your service?

As of September, there were 1081 active SIL providers in the market. This means that the average SIL provider should expect approximately 1.2 new participants annually. Consider how this might impact your vacancies.

Many organisations have 3 to 5 year strategic planning cycles. If your organisation set their plan in 2019 or before, when the average quarterly growth per quarter was 400% higher, you may find that your plan does not map to reality.

This chart should make it clear that the game has changed. It will no longer be sufficient to simply “have vacancies” and expect to grow. The number of active providers is at an all time high, and the growth rate of SIL is at an all time low. The friction between these two facts means you will need to compete and offer genuine value to prospective SIL customers.

Many of you would have felt this reality in slowing referral rates and vacancies being open for far longer than in prior years. With at least 9000 participants having ILO in their plans and the NDIS pricing controls in full swing, we expect this trend to continue. The two spikes likely represent government transfers and it seems like that matter is settled. Given the stability, we expect that larger providers will be upping their game to compete for referral growth.

Still, the market represents a great opportunity for excellent providers. The NDIS 18-24 year old report demonstrated that there is significant entry and exit volume in SIL (as high as 30% in some groups). If your product offers real value to SIL customers, and they preferentially choose your service, then you can continue to enjoy real growth. On the other hand, if your product is substandard, then the chances of incidental growth are much lower than in prior years, and it is our view that it will approach zero as ILO deploys.

The other good news is that we don’t believe that larger providers will simply swallow the remaining volume. This chart is a model of market share based on provider size:

What you can see is that market share is spread relatively evenly across providers by size. And this is good news because it means we are in a very competitive market where the quality of the offer can overcome the inertia of larger providers (for economics nerds, we think that the Herfindahl–Hirschman index is less than .01). To their credit, the NDIA has created a market where many thought it wasn’t possible.

In our view, this is excellent news for customers. Many organisations have failed to innovate and simply compete on vacancy volume. Now that supply is catching up to demand, customers will be able to field multiple offers and choose a service that best meets their needs. We hope that this competition will drive innovation in the sector and lift the standard of care for everyone receiving SIL.

We don’t want this article to serve as a deterrent for people considering SIL expansion. On the contrary, we believe this trend will translate into far better consumer participation in their SIL placement decision. If you think that your organisation does it better, then now is the time to make it known.

Now is the time to seriously think about your competitive advantage and value proposition. We are rapidly approaching the time of zero-sum and customers are learning about their bargaining power.

Developing compelling SIL products and finding the path to market is our jam. If you would like to have a conversation with us, feel free to drop us a line.

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