The NDIS, markets and self-regulation: If we build it will they come?

I recently was invited to speak at an event hosted by the Victorian Council of Social Services on the topic of markets and human services.  I spoke about the need for more active market management in disability services and was asked to write up the talk for Power to Persuade’s current series on Social Service Futures.   The link to the piece can be found here.

The National Disability Insurance Scheme (NDIS) has been described as a once-in-a-generation reform that will benefit all Australians. The A$22 billion scheme is in the process of being progressively rolled out across most of the country.  
For many, the NDIS is an incredibly welcome scheme. For too long, Australian disability services have been underfunded, inflexible and built around the needs of the system rather than those of the individual. An OECD study found that Australians ranked lowest in terms of quality of life for disabled people. Other data sources echo these findings, showing that Australians with disabilities have low levels of income and labour force participation. People with disabilities experience social exclusion and significant levels of violence.  Given these trends something needs to be done to improve disability services and the outcomes and life chances of people with disabilities.Choice and control are at the heart of the NDIS, reflecting a belief in consumer-led reform supported by market forces.  People with disabilities have welcomed this in a context where services have traditionally been underfunded with little flexibility. The existing one-size-fits-all approach was built more around the needs of organisations and the system than people with disability.  This follows a broader international trend towards consumer-directed support, in the expectation that this should produce better and more relevant services for consumers through mechanisms of choice and control.   Others have also argued that these mechanisms are a more efficient way to spend scare resources.
The NDIS is in many ways illustrative of the sorts of changes that last year’s Harper review spoke of.  This spoke about the need to put consumer choice at the heart of government service delivery, through policies that will encourage diverse and competitive markets populated by innovative and responsive providers.  It argued that consumers are best placed to make decisions about their needs and the role of governments should be to ensure equitable access, minimum quality standards and the availability of relevant information to help consumers exercise choice.  Harper argued strongly for the separation of purchasing and providing functions as a way of ridding governments of conflicts of interest and to allow them to stick to their core business.  The role of government therefore is strategic – setting out the overall direction and then performance managing against this.  It is largely expected that the impending Productivity Commission report into human services will echo a number of these key themes.Of course, the use of markets in public services is not a new thing.  Indeed many in the community sector are presently grappling with the implications of moving from grant-based relationships to contracts.   We have seen reforms across a number of sectors that have sought to harness the strengths of markets but these have typically not had the impact that was desired.  We need only look at recent experiences around employment services, the VET sector or early childhood education to see that these have not always been a success.  These challenges are not confined to the shores of Australia and have also been experienced in other countries.  There are various reasons for this, but one of the key factors is that markets do not simply self-regulate.

The argument goes that separating the functions of purchasing and provision and giving more control to consumers will generate competition between providers will ensure that providers are responsive to consumers.  Providers will be incentivized to become more efficient and more innovative, finding new and different ways to deliver services.  Those who do not deliver what people want will receive no business and will disappear.  The market will self-regulate, with consumers getting what they want.

However, in order for this system to work there are a number of principles that must be in place.  These relate to the ability of consumers to be able to act with a degree of sovereignty to achieve desired outcomes, that they can do so rationally (meaning that there can be a judgment on the basis of sound evidence), there are few barriers to entry and all partners have a reasonable degree of intelligence and information about services.  Yet, as we start to apply these ideas to a public service context we find that they do not hold up.

Many of the kinds of factors that need to be in place to drive market forces are not present.  For example, consumers do not always use their own resources and can have limited sovereignty.  While it is nice to think about individuals having choice over a variety of services, people may not have full information over these, or a sense of what they should want or expect in terms of services.  Human services are often mediated by professionals who have significant influence over what people seek to choose.  We also need to remember that using human services is not always an option that is chosen for some but is chosen for them (e.g. child protection, some mental health services).  There can be significant informational asymmetries, substantial entry and exit costs and the ramifications of provider failure can be extreme.  We know that some areas will struggle to attract providers or the ‘right’ sorts of providers at least.  It is unlikely that large scale and widespread market failure will be allowed in a human service context in the way that we would see in a text book version of a market.

One the arguments that is often made in support of market-based reform is that government has failed in terms of provision in human services and should therefore leave it to the market to offer what government cannot.  But this seems to negate the fact that there is a far more active role that needs to be played by government in a context of market-based reform.

Markets need to be managed to ensure that there are sufficient providers, providing the kinds of services that consumers want and need and at the right price.  Recent evidence from the UK suggests that some with individual funding arrangements have found that they cannot afford the same sorts of packages of care that were previously available to them as care funding has been reduced in the drive to austerity.

The important point here is that a reliance on the existence of markets alone will not solve the challenges of the system we are currently faced with.  Although the logic of market-based-consumer-led forces driving changing is a compelling narrative, we would do well to remember that it takes a lot of effort to develop effective markets.  It is not, as Kevin Costner spoke about in the movie Field of Dreams, a case of ‘we will build it and they will come”.

If we simply think that by having a market and giving consumers some amount of control then significant reform will result then we are likely to be sorely disappointed.  If we are to see real consumer-driven reform we will need to see significant steps forward in terms of the ability of governments to operate a market stewardship perspective – which is also sometimes knows as a commissioning approach.  This is about more than simply contract management and involves significant engagement with a range of different stakeholders.

In doing this there are no magic bullets and it takes a lot of ongoing hard work in order to ensure that the appropriate sorts of systems and processes are in place for that area – and this will look different around the country depending on the particular characteristics of that locale.  Many of the lessons for government relate to providing clarity and transparency over systems and processes and constantly collecting intelligence to ensure that nothing significant has changed, that incentives are having the desire effect and systems are operating as expected.  For providers it will be more important than ever to be in touch with the mission and values of that organization and how these play out in business activities.  Workforce capacity and capability will need careful assessment, as will ways of working with consumers.  In navigating this kind of difficult terrain no one group or individual will have the answers.

 

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2 thoughts on “The NDIS, markets and self-regulation: If we build it will they come?

  1. james horton June 15, 2016 / 2:58 am

    Reblogged this on Datanomics and commented:
    excellent commentary on the problems with public markets – which by default fails in favour of suppliers at the expense of consumers

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