Diversification key to NDIS transition

Disability organisations have grown their revenue significantly during the past few years although profits remain elusive, according to Business News’s Data & Insights list of charitable organisations.

Seven of the top 10 charities on the list receive funding from the National Disability Insurance Scheme, ranked by revenue.

Total revenue of the top 10 charities has increased from $715 million to $832 million from 2019 to 2020, driven mainly by an increase in revenue from disability services organisations.

The scheme, which provides choice and control to participants, gives funding to individuals who spend their money for services at different providers.

Outgoing Activ Foundation chief executive Danielle Newport said the revenue rise had occurred because the NDIS was designed to provide support to more people with a disability.

“One of the points of the NDIS was to make sure that everybody with disability had access to the funding, and there has absolutely been growth in the number of people funded by the NDIS over the five or six years we have been in the scheme,” Ms Newport told Business News.

According to the NDIS’s third quarter report for the 2021 financial year, 450,000 participants are receiving support, more than 50 per cent of them for the first time, increasing the number of clients for disability services organisations.

However, while revenue has increased, costs have also risen. The thin margins this has created for providers mean some are running at a loss. National Disability Services’ 2020 State of the Disability Sector Report, released in December, found 67 per cent of organisations made a profit, 12 per cent broke even and 19 per cent made a loss.

This was an improvement on the previous year, when 54 per cent were profitable, 17 per cent broke even and 24 per cent made a loss.

The report said government subsidies such as JobKeeper contributed to the more positive results.

While some providers are struggling financially, Prime Minister Scott Morrison used his pre-budget speech in early May to claim the NDIS’s costs had ‘blown-out’, and the scheme could become unsustainable if changes were not made.

He said the scheme would cost $26 billion next year, exceeding the $22 billion estimated by the Productivity Commission in 2017.

However, as advocates pointed out after Mr Morrison’s address, the Productivity Commission’s report estimated the scheme would cost $22.3 billion in the 2020 financial year and was expected to increase to $30.6 billion in 2024-25.

In this year’s budget, the federal government committed to providing an additional $13.2 billion to the scheme over four years.

The government estimated $23.2 billion would be spent in 2021, rising to $28.3 billion in 2022-23, $29.4 billion in 2023-2024 and $31.9 billion in 2024-25, slightly above the Productivity Commission’s predictions.

Ms Newport said while these headline numbers seemed large, it was what it cost for the sector to operate.

“I don’t disagree with the fact that the NDIS is a very large commitment to the federal government,” she said.

“I think it’s the right commitment but what that means for individual customers and the organisations that support them, the fact that they are talking tens of billions, does not mean that the system is awash with cash.”

While Activ’s revenue increased from $108 million to $127 million and it had a $9 million surplus in 2020, it received $13.8 million from the federal government’s JobKeeper wages subsidy.

The fourth largest charitable organisation, MSWA, posted a $12.8 million surplus after tax, and received only $5.3 million from JobKeeper.

Ability Centre, which had revenue of $83.2 million in 2020, had a surplus of $4.4 million after tax but received JobKeeper payments totalling $5.9 million.

Rocky Bay, the sixth largest charitable organisation, would have made a small profit without JobKeeper.

It received $8 million from the federal government in wage subsidies and a profit of $9 million.

Rocky Bay chief executive Michael Tait said next financial year would portray similar results of a fragile sector.

“There is a very real risk, in my view, in my personal view, in the next two years there will be substantive market failure in disability unless something changes,” Mr Tait told Business News.

Mr Tait said while revenue and clients had been increasing, margins were small due to the NDIS’s pricing model and the cost of compliance.

“The cost of doing business in this new world, in a federally run individualised funding environment, have increased dramatically: the governance, the reporting, the accounting,” he said.

“The funding we are getting from the federal government simply does not match this level of increased work and governance.”

This year, Mr Tait said, the National Disability Insurance Agency, which implements the NDIS, had made 10 to 20 per cent cuts to some participant’s plans, particularly in the expensive accommodation space where people must be cared for 24-7, causing extra stress in the sector.

Rocky Bay has managed to maintain a relative degree of strength by diversifying and cross-subsidising its less-profitable service lines, Mr Tait said.

“You wouldn’t buy us if you were Wesfarmers, but we are in a relatively strong position in that we have a diverse service offering,” he said.

“We are very broad in the services we offer. Therefore, if they are playing around with therapy, we have accommodation, if they are playing around with accommodation, we have got community services.”

However, Mr Tait believed it was up to the government to come to the table and get the pricing right for the scheme to be more sustainable.

“We obviously all want to make sure that we are efficient,” Mr Tait said.

“We look at our productivity and make sure we are doing what we can to ensure we can produce, but based on their current model, breaking down how they have formed the unit pricing, there is no room for productivity gains.”

Rocky Bay accepts fundraising and philanthropic donations, but these are used as part of its Wishing Tree program, which grants its clients’ special wishes, and is not used for general service provision.

MSWA is among the organisations to have embraced fundraising. Its fundraising activities, which include the MSWA Mega Home Lottery, accounted for $44 million of revenue in 2020.

It also undertakes commercial activities, including running a call centre. Outgoing MSWA chief executive Marcus Stafford has a different view of the system to most other leaders in the sector.

“Many people criticise the NDIS because its model does not financially support and sustain the organisations,” Mr Stafford told Business News.

“I’m on very few Christmas card lists because I don’t see it that way.”

Mr Stafford said some organisations were yet to adjust to the free-market principles of the system and had a sense of entitlement to perform the work they did.

“I think it’s really easy to think that our mission and our charter is so important that we have a sense of entitlement and right to perform our work, because that’s the history of this sector,” he said.

“I think that if you work out your business model and your customer value proposition is sufficiently attractive, that you can creatively, positively, and in a fairly exciting way present products to your disability clients that they want to purchase.

“They bring that scale of custom to your door, and you then retain those customers through the quality of service that you provide … you don’t lose them but simply acquire more from the marketplace.”

Mr Stafford said he realised early on the need to diversify under the scheme.

MSWA transitioned from only supporting people with multiple sclerosis to providing services to people with a range of different neurological conditions.

It offers high-support accommodation, residential respite, counselling, in-home care, speech pathology, dietetics, nursing, occupations therapy and physiotherapy.

“Not all lines of business will give you the revenues, the returns and the margins, which in isolation make that business sustainable,” Mr Stafford said.

“If you are in a business, where you have chosen not to fully diversify in your product offering and you happen to be lined up predominantly in one of those lines of business where the margins are very skinny, you are probably going to struggle.

“I could have been there, but I chose to make MSWA the one-stop shop.” However, not everybody believes providers should have to diversify, including Activ Foundation’s Ms Newport.

“We don’t ask health care providers to diversify so they can work within the Department of Health funding,” Ms Newport said.

“We don’t ask schools to do that. We are a critical part of the Australian economy and society and I think government should pay us to deliver the critical supports we deliver to a level that means we are sustainable organisations that can focus on our customers.”

She said the challenge of diversifying was making sure the core business wasn’t lost.

“I’m not saying that diversifying is (a) bad thing, but I don’t think we should have to,” Ms Newport said.

Nulsen Group provides a range of services, including reintegration services, therapy and disability support, but is struggling to cater for people with complex needs in supported independent living.

Chief executive Gordon Trewern said the group was seeking to diversify further to generate income to prop-up other service streams, including a positive behaviour support service, but predicted it was not going to be enough.

“They are not going to generate enough revenue to offset the losses,” Mr Trewern told Business News.

“While a number of us are looking at diversification, the loss incurred is too great for those strategies to bridge that gap.”

In 2020, Nulsen Group had a profit of $7 million, but only due to acquiring assets after purchasing reintegration service provider Outcare.

“We are losing currently $1.3 million on the group home program as we speak … next year we are forecasting a $2.4 million loss,” Mr Trewern said.

“The anxiety is we are dealing with some of the most complex people in the system and the system should be ensuring get the care and support they need, not cutting costs they need.”

‘People with complex disability’ was categorised as a ‘thin margin’ area by the Productivity Commission’s 2017 report.

In the absence of government intervention, the report said, there would be greater shortages, less competition and poorer outcomes in thin margin areas, including: services for those with complex, specialised or high-intensity needs; people in remote areas; people from culturally and linguistically diverse backgrounds; Aboriginal and Torres Strait Islander Australians; and among those with an acute and immediate need.

Mr Trewern said Nulsen Group was having to turn new clients away if their needs were not able to be met by current funding. He said the state of the system was stressful for families of children with disability.

“I think the shameful thing is it’s not giving people and their families the hope, certainty and trust that they deserve and had in the old system,” he said.