DSS Pricing Programme

Residential Pricing Project

Joint Communication from New Zealand Disability Support Network (NZDSN) and Ministry of Health.
In July 2017 NZDSN and the Ministry of Health began working together on a strategic work programme, the first step being an invitation by the Ministry for NZDSN to identify a small group of residential providers to review and analyse the latest version of a residential pricing tool. 

The Ministry’s objectives for the pricing tool are to:

  • Address the historic inequities and inconsistencies that exist within the current residential pricing models funding regime, with a model that would be nationally consistent and transparent in the allocation of residential funding
  • Determine how to address issues of future funding at provider level from any change
  • Determine how to build Pay Equity into the model

 The Ministry is open to changes/adjustments to the pricing model, but acknowledges there are constraints on funding.

NZDSN’s goal is to ensure that the cost drivers in the model reflect actual costs of delivery by an efficient provider and be linked to appropriate data sources that would be able to be reviewed and refreshed in order to remain current, acknowledging that there would be a gap between actual cost and current funding. 

NZDSN have looked at the pricing tool on this basis and a preliminary analysis shared with the Ministry at the December meeting indicated that the tool needed further work, particularly around a number of cost assumptions and the absence of detail on shared services and overheads. NZDSN undertook to do more analysis which would be available to the Ministry in the new year.

NZDSN also noted at the December meeting that there was little appetite by providers for an averaging approach to support worker wages, but at the very least a banded approach with wash ups. A funded approach, rather than delivered hours’ approach was also an emerging preference while funding shortfalls remained a feature, however further discussion with the sector was needed on this aspect.

 NZDSN sought to clarify that what was really needed was a pricing tool that benchmarked actual costs (reasonable costs for an efficient provider) which could identify the funding gap and then an agreed plan on how to close the gap over time. The Ministry were unable to agree to this approach as future funding pathways are not guaranteed over time.

At the January meeting (which included KPMG personnel) NZDSN provided more detailed analysis of the cost assumptions underpinning the pricing tool. Particular concerns were noted in the areas of: House maintenance, Food/laundry/supplies, transport, utilities, medical and prescription costs, Specialist services therapy, Nursing and on-call costs. The Ministry and KPMG have agreed to look at several suggested revisions in these areas and send the pricing tool back to NZDSN for review.  NZDSN will also be sending further data to evidence suggested changes. Several clarifications were also made about how overheads (management and shared services) was calculated.

The current costing model relies to a significant extent on a 2013 survey of providers (which has since had updates to reflect changing costs). NZDSN does need to assess the level of comfort there is among providers on the completeness and accuracy of this data.

Pay equity implementation was considered on two levels – support worker wages and a scalable management formula (to address wage relativity issues).

The Ministry has a preference for an averaging approach to support worker wages and NZDSN has a preference for a banded approach with wash concern is that we don’t create disincentives for providers to invest in qualifications for staff or to financially penalize those providers that do.

The wage relativity issue of most concern is that between support workers and front line supervisors. The Ministry will consider how an allowance can be made for this, possibly through the overhead calculation in the pricing tool. 

NZDSN has also offered a rationale for a sustainability margin to be included in the pricing tool as sound practice that enables providers to manage risk and invest in service improvement and innovation, particularly in the context of impending system transformation. There is little appetite for including this on the part of the Ministry at this stage, while NZDSN feels that including a margin for investment is vital for sector sustainability and quality.  Further discussion will be needed on this matter. At this stage NZDSNs view is that the only real opportunity providers have for margins is the under delivery of hours through efficiencies (the “funded hours” approach). This is not sustainable financially or from a quality/risk management perspective and often leads providers to approaches that are at odds with trending policies and philosophies of support, for example Enabling Good Lives.

High and Complex Needs was discussed and it was agreed some further clarification and discussion in the future was needed on the triggers for individual packages of support and the differences between those under the auspices of NIDCA and those who were not, but still had complex needs (for example needing to live alone).   

Next steps

  1. The Ministry will review the information provided by NZDSN and look at making some changes to the pricing tool based on the NZDSN data provided and discussions to date.  NZDSN will then provide further feedback on the revisions
  2. Further discussion on the implementation of pay equity for support workers based on workforce data as a second stage to the model development
  3. Further discussion on the basis of the Ministry’s response to consideration of a scalable management factor for front line supervisor roles
  4. Discussion and clarification of how/when High and Complex needs fits into the pricing tool
  5. Further discussion on addressing the issue of a margin (for investing in quality and innovation)
  6. Ongoing engagement with the sector on key issues by NZDSN.
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