The Downside of Pricing Delay
5 minute read
When we started Invox in 2023 we did not set out to be a negative voice in the home care sector. We want to be a helpful resource, one which makes providers’ jobs easier. Sadly, as 2024 draws to a close we find ourselves being one of the few being critical of the Support at Home reforms - yet again.
We need to highlight the positive announcements and congratulate the Government on releasing 83,000 new home care packages, that’s huge. But we find ourselves wondering what’s the thinking behind giving more support to clients and less to providers by announcing cuts to Care Management with a lower set fee? Why the move to a home care market that has set prices for all its services?
The new home care approach seems to assume many providers are charging too much to deliver services and they need to become more ‘efficient’. Even if this analysis is correct for some it does not mean the proposed solutions will work the way they are meant to.
Set prices and fees work best for high volume sectors where the costs of providing services are similar for all. This is not the case in aged care where organisations such as those in rural areas or smaller responsive services have higher cost bases. Think of services where staff are difficult to find and are expensive to deploy or services for clients that require more individualised care. Setting a low Care Management fee and using markets with set prices in these situations will create what is known as ‘thin markets’ where local services cannot survive and just disappear. Just look at these problems in the NDIS and you will see that set pricing is outdated policy thinking (as we have been arguing in numerous previous Invox articles).
So where do we find ourselves with Support at Home as the year ends? In the latest turn of events, after lots more delays, the Government was finally about to announce its new indicative set of prices. At the same time, industry experts StewartBrown were publicly saying their analysis showed that provider margins on these prices would need to increase by an average of 40% to cover the variability of costs of service provision.
It’s not hard to imagine the Government receiving the indicative prices from IHACPA with the recommended margins being set much lower than 40%. That would have led to a Christmas Government announcement that highlighted just how hard it was going to be for providers to survive in the new scheme.
So instead of releasing the indicative prices as promised they announced the year long delay. We are guessing the advisors may have said something like … ‘let’s not go into an election with the provider shitstorm these low prices will create, let’s delay and we can screw down provider prices after the election next year… and lets say we have been listening to the sector and they need more time … its a win win - we appear to be listening and providers get all the problems of setting prices.’
Knowing the sector loves a delay on bad news we reckon that’s the path they chose with the most recent SaH policy backflip.
In the official announcement the Government said the delay was to support service continuity for providers and participants, and that it would be backed by extra consumer protections. If they really cared about ‘service continuity’ they would not be proceeding on schedule with the cuts to Care Management and Package Management (is this the only thing they have done on time?). And ‘extra consumer protections’ is not hard to read as be very careful where you set your prices folks!
The most consistent theme we have seen in SaH development has reared its ugly head again. The delay to pricing will create even more problems and complexity for providers. When we think of SaH we now think OMG - the complexity! (expletives deleted).
The Pricing Conundrum
Let’s unpack what just happened to pricing. Providers will now set their own prices for services for the next year. While the delay to pricing seems a good idea, as we have said the Government did not delay the cuts to Care Management and Package Management fees which will take effect on 1 July 2025.
Prices will now need to rise to include a margin for Package Management (no longer funded) and also cover any losses the new 10% Care Management maximum might create. At the same time prices will need to be set low enough to not create grief for clients and cause them to look elsewhere for services.
So in one fell swoop the Government has shifted the burden of pricing strategy entirely on to the sector. Providers must now identify the "efficient price" — the lowest prices where they can survive while maintaining quality.
Providers now face three options:
Do Nothing: Stick with the current pricing structure - a recipe for disaster, with rising costs and lost fees leading to big financial losses.
Increase Prices Significantly: Raise prices by up to 40% as recommended by the industry experts, to offset the revenue loss from fee changes. Convincing clients to accept such hikes risks losing them to competitors, along with damaging market share.
Restructure and Price Strategically: Providers can use the delay to get a head start instead of waiting. This option involves a shedload of work in the short term. Do the numbers and assess whether you can cut organisational costs, increase prices strategically, maintain care quality, and position yourself to benefit from the 83,000 new packages being released next year.
The Government will now get to watch as almost a thousand providers set prices all over the shop and it’s not hard to imagine a few providers setting prices real low to gain market share.
The Government have given providers all the grief and they will get all the joy when they swoop in next year, cherry pick the lowest prices and call them the ‘most efficient’.
A huge number of providers will do a huge amount of work to set reasonable prices and then shazam we reckon the Government will set prices lower. We worry for the small providers, the rural folks and all those caught in high cost service provision for higher needs clients.
The Clock is Ticking
So providers need to quickly decide their future in a rapidly changing home care market. And while you are are doing all this work remember the Government has left you to explain price increases and manage the fallout from major changes like the ill conceived 10% Care Management cap, the removal of Package Management fees, quarterly budgets, limited use of rollover funds and higher user co-contributions for new home care package participants.
Now is the time to take decisive action to decide if your business can survive in the new landscape. If not - it’s time to exit SaH before it begins and on your way out the door please tell this Government where they can put their erratic decision making.
So to a Government saying to providers we are doing you a favour by the delay to pricing - we say - bah humbug! The Government has not created a very merry Christmas for home care providers at all.
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