21 May 2014 – 28 May 2014

21 May 2014 – 28 May 2014

Disability Support Services

Development of nationally consistent pricing methodologies and models

Price models

2© 2014 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in New Zealand.

Agenda

10:00 Welcome and Introductions10:10 Project update10:20 Recap of prior cost collection and price mechanism activities10:50 Pricing and transition:

• SL • HCSS

11:30 Break11:40 Pricing and transition continued:

• CRL• Facility based Respite

12:20 Other services update:• Carer Support Subsidy• ATR• CDS

12:40 Discussion13:00 Lunch


Purpose of today


■ Recap of completed project activities• Pricing principles• Cost and activity survey• Carer Support Subsidy carers survey• Pricing methodologies

■ New prices for services• New pricing models for Disability Support Services• Transitional considerations• Implementation

■ Opportunity for comment


Project objectives

To develop nationally consistent pricing methodologies and pricing models for selected Disability Support Services

■ That result in:• Nationally consistent pricing• Cost reflective pricing• Equity and clarity for providers• Equity and clarity for service users

■ That in the longer term contribute towards:• Sector development that focuses on: sustainability, efficiency, and quality• Best long-term outcomes for: clients, providers, and the disability support sector as a whole


Project update – scope of project

Pricing models and prices to be developed for:

■ Supported Living (SL)

■ Home and Community Support Services (HCSS)

■ Community Residential Living (CRL)

■ Facility based Respite

■ Child Development Services (CDS)

■ Assessment, Treatment & Rehabilitation (ATR)

■ Carer Support Subsidy


Project update

• Develop the basis under which pricing methodologies and prices will be determinedPricing Principles

• Ensure common understanding and agreement as to how services are described and countedService Descriptions

• Review data availability and quality and develop data collection toolDevelop data collection tool

• Sector wide data collection to identify costs of service deliveryData Collection

• Review contemporary approaches to pricing and consider suitability in the NZ contextApproach to pricing

• Set prices and develop and implementation and management plan

Setting prices and implementation planning


Project update

• Sector Forums: 1 to 12 JulyPricing Principles

• Consultations / site visits: 1 to 12 JulyService Descriptions

• Pilot Survey: 5 August to 16 AugustDevelop data collection tool

• Sector wide data collection: 26 August to End DecemberData Collection

• Second consultation Phase: 25 November to 6 DecemberApproach to pricing

• Price modelling and implementation: January to Present and onwards

Setting prices and implementation planning


Before we start…

THANK YOUThank you again to those of you who have

given your: time, knowledge and data to this project.

We have appreciated your input and guidance.

Recap of prior cost collection and price mechanism activities

Pricing Principles Survey of Services and Costs Pricing methodologies


Pricing Principles

A series of Pricing Principles were developed to guide both pricing and implementation of new pricing:

■ Pricing enhances the ability of disabled people to exercise self-determination ■ Pricing should result in nationally consistent and transparent prices■ Pricing must always drive efficiency■ Pricing enhances sustainability of a quality disability support system■ Pricing promotes an equitable and responsive disability support system that advances continuous

quality improvement and choice

Underpinning Pricing Principles is the recognition of the importance of:

■ Respect of the rights of people with disabilities ■ Open and ethical relationships between funder and provider

http://www.health.govt.nz/system/files/documents/pages/dss-pricing-principles-nov13.docx




Surveys of costs and services

The cost and services surveys highlighted:■ The profiles of costs incurred by organisations have high levels of consistency:

• Consistency in the unit cost of inputs (e.g. the cost of an hour of staff time) • Consistency in each disability service of types of costs (e.g. labour versus non labour costs)

■ Where providers incur higher unit costs in one area they typically manage these by switching decisions regarding the balance / volume of units used• These variations are not driven by structural factors such as provider size or location.

The high levels of commonality align with the concept of consistent national pricing

There are two services whose underlying costs are highly variable: ■ RIDSAS-CRL■ CRL for the most complex clients (packages >$160,000)

There will be no changes to the price / purchasing arrangements for these services as a result of this project


Profile of activity by service team

The profile of activity by service team members reflects the nature of disability support service type:■ Respite requires

higher levels of planning administration and management compared to CRL due to the constantly changing clients

■ SL needs higher levels of planning compared to HCSS due to the service line’s objectives

0%

20%

40%

60%

80%

100%

HCSS SL CRL Respite

Perc

enta

ge o

f dire

ct st

aff ti

me

Service type

Service team activity

Management

Administration

Service planning

Service delivery


Profile of service team wage costs

The profile of costs in home based and facility based services are broadly similar:■ For all services 86 to 88

percent of staff costs are incurred by client facing staff

■ CRL and Respite spend marginally more on management than HCSS and SL reflecting:• higher average cost

of managers in CRL • higher volumes of

management time required in Respite

0%

20%

40%

60%

80%

100%

HCSS SL CRL Respite

Perc

enta

ge o

f dire

ct st

aff c

ost

Service type

Direct staff cost

Managers

Adminstrators

Client facing staff


Service team staff costs

■ CRL management rates reflect presence of more complex management structures■ All services had similar levels of on-costs at around 20% uplift on labour rates

• These include: all forms of leave, ACC, KiwiSaver, and some allowances

HCSS Hshld Management

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Disability Support Worker

HCSS Hshld Management

HCSS Personal Care Admin staff Line Management

$ pe

r hou

r (e

x on

-cos

ts)

Staff type

Sector staff pay rates

CRLRespiteHCSSSL


Profile of all cost types

The profile of total costs incurred to deliver a service reflects the nature of the service model / specification■ Home based services

have lower rates of non-labour costs reflecting their lower reliance on infrastructure and non-labour inputs

■ In CRL higher rates of direct costs are incurred compared to facility based respite reflecting the wider range of service inputs used for longer term clients

0%

20%

40%

60%

80%

100%

HCSS SL CRL Respite

Perc

enta

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f tot

al co

sts

Service type

Profile of cost types

Indirect costs

Direct costs

Labour & On-costs


Units of service and pricing units – driving considerations

The survey told us that providers manage to a common set of delivery units:

■ HCSS and SL: hours of client service

• …though the precise definition of ‘hour’ appears to vary between providers re: client face-to-face

hours versus travel hours versus planning hours when away from client

■ CRL: place in house

■ Facility based respite: place in facility (full day/half day)

Last round of consultations with sector indicated that pricing units:

■ Should be aligned with either these delivery units or inputs

■ The sector and the services are not ready for outcome based pricing


Units of service and pricing units – driving considerations continued

Pricing Principles indicated that pricing should be:

■ “Transparent” – i.e. be clear and simple about what is being purchased

■ “Enhance the ability of disabled people to exercise self determination” – i.e. be priced in a manner

that:

• is clear to a person what they are purchasing

• helps a person understand the trade offs between different purchase decisions

(Increasingly relevant in the context of Individualised Funding)


Units of service and pricing units

HCSS SL CRL RespiteDelivery unit Client hour Client hour Place in house Place in facility (full

or half day)

Client purchase perspective

Time of staff member in client’s home

Time of staff member: with client and spent organising and planning for client

Place in house and amount of staff time available to client

Place and care

Pricing principle Simple pricing structurePricing structure that reflects what the client perceives in the purchase

Proposed price unit Hour of service time Place in facility (full or half day)

Basis of cost treatment in price unit

Reflect standard costs of inputs:• Staff costs of hours for service timeplus• Staff costs for service team supporting delivery of service time• Labour on-costs on top of staff costs (e.g. leave, ACC)• Direct non-labour service delivery costs (e.g. food in CRL)• Organisational management costs (share)• Organisational overheads (share)

(Maybe modified for changes to service model: e.g. CRL in client rented property)

Per three other service lines

…plus…

Modification for:• Standard hours to deliver place

• Standard utilisation rate


Consistent pricing and consistent assessment

Nationally consistent pricing that delivers provider and client equity requires:■ Prices, supported by:■ Consistent needs assessment practice by NASCs■ Consistent use of a single pricing tool for a service type

Currently there are low levels of consistency due to a range of pricing tools■ Pricing reform will eliminate this variability■ The reform process will be managed by MoH to ensure that the transition to new prices and

consistent tools do not result in changes that:• Compromise the viability of the provider• Jeopardise the delivery of services to clients• Compromise the capacity of MoH to purchase services


Questions?

New pricing models

New prices Transition


Supported Living


SL

Current purchasing arrangements:

■ A single type of SL is purchased (in contrast to HCSS)

■ NASCs assess the number of SL hours required by a client

■ Providers deliver SL through organisation specific delivery models

Future purchasing arrangements:

■ No change in specification regarding what is covered by SL

■ No change in process to define number of SL hours required by a client

■ No change to pricing unit

■ Provider will continue to decide how the service is structured, staffed, and delivered to the client


SL observed costs

One hour of service Hourly Rate Calculation factor Price component

SL service delivery60% DSW worker $17.66 92% of SL team $10.6040% Planning Co-Ordinator $26.54 $10.62Non client facing service team:

Administration $20.75 3% / 92% $0.66

Direct management $30.61 5% / 92% $1.60

$23.47

Labour on-costs 20% of labour cost $4.69

TOTAL LABOUR COST 84.3% of total costs $28.17

Non-labour costsDirect costs 7.6% of total costs $2.53

Management and overheads 8.1% of total costs $2.70

TOTAL COST 100.0% of total costs $33.40

Observed cost of SL service delivery 2012/13 (survey)


SL Pricing

Observed costs 2012/13 $33.40■ Increment to reflect 2013/14 indexation 1.54%■ Increment of cost for minimum wage decision 0.00%■ Total increment: 1.54%

Adjusted observed cost (at May 2014): $33.92

Current prices at May 2014: All SL: $33.63

Adjusted observed cost ($33.92) to be used as base for price setting prior to the normal annual price adjustmentWill apply from the annual contract renewal in 2014/15.


SL impact on providers

All providers will receive a real increase of price of 0.86 per cent as a result of the prices being set at the observed cost base


Home and Community Support Services


HCSS

Current purchasing arrangements:■ Two types of HCSS at two prices: Personal Care (PC) and Household Management (HM)■ NASCs assess the number of PC and HM hours required by a client ■ Providers deliver HCSS through a range of delivery models

Future purchasing arrangements:■ No change in specification regarding what is covered by PC and HM■ No change in process to define number of PC and HM hours required by a client ■ PC and HM to be combined into a single price

• Single price reflects the strong overlap between PC and HM service delivery• Single price reflects the client experience of HCSS: where a difference between PC and HM staff

or activity is frequently not apparent • New price aligns with single price approach in ACC

■ Provider will continue to decide how the service is structured, staffed, and delivered to the client


HCSS observed costs


HCSS service deliveryHCSS worker $15.08 90% of HCSS team $15.08

Non client facing service team:

Administration $20.75 5% / 90% $1.15Direct management $30.61 5% / 90% $1.70

$17.93Labour on-costs 20% of labour cost $3.59


Non-labour costsDirect costs (incl. current Travel costs) 0.7% of total costs $0.19Management and overheads 13.4% ot total costs $3.35


Observed cost of HCSS service delivery 2012/13 (survey)


HCSS Pricing



Current prices at May 2014 ■ PC: $26.14■ HM: $24.31

Average price paid to providers based on average PC and HM mix: $25.32

Adjusted observed cost ($25.91) to be used as base for price setting prior to the normal annual price adjustmentWill apply from the annual contract renewal in 2014/15.


HCSS impact on providers

$24.00

$24.50

$25.00

$25.50

$26.00

$ pe

r hou

r

HCSS providers

HCSS price and current ave. (PC+HM) funding ratesKey:■ Red line = New Price■ Blue line = Current

average price per provider

■ Providers will receive an average increase funding of 2.3 per cent


Travel

Providers were asked to describe travel costs that they incur for HCSS service delivery■ Providers described a range of circumstances■ Where providers were able to describe their travel costs KPMG undertook an analysis of the genuine

cost of travel■ Based on a limited data set: the cost of travel appears to range between 8 to 13 per cent of staff cost

ex. on-cost (urban and rural areas respectively)

The HCSS price in the preceding slides are based on the current cost base in HCSS■ The price reflects the rate at which travel costs are currently incurred ■ The price does not reflect where travel requirements are not fully reflected in the sector’s costs of

business – these latent costs are reflected in KPMG’s estimate

The Ministry is undertaking a wider piece of work regarding the latent cost of travel and how it should be addressed


Morning tea break


Community Residential Living


CRL

Current purchasing arrangements:■ NASCs assess client need and use one of 10 pricing models to establish funding level■ Providers and Clients receive varied rates of funding depending on the above: inequitable

Future purchasing arrangements:■ No change in CRL specification(s)■ Sleepover adjustment to be merged into CRL package calculation■ A single national pricing model to be used by all NASCs for client packages under $160k■ Packages will be defined by the number of support hours required by client based on

client needs and housing and price per hour■ Numbers of hours will be standardised in a set of bands


CRL

Two CRL services will be excluded from new pricing:

■ RIDSAS (high and complex)

■ Clients on individual CRL packages in excess of $160,000

In both these cases the inputs used by the services can vary significantly and hence

are not suitable for nationally consistent pricing


CRL observed costs


CRL service delivery96% DSW worker $16.85 95.3% of CRL team $16.244% Planning Co-Ordinator $22.64 $0.81Non client facing service team:

Administration $21.15 2.3% / 95.3% $0.51

Direct management $37.06 2.4% / 95.3% $0.95

$18.52

Labour on-costs 20% of labour cost $3.70


Non-labour costsDirect costs 20.2% of total costs $6.49

Management and overheads 8.1% ot total costs $2.53


Observed cost of CRL service delivery 2012/13 (survey)


CRL Pricing



Current prices at May 2014: N/A

Adjusted observed cost ($31.95) to be used as base for future price setting prior to the normal price adjustment


CRL translating to new prices

Currently CRL packages exist across a range of funding levels

■ This variability reflects the range of pricing models currently in use

A new nationally consistent pricing tool will result in clients’ hours of assessed need

being translated into specific price points

The following slides:

■ Explain how the transition between the old and new pricing regime will occur

■ Provides a worked example to illustrate the process.


CRL translating to new prices – the processSTAGE 1: Incorporating the nationally consistent price into packages

30 daily price points will be used for translating existing packages:

Package Increment Package Increment Package Increment

$ 34,219 $ 62,734 4.8% $ 108,359 5.6%

$ 37,070 8.4% $ 66,613 6.2% $ 114,063 5.3%

$ 39,922 7.7% $ 70,377 5.7% $ 119,766 5.0%

$ 42,773 7.1% $ 74,141 5.3% $ 125,469 4.8%

$ 45,625 6.7% $ 78,019 5.2% $ 131,172 4.5%

$ 48,477 6.3% $ 81,783 4.8% $ 136,875 4.3%

$ 51,328 5.9% $ 85,547 4.6% $ 142,578 4.2%

$ 54,180 5.6% $ 91,250 6.7% $ 148,281 4.0%

$ 57,031 5.3% $ 96,953 6.3% $ 153,984 3.8%

$ 59,883 5.0% $ 102,656 5.9% $ 159,688 3.7%


CRL translating to new prices – the processSTAGE 1: Incorporating the nationally consistent price into packages

1. Total current client package value calculated■ Current CRL package PLUS■ Client share of provider sleepover adjustment■ Example: $58,567 plus $3,867 = $62,434

2. Point on price card (preceding slide) closest to total package value identified ■ Example: $62,734 being the nearest to $62,434

3. New client package value set at identified point ■ i.e. $62,734, giving a price rise of 0.5 per cent

Maximum potential change to a package is +/- 4.2 per cent: being half the maximum increment between the 30 prices


CRL translating to new prices – impact modellingSTAGE 1: Incorporating the nationally consistent price into packages

Modelling of the Stage 1 translation on packages indicates that:■ 4 per cent of packages will decrease by more than 2 per cent■ 81 per cent of packages will move by less than 2 per cent■ 15 per cent of packages will increase by more than 2 per cent

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200

400

600

800

1,000

1,200

1,400

-5.0% -2.5% 0.0% 2.5% 5.0%

Coun

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Change to total client package to provider

CRL: Impact on clients packages


CRL translating to new prices – impact modellingSTAGE 1: Incorporating the nationally consistent price into packages

Modelling of the Stage 1 translation on providers indicates that:■ Total funds to providers will increase in real terms by 0.1 per cent■ 1 per cent of providers will receive a decrease in total funding of over 2 per cent ■ For 61 per cent of providers total funding will move less than 0.5 per cent■ 15 per cent of providers will receive an increase in total funding of over 1 per cent

-5

10 15 20 25 30 35 40

-5.0% -3.0% -1.0% 1.0% 3.0% 5.0%

Coun

t of P

rovi

ders

Change to total funding to provider

CRL: Impact on providers


CRL translating to new pricesSTAGE 2: Incorporating the ICARe tool

The Stage 1 transition is only half of the price reform process that puts every package on a consistent range of prices

Stage 2 will occur as clients are progressively reassessed and their packages are determined through use of the ICARe tool

■ The resulting support hours from the ICARe tool will calculate a client package using the $31.95 rate

From 2014/15 onwards the ICARe tool will be used to determine support hours for calculating the CRL package for:

■ All new CRL clients■ All reassessments of current CRL clients: In the case of these pre-existing clients whose

packages were translated through Stage 1 the new package will replace the package from Stage 1


CRL translating to new pricesSTAGE 2: Incorporating the ICARe tool

KPMG and the Ministry have modelled the likely impact of moving to the ICARe tool ■ The modelling indicates that the Stage 2 process should, over the long term, be funding neutral for

the sector as a whole■ However, some client packages may increase and some decrease due to the Ministry of Health’s

commitment to ensure that there is equity of funding between clients • Equity delivered through having every person’s package calculated by a single pricing model.

• Where necessary, the Ministry of Health will work with providers to moderate the impacts arising from changes to their total of clients’ packages


Facility Based Respite


Facility Based Respite

The cost of respite varies significantly across the country as a result of:■ Current service contracts that use different purchase arrangements (e.g. block funding and fee for service

basis)■ Variations in service models (e.g. facility based and community based).■ Variations in utilisation performance that significantly impact on the cost of a unit of service

The Ministry is currently working with the sector to address these variations

In light of the above, no change to existing contracts and/or prices will occur until ongoing works are complete

The next two slides summarise the hourly cost of facility based respite as observed and their linkage to a potential fee based price through a standardised view of:■ Utilisation■ Staff hours required to deliver a unit of service (1.0/0.5 bed day)


Facility Based Respite observed costs


Respite service deliveryDSW worker $17.04 90.0% of Respite team 17.04

Non client facing service team:Administration $20.56 5.0% / 90.0% $1.14Direct management $30.44 5.0% / 90.0% $1.69

$19.88Labour on-costs 20% of labour cost $3.98


Non-labour costsDirect costs 14.8% of total costs $5.29Management and overheads 18.5% ot total costs $6.60


Observed cost of Respite service delivery 2012/13 (survey)


Facility Based Respite Pricing



Using the following, the observed hourly cost can be translated to a day rate:■ Average bed utilisation of 75 per cent

• Observed rates vary between 62 and 92 per cent ■ Standardised staff hours

Calculated utilised day rate for Respite (at May 2014): $258■ Calculation: Hourly observed cost x Standard hours x Utilisation Adjustment

Current prices at May 2014: N/A – varied ($200-$315)


Questions?



Other services


Carers Support Subsidy

Survey of carers endorsed:

■ Increase in daily subsidy rate (Currently $76 per day)

• Could be used to reduce out of pocket expenditure or purchase more expensive care

■ Relaxation of qualification rules regarding who the subsidy can be paid to or what it is used for

■ Reform to the level of administration required

Response:

■ Ministry does not propose to increase the subsidy rate

■ Ministry will work with the Carers’ Alliance to identify ways to improve the flexibility of CSS use

■ Changes may increase Subsidy use by an estimated 3 per cent


Assessment Treatment and Rehabilitation (ATR) and Child Development Services (CDS)

ATR and CDS costs and service models indicate:

■ Significant variations in service models, inputs and services, caused by

• Varied presence of complementary and/or alternate funding streams that influence how MoH

funding is applied

• Variances in local catchment service systems that require differential service response (e.g.

access to particular health professionals)

• Variances in organisation type and hence the resources they use (DHBs v NGOs)

■ Low levels of comparability across service providers regarding outputs

CDS cost data still being provided from parallel project



Next steps


Proposed implementation plan

Supported Living

■ New prices will be implemented from the annual contract renewal date

Home and Community Support

■ New single price will be implemented from the contract renewal date



Community Residential

■ Transition to the new price points is planned for March 2015

■ Current sleepover funding arrangements will cease from transition to the new price points, as these

incorporate the sleepover funding

■ Refresher training on the ICARe tool for NASCs will occur over the next six months

■ From March 2015, all new CRL clients will have their funding package calculated using the ICARe

tool

■ From March 2015, current CRL clients will have their funding package calculated using the ICARe

tool when they are due for review or reassessment



Facility based Respite

■ MOH will work with providers over the next two years to:• Move to a fee-for-service pricing model at a 24-hour bed-day rate of $258 (May 2014 price

adjusted for future years)• Work towards an average 75% utilisation rate• Identify exceptions to this requirement



Carer Support Subsidy

■ MOH will work with Carers’ Alliance to identify options for:• Increasing the flexibility of use of CSS and • Reducing the administration requirements for carers accessing the subsidy


Questions?


Thank you again for you participation today, and over the last year

If you’d like to make any comment to KPMG or the Ministry of Health please contact:

Fred Halliday Barbara CrawfordKPMG Ministry of [email protected] [email protected]+61 3 9288 5169 04 816 4384

Peter [email protected] 04 816 4810

mailto:[email protected]



Documents

21 May 2014 – 28 May 2014