21 May 2014 – 28 May 2014

1. Disability Support ServicesDevelopment of nationally consistent pricing methodologies and models • Price models • 21 May 2014 – 28 May 2014

2. Agenda

3. Development of nationally consistent pricing methodologies and models 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 Purpose of today

4. 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 objectives

5. 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 – scope of project

6. Project update

7. Project update

8. THANK YOU Thank you again to those of you who have given your: time, knowledge and data to this project. We have appreciated your input and guidance. Before we start…

9. Recap of prior cost collection and price mechanism activities • Pricing Principles • Survey of Services and Costs • Pricing methodologies

10. 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 Pricing Principles

11. 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 Surveys of costs and services

12. 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 Profile of activity by service team

13. 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 Profile of service team wage costs

14. 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 Service team staff costs HCSS Hshld Management

15. 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 Profile of all cost types

16. 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

17. 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 – driving considerations continued

18. Units of service and pricing units

19. 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 Consistent pricing and consistent assessment

20. Questions?

21. New pricing models • New prices • Transition

22. Supported Living

23. 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

24. Observed cost of SL service delivery 2012/13 (survey) SL observed costs

25. 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 adjustment Will apply from the annual contract renewal in 2014/15. SL Pricing

26. 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 SL impact on providers

27. Home and Community Support Services

28. 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

29. Observed cost of HCSS service delivery 2012/13 (survey) HCSS observed costs

30. Observed costs 2012/13 $25.05 Increment to reflect 2013/14 indexation 1.56% Increment of cost for minimum wage decision 1.87% Total increment: 3.43% Adjusted observed cost (at May 2014): $25.91 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 adjustment Will apply from the annual contract renewal in 2014/15. HCSS Pricing

31. Key: Red line = New Price Blue line = Current average price per provider Providers will receive an average increase funding of 2.3 per cent HCSS impact on providers

32. 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 Travel

33. Morning tea break

34. Community Residential Living

35. 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

36. 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

37. Observed cost of CRL service delivery 2012/13 (survey) CRL observed costs

38. Observed costs 2012/13 $31.25 Increment to reflect 2013/14 indexation 1.41% Increment of cost for minimum wage decision 0.84% Total increment: 2.25% Adjusted observed cost (at May 2014): $31.95 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 Pricing

39. 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

40. 30 daily price points will be used for translating existing packages: CRL translating to new prices – the processSTAGE 1: Incorporating the nationally consistent price into packages

41. Total current client package value calculated Current CRL package PLUS Client share of provider sleepover adjustment Example: $58,567 plus $3,867 = $62,434 Point on price card (preceding slide) closest to total package value identified Example: $62,734 being the nearest to $62,434 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 – the processSTAGE 1: Incorporating the nationally consistent price into packages

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

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

44. 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

45. 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 CRL translating to new pricesSTAGE 2: Incorporating the ICARe tool

46. Facility Based Respite

47. 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 respiteas 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

48. Observed cost of Respite service delivery 2012/13 (survey) Facility Based Respite observed costs

49. Observed costs 2012/13 $35.74 Increment to reflect 2013/14 indexation 1.37% Increment of cost for minimum wage decision 1.54% Total increment: 2.91% Adjusted observed cost (at May 2014): $36.78 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) Facility Based Respite Pricing

50. Questions?