With the introduction of consumer directed care, contestability and other market type reforms in human services, governments across the country are having to fundamentally rethink the way they regulate the human services sector. This is happening across most of the human services economy including in the areas of health, disability, housing, community, aged care and child and family services. Responding to these trends does not necessarily mean less regulation but it does mean smarter and more sophisticated regulation.
Governments are increasingly having to do more with less, while continuing to deliver outcomes and protect society’s most vulnerable and disadvantaged.
Tightening budgets and an increasing demand for services provide a strong incentive for all governments to reconsider traditional models of service delivery. This has led to the adoption of market-based reforms in the provision of human services – for example in health, disability, aged care, housing, and child and family services. These approaches are redefining government’s relationship with service providers, individuals and the general community, including the way it regulates services.
In the case of human services, where services are provided to some of the most vulnerable and disadvantaged members of the community, there need to be clear frameworks for responding to market failures, ensuring quality services to individuals and providing stability and certainty for providers. However, the tools on which government has traditionally relied for regulating human services are no longer fit for purpose, and new ways of working are now required.
The human services market continues to grow in size and importance. The demand for health, aged care and child care services in particular is expected to continue to fuel growth in the sector. At the same time, there will be increasing challenges on the supply side with providers competing for a skilled workforce to meet growth in demand.
The human services market has been undergoing major change as governments move out of direct service delivery and seek to manage and deliver services through greater use of managed markets and consumer directed approaches. The Competition Policy Review (the Harper report) has called for reforms in this area to go much further in order to drive much-needed productivity improvements across the sector. As a result, governments across the country are having to fundamentally rethink the way they regulate the human services sector.
Like other government services, human services are now exposed to competition as Government seeks to drive greater efficiencies in the face of escalating demand for services. Contestability does not necessarily mean outsourcing of services but it does mean benchmarking publicly provided services against alternative modes of provision.
A number of jurisdictions are recommissioning human services including health, housing, and disability services and seeking interest from a range of providers in taking on services. The role of Government as a direct provider of services is progressively diminishing as it moves to more of a stewardship and purchasing role.
The potential for productivity gains from introducing greater competition and contestability is considerable with estimated gains of between 20 and 25 percent for Government services not previously exposed to competition.
The introduction of person-centred care through the National Disability Insurance Scheme (NDIS) and consumer-directed care in aged care is driving a more market-based approach to human services. Unlike the market for many other goods and services, the market for human services is predominantly supported by government funding.
Services where individuals receive the services free of charge, or where standard prices are set by government, do not provide price signals to individuals to distinguish between services based on an assessment of relative costs and value. Instead, services are usually funded via block or output funding models using contracts between government and service providers or in some cases, funded and provided directly by government itself. Where individuals are allocated directly to providers, this dulls the incentives for providers to respond to individuals’ needs and preferences. Person-centred care in the NDIS is about introducing an empowered consumer into the market; a consumer with direct purchasing power and the ability to exercise choice and control over the services they need.
While services are still reliant on government funding, the funds are being put in the hands of the consumer. This new funding approach being applied to people with complex needs and (in some limited cases) to homelessness services. This new approach will have profound implications for providers, who will no longer be able to rely on funding from the government and will instead have to compete for the purchasing dollar of increasingly informed consumers.
The markets for human services vary across different service types and, in some cases, are immature and evolving. For instance, the aged care and child care markets are fairly mature and well established and tend to be dominated by private and for-profit providers, with government playing a limited role. The disability services and social housing and homelessness services markets, on the other hand, are far less mature and have traditionally been associated with government and not-for-profit providers. Considering varying levels of market maturity will be critical in developing a new market-based approach to regulation in the sector.
In regulating human services, governments have focused on traditional approaches which involve licensing/registration of providers, strict monitoring and compliance regimes and extensive reporting requirements.
While these tools may have been effective in managing risks in the past, they have also encouraged a passivity among both providers and individuals which has stifled innovation and productivity.
The path to regulatory reform is not easy and requires achieving and sustaining a significant cultural change across the public sector. There must be strength and consistency of support at the highest political level and a will to challenge and overcome vested interests in maintaining the status quo. The speed of and pathway to reform will also differ across organisations depending on their specific cultural practices and their history of regulation making. For example, reforming human services regulation is a complex and challenging exercise given the accretion of regulation over decades and the traditionally risk-averse approach that has been adopted.
Strong leadership is vital in driving the cultural change needed to support regulatory reform.
Risk management is at the core of regulatory reform and this needs to be supported by robust data systems.
Planning and co-design
Regulatory reform plans should be developed collaboratively with industry, providers and individuals.
New staff skills and capabilities are needed to help shift away from traditional ways of regulating.
Communication and engagement
Governments need to build the case for reform and get buy-in from stakeholders and the general public.
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