Is the Health and Human Services Sector a House of Cards?

Government agencies are increasingly procuring services from the same providers and this is creating risk across sectors. The health and human services sector is now delicately balanced. What would you do if tomorrow your providers ceased delivery, questions Joe Short, partner at PwC.

With the advent of increased choice, individualised funding and sector reform, in many ways the health and human services sectors is thriving.

For savvy providers, there are multiple opportunities to support outcomes as well as in the adjacent sectors of justice, education and housing. As a result, providers are increasingly having delivery relationships that go beyond one agency.

This can be hugely beneficial as it:

• limits the dependency of providers on a single source of funds;
• creates exposure for providers to new service areas and geographies;
• facilitates access to new sector experiences that can be used to support innovation;
• can help share best practice and successful ways of working across sectors; and
• enables providers to support integrated care.

Providers with an entrepreneurial eye have never had a better opportunity for growth and diversification.

However, this also creates risk.

These arrangements mean that sectors are now more connected than ever before. Should a provider no longer be able to operate in one sector, then a broader range of agencies, programs and outcomes may be put at risk. And depending on the volume of services delivered by the provider, the associated impact could be significant. This is particularly relevant in smaller and rural communities, or for niche services where the availability of providers is more limited.

Unmitigated, there is potential for the ripple effect caused by an unstable provider, to turn into a dangerous wave that topples multiple sectors like a house of cards.

This risk is very real. You only have to look at the experience of Carillion in the UK to see what can happen when larger providers become unstuck. This is also happening in Australia and to smaller providers with similarly critical impacts.  

In June 2018, the Queensland government was left scrambling to fill service gaps across multiple sectors in the Northern Rivers community when a provider went into voluntary administration. Whilst the provider’s main services were disability focused, they also supported other commissioners in the mental health, aged care and vulnerable children sectors. Difficulties faced by the provider in adapting to NDIS reform, ultimately led to their collapse and ended their delivery of wider services. Quite simply, the challenges of one sector created a delivery issue in many others.

So what does this all mean for commissioners and how can these risks be mitigated? Well, part of every good commissioner’s role is understanding their risk and their exposure. This means ensuring that they have an appropriate understanding of who they are working with and how stable the sector is.

Practical approaches can help achieve this:

Make sure you do your due diligence and understand your providers

It’s always important to have a good and comprehensive understanding of providers that you have contracted and this needs to cover a number of areas. Having a basic understanding of their financial stability and ability to deliver the contract is key. Equally, it’s good to understand the extent to which they are delivering other contracts and how onerous and reliant on them they are. These data points will help to begin to understand their overall stability.

Keep your finger on the pulse

Service provider risk is not a one-time threat or possibility. Like all risk, it should be continuously evaluated as circumstances change. Regular check-ins will help identify challenges and pressures being faced and will enable you to reassess your risk and options as a commissioner. In addition, having an awareness of emerging issues from broader sectors will also mean you can be proactive.

Make sure you are protected

Your contracting instrument (ie document) is a good place to ensure that you are appropriately protected. This can include conditions that ask providers to communicate when they are in a stressed or distressed state, and require them to have sufficient funds available to support delivery throughout the contract’s duration.

Have a contingency plan

Failure to plan is like planning for failure and it is always worth investing time to develop a contingency plan – particularly for clients, services, regions and providers where there is a higher failure risk. Such plans don’t need to be formalised or extensive, but they should be able to answer “what would we do if this provider failed tomorrow?”. Market development plans that seek to grow and diversify providers can also be helpful.

Look to remote communities

Contracting with only one provider in remote communities isn’t a new risk. Many government departments have long faced this issue, particularly where thin markets and a lack of demand means only a few service providers exist. However, there are lessons to be learned here, particularly in relationship-based ways of commissioning and proactive management of risk.

About the author: Joe Short is a partner who leads PwC’s commissioning practice supporting NGOs and government to work better together to deliver front-line services. Joe has worked across Australia on a number of reforms in health, human, justice and education and he is a champion for better partnership working and client outcomes.