Maintaining values in market-based care: reflections from Victoria

By Tom Keating

June 12, 2018

LONG READ: Tom Keating traces the evolution of a new paradigm for the management of human services in Victoria, the challenges it may pose for service providers and some strategies that might be useful in addressing them.

Public administration systems are not value-free. They have embedded within them, assumptions about individuals; about the collective responsibilities of the community and of government; and assumptions about the relationship between government, service providers and individuals who may be in need of care and support.

Relatively recent models of service purchasing, as seen in consumer-directed care in aged care and individual consumer plans through the National Disability Insurance Scheme are based upon principles of individuated, contestable purchasing. They herald a new era of accountability of service providers to consumers and as such they are welcomed by most providers.

They also present challenges for community services providers in the context of the evolution of market-based approaches to social administration. Current models of human services administration are based on assumptions which underpin a dominant paradigm, often referred to as the “market-based approach” to social administration. Not-for-profit service providers, many of which have a history and mission associated with benevolence and altruism, may see this administrative model as requiring that they act in ways which are in tension with their organisational rationale.

This paper contrasts the values and assumptions which underpinned what I have described as the “purchase of service” paradigm and the “market system paradigm” which is becoming pre-eminent in social care administration. It examines some of the assumptions which sit behind the market-based system for social administration; some of the challenges these may pose for service providers and some of the strategies that might be useful in addressing these challenges.

How the current social administration model evolved in Victoria

The role of government and of service providers in health and community services in Victoria has evolved over time. In the earliest days of the colony/state, the dominant role in the provision of care was assumed by churches and benevolent organisations. The 1850s gold rush created great wealth for some in the community, some of which was transferred over time into benevolence. Government played a limited and residual role, mainly defined by public safety. Prisons and mental health facilities controlled those who might be considered a threat to good order. Scandals associated with the exploitation and abuse of children led to a stronger regulatory role on the part of the state in the early twentieth century but while over time a public hospital system developed, community care continued to be largely delivered by not-for-profit and religious organisations with little funding support from government.

In the 1960s and 70s, professionalism in the sector increased dramatically and benevolent organisations were no longer able to fund their activities from their capital reserves. The dominant model of resourcing became what might be described as “grant in aid”. Government provided for the ill and the disadvantaged by funding not-for-profit and religious organisations which provided services with limited accountability. The State formed a loose partnership with the non-government sector, based on broadly shared goals and an orientation towards altruistic care. This period saw a significant expansion of community-based health and community services as government progressively accepted a broader range of responsibilities and the service providing organisations increased their capacity. Community Health Services were established as an alternative to institutional health care, community care for the elderly, mental health patients and people with an intellectual disability. Children’s homes were closed across the state and family services developed.

This dominant model changed from the early 1980s as a consequence of the introduction of new public management to the management of human services. From a government point of view, the evolution of a new paradigm for the management of human services in Victoria, took place through a number of stages.

Managerialism developed with the election of the first Cain government in 1983. It required greater reporting and accountability on the part of service providers. Government became interested not just in the fact that agencies did good, but how much good. Funding was however largely based on inputs, such as numbers of funded positions.

Unit purchasing: Government purchase from the non-government sector, units of service, often specified in terms of hours of care. This was significant in that it was based upon service outputs rather than inputs. This was a commodification of services which facilitated a market-based approach to the administration of care. Units of service could be purchased through a competitive process that placed a discipline on price. Tendering for the delivery of services developed as a favoured means of procurement, justified partly as a means of managing costs but also for reasons of probity.

Individuated care packaging: the latest iteration of care purchasing is based upon consumer controlled care. Purchasing of units of care is undertaken by the consumer or on their behalf by authorised agencies. This has the effect of disaggregating care into service elements and relies upon an overarching care plan to integrate care provision.  

These changes in the administrative arrangements of the State were taking place in the context of other developments in the care providing sector from the early 1970s. Monolithic welfare agencies largely moved away from institutional provision and many established regionalised family services which provided family support, in-home care, foster care and small scale residential care. Intellectual disability services, largely run by the State were gradually deinstitutionalised and a not-for-profit sector based on supported accommodation developed. This joined the Day Training Centre sector, a long standing not-for-profit movement which had developed as an alternative to institutional care, to form a significant sector. A community sector also developed with respect to Mental Health Services, again largely as an alternative to institutional care. A strong advocacy by and for people with an intellectual disability and people who experience mental illness, energised community care for the intellectually disabled and the mentally ill. The community health sector developed as an initiative of the Whitlam government and initially saw itself as providing an alternative to a hospital dominated and medicalised health care. Over time, it evolved to provide a platform for the delivery of a broad range of community care and health services, frequently in conjunction with hospitals.

Where we have come from: the purchase of services paradigm

The purchase of services paradigm was dominant through the 1980s and 90s. It accepted the managerialist framework but balanced this with a communitarian frame of reference. During this period, while the community sector was neither monolithic nor mono-cultural, a number of underlying principles could be identified as common. It asserted:

Localism: Scale and location of services is important. Services should be delivered and managed as close as possible to consumers of services. They should be of a comprehensible scale;

A social model of health: The causes of social and health issues are at least in part a function of the social and environmental context in which they arise. In addition to individual interventions and care, providers must address issues of poverty, poor access to resources, marginalisation and disempowerment which contribute to ill-health and social alienation.

Community control of Services: A belief that consumers should have a say in the way services which are important in their lives are managed. Boards of Management should be drawn largely from the communities being served.

Community development as an operating principle: The way in which services are provided should empower consumers and should facilitate collective action to address individual and shared concerns.

Human scale: Services should be delivered in a way which reflects the way people wish to live. This will usually be home-based rather than hospital or institutional care where this is possible and “home-like” residences for those in out-of-home care.

Advocacy as an integral element of care: Self-management is an important part of health and social wellbeing. Consumers should be supported to manage their own care and to advocate on behalf of themselves. Where consumers are unable to do so, advocacy on their behalf is required, always with their assent.

Universalism: Where possible, services should be generally available to those in the community who require them, without financial impediments.

Priority based on need: Where services are targeted rather than universal, they should give priority to those in greatest need.

Social justice as a priority: The distribution of resources and access to power are understood to be significant contributors to ill-health and social disadvantage. Redressing social and economic inequities is an integral element of social care.

Social inclusion as an objective of community care: In its stronger form this is an argument about social capital; that the benefits of social interactions and relationships accrue and are available to “invest” in other activities for the collective good. A less strong form would suggest that there are benefits for the individual and for social groups of facilitation of positive social interactions.

The market paradigm

From a social administration perspective, the emergent dominant model of service purchasing which will be referred to as the market paradigm, reflects the principles of New Public Management. It has a number of underlying principles:

Government steering not rowing: The reform of government activity entailed a redefining of the role of government itself, away from a direct engagement in the delivery of services and towards a policy-setting, directing role. While this was in the first instance based upon an assertion that government should take a contingent approach to delivering and managing the provision of care whereby there was a variety of strategies possible, this over time came to be interpreted as requiring that government disengage from delivery and to the extent possible, adopt a purchasing approach only.

Separation of purchasing and providing: The separation of roles is seen as essential for probity reasons and also as a means of promoting efficiency. It is argued that relatively blind purchasing based upon objective criteria allows the development of a more market-like environment relatively unencumbered by established relationships and the legacies of prior delivery. Procurement of services is undertaken on the basis of current rather than past claims.

Competition as a means of driving efficiency: The primary driver of purchasing is efficiency which is most usually expressed in terms of cost, though considerations of sustainability and effectiveness of interventions are also relevant. Competition between potential providers of services is seen as a means of controlling price and this can mean pitting providers, who might in other circumstances see themselves as collaborators, against one another to obtain contracts.

Commodification of care in the form of unitised purchasing: The purchasing of services has required the specification and standardisation of that which is to be purchased. This is most often expressed as units of service: Weighted Inlier Equivalent Separations (WEIS) or hours of home care, for example. This has the effect of dissociating the provision of care from the consumer of care and of redefining the role of government and of provider. Government is not responsible for providing care for the homeless but is the purchaser of a specified number of nights or units of accommodation. Service providers are not engaged in the care and support of consumers but are the providers of the numbers of units of services.

Dissolving of the public/private distinction: Where the objective is to provide the defined quantum of services as efficiently as possible, the legal and corporate status of the  provider is not of consequence. Claims of special status for “community based” or not-for-profit organisations are not relevant. That an organisation is required to provide a return on capital to shareholders is not of concern to the purchaser.

Consumers as sovereign: The use of market mechanisms can be seen as a means by which the asymmetric power of providers is redressed and authority is returned to the consumer in selecting a provider. Service providers can be seen as inflexible and unable to respond to the particularity of consumer need, or as monopolistic and concerned to “capture” consumers by limiting their choices of provider and services to be received. This assumes that the consumer is knowledgeable and not so impeded by age, illness or disability to exercise choice. Where this is not the case, agents are authorised to act on behalf of the consumer. This is to describe an idealised application of the paradigm, which may seldom be in operation. For instance, in the community services sector, there is seldom a natural market because there is seldom a pool of potential providers available to compete to deliver services. Strategies to accommodate this have included the creation of internal markets (e.g. Activity Based Funding in Acute hospitals), contracting with or otherwise utilising private sector markets (e.g. COAG public housing reforms) and outsourcing or privatising functions (e.g. disability employment services).

Also, despite the preference for arm’s length engagement, competition strategies have frequently been the means by which government has sought to re-engineer the service providing sector. Frequently price is fixed and competition is not used to drive efficiency in cost terms alone.  The Victorian government “recommissioned” the community mental health rehabilitation and recovery services and the Commonwealth is in the process of “recommissioning” the community mental health sector that it funds. This can be defended on the basis that it could increase the efficiency of the sector, but it can also be seen as restructuring the market, favouring large scale over smaller providers and preferencing service outputs over localism and community connectedness.

Tendering can also be used to remove providers who are not considered adequate or who adopt advocacy stances which are in conflict with the purchaser. Competition strategies may be used to restructure the field such that there are fewer providers or their scope of service is changed.

Issues for the not-for-profit sector in the market-based model

The two paradigms described are in tension, though not always in conflict. The not-for-profit sector has generally welcomed management accountability and efficiency in service delivery. Resources saved by efficient and effective delivery are resources available to support consumers. Also, the market-based paradigm is so overwhelmingly dominant that it represents the only game in town. If providers wish to continue to provide care services, they must accommodate themselves to this approach. Tensions arise however as a consequence of the disjunction between the underlying values and priorities of market-based approaches and the traditional rationale and mission of the majority of community sector agencies. Amongst the points of tension are the following:

Pricing based on averaged costs reduces the viability of providing services to the most vulnerable. Those with higher needs often require more resources in order to reach equivalent goals to those with lesser needs. Where unit prices are uniform or with few gradations, those with the greatest needs may be excluded. There are particular difficulties for agencies which have disproportionate numbers of or who prioritise high need clients.

Advocacy is not valued as a service element to be purchased. Supporting self-advocacy or speaking on behalf of consumers is seldom considered a service output and at worst can be considered an irritant by funding and regulating bodies. For many community sector organisations, it is fundamental to their social justice goals.

Removal of service need from the social context within which it occurs. Service needs are not understood as occurring within the context of very particular personal, familial and community contexts. An hour of service is an hour of service and its price is the same, whatever the context. No particular knowledge and understanding of the consumer’s environment is required.

Promotion of competition between providers of services for the resources. While providers may collaborate on individual care plans, they will compete for available resources. There is little consideration that one will impact upon the other. Organisational survival can be at stake in completion between providers for program funding.

Detailed specification of service outputs and narrow pricing can leave little discretion and little scope for creative problem-solving in the client’s interest: where service outputs are tightly defined, it can be very difficult to adopt a patient-centred approach. Client needs are homogenised with little scope to redefine service outputs to meet their needs. There is evidence, for instance, that the reduction of funding which accompanied Victoria’s recommissioning of community mental health services has seriously limited the development of innovative approaches to mental health services for Indigenous consumers;

Disengagement of providers from the communities they serve. Service providers may not be located within the communities they serve. They may have little appreciation of the nuances of history and culture which have defined communities and impact in a continuing way on the health and wellbeing of members as well as their service requirements. Capacity for consumers to participate in decision-making concerning services can be limited.

Reduced connectedness between service elements. Unitised purchasing of discrete service elements requires that these be integrated in meaningful holistic plans. At best, this is achieved through “packaged” care plans. At worst, the consumer can be left with uncoordinated services with unfilled gaps.

The consolidation of service contracts into larger contracts and reduction of the number of providers. Competition favours large-scale providers which have the resources and expertise to devote to contestable processes. Recommissioning favours providers who meet the regulating agencies priorities. There are inevitably winners and losers and, for some, this means they have a reduced or no function.

Introduction of Consumer Directed Care (CDC) in packaged services with disaggregated service elements. CDC is supported by most providers in the community services sector as promoting consumer authority and control over care resources and processes, but it has the potential of realising many of the perceived negative elements of the market-driven system. It may result in narrowly defined service provision without community development components. It may be managed at a distance by organisations over which the consumer may have little influence except through the mechanisms of the contract. It may fragment care into poorly integrated elements. It may remove the social and cultural context from service provision.

Separation of authority from delivery. A developing tendency has been for contracted service providers to sub-contract the delivery of service elements such that case management components are retained by the contractor and service delivery is undertaken at a relatively low rate by a local provider. This undercuts principles of local accountability.

Poor industrial outcomes for service delivering staff. The disaggregation of contracts can result in para-professional staff providing care to disparate numbers of consumers with uncertainty over client numbers. This lends itself to the development of a contracted workforce with uncertain income and reduced capacity for collective action.

Infrastructure of organisations not included in pricing. The purchase of units of service does not take account of the physical and organisational infrastructure required to provide care. Where revenue is tied to individual client contracts and where these will vary over time in number and scope, the capacity of providing organisations to plan for infrastructure is diminished.

Strategies for managing in a market environment

Operating within a market-related paradigm represents a significant challenge for mission based community services organisations. It requires them to develop a different range of skills to those which they have traditionally utilised. This should not be viewed only in a negative way; not all established approaches are good and the increased level of accountability to consumers that is required in Community Directed Care has the potential to improve service responsiveness.

The market paradigm does, however, represent a challenge to the values base of community services organisations. Clarification of their values and their mission would seem essential in this context. They need to consider the ways in which those underlying values are challenged by the developing environment and the degree to which they are able to compromise without losing their identity and their rationale.

If mission-based community services organisations are to maintain their ethical stance they will need, in a robust way, to develop:

Strategies which support a focus upon the needs of the most vulnerable. Potentially, those who stand to lose most in a market-based model of social administration are those who are the least powerful; those whose health and social needs are greatest. Price averaging will always act as a disincentive to providing care for them because the cost of providing to them is very much greater and outcomes are generally poorer. Organisations caring for them must be prepared to see small gains as positive even where these fall well below benchmarks set in contracts.

Strategies that can be considered include negotiation within contracts for segmented pricing rates that better reflect gradations of need; accepting that loses will be made in providing for these clients which will have to be made up elsewhere in the contract and utilising non-contract revenue (such as donations) to subsidise these services. One of the difficulties faced with these strategies is that with CDC or individually packaged services, cross subsidy between clients will be very limited as allocations are to an individual and are acquitted accordingly.

Strategies which promote collaboration with peers in a competitive environment. Collaborative practice within a competitive environment requires a depth of relationships which goes beyond agreements to work together or even to not compete. It requires an examination with partner organisations of the basis upon which join activity will take place and the points at which collaboration will not apply. It has been the unfortunate experience of many organisations that consortium agreements are very thin. They are often developed for the purposes of seeking funding rather than guiding action and can result in ill-feeling associated with perceptions of take-overs, exploitation of partners or passivity on the part of some consortium members.

Strategies can include careful negotiation of complementary roles; shared delivery of services on a geographic or functional basis; shared clinical governance or quality management arrangements and agreements about the parameters within which competition and non-competing will operate. It needs to be understood, however, that in the current competitive environment where government is actively using market approaches to restructure delivery systems through decommissioning and tendering, there will be losers. There will also be providers which are successful in tenders, which are not a part of existing collaborative networks.

There is a role for national and state councils of social services to support frameworks for collaboration between sector organisations and to negotiate with government for purchasing strategies which cause the least possible damage to relationships between service providers.

Strategies which maintain local connectedness: Localism is seriously at risk where recommissioning has an intention of creating larger more capable organisations and where connectedness to communities of interest is not valued. The current tendency for local delivery of services which are managed and controlled at a distance represents a hollowing out of the notion of localism. Service accountability in a community development framework requires local accountability.

Strategies may include segmenting service delivery to reflect client groupings and communities and the maintenance of community engagement structures which enable consumers to have a voice. It needs to be understood however that community engagement without access to actual power is tokenism that will ultimately be rejected by consumers.

Strategies which promote service integration for individual consumers: Unitised purchasing may result in a fragmentation of the services that an individual client requires. In the NDIS and community aged care sectors, care plans are intended to obviate this risk. We know however those community services clients frequently have complex needs and co-morbid conditions. Providing joined-up service responses for clients with complex needs has always been a challenge. The possibility that services may be further fragmented by multiple contracts for elements of care, increases this challenge.

Strategies may include the formalisation of shared care arrangements and the nomination of key worker or case manager positions even where this is not a formalised or funded role. The use of inter-agency information management and communications infrastructure may need to be considered.

Strategies that promote service system integration: As services to individuals may become fragmented in a market based environment, so may the service delivery system itself. Services that provide social care for individuals are integrally related to those which provide housing and health services. Contradictory eligibility criteria, service access systems, policies and guidelines can cause havoc in the lives of consumers and cause extreme difficulties for organisations providing services.

Strategies which have been attempted to bring about service system integration have included “joined-up government approaches in central government agencies and “place management” approaches engaging delivery organisations. Both are out of favour in the current environment partly because they have not been particularly successful, They require an additional administrative overhead and they run counter to the prevailing orthodoxy which favours state-wide markets for functionally distinct programs.

In the absence of leadership from government, community service organisations may need to establish their own inter-sectoral working parties to identify systems dysfunction and develop inter-organisational approaches to addressing this.

Strategies which promote a social model of health: Social action in the form of client advocacy and action to challenge environmental, social and economic factors that contribute to ill-health, have usually been outside service delivery contracts. They go however to the heart of the understanding that most community services organisations have of their role and how it should be performed. Governments are no longer willing to fund what they see as political activity.

Strategies must firstly acknowledge that this activity on behalf of politically marginalised people is unlikely to be supported through contract revenue. Organisations must be prepared to support this activity and this orientation to their work by other revenue streams.

Active participation in peak organisations which undertake political activity on behalf of clients and on behalf of the sector may be important in maintaining this focus.

Strategies that optimise scale: The extension of markets for individuated services is enhancing the competitive position of larger-scale organisations. Smaller organisations are failing or are being forced to amalgamate. A more explicit discussion about optimal scale and breadth of operation is required. Is there a size of organisation which optimises competitiveness without compromising mission? Can organisations seek to broaden their revenue base by extending their service scope while maintain their focus upon their traditional client groups?

Strategies that reduce costs: One intention of competition is to drive down costs, but many of the strategies to do so which are acceptable in the commercial sector, are seen as unacceptable in the mission-led community sector. These include the exploitation of staff through casualisation and the implied reduction in quality by the use of untrained or unqualified staff. Not all cost savings however need be exploitative or reductive of quality. The use of shared services between organisations, the creative use of technology that enhances the capacity of home based care and the multi-skilling of staff to provide like services across client groups, may reduce corporate costs and enhance both competitiveness and quality of care.

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– Meagher, G & Healy, K 2003, ‘Caring, controlling, contracting and counting: Government and nonprofits in community services, Australian Journal of Public Administration, vol. 62, no. 3, pp. 40–51.

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