3.1 Introduction
Case based funding aims to better link funding to the needs of individuals and their outcomes. Following a consultation process,
25 a two year trial of case based funding commenced in November 1999. The Case Based Funding Trial is examining the impact of this funding model on employment outcomes for job seekers with disabilities, and on service providers. The trial takes into consideration a range of job seeker factors (disability type, location and level of assistance required) and service provider factors (service types, size, location).
The trial is a dynamic process, and the funding model will be reviewed and evaluated before final decisions are taken by Government on implementation.
The Trial is being conducted in two phases. In Phase One, the trial was conducted in 15 regions, including a few which are classified as rural and remote. Partly due to eligibility criteria, and partly due to agency choice, there were relatively few agencies operating in rural and remote areas, which participated in Phase One. Several of those which did participate, did so as an outlet of a larger town based organisation.
Phase Two of the Trial commenced in January 2001, with many additional rural and remote services participating.
Phase Two of the Trial will provide considerably more data concerning the effectiveness of a case based approach in rural and remote areas. More importantly, a number of concerns expressed by service providers in relation to the operation of case based funding are being addressed, with changes having been made to the assessment tool, funding levels and payment stages (these are noted below). While these changes will apply across the board (ie urban, rural and remote areas), they may prove particularly important for rural and remote services.
The new case based funding approach is planned to replace the current system of block grants, whereby service providers are paid an agreed amount in accordance with a Service Outlet Performance Plan.
The primary concern about the application of case based funding in rural and remote locations relates to the adequacy of payment in covering the cost of achieving required outcomes after taking into account higher input costs, lower staff productivity due to travel required and lack of related support services, and lower 'throughput' of job seekers with disabilities due to difficult labour markets.
While service providers in rural and remote services favour a case based funding approach, believing that it will be more equitable, they are keen to see a funding approach which recognises the additional costs associated with these circumstances.
Thus, three important funding principles are proposed:
- funding should recognise the higher costs of operating in rural and remote locations;
- funding should be appropriate to the circumstances of the rural and remote location; and
- funding should promote a viable, efficient and innovative service system.
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3.2 Funding should recognise the higher costs of operating in rural and remote locations (Principle 1)
3.2.1 Introduction
There are various ways to recognise the higher cost of operating in remote locations. As described in Section 2, operating costs (per job seeker/consumer) are higher in rural and remote locations due to higher input costs and lower productivity.
The current approach involves:
- establishing a score based on classifying job seekers according to the relative difficulty expected in finding a job; and
- applying this score to a table of unit costs to arrive at a funding level for a particular job seeker.
In order to recognise higher costs, higher levels of funding could be provided by increasing the score (as a result of remoteness), or by using higher standard unit funding levels. Other funding approaches are possible, each with different impacts in rural and remote locations. Each of these possible approaches is discussed in more detail below.
3.2.2 Assessment processes and the recognition of remoteness
Case based funding is directly linked to the level of need, and outcomes for individuals, including those in rural and remote locations. The extent to which this occurs depends on the accuracy of assessment and the efficiency and effectiveness of service provision.
In the Case Based Funding Trial the Job Seeker Classification Instrument (JSCI) has been used to determine funding levels for job seekers. The JSCI was developed by DEWRSB to stream the most disadvantaged job seekers in the labour market to Intensive Assistance. The Instrument identifies the relative difficulty job seekers have in finding employment because of their personal circumstances and labour market skills.
The JSCI is a relative and not an absolute measure of job seeker disadvantage in the labour market. Job seekers may have similar levels of disadvantage measured by the JSCI but each may have different needs and a different profile of skills and circumstances. However, the JSCI was not developed to determine the cost of providing employment assistance for people with disabilities, rather it assigns a weight or points which indicate the difficulty of placing a job seeker in employment. It thus focuses on the circumstances of the individual job seeker rather than the way in which an outlet decides to provide services. In addition the JSCI was designed for use by the general population of long term unemployed and people disadvantaged in the labour market, and not specifically for job seekers with disabilities.
There are two main factors included in the JSCI which account for remoteness - geographic location and proximity to the labour market.
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Geographic location factor
The geographic location factor is based on labour market disadvantage. The 29 labour market regions of the first Job Network contract period were split into four categories based on the relative disadvantage of each region as assessed by a combination of rates of unemployment and rates of employment growth.
26 Points available are:
Low disadvantage regions 0 Moderate disadvantage regions 3 Moderately high disadvantage regions 4 Very high disadvantage regions 6
The Post Implementation Review (PIR) of the JSCI not only recommended an update of the geographical location factor weights, but also the development of a new model. The old geographic factors were based on Australian Bureau of Statistics (ABS) labour force data that is at least three years old (1995-97) and therefore, did not reflect the current labour market situation.
A new model for the 'Geographic Location' factor has been developed and is scheduled for phased implementation (this began on 19 February 2001). This new model is based on the regional likelihood of remaining unemployed for 12 months and applies points at the smaller Employment Service Area (ESA) level.
There are 137 ESAs, but those in Sydney, Melbourne, Brisbane, Perth, Adelaide and the ACT-Queanbeyan region have been combined, as these areas are considered to effectively function as single labour markets.
27 The geographic location factor is not used for Indigenous Australians. Indigenous job seekers have separate location weightings, which include the effect of geographic location.
Hence, under the current JSCI weightings and factors, a non-Indigenous job seeker can receive up to 9 JSCI points on the basis of their geographic location and remoteness. Indigenous job seekers receive 11 points as a matter of course, plus an additional 2 points if they live in a community outside a major city or regional centre.
Proximity to the labour market
Proximity to the labour market is weighted separately in the JSCI through the 'Proximity to the Labour Market' factor. Job seekers not living within 90 minutes travelling time of a population centre of 10,000 or more people receive an additional 3 JSCI points. In addition 2 points are available if there is no adequate public transport.
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Case Based Funding Trial
The difficulty of accurate classification in a wide range of circumstances is well recognised, and to accommodate differences in individual need and circumstances in rural and remote locations is a complex task.
During Phase One of the Trial, there were concerns about solely using the JSCI to determine funding for job seekers with disabilities. These concerns mainly related to a single point in time assessment, inadequate recognition of support needs, and the use of the JSCI to measure on going maintenance support needs.
28 In addition, disability employment services participating in this study through case studies and focus groups expressed the view that the JSCI did not adequately recognise higher costs of service provision in rural and remote areas. This was seen to be a combination of insufficient weighting for rurality in the JSCI, and inadequate funding levels. In addition, the stepwise funding levels meant that one point could make a difference of $2,500 or $3,500 in base funding.
Feedback from Phase One of the Case Based Funding Trial indicated that 61% of service providers considered the JSCI as a 'poor match' in assessing the level of assistance required by each job seeker. There was also little correlation between JSCI and WATs.
29 As previously discussed, the perception that funding levels are too low relates to both higher input costs and lower productivity. It was considered that while the factors within the JSCI which recognise geographic location (ie remoteness) might (on average) address higher input costs, they did not recognise lower productivity associated with operating disability employment services in rural and remote locations.
Towards the end of Phase One an interim evaluation was conducted by FaCS which included an assessment of the suitability of the classification process, the appropriateness of the funding levels, and other factors.
The Government agreed to enhance the assessment process to include an assessment of job seeker disability-related support needs. In addition funding levels have been altered, with 5 levels, instead of 3, and the highest level increased. This has been incorporated in Phase Two of the Trial.
Funding for employment assistance will be determined by a combination of job seekers' JSCI scores and their Disability Pre-employment Instrument (DPI) scores. The JSCI will still be completed by Centrelink. The DPI will be completed by the outlet after staff have worked with the job seeker for at least four weeks, and will be scored by FaCS.
Funding for employment maintenance will be determined by a Disability Maintenance Instrument (DMI) score, which is completed by the service provider, and is independent of previous assessments. This will be completed by the service outlet after staff have supported the job seeker in employment for 26 weeks.
As Phase Two is about to commence, and the new model for the geographic location factor within the JSCI has recently been implemented, the impact will need to be monitored. Many of the concerns of service providers have been addressed and the classification process remains focused on the individual job seeker. The JSCI is intended to identify an individual's risk of becoming long-term unemployed based on their individual circumstances, not membership of a specific group. It remains up to service providers to decide the best way to deliver services, which will determines their productivity.
Analysis of Phase Two of the Trial should demonstrate the extent to which this process provides adequate funds for services. The analysis should examine the extent to which points related to rurality, lead to higher scores and funding levels.
It is unclear how much an impact the new geographic location factors will have on Phase Two funding levels given the JSCI will only contribute 50% to employment assistance funding levels. It may be necessary for FaCS to look at increasing the weighting of these factors in its overall classification process.
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3.2.3 Unit funding levels
If Phase Two of the Trial demonstrates that the current classification approach does not adequately address costs:
- base funding levels could be adjusted to account for higher input costs (eg using Grants Commission information); and
- a further adjustment to base funding levels could be made according to remoteness to compensate for lower productivity.
The latter could be achieved using a formula based on ARIA, as ARIA measures accessibility, and new versions will be capable of accommodating virtually any location in Australia.
Table 3.1 illustrates this approach. It is assumed that 70% of the funding relates to direct service delivery, and that the arbitrary productivity reductions of 10%, 20% and 30% are correlated with the 3 ARIA classifications for remoteness Moderately Remote, Remote and Very Remote.
Table 3.1: Illustration of increased unit funding levels for rural and remote locations
| |
Highly Accessibl
Nil |
Accessible
Nil |
Moderately Accessible
10% |
Remote
20% |
Very Remote
30% |
| Level 1 |
$3,000 |
$3,000 |
$3,210 |
$3,420 |
$3,630 |
| Level 2 |
$5,000 |
$5,000 |
$5,350 |
$5,700 |
$6,050 |
| Level 3 |
$7,500 |
$7,500 |
$8,025 |
$8,550 |
$9,075 |
| Level 4 |
$11,000 |
$11,000 |
$11,770 |
$12,540 |
$13,310 |
| Level 5 |
$15,000 |
$15,000 |
$16,050 |
$17,100 |
$18,150 |
Source: Thomson Goodall Associates calculation. Estimates assume that compensation for lower productivity is correlated within ARIA classifications.
Service providers would be assigned to one of the ARIA classifications according to the remoteness of the service outlet. Increased unit funding levels would be designed to (on average) offset productivity effects.
A more detailed variation would be to establish unit funding levels which are characteristic of a particular service. Rather than assigning service providers to a single ARIA group, each service could have a table of unit prices corresponding to a remoteness factor. While this may appear administratively onerous, the total number of services potentially involved may be less than 40.
30 While ARIA is an attractive concept, providing an accessibility index for a large number of locations, and intuitively higher costs are associated with more difficult access, this needs to verified.
31 It is clear that the current classification process goes some way to meeting the higher costs, but further assessment is required.
The appropriateness of addressing productivity is somewhat dependent on the service model adopted by a particular outlet. As described in Section 5 of this report, innovative models can significantly improve productivity.
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3.2.4 Impact of funding approaches
In addition to case based funding, other approaches include block grant funding, output based funding (unit price or cost reimbursement), and negotiated rates. Each of these has a potential impact on the service system, and services to consumers in rural and remote locations.
Block grant funding
Under block grant funding, services are funded based on a budgeted aggregate cost and number of consumers. This requires agreement between funder and provider (ie Funding Agreement), with an annual acquittal. Suitable monitoring processes are also required to ensure quality.
Block grant funding allows service providers flexibility within a total budget. It provides funding certainty which is particularly important for smaller outlets in rural and remote communities.
On the other hand the current system of block grants does not appear to promote equitable distribution of resources among providers, can limit access by some job seekers with higher needs, can limit collaboration with other service providers and provides limited financial incentives to improve efficiency, increase service volume, or demonstrate improved outcomes.
Output based funding
Under output based funding services are paid a unit price (eg. hourly rate) for service provision. Output based funding usually includes a fixed component which recognises that a proportion of the providers' costs are fixed. The unit of service needs to be defined, and unit prices are based on analysis of benchmark costs of service provision by the funding body. This may recognise higher costs of operating in rural and remote loctaions. Total funding for a particular provider is usually limited by an agreed budget, and the provider has flexibility within the budget. The health aged care sectors uses output based funding extensively.
A primary advantage of output based funding is that consumers are central - resources are focused on consumers, rather than agencies. As a result this funding approach can provide greater flexibility in service delivery.
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Negotiated rates
Unit prices are established by negotiation, which may include competitive tendering, rather than by analysis and benchmarking. Negotiations may establish hourly (or daily/weekly) rates, or rates per specified outcomes. Negotiated rates may be based on specific cost formulae, or through formal/informal discussions with the funding agency, providing the opportunity to recognise particular rural circumstances, and service models.
Services may prefer negotiated rates because it allows the unique nature of the provider an its target population to be taken into account; and flexibility and responsiveness to meet the needs of job seekers with disabilities.
However the capacity of some smaller agencies to effectively negotiate and arrive at an appropriate unit price may be limited, with the risk of subsequent failure of the organisation, either financially or in terms of service quality.
On the other hand many services do not consider competitive tendering to be appropriate in rural and remote communities. Reasons include:
- in many rural and remote areas competitors are not always available, and a market price cannot be established by bidding;
- competitive tendering has the potential to dilute the community basis for service provision either by a competitive imperative which reduces collaboration, or through services which are provided by a successful tenderer from outside the community; 32
- there is disruption when services are re-tendered limiting service continuity, and impacting relationships which are established between providers and consumers;
- there may be reduced innovation and risk taking (in service development); and
- there may be reduced volunteer/community support for the organisation, due to increased professionalisation of services.
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Impacts of funding on service system
There are other potential impacts of the method of funding on disability employment services. Funding methods have been recognised as having a variety of impacts, including:
33
- discouraging servicing people with the most severe disabilities;
- discouraging basing services on consumer needs and choice;
- discouraging re-opening cases when someone loses a job;
- discouraging movement of people from supported (segregated) employment to open (community based) employment;
- setting quotas for the number of people placed; and
- pressuring agencies to close cases quickly.
3.3 Funding should be appropriate to the circumstances of the rural and remote location (Principle 2)
3.3.1 Introduction
Under case based funding service providers are paid on 'milestones' which occur on commencement of service provision, upon employment outcome (with award conditions), and during maintenance support. In rural and remote locations seasonal and weak labour markets can limit the period of continuous employment. In Indigenous communities concepts of work, and work practices suggest that alternative definitions of outcomes are required.
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3.3.2 Seasonal and weak labour markets
Within the Trial (Phases One and Two), an employment outcome is defined as employment of a minimum of 8 hours per week for 26 weeks within 18 months from commencement, at a wage which has been determined in several ways - under an award, a special wage permit, an enterprise agreement, a certified agreement, an individual employment contract or workplace agreement or self employment.
A total of 26 weeks employment within 18 months of commencement may not be achievable in rural and remote locations due to high levels of unemployment and often seasonal labour markets. Thus, it may be appropriate to provide a payment on the achievement of 13 weeks employment in a 12 month period where labour markets are highly seasonal. This would be in addition to the over-riding outcomes framework.
3.3.3 Indigenous outcomes
For Indigenous people with disabilities in remote communities there is often little work that meets the outcome definition, with the implication that Indigenous job seekers with disabilities will not be able to access employment assistance.
Culturally meaningful outcomes are required for people with disabilities in remote Indigenous communities. In particular a definition of work is required which is culturally appropriate and which includes contribution to the community as part of this definition, and which is not necessarily covered by an award.
Outcome measures also need to acknowledge the intermittent and sometimes seasonal nature of work, the additional time required for training, and to obtain employment.
This suggests that:
- payments are made on the achievement of 13 weeks employment in a 12 month period. This would be in addition to the over-riding outcomes framework; and
- employment by CDEP be recognised as employment, whether or not award conditions apply, consistent with mutual obligation arrangements.
Some forms of work-based training might be included in the minimum period of employment.
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3.4 Funding should promote a viable, efficient and innovative service system (Principle 3)
3.4.1 Introduction
Case based funding provides flexibility and allows service providers to be innovative in their approach to service delivery.
However, in rural and remote locations case based funding may lead to unpredictable cash flow for service providers (employing traditional service models) which are generally smaller and susceptible to peaks and troughs in demand. Service providers contacted during the study perceived that any less than about 30 job seekers per year will cause cash flow difficulties for a single outlet service, although this will depend on the number of new job seekers and the number who are working.
Service providers also noted potentially higher (ie than urban) 'up front' costs associated with visiting a job seeker to conduct an initial assessment and possible subsequent meetings prior to commencement.
Careful analysis of the Trial will be required to determine whether peaks and troughs in demand will in fact, cause cash flow problems. One approach is to retain a proportion of funding as a fixed payment, with the balance of funding case based, thus providing a guaranteed funding level with which services can pay a component of fixed costs.
3.4.2 Fixed funding component
Cash flow difficulties relate to the number of new and existing job seekers with disabilities, seasonal labour markets, irregular demand and the capacity of a service to 'smooth out' demand (ie using waiting lists, etc). Cash flow difficulties may be addressed by funding a fixed budget amount. Such an approach is illustrated in Table 3.2.
Table 3.2: Indicative level of funding provided on a fixed basis
| Number of new job seekers with disabilities per annum |
Proportion of estimated total funding provided as fixed amount |
| Less than 20 |
30% |
| 20 - 29 |
20% |
| 30 - 39 |
15% |
| 40 + |
Nil |
Source: Thomson Goodall Associates estimates, based on input from case studies and focus groups.
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Such a funding approach may be necessary for providers to remain viable in the short term, and also used when new services are being established. Over the last 10 years or so, many providers have established relatively fixed infrastructure, and can be tied into a particular way of operating, and it may be necessary to retain a fixed component in the longer term for some services.
However, improving the way resources are used through case based funding will be achieved when the fixed component is minimised.
The use of a fixed funding component in the short rather than long term, would involve the following:
- service providers would receive proportionately less case based funding. For example, a provider which elects to receive 30% fixed funding, would receive 30% less case based funding (alternatively the proportion could be negotiated under contract with the provider); and
- fixed funding arrangements would be time limited. One option would be to annually reduce the proportion of fixed funding. A time limited approach would provide an incentive for services with low numbers of job seekers with disabilities to consider collaborative arrangements with other services.
3.4.3 Other approaches to improve viability
There are other strategies which will also promote viability, and at the same time promote a more innovative and efficient service system. Strategies include sub contracting/employing casual workers, broadening the funding base, or establishing services within new providers.
These strategies are discussed in more detail in Section 4.
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3.5 Conclusions
There are several funding mechanisms which could be developed which would recognise the higher costs of operating in rural and remote communities, thus satisfying funding principle 1. These rely on judgements about additional input costs and operating productivity, which can be informed by analysis of Phase Two of the Case Based Funding Trial, by Grants Commission information and ARIA measures.
In order for funding to reflect circumstances in rural and remote locations (ie principle 2), it may be necessary to make milestone payments upon the achievement of 13 weeks work in a period of 12 months, thus recognising high unemployment rates and seasonal labour markets. Similarly payments for employment assistance provided to Indigenous people with disabilities are required for work which is of value to the community, but which may not comply with the formal definition, including CDEP work, and possibly work based training.
The viability of existing smaller independent outlets may be threatened due to unpredictable cash flow resulting from unpredictable consumer demand and case based funding. While this may be addressed by providing a fixed funding component, there are several alternative strategies which may also promote service viability.
The funding principles identified in this section provide a framework for addressing the additional costs of service provision in rural and remote locations. Alternative funding arrangements to address the additional costs need to be trialed.
Recommendations
- 3.1 It is recommended that the principles of case based funding be applied in rural and remote locations, including indigenous communities.
- 3.2 It is recommended that FaCS trial funding arrangements which are designed to compensate the higher (input) costs of travel and other operating expenses, and the extra time required by staff in travelling, finding jobs in difficult and seasonal labour markets and working with remote Indigenous communities.
- 3.3 It is recommended that outcome measures for Indigenous people living in remote locations include culturally appropriate definitions of 'work'.
- 3.4 It is recommended that payments are made on the achievement of 13 weeks employment in a 12 month period, in addition to the over-riding outcomes framework in rural and remote locations.
- 3.5 It is recommended that the trial include a proportion of case based funding (including the additional amount) being provided as a fixed amount to independent services in rural and remote locations (including Indigenous communities) which are relatively small.