We recently had the opportunity to analyse the top 1000 NDIS Plan and Agency Managed billers for the 2022 - 2023 financial year and 2023 calendar year.
Our view is that there is a high likelihood of increased exits at the smaller end of the market as the Commission becomes more aggressive and margins are squeezed as part of the ongoing NDIS reform. This presents a great opportunity for organisations in the $30m(+) range to achieve the scale they need for sustainability.
The data analysed the total Agency and Plan Managed payments from the NDIA to providers for the periods 2022 - 2023 financial year and 2023 calendar year.
| Financial year 2022 - 2023 |
Calendar year 2023 |
Percentage change |
|||
| Revenue bracket |
No. of providers |
% of providers |
No. of providers |
% of providers |
|
| <$10mill | 628 | 62.8% | 596 | 59.6% | 3.2% ↓ |
| $10mill - $30mill | 272 | 27.2% | 306 | 30.6% | 3.4% ↑ |
| $30mill - $100mill | 86 | 8.6% | 83 | 8.3% | 0.3% ↓ |
| $100mill+ | 14 | 1.4% | 15 | 1.5% | 0.1% ↑ |
In both periods, the sector overwhelmingly comprised small players with the bulk of providers receiving less than $10 million in revenue (59.6% in calendar year 2023). The data also indicated that the number of providers billing over $10 million increased from 38% to 41% throughout this period.
These numbers would appear to support the explosion in small providers over the past 5 years as demographics which traditionally worked in the disability sector in supporting roles moved to leverage their skills by starting their own businesses.
Whilst not unexpected, the dramatic reduction in the number of providers operating above $10 million, and even above $30 million, reflects the difficulties of scaling under the current NDIS pricing model and regulatory framework. That is, as organisations grow in size, further professionalisation, systems and layers of management are required, pushing the boundaries of what is feasible for many of the smaller organisations (particularly in the face of a lack of capital). This appears to be creating a ‘regulatory ceiling’ on most providers’ capacity to increase revenue.
While we have seen an increase in the number of providers in the $10 million - $30 million bracket, it only grew by 3.4%, which indicates ‘system’ growth and amalgamations of providers.
The $30 million - $100million bracket actually went backwards, and the $100 million + bracket grew by just one provider.
Further, as revenue increases, private providers drop off rapidly - with the majority of providers billing over $50 million being ‘not-for-profits’. Their overrepresentation in the NDIS at this level may be due to:
There are now 15 providers in Australia in the over $100 million bracket (up by one provider over the period, less than 2% of the total number). These are generally large multi-state organisations. Only one of them is a ‘for-profit’ organisation, while the rest are ‘not-for-profits’. Perhaps this demonstrates that the higher cost burden associated with scale makes it uneconomic to deliver NDIS services under the present pricing and regulatory model at this level.
A key takeaway from the above analysis is the likelihood of increased exits at the smaller end of the market as new registration requirements are implemented and the Commission continues its aggressive approach. Margins will be further squeezed as part of the ongoing NDIS reform further increasing compliance obligations. This presents an opportunity for organisations over $30 million to get the scale they need for sustainability. It also signals that now may be a good time for providers in the $10 million - $30 million bracket to capitalise and consider an exit.
Finally, where not-for-profits are considering acquisition of likeminded not-for-profits with an aligned mission and ethos, there is potential for acquiring at nil or very limited value (which can likely explain why the top of the market is dominated by not-for-profits).
To discuss how Lavan may be able to help your organisation grow or adapt to changing market conditions, contact Amber Crosthwaite by email on amber.crosthwaite@lavan.com.au.
