Should not for profits drive down their overheads in consumer directed care?Consumer directed care & the overhead debate

There has been debate about the high cost of consumer directed care and a view that the not for profit sector is overcharging by having a higher % of overhead costs in their pricing model vis a vis other providers.

This arguement assumes that the lower the overheads = the more efficient the business model, the more competitive your business is in your market space.

Should overheads be benchmarked in aged care?

Behind this argument is an assumption that overhead should somehow be equivalent for the same service in aged care.

But can you compare the overhead of a commercial business to a not for profit/charity?

Lets look at what overheads support and consider if establishing a lower base overhead is in a not for profit’s interest. Sure in the short-term consumers get a cheaper price but invariable this will impact on services and mission of the not for profits.

What sits behind the drive by consumers and competitors alike to have comparable ‘overhead’ rates.

I would argue that there is

  1. a failure to understand or support the ‘mission’ of the not for profit involved in in-home aged or disability care, and a
  2. inability to distinguish the relationship of service delivery to the organisations mission,

While it is true that if you reduce overheads the product is cheaper for the consumer, thereby allowing them to purchase more, we should also consider what the impact is longer term on the not for profit sector?

Preserving and extending charitable mission

Image – Graphic Stock

The not for profit sector serves a social purpose and returns a community benefit which can only be achieved and maintained by ensuring the long-term viability and growth of these not for profits.

What these overheads support is the charities mission and provides for their future viability and growth.

I’ve argued previously that part of the pricing formula for consumer directed care has been the inclusion of a ‘wellness’ focus but this is only a part of the price setting.

Pricing for mission

As a charity the price of your service should allow for the ‘mission or purpose’ of your organisation both now and into the future.

So what is needed to showcase mission when examining your finances and overheads?

  1. you must first understand your pricing and costing structure,
  2. an ability to identify the elements of cost that supports mission – you must know your real overhead and infrastructure needs to deliver, grow and sustain your mission.
  3. a willingness to ‘Speak truth to power’ – communicate to your Board and clients the real nature of your overheads
  4. encourage your Board to interrogate overheads and ask questions to challenge assumptions about overhead and explore the risks of failing to invest in these areas to mission.
  5. Clarity and consistency in identifying and describign the benefits of overhead costs to your beneficiaries (not a focus on efficiency or reducing costs) – this will help in communicating your benefit or mission.

Can you distinguish your organisation from any other?

If a consumer can’t distinguish the difference between what you deliver from any other commercial provider they will not accept a higher fee because for them the services are the identifical – you wouldn’t buy it so why should they.

For higher overheads to make any sense to the consumer they need to see and feel the ‘mission’ of your not for profit or charity.

So the challenge is for not for profits to front and centre promote mission in your marketing and showcase your clients’ contribution to this mission.

The way we think about charity is dead wrong

Finally I leave you with Don Pallotta who examined the notion of frugality in charities and challenges in his TED talk ‘The way we think about charity is dead wrong’.

He challenges

“the notion of rewarding charities for how little they spend on overheads not for what they get done”.