Price caps are a core regulatory tool of the National Disability Insurance Scheme (NDIS). The National Disability Insurance Agency (NDIA) sets maximum prices to protect participants from excessive charges while maintaining provider viability, encouraging efficient delivery, containing short-term costs, and influencing budgets and market outcomes.

We examine how market prices and service volumes (measured in hours) responded to the 1 July 2025 NDIS price caps adjustments using detailed service usage data from Kismet, a healthtech company that operates as a plan manager for the NDIS. These adjustments varied across services, with some caps increasing, some decreasing, and others remaining unchanged. This variation allows us to study how markets respond to both upward and downward changes in regulated prices. Our analysis focuses on short-run responses in the weeks following the price cap changes. Our results show:

• For services with price cap increases:
  • Market prices rose immediately: a 1% increase in the price cap led to a 0.61% increase in prices charged by providers.
  • Aggregate service volumes remained unchanged in the short run.
  • Even providers pricing well below the cap before the change raised their prices when caps increased.
• For services with price cap decreases:
  • Market prices fell immediately: a 1% decrease in the cap led to a 0.9% decrease in market prices.
  • Overall service volumes remained broadly stable, though small reductions were observed for services facing the large cap cuts.
  • While all providers reduced prices after a cap reduction, those previously pricing at the cap adjusted substantially more, with prices falling by 1.11% per 1% cap decrease, compared with 0.3% for providers with pricing headroom.
• For services with unchanged caps:
  • No change in market prices or service volumes was observed.

Taken together, these results show that market prices adjusted rapidly following cap changes in both directions, while short-run service volumes remain broadly stable, with small contractions concentrated in services facing larger cap reductions. We observe a clear asymmetry in market response: when caps increase, prices rise at similar rates across all providers (including those with pricing headroom), whereas when caps decrease, all providers lower prices, but those previously at the cap adjust substantially more than those with pricing headroom. With scheme expenditure and participant numbers continuing to grow, these results suggest that price cap adjustments affect both expenditure and service provision, highlighting a trade-off that warrants ongoing monitoring of provider behaviour over time.