This is the seventh in my series of 10 commandments for payment by results.
Thou shalt promote innovation
Payment by results is supposed to be all about innovation.
The central idea of PbR is that commissioners set their outcomes and only pay up if the provider achieves them.
This leaves providers free to deliver the service in any way they see fit.
The freedom from constant monitoring and reporting on targets, milestones, KPIs etc. enables providers to approach entrenched social problems with new ideas and fresh approaches and also frees up considerable resources currently dedicated to the collection, polishing and submitting of data.
However, so far we have seen very little innovation in any of the current round of PbR projects.
This seems to be for three main reasons.
1. Concern about failure
Organisations operating contracts which are mainly funded on a PbR basis (the percentage of PbR in a contract varies widely with the Work Programme contracts being 100% paid on results from next year while the MoJ reducing reoffending contracts look likely to start at just 5% PbR) can be paralysed by the fear of failure.
They are naturally concerned about the survival of their organisation and want to make sure that staff don’t lose their jobs. This leads to a “let’s keep doing what we know works, only better” approach.
2. Commissioner reputation
PbR schemes are high profile and sometimes their commissioners also feel under pressure.
Quite often commissioners can feel scrutinised both by government and the collective judgement of the field in which they work.
So instead of sitting back and waiting for the results, they can’t resist interfering.
Abandoning the “black box” approach, they request regular updates, institute even more frequent performance monitoring meetings and generally counsel against unproven ways of working.
This can create the worst of both worlds for providers – an even more stringent reporting regime without any guarantee of getting paid.
3. Cost reduction is more important than innovation
Because most of the PbR pilots have been introduced at a time of substantial reductions in public expenditure, the focus has been more on reducing costs than introducing innovation.
Although innovation will often produce savings in the medium-long term, it is hard to transform a service and make major savings in the first year of operation.
This was the challenge for the Work Programme providers (for which the Department of Work and Pensions also under-estimated demand for services by about 60%).
Innovation has been hard to find in the Work Programme – with less than half of the 40 providers meeting their targets according to the latest figures released in June 2013.
How to encourage innovation
My advice to commissioners who are contemplating a payment by results approach in order to stimulate a radical service design can be boiled down to four key issues:
- Set ambitious cost saving targets at the end of year 3-5 (rather than immediate year by year targets)
- Emphasise that you want innovation from the earliest stage of commissioning
- Clarify the role that you will play in facilitating innovation (which will inevitably include thinking about co-commissioning opportunities)
- Resist the temptation to interfere – support the provider you have chosen to give them the best chance of success.
The next post examines the 8th Commandment of Payment by Results:
“Thou shalt share the fruits of this labours”