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Russell Webster

Russell Webster

Criminal Justice & substance misuse expert and author of this blog.

What we know about payment by results

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This final post summarises the most important lessons to bear in mind if you are involved in commissioning, investing in or providing a payment by results-funded scheme.

Lessons from the literature

This is the 14th and final post in a blog series looking at the lessons I’ve learned from a recent review of the payment by results literature.

Over the last thirteen weeks I’ve shared key points from the evidence base to help commissioners or social investors considering using PbR to clarify their rationale for doing so and identified critical success factors to help commissioners and providers work together to design PbR schemes which produce better outcomes and avoid some of the common pitfalls of this increasingly common approach to contracting public services.

This final post summarises the most important lessons to bear in mind if you are involved in commissioning, investing in or providing a payment by results-funded scheme.

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Five critical success factors for commissioners

1: The reasons for using PbR have a big impact on how to design an effective scheme. Trying to achieve too many goals at once tends to undermine a PbR scheme. Decide your priority: improving outcomes, OR  stimulating innovation OR improving value for money.

2: Wherever possible agree outcome measures which are clearly understood and, if possible, can be verified by existing data systems.

3: Remember that most providers will (quite reasonably) de-prioritise work which is not linked to outcome measures.

4: Ensure that outcome measures are within the control of the providers you are commissioning — this is particularly important in multi-agency schemes or long term employment schemes which can be affected by changes in the economy.

5: Ensure that incentives are priced at the right level for the performance you desire — under-priced PbR contracts tend to result in hard(expensive)-to-help clients being parked and receiving a sub-standard service.

Five critical success factors for providers

1: Be honest in your pricing — if you can only make a contract pay by meeting a much higher level of outcomes, seek to negotiate or withdraw from the competition.

2: Make sure that outcome payments are not so long delayed that your organisation will be under cashflow pressure.

3: If you or your commissioners want to try an untested/innovative approach, seek to negotiate a pilot scheme first.

4: Be aware that recording and verifying outcomes can be an expensive business and make sure you factor the full costs of this into your bid.

5: If you are a smaller organisation in a supply-chain on a PbR contract, either ensure that you will receive a guaranteed number of referrals or seek to be paid on a non-PbR basis.

Conclusions

There are four key overarching points to bear in mind if you are a commissioner designing a PbR contract or a provider considering bidding for one:

  1. Unintended consequences are commonplace in PbR contracts, build in the ability to review & modify contracts regularly in the interests of commissioners, providers and, most importantly, service users.
  2. PbR contracting is often a high risk approach, requiring substantial changes to established ways of working. So, commissioners are recommended to consider a “blended” approach where the element of the contract subject to PbR starts at a low percentage and grows over time. Providers should be wary about taking on a 100%-PbR funded contract.
  3. PbR is not the only commissioning approach which can incentivise specific outcomes, where the research evidence underpinning this tool suggests that PbR does not fit the service you are commissioning, consider other approaches.
  4. Because we do not yet understand how PbR often plays out in practice, the literature strongly recommends piloting new initiatives.

 

I reviewed the literature as part of a project funded by the Oak Foundation to develop an interactive tool to assist commissioners and providers to decide whether a payment by results approach might be an effective approach to commissioning a particular service.

The tool is now live – please check it out at: www.PbR.russellwebster.com

Related posts you might like:

The unexpected consequences of payment by results

The issue of providers “gaming” PbR contracts is a hot issue in the literature. Commentators take different views with some stating that it is only rational and efficient for providers to focus on the outcomes incentivised by PbR payments to the best of their ability while others describe similar behaviour as “gaming.”

Read More »

Getting payment by results contracts right

Designing PbR contracts can be a tricky business with plenty of examples in the literature of commissioners and providers wishing they had never signed on the dotted line. In addition to getting the outcomes and payment incentives right, two issues are particularly critical: the overall length of the contract and the he delay until, and interval between, incentive payments.

Read More »

Attributing outcomes in payment by results contracts

When outcomes are the basis for payment, it is important that the provider receiving the payments is responsible for achieving the outcomes. Targets should not be unduly influenced by external factors (such as the state of the economy for Work Programme type schemes) or by the work of other agencies who are not receiving payment from the contract.

Read More »
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