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Effort and courage are not enough without purpose and direction

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The title to this post is a quotation from John F Kennedy and sets the tone for a discussion of the first of the Audit Commission’s Five Principles for local PbR schemes set out in their recent report:

Principle 1: A Clear Purpose

The Audit Commission recommends that a clear purpose for PbR schemes is important as it will shape both design and implementation. The Commission states that PbR schemes usually have one or more of these three main aims:

  1. Improving outcomes or service quality;
  2. Reducing costs or improving value for money; or
  3. Stimulating innovation or transformational change.

I would add a fourth from my reading of government announcements:

4. Transferring financial risk away from the Treasury.

The report looks at the first three of these aims in some detail and make some very helpful recommendations which are worth repeating below.

Improving outcomes

The Audit Commission highlights one of the key concerns for voluntary sector providers – that there is typically a significant delay before outcomes can be measured and, therefore, payments can be made, making it difficult for smaller organisations to participate. The report recommends using process measures as proxies for outcomes and paying against the achievement of these as well as considering a mixed payment scheme with only a proportion of the overall payment attached to outcome measures.

The Commission also makes a very helpful recommendation for the majority of PbR schemes which are delivered by multiple providers. It acknowledges the difficulty in matching the payment rewards to the contribution of each provider but cautions strongly against commissioners throwing smaller providers onto the mercy of “the prime”. I share their view that it is the duty of commissioners to clarify how contributions and rewards will be shared rather than let prime providers make this decision.

Reducing costs

The report encourages councils commissioning local PbR schemes to do a thorough financial assessment which does not just focus on the payment mechanisms for the proposed new initiative. Rather, it encourages them to make sure that they factor in costs for any decommissioning of current services and engage in proper planning for service continuity in the event that a new service fails. They are also urged to examine whether savings made by one organisation can lead to extra costs for another.

Stimulating innovation

The Commission clearly points out that the greater the degree of innovation required, the higher the risk to the provider and therefore the larger the expected reward. My experience at the moment is that innovative PbR schemes are few and far between as the prospect of not being paid has led organisations to focus much more on best practice rather than radical new approaches.


But perhaps the most important thing that the Audit Commission has to say about this first principle is that it may be too ambitious to try to achieve all of these main aims in any one PbR scheme.

I think this is absolutely right.

Of course, the long-term objective of all PbR schemes is to stimulate innovation in ways which improve outcomes and thereby reduce costs.

However, in the real world this is probably too ambitious to achieve within the first three to five-year cycle of a typical scheme.

My experience of designing PbR schemes for both commissioners and providers is that there is a inevitable tension between these different aims.

If you really want to stimulate innovation and develop a radical new approach to tackling an entrenched social problem, then a tight focus on money-saving in the short term is unlikely to work.

In the same way, if you design a full-blooded PbR scheme where payment is only made for improved outcomes, it is unrealistic to expect small and medium size providers to risk their very existence on an unproven approach.

If your experience is different, please share it in a comment below.

Next week I’ll be examining the Audit Commission’s second principle:

Understanding risks and accountability.

Have a good week till next week.





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