This is the first in a series of posts on the National Audit Office’s recent report: Outcome-based payment schemes: government’s use of payment by results. The report’s overall conclusion is that because of the lack of a clear evidence base, the PbR approach is currently laden with risk.
The nature of outcome-based payment schemes
The NAO embraces the common meaning of payment by results – where payment is largely contingent on the provider delivering an outcome – getting people into work – rather than an output – providing them with a CV and interviewing skills. It notes that some schemes, like the large NHS one which sets tariffs for clinical procedures, are labelled PbR even though they commission outputs and others are not described as PbR, even though they deliver outcomes (such as the DCLG’s Home Bonus scheme).
The PbR schemes considered
For this report, the NAO looked at 6 central government departments known to be using PbR, and identified 52 schemes containing an element of PbR which were worth a total of at least £15 billion of public money. Details are in the graphic below (to enhance readability, click it to make it go full screen or right click it and save it to your computer/tablet/phone).
As you can see, the main schemes are:
- The Work Programme (DWP) worth £3.3bn over 9 years
- Transforming Rehabilitation (MoJ) worth £3.15bn over 7 years
- New Homes (DCLG) £3.4 bn over 5 years
- Troubled Families (DCLG) worth £448m over 3 years (and now extended for a further £200m over 5 years)
- A large number of international aid projects (DFID) worth over £2bn
The proportion of PbR payment varies between schemes. Under MoJ’s Peterborough offender rehabilitation pilot, 100% of payments are outcome-based; whereas the PbR component of DFID’s Rwanda education sector programme is only 9%.
The lack of co-ordination
The NAO’s focus is always on effective use of public money and so it investigated why government was so keen on PbR and if and how it knew the approach was effective.
In the first four years of the last government (2010-2014), there was an informal cross-government PbR group which sought to share lessons and to identify public services where government could make further use of PbR based on its perceived suitability and feasibility in different circumstances.
The group stopped meeting in March 2014 and the NAO found that there is no-one or no agency accountable for PbR in government:
- Neither the Cabinet Office nor HM Treasury monitors how PbR is operating across departments.
- Individual spending teams within HM Treasury monitor some PbR schemes, but there is no systematic collection of lessons from using PbR or evaluation of information about whether it is delivering its claimed benefits
- Individual commissioners therefore have no central source of comparative evidence about past PbR schemes to inform their choice of delivery mechanism.
The NAO concluded that this lack of co-ordination increases the likelihood of commissioners using PbR inappropriately.
For instance, the NAO identified overlap between programmes that could lead to duplication and confusion. Their reports on two family support programmes led respectively by DCLG and DWP found them to be poorly integrated, despite funding services for a similar group of people.
Although the two departments sought to coordinate their efforts after both schemes were set up, the existence of two separate programmes addressing one issue caused confusion, low referral rates and poor performance.
The NAO concludes this first chapter of their report with a plea for central oversight and coordination of data on the use of PbR in order to:
- Ensure consistency across government’s portfolio of PbR schemes, and identify risks of overlap between schemes;
- Gather evidence to identify whether, and in what circumstances, PbR offers value for money as a delivery mechanism;
- Monitor and evaluate how effectively PbR is working across government; and
- Facilitate the sharing of good practice among commissioners about the design, implementation and evaluation of PbR schemes.
PbR schemes are typically targeted at intractable, multi-faceted social problems with the hope that an outcome-focused approach will encourage innovation and more holistic responses. If government departments cannot even co-ordinate their commissioning around PbR, it will be very difficult for providers to design and deliver new solutions.
Next week’s post looks at the NAO’s advice on whether to use payment by results.