Why commission by payment by results?

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The rationale for PbR

This is the second post in a blog series looking at the lessons I’ve learned from a recent review of the payment by results literature and it focuses on understanding the different rationales for the PbR approach to commissioning.

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One of the main things which became clear to me from reviewing the literature was that commissioners used the PbR approach for a very wide range of reasons, including:

  • Improving outcomes
  • Improving service quality
  • Reducing costs/improving value for money
  • Deferring payment
  • Stimulating innovation
  • Transferring risk
  • Encouraging new market entrants
  • Reducing commissioning costs
  • Reducing inequalities
  • More/better focus on outcomes

I will consider each of these rationales in turn over the next few Wednesdays and share what we can learn from the literature about whether PbR can help achieve each of these aspirations.

In this post, though, I want to focus on the importance of clarifying the rationale or intention for using PbR for a specific service and what happens when commissioners have a number of different intentions in mind.

Different intentions

Payment by results can be seen as part (or possibly the end point) of a movement away from more passive methods of funding public services such as block contracts. Policy makers and commissioners have increasingly seen payment systems as an important lever for influencing provider behaviour in line with a range of different intentions.

One way of measuring if a given PbR scheme works is to assess whether it met the primary intention for which it was commissioned.

This issue was highlighted by the (now defunct) Audit Commission in one of the first authoritative reviews of payment by results which placed great emphasis on understanding the purpose of schemes. The first chapter of its report is entitled “A clear purpose” and starts:

A clear purpose is important as it will shape design and implementation. Although there may be subsidiary objectives, schemes usually have one or more of these main aims:

  • improving outcomes or service quality;
  • reducing costs or improving value for money; or
  • stimulating innovation or transformational change.

The Audit Commission also notes that it may be too ambitious to try to achieve all these aims in one PbR scheme because:

The challenges associated with designing the scheme to achieve the right balance between risk, cost, change and outcomes vary with different aims.

The Work Programme illustrates this point nicely. As last week’s post points out, if the DWP intended the Work Programme to get the same numbers of unemployed people into work but at reduced cost, it was successful. However, if the DWP designed the Work Programme to get those who had been on long term sickness and disability benefits into work, it failed.

Similarly, a voluntary sector review of a number of PbR contracts found that the intention and purposes of PbR were not always clear:

Often there are a number of conflicting drivers underpinning the move to commission on a PbR basis and this has resulted in poor implementation and the inappropriate application of PbR. … [We found a] Number of cases where PbR has been used purely as an alternative way of paying for the same service, rather than as a method for improving outcomes by developing new forms of service provision.

One of the themes that has emerged from many of my conversations with commissioners about PbR is that they are often skeptical about the approach but are being pressured into using PbR either because of pressure from senior managers and/or politicians or by the perception that everyone else is doing it. When this is the case, it is not surprising that the rationale for using PbR is often far from clear.

payment by results literature review

Clashing intentions

One of the ways in which PbR schemes seem quite often to go wrong is when the rhetoric and assumptions about a PbR initiative clash with the real intentions revealed in the contract structure – in particular the measurement outcomes and associated payments.

For instance, PbR schemes are often talked about as a way of tackling entrenched social problems by stimulating innovation and new ways of working. However, by the time that commissioning has been shaped by the procurement process and the inevitable reduced budgets of the last five years, it sometimes appear that the PbR mechanism has been used more as a way of trying to cut costs.

Many commentators would argue that the government’s probation reforms known as Transforming Rehabilitation (TR) fall into this category. The newly created Community Rehabilitation Companies are contracted on a PbR basis to reduce reoffending rates. Announced as a new initiative to tackle the very high reoffending rates of short term prisoners in particular, TR implementation to date appears to have been mainly characterised by a large reduction in probation officers and there appears to be little confidence that new, effective ways of working will emerge.

Conclusion

Last year’s National Audit Office report on PbR specifically recommended that if commissioners wanted providers to adopt an innovative approach to a particular service, they needed to incentivise this with additional funding, rather than merely expect a PbR contract inevitably to generate innovation.

One of the key learning points from the review has been the importance of commissioners and potential providers having a series of honest, open discussions about their aspirations for a particular service and how PbR could make this happen, at the planning stage. If the rationale for commissioning via PbR is explicit and clearly defined, it is much easier to design a PbR contract (and, of course, the service itself) constructed to meet this rationale.

 

Next Wednesday’s post will explore what the literature tells us about the effectiveness of using PbR to improve outcomes.

I reviewed the literature as part of a project 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

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