Making sense of payment by results
5 August 2016 2 minute read
Payment by results (PbR) is increasingly common—and controversial
While not as newsworthy as it was three or four years ago, PbR has steadily become a common commissioning model. In 2015, the National Audit Office identified 52 schemes containing an element of PbR in the UK, worth a total of £15bn of public money.
There are two main reasons for this increase. Firstly, there is a growing need to get the most bang per buck out of public services. PbR is the leading impact commissioning model—buying outcomes, not outputs. Secondly, PbR is a natural partner of Social Impact Bonds (SIBs) and other forms of social investment, and the UK government is aiming to create £1bn of SIBs by 2020.
But PbR schemes are often associated with cost-cutting and/or the privatisation of previously public markets. There has been considerable mainstream media criticism of the model resulting in controversy and confusion.
And many charities have found them a struggle. For example, those voluntary sector organisations that were involved in bidding for or providing services under two of the largest government PbR programmes—the Work Programme and the reform of the probation service known as Transforming Rehabilitation—were often very dissatisfied with the process. Amoung other issues, they found it favoured much larger private providers.
But does PbR work?
Researchers have reached opposing conclusions about the same PbR initiatives. Those who saw the Work Programme as being primarily about helping long term unemployed people back to work with the least investment of public finances, assessed it as successful. Those who thought it was designed to get people with entrenched difficulties such as disability or addiction into work, concluded that it failed.
The evidence base on PbR is inconclusive; schemes are so varied, tend to be commissioned for such different reasons (to improve outcomes and/or stimulate innovation; to reduce costs, to transfer risk from government or commissioners, to encourage new markets), and are so often poorly evaluated, that it is not yet possible to pass judgement on whether the PbR model works.
There are a number of examples of positive PbR schemes in the UK and other countries, and probably even more examples of badly designed schemes that have failed.
And how can we be more strategic in using the model?
Given this lack of clarity, it’s important for charities who commission, invest in or provide services on a PbR basis to have an informed and impartial tool to help them identify key issues.
And there may be hope yet. Funded by the Oak Foundation, I developed an interactive tool to help commissioners, investors and providers think through the many factors associated with choosing a PbR model. The tool asks key questions on both the rationale for using PbR for a particular service and key elements of the contract—such as defining and validating outcomes and guarding against common PbR problems like ‘creaming and parking’ and unintended consequences.
The tool gives you immediate feedback on your choices, followed up by summaries of key research. Everything is evidence-based and the tool is completely free to use—you don’t even have to register. When you’ve completed the tool, you get to download all your answers and additional PbR resources.
Hopefully, more organisations can make better decisions, and we can end up with a more informed debate on payment by results.
You can find the tool at: www.PbR.russellwebster.com. You are very welcome to embed it on your organisation’s website to encourage your funders, staff and clients to use it.