The dangers of Payment by Results

By Dan Corry 22 February 2012

This week’s news that four former employees of work programme contractor A4e have been arrested has provoked a lot of knee-jerk reactions and comments in the media. Many of these merely reiterate what some have always thought—that it is wrong to have for-profit providers involved in delivering social outcomes. But I think the lessons from the A4e story are more subtle, and more about the issue of Payment by Results.

One of the great advantages of Payment by Results is that it sharpens up the incentives for providers—for-profit or not-for-profit—to deliver the outcomes that commissioners want. It forces the commissioner to be precise and stops the provider wasting time and effort unnecessarily.

So far so good.

But it does mean that the provider will naturally bust a gut to try and hit the outcome targets desired—even more so if they get more money the more ‘outcomes’ they achieve (like NEETs into jobs, or prisoners away from re-offending).

Again, so far so good.

But there are several possible consequences of this. One is the temptation to ‘park and cream’. In other words you work hardest with those that you think you can get over the line and so achieve your outcome targets and associated payments. If a person is going to reoffend whatever you do then it is pointless putting much effort into them. This is a natural response to the incentives faced, but it means those who are harder to help get ignored (even with fancy incentive payments that are supposed to be weighted by the degree of difficulty of helping that person). It also means that prime contractors (often for-profit organisations like Serco and A4e in the Work Programme) might pass the toughest cases to the charity sub-contractors.

The other consequence is the temptation to fiddle the figures. If head office is putting massive pressure on the organisation to hit targets, incentivising staff in different ways, then people may well be tempted to make sure the data says what head office wants to hear, whatever the truth. All those involved in Payment by Results will need to watch very carefully to avoid this—be they the providers (for-profit and not-for-profit), commissioners or indeed public watchdogs.

The more that data is open and publicly available the less room for this sort of thing to go on, as people can monitor and pick up on fraud more easily.

Payment by Results is a good idea. But it could learn a thing or two from history—in the early days of the Labour government the Individual Learning Accounts, designed to encourage more people to get themselves trained up, were brought down by fraud, despite being very promising. If people don’t get a grip of the potential for abuse early on, Payment by Results is in danger of becoming similarly fatally tainted.