Eight ways to muck up PbR … and a few ways to improve it

Payment by results has been getting a lot of grief recently. Some of it deserved. The compulsion for revolution rather than evolution, and poor contracting and procurement practice have combined to create a heavily loss making industry that is not generating outcomes. The fear is that when government doesn’t seem comfortable admitting to any previous mistake it may be in danger of repeating the mistakes it has made. So as a source of Friday entertainment, I thought I would help by consolidating my eight best ways of mucking up outcomes based contracts. 

1)    Set the maximum outcome payment at or below the value of the previous revenue contract: This way providers will be nervously trying to retain revenue, rather than innovating to improve outcomes

2)    Set outcome measures and values without engaging the marketplace: Measures take a while to achieve buy-in, and to motivate change, they need it…

3)    Run a price focused rather than quality focused procurement process: This favours naive or optimistic bidders over competent ones

4)    Transfer risks that the bidder is in no position to control: It may make you feel better, but it increases cost disproportionately, or ensures you only get naïve bidders through who haven’t thoughts about it

5)    Provide detailed information only after bidders have been asked their price, and then offer them only the option to continue or withdraw: This is simply a way of ensuring poor services by desperate bidders

6)    Seek to control interventions, inputs and processes as well as outcomes: Again tempting, but not leaving room for innovation takes away much of the point

7)    Maximise proportion paid on outcomes on principle: This just restricts bidders and increases cost. There are times when a full outcomes model is a good idea, but it shouldn’t be the default.

8)    Don’t test or learn by staggering your start: Doing everything when you know least is simply irrational…

And a few ideas for doing it well, which I may expand on another time:

1) Have a way to alter prices over time to allow for learning: for example you could have a maximum and minimum outcomes pot that would be distributed to providers according to level of outcomes achieved. This would still reward quality and improvement but would limit downside and upside risk.

2) Manage your market more aggressively: If you are creating a new market, you should decide what you are looking for and create it. I would intentionally create a mixed economy, reserving some slots for say mutuals or social enterprises. That way you ensure diversity, avoid oligopoly and maximise learning and innovation.

Anyone like to add or amend any of the above?


Payment by results is not the same as performance-related pay


I have reproduced a response I wrote to another article as it sets out the arguments on payment by results. Next I will have a go at when and how to use different types of PbR…

Zoe Williams wrote on 2 May that “payment by results and performance-related pay differ structurally but amount to the same thing: the belief that everybody works harder when there’s a bonus in it.”

This premise is flawed. Performance related pay and payment by results are not based on the same assumptions, and are not used to solve the same issues.

I agree that performance related pay in social contexts is typically counterproductive. Research indicates that work motivation has little to do with money, instead being focused around a sense of autonomy, the potential to grow in competence and master ones chosen field, and a sense of purpose in what one is doing. Teachers, firemen, social workers and therapists are all people who we hope are doing a good job because they care about the people they are supporting or providing a service to. Performance related pay can add stress and tends to motivate those motivated by financial reward, in other words, not the people you want doing the job

This has nothing to do with payment by results or Social Impact Bonds, the model that Social Finance developed and is pioneering in Peterborough. Social Impact Bonds are not built around the simple assumption that economic incentives will boost performance. They focus instead on the idea that government is paying for desired outcomes which are agreed upfront. This allows providers greater flexibility to innovate and develop more effective solutions. It also means that government can take greater risks, trying things to see if they will work, and only paying if they do. By delivering pre-agreed and clearly defined outcomes, there is a powerful alignment among those responsible for delivering the interventions.

In this they acknowledge that many government contracts had in an effort to ensure accountability, become bureaucratic, providing detailed input and process targets that over time ensured service providers were focused on the needs of their paymasters, not their service users. This is an opportunity to move things back the other way.

We developed the Social Impact Bond to encourage more preventative, positive interventions commissioned by governments that historically have struggled in this area. It is still early days, but judging by the wide scale interest in the model from across the political spectrum there is potential for it to do just that. This would enable significant improvements to many people’s lives, particularly those at the margins of society.

There will be both effective and ineffective payment by results programmes developed over the next period. It is in many of its incarnations an emerging field. But using accurate concerns about performance related pay to make sweeping generalisations about payment by results runs the risk of marginalising a model that is key to enabling social innovation and positive social change. 

Setting management targets to avoid bad results

In my previous blog I responded to an article defending the unfortunate need for management targets. Having done so, I feel compelled to have a go at some brief thoughts on how to set good ones rather than those that lead to the disaster that we have seen recently so carefully set out in the Francis Report.

Management targets come in two varieties, inward looking ones such as financial or budget targets, and outward looking ones such as service waiting times. In other words some are used to manage the allocation of resources and others are used to test the quality of service provided.

 So here is my list of five Dos and Don’ts in setting up management targets.

  1. it is essential to be managing to both inward and outward looking targets. Running a public service only looking at the cost numbers is going to go badly.
  2. Service user feedback needs to gained from as many different sources as possible and checked against outward looking targets to test, are they telling us the same thing? If not, what should we change in what we measure to better capture what our service users are telling us? Effective measures provide clear information on how ones organisation is performing, poor ones get you to focus on things less important to those you are serving.
  3. Try to avoid revolutions. In other words bring in change incrementally, explaining where it is going and moving towards it over time.
  4. Avoid targets that are black or white, rather than incremental. Where there are significant consequences for a small shift in one number or action, the potential for gaming and perverse incentives becomes particularly acute.
  5. Implement reasonable data systems so that the pain of gathering the data does not get in the way of the day job.

I would welcome thoughts from others who have more experience in implementing these things than I do.

 Next up … Payment by Results

I wrote on this to a different Guardian article comparing Payment by Results and performance related pay by Zoe Williams. I have reproduced it in my next blog. I have thoughts swimming around my head about the Dos and Don’ts of implementing PbR, so will have a go at that in a few days.

Are Payment by Results and Management Targets dangerously idiotic?

Occasionally one reads an article and feels compelled to respond. Today was such a day when I read Payment by Results – a ‘dangerous idiocy’ that makes staff tell lies by Toby Lowe. It’s not the criticism of PbR or targets I dislike, there are plenty of concerns that need to be thought through in that area and I start on some of those in the next few blogs. It’s the lack of presented alternative that bothers me. Payment by results gets muddled up with management targets, with a sense that if all of this went away and you relied on frontline staff to do the right thing all would be well. This sentimental harking to a golden age before management and targets is magical thinking.

There are two reasons it is dangerous. Firstly it fails to acknowledge that we live in a resource constrained system. We don’t have infinite money, so we have to make choices. Choices exclude and we have to have some way of making them and some people to make them. Managers are typically rationers. Not an easy or popular task so one that we should support rather than seek to undermine.

Secondly it presumes that front-line staff invariably does the right thing by service users, patients or customers. While I have huge regard for people’s basic ethic to each other, moral compass and sense of decency, this is a sentimental and paternalistic view that we can’t run our public services on. Professions and professionals get inured and set into defined practice. When working for a foundation, I had the disturbing role of going round orphanages in Romania being told by professionals within them why they should stay open and how the alternatives we were proposing were dangerous. In South Africa there were separate cases of wards filled with crying abandoned AIDS orphans and nurses sitting in their station beside them doing nothing. It requires management at certain times to ensure focus on patients, end users, to ensure a lack of institutional bias, to ensure people aren’t forgotten or lost.

So the article attempts to unseat the unpopular but important act of putting in place targets and management to benefit service users. In the end, most of us don’t like to be managed. Few people like being told what to do, so it is always tempting to bash management. But services need to be adapted and resources need to be allocated. Better decisions are taken on the basis of data, not anecdote, intuition and here say. So information needs to be gleaned, measures used and targets set.

There are two serious issues that need to be thought through. What are good management vs bad management targets, and when if ever does PbR help? I will address those in my next blogs.