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?


3 thoughts on “Eight ways to muck up PbR … and a few ways to improve it

  1. A nuanced difference to Toby’s second point: The way PbR is often done is still top-down — the commissioners deciding which outcomes they want, with limited engagement from beneficiaries and service providers. Successful programmes from different providers may offer different (but valid) mixes of outcomes. This has several chilling effects: it will make it harder for good programmes to achieve scale-up; it will nudge service providers to tailor their service to the outcomes rather than the holistic needs of their clients; and it may lead to a change in the service delivery, thereby limiting the relevance of any evidence that can be used by the providers of capital in their risk assessment.

    • Thanks for this – I agree, though we shouldn’t forget that traditional procurement of inputs and processes has a similar record for damaging holistic services and reducing the quality of the services provided…

    • Interesting, and thought provoking. Did you have a specific example in mind when writing this? I’m interested in the impact in different sectors of different outcome definitions…

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