A damning report or a good start? | Big Society Capital

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A damning report or a good start?

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Last week the National Audit Office (NAO) released a report with an analysis of Payment by Results (PbR) which examines previous programmes commissioned by government.

It demonstrated the mixed evidence on effectiveness of schemes to date concluding:


1)   PbR is a complex contracting approach.

2)   PbR is not a panacea for all public services.

Many of the points highlighted mirror issues we have previously raised, in programmes including Transforming Rehabilitation (TR) and the Department for Work and Pensions (DWP) Innovation funds. We hope this report reasserts those issues and creates an impetus for public sector commissioners to take them on board. 

This report also sparks a number of further thoughts. First of all, it highlights the dangers of pushing unnecessary risk onto providers who are not in a position to take on that financial risk. Understanding what they are, and to whom government should pass those risks to, is a vital aspect of designing public services. For example, in the case of TR, the requirement of a very large Parent Company Guarantee enabled the government to transfer some of the financial risks to the provider, but created an additional barrier for smaller organisations (i.e. most charities and social enterprises). We hope to work closely with the DWP in the upcoming Work Programme to ensure that the policy goals of maximal risk transfer and maximum diversity/plurality of suppliers are appropriately balanced.

The report also raised the issue of access to robust baseline data as a necessity for PbR. The creation of the Justice Data Lab, and the intent to set up Data Labs across other service areas, are all positive steps in attaching a cost to an outcome of a service. Although we have a long way to go, the inherent focus on outcome measurement in PbR programmes should help build-up those databases and improve the starting points for all future schemes. Alongside robust data, good independent performance management is vital - as I highlighted in our lessons learnt from Social Impact Bonds paper. However, it often comes at a cost. Ensuring that performance management infrastructure is shared across multiple contracts, and cost-efficient systems are developed to aid data collection, will be essential in furthering the use of performance management in PbR contracts.

The lack of evaluations on how PbR is working is also a key gap. Although there are emerging initiatives (such as the What Works Centres) that integrate evidence of the effectiveness of interventions into government policy, the NAO report confirms we are still a long away from unravelling the impact of those interventions from the design of the market. To put into context, the NAO report has a sample size of 7 programmes, making it difficult to make any generalisations on the findings. This gap in knowledge needs to be filled - and quickly. Perhaps market design should be incorporated into the existing ‘What Works Centres’, or going even further the next centre to be established should be a ‘What Works Centre for Commissioning?’.

There are a few findings in the report we found surprising. These include the potential ineffectiveness of differential payments for harder to reach groups, and in particular, the assertion that PbR can only work if there is short timespan between intervention and outcome. Of course the shorter the lag between an intervention and an outcome, the easier attribution gets, but we must avoid the short-termism that has for too long hampered many government initiatives and continue testing different ways of paying for longer term outcomes. A good example of this in practice is a recent Social Impact Bond commissioned by the Newcastle West Clinical Commissioning Group to improve outcomes for people with long term health conditions. It pilots the use of intermediate outcome measures of wellbeing in combination with longer-term outcome payments on reduction of hospital admissions.  

So do the findings of the report mean we should abandon outcome-based commissioning altogether? Absolutely not. Enabling taxpayer’s money to follow the needs of individuals and be targeted at achieving positive outcomes is fundamental to public services. For too long departmental spending allocations and election cycles have prevented this from happening.  

In the future we would like to see much more outcome-based commissioning - but done intelligently and evaluated properly. As our CEO Nick O’Donohoe outlined in a recent Guardian article, we believe a social-outcomes fund could help reallocate resources to preventative services and improve outcomes for a number of challenging social issues. Such an outcomes fund should be co-designed with the social sector and should embed appropriate mechanisms of risk transfer to ensure smaller providers are able to play a key role. With the current state of government finances and a decreasing number of plausible alternatives, the issues raised in the report need to be put into practice so that future PbR models deliver the results that they promise.

Last updated | 
7 July 2015


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