AM2: Payment by results –
is it right for you?
Jim Clifford, Partner and Head of Advisory and
Impact team, BWB
Carla Ross, Senior Research Manager, BWB
Liz Rutherford, CEO, Single Homeless Project
Liam Crosby, Policy and Public Affairs Officer
Community Links
Payment by results:
Is it right for you?
Jim Clifford OBEHead of Advisory & Impact, [email protected]+44 (0)20 7551 7860
Carla RossSenior Research Manager, BWB [email protected]+44 (0)20 7551 7862 Image by European Parliament under a creative commons license
What is PbR?
• Results – which may be differently defined by different parties, but should not be “outputs” except if as informed proxies for outcomes
• Payment for those results by any commissioner type
Risk management
The core element of risk transfer is key:
• Risk arbitrage – the best person to carry a risk is the one who can manage it best
• Provided they are solid enough to handle the risk
• The provider can then be paid for carrying a risk which is a lesser risk to them than to the payor, for example;– IAAM the adoption bond for placing children
– Transforming rehabilitation on rehabilitating offendersImage by European Parliament under a creative commons license
Outcomes to performance indicators:finding “informed outputs”
Inputs Activities Outputs Outcomes Impacts
Desirable outcome
How it is caused
Assess timescales
Determine milestones
Reporting and
behaviours
Good PIs are:
• Simple• Natural• Certain• Arising from
the flow of activity to outcome
Think:
• Behaviours needed
• Perverse incentives
• Improvement • Change
5© Clifford 2013
Weighing up PbR: Pro’s
1. Getting paid for a risk you can manage easily, so making more for services
2. Developing an income stream (paying for an outcome) where none existed before
3. Developing a way of improving service delivery and innovating in a way that’s properly paid-for
4. Can encourage a more flexible commissioning environment where the commissioner asks for the outcome, not the service
Weighing up PbR: Con’s
1. Provider takes on too much risk:
• Financial, management, social
2. Provider doesn’t have the balance sheet strength to cope
3. Feeling forced into a form of service delivery the provider believes won’t work
4. Payment milestones may fail through uncertainty
5. Payment milestones may be too complicated or may be disputed at the outset
6. Commissioner only refers the most difficult cases
7. Provider “parks” or ignores the harder cases (and takes the loss in the averaging)
8. Commissioner reneging on the agreement
Good PbR
1. Structured to drive behaviours towards effective delivery
2. With 60% at least of the total payment for service rather than by results
3. Priced to allow for the risk being taken
4. Priced to make it both viable and effective
Image by juerjen_nl under a creative commons license
Good PbR
5. With the results based on relevant outcomes, and not random outputs – think about the “any three of five” type measures used in complex interventions
6. With the setting and measurement of these originating from the intervention, and not the policy-makers
7. Flexible as social needs and other factors change
Managing PbR
• Assess properly in the first place: risk, effectiveness, deliverability of the outcomes, key success factors
• Partner where appropriate for risk sharing, or better delivery
• Set payment triggers carefully and ensure you have means to enforce them
• Monitor carefully and take quick action on:
I. KSFs
II. Commissioner compliance
Provider led development: Key principles
Image by European Parliament under a creative commons license
Experience
Credibility and Brand
Evidence
Resource
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Service Providers
1. Focus and
Issue
2. Approach
to the Solution
3. Measuring Outcomes
4. Delivery and
Business Model
• Identify the issue• Area needs• Identify outcomes
Provider-led development : Focus and issue
IAAM - What’s the issue ?
• Not enough parents
• Increasing numbers of children on NAR seeking adoption
• As many as 80% don’t find places
• Parenting them therapeutically to meet their needs:
– Attachment
– Development
– Beliefs
– Trauma
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Experience
Credibility and Brand
Evidence
Resource
14
Service Providers
1. Focus and Issue
2. Approach
to the Solution
3. Measuring Outcomes
4. Delivery and
Business Model
• Services• Resources• Markets• Behaviours in
delivery chain
Provider-led development : Solution approach
What’s the solution ?
• More parents
• Sourced UK-wide
• Willing to take harder
to place children
• Therapeutically trained
• With funded
appropriate support
• With LAs still able to
decide when it’s
needed
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Investors1st Close £2M
IAAM Fund (LLP)
£ £
Network of VAAs
Service Providers
LAsThe Local Authorities
SLAMPsychiatric Assessment
Service Provider
IAAM Service Co (Ltd)
IAAM Sharing Ltd
(Profit Co.)
CVAAThe Consortium for Voluntary Adoption
Agencies
Profit Share
Admin Fee & SLAM
Adoption Register
SOF£1M
Investors1st Close £2M
IAAM Fund (LLP)
£ £
Outcome based
payments
Return of funds + min 4% profit
share
IAAM - Funding & Relationship flows
Local Authority:
• Pays £54,000 in four stages
• Saves £50,000+ p.a.
• Comparator: Standard Inter-agency fee £27,000
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It’s All About Me SIB Structure
Experience
Credibility and Brand
Evidence
Resource
17
Service Providers
1. Focus and Issue
2. Approach
to the Solution
3. Measuring Outcomes
4. Delivery and
Business Model
• Relevant outcomes• Informed outputs as proxies• Think: incentives and
behaviours
Provider-led development : Measuring outcomes
Experience
Credibility and Brand
Evidence
Resource
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Service Providers
1. Focus and Issue
2. Approach
to the Solution
3. Measuring Outcomes
4. Delivery and
Business Model
• Management• Finance• Risk• Partners• Documentation
and structures
Provider-led development : Delivery & Business model
Investors1st Close £2M
IAAM Fund (LLP)
£ £
Network of VAAs
Service Providers
LAsThe Local Authorities
SLAMPsychiatric Assessment
Service Provider
IAAM Service Co (Ltd)
IAAM Sharing Ltd
(Profit Co.)
CVAAThe Consortium for Voluntary Adoption
Agencies
Profit Share
Admin Fee & SLAM
Adoption Register
SOF£1M
Investors1st Close £2M
IAAM Fund (LLP)
£ £
Outcome based
payments
Outcome based
payments
Return of funds + min 4% profit
share
IAAM - Funding & Relationship flows
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IAAM Fund
• Advances £46,500 in same four stages
• Recovers that from LA payments.
• Takes risk up to first 10% of breakdowns
• Funds IAAM Service Co as the “referee” of the scheme
Provider VAA:
• Takes excess risk over 10%
It’s All About Me SIB Structure
Investors1st Close £2M
IAAM Fund (LLP)
£ £
Network of VAAs
Service Providers
LAsThe Local Authorities
SLAMPsychiatric Assessment
Service Provider
IAAM Service Co (Ltd)
IAAM Sharing Ltd
(Profit Co.)
CVAAThe Consortium for Voluntary Adoption
Agencies
Profit Share
Admin Fee & SLAM
Adoption Register
SOF£1M
Investors1st Close £2M
IAAM Fund (LLP)
£ £
Outcome based
payments
Outcome based
payments
Return of funds + min 4% profit
share
Investors:• Fund £2m• Get a return of 4% p.a. plus
a “with profits” element from the surplus
• Capital repaid at year 10
Cabinet Office• Top up funding for first 100
children
CVAA:• Gets the first £1m surplus
plus half the remaining surplus
• Recapitalises the scheme at year 10
• Saves £50,000+ p.a.
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IAAM - Funding & Relationship flows
IAAM – some key innovations
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• Based on behavioural drivers to correct market
failure
• Spot purchase
• Commissioner choice
• Networked delivery
• Risk sharing: risk arbitrage – providers backing
their own expertise
• Use of fund as revolving credit facility
• Yields match capital risk, making it possible to
access normal financial markets
How’s it doing….eleven months in?
• Network is working and developing• First registrations after 6 weeks• Psych/medical reports delivered within 6
weeks• Engaged with 60+ of a target 75 (50%) local
authorities• 60 children referred; 20 registered; 12 being
considered• 1 placed in new homes• LAs decision-making changing• Wider VCS discussions about what’s
possible• Interest from wider finance markets…….and
individuals
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Good PbR: Where is the benefit?
• Additionality:
• Do what otherwise wouldn’t happen
• Do good things on a greater scale
• Manage risk better
• Organise complex programme delivery
• Focus on real outcomes
• Use resources better
• Enable smaller providers to work together
• Manage behaviours to deliver success
• Create and manage markets
• Scale up good services
• Innovate23
Impact Investment: where next ?
Opportunities
• Moving away from public service revenue into market revenues
• Re-engineering markets and behaviours
• Stretching the boundaries to self-investment and profit-with-purpose
• Joining up conventional and social markets in a continuum
• Ideas incubation – funding it and driving it
Pitfalls
• Co-leadership and energy turning to isolated arrogance from social investors
• Measurement and reporting requirements leading to a two-tier investee market
• Reliance on public service revenues leads to (political) instability
• Not embracing risk and risk management positively as a value-driver
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Alternative Delivery Models giving scale-ability
• If a fund is to be proposed, these run to a Venture Philanthropy Model
1. Investora) Equityb) Debtc) Grantd) Guaranteee) Investment in kind
2. Instigator1. Co-developing ideas2. Priming and delivering research
and new thought
3. Hub and coordinator1. Developing networks2. Providing coordination for
partnered activity3. Planning the full effectiveness of
multiple interventions
SOLUTIONS
Single outcomes-based
interventions(e.g. Peterborough
Prisons)Multi-faceted
outcomes-based interventions
(e.g. Adoption Bond)
Multi-intervention Social Change Funds
Focused on outcomes, but largely delivering through a single service, focused on a single cohort or a single aspect of a wider community need
Focused on outcomes again, but delivering through a blend of co-ordinated multiple services, but again focused on a single cohort or a single aspect of a wider community need
Focused on outcomes, but through leading the development and funding of a range of independently operating and delivered interventions to multiple cohorts
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