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, BWBj.clifford@bwbllp.com+44 (0)20 7551 7860

Carla RossSenior Research Manager, BWB Impactc.ross@bwbllp.com+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

18

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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