Past events
Challenges of payment-for-performance in public services - implications for health care
Payment-for-performance: incentivising quality in public services
Tuesday 19 February 2013, 5:30pm - 7:15pm
John Snow Theatre, London School of Hygiene & Tropical Medicine, Keppel Street, WC1E 7HT

An increasing number of countries are experimenting with payment mechanisms to improve the quality and outcomes of public services. Payment-for-performance (P4P) aligns financial rewards with predefined performance targets and is an aspiration for the UK Government across many sectors of policy. A number of schemes are currently underway in different settings, although the evidence available to guide scheme development remains limited. Current schemes vary in design with differences in performance measurement, appraisal and reimbursement making it difficult to generalise about the benefits, risks and costs of P4P.

At a time when P4P schemes are envisaged in a growing number of settings for health care, it is timely to review P4P and its evaluation, internationally and in UK public policy. This event brought together research and policy experts for an evening of presentations and a panel discussion to explore the gains that may be made by applying P4P techniques, as well as an appraisal of the limitations.


Simon Burgess photo

Simon Burgess, (Speaker)
Professor of Economics & Director, Centre for Market and Public Organisation, University of Bristol. Read more >>

Toby Eccles photo

Toby Eccles, (Speaker)
Development Director, Social Finance.

Michael Borowitz photo

Michael Borowitz, (Panel)
Senior Health Economist, OECD.

Gareth Harper photo

Gareth Harper, (Panel)
Senior Economic Advisor, Ministry of Justice.

Julian Le Grand photo

Julian Le Grand, (Panel)
Richard Titmuss Professor of Social Policy, London School of Economics and Political Science. Read more >>

Nick Seddon photo

Nick Seddon, (Panel)
Deputy Director, Reform.

Martin Knapp photo

Martin Knapp, (Chair)
Professor of Social Policy & Director, NIHR School for Social Care Research, London School of Economics and Political Science & PIRU core team. Read more >>

Nicholas Mays photo

Nicholas Mays, (Introduction)
Professor of Health Policy, LSHTM & Director, PIRU. Read more >>


Toby Eccles: Payment by results

Simon Burgess: Performance-related pay in public services: theory and evidence

Panel discussion: What have we learnt about P4P in public services and which is the way forward in the UK?

Nicholas Mays: Introduction
Nicholas Mays, Director of PIRU, introduces the event and explains the rationale for taking a broad perspective beyond healthcare in this exploration of P4P in public services.

Watch the Introduction

Toby Eccles: Payment by results
Toby Eccles, Development Director at Social Finance, outlines the virtues and challenges of a new approach to driving social change.

Watch Toby’s presentation

Download Toby’s slides >>

Simon Burgess: Performance-related pay in public services: theory and evidence
Simon Burgess, Professor of Economics & Director, Centre for Market and Public Organisation, University of Bristol sets out the case for and against the public sector adopting a key category of payment for performance: performance-related pay.

Watch Simon’s presentation

Download Simon’s slides >>

Panel discussion
The panel discuss the key challenges associated with the definition of P4P and the design of schemes in public services.

Watch the panel discussion

Read a summary of the panel discussion >>

Interview with Nick Seddon
Nick Seddon, Deputy Director of Reform, discusses how P4P is an important part of the policy maker’s tool kit.

Watch the interview

Be pragmatic: ask not ‘whether’ but ‘how’ to adopt public sector performance-related pay

Posted on 19 February 2013


One aspect of payment-for-performance in public services is the debate about performance-related pay (PRP). There has been much agonising about PRP and the public sector. PRP operates, in some form, in about half of private sector workplaces. So, many believe it’s time the public sector caught up. Meanwhile, others, in the ‘not wanted in the public sector’ camp, fear that the price of extending PRP could be damage to values such as cooperation and public service that deliver more than monetary incentives might ever achieve.

So should the public sector adopt PRP? This is the wrong question. A better question is: can we design performance related pay to work well in the public sector? If we can’t, then we shouldn’t adopt it because it is too risky. But, if we can, then we should not be confined by ideology. We should take a pragmatic approach and adopt PRP where it delivers better public services.

There seems no reason why the public sector cannot in principle benefit from some PRP. It works in the private sector. And there are lots of similar jobs in the public sector, such as electricians and porters, even though there are also many other roles, such as teaching and fire-fighting, that are largely particular to the public sector.

That said, there are differences between the two sectors. Many public sector employees work in teams, often across department boundaries, where cooperation, rather than rivalry, is essential. They tend to have many bosses, including professional associations and managers. Their organisations also tend to have rather fuzzier goals involving values such as equity and fairness. In comparison, life is simpler in the private sector, where value maximisation is king.

The case for introducing PRP in any particular instance in the public sector should be down to practical considerations. Is there evidence that it will result in increased productivity? What’s the best design – what would be the most effective incentives?

As far as evidence is concerned, there is a problem: it is difficult to demonstrate causality in this field. Additionally, there is little robust evidence on the impact of PRP in the public sector, even though it employs as many people as does manufacturing.

For example, in education, there is mixed evidence – in some countries, such as Israel, research shows that PRP for teachers delivers better academic results with few side effects, whereas US evidence is more mixed. A scheme in England, albeit poorly designed, showed substantial improvements of about half a GCSE grade per pupil.

In healthcare, there is no consensus in favour of PRP. However, some recent studies show very promising results. Again, among public servants, there is only a little robust causal evidence. A Jobcentre Plus scheme based on team performance had a substantial positive effect in small offices, but a negative effect in larger centres. At HMCE (now incorporated into HMRC), a team-based approach did raise individual tax yields; the biggest factor explaining the improvement was reallocation of the most efficient workers to those teams by the (incentivised) managers.

Where does this leave us? We know incentives work in many sectors and with many different types of workers. But we should remember that people will do what you pay them to do. They will follow the scheme – they think that is what you want. So getting the design right is vital – matching the scheme to production, picking the right incentives. It may be necessary to rethink a public sector organisation when introducing a scheme, so that people have fewer tasks and it is easier to incentivise them than if they are multi-tasking.

An important development for the public sector, if it is to emulate the successes achieved in the private sector, is to ensure that its goals are clearer. If public sector organisations were less ‘fuzzy’, it might be easier to incentivise their staff with PRP than is often the case at the moment.

Simon Burgess is Professor of Economics & Director, Centre for Market and Public Organisation, University of Bristol. He was a keynote speaker at the PIRU event, ‘Payment-for-performance: incentivising quality in public services,’ on 19 February 2013 at LSHTM.

Payment by results – a route to social policy innovation in nervous, cash-strapped times

Posted on 19 February 2013

TOBY ECCLES, Development Director at Social Finance, was speaking to Jack O’Sullivan following his keynote presentation at the PIRU event, ‘Payment-for-performance: incentivising quality in public services,’ on 19 February 2013 at LSHTM.

How do we make a real impact on big social challenges such as ageing, crime and youth employment when people with the cash are nervous about risking fresh approaches?

Payment By Results (PBR) could be an answer but we have a lot to learn to make it work really well, according to Toby Eccles who is Development Director of Social Finance and one of the pioneers of PBR.

PBR is, he says, a clever system - paying just for what is actually achieved. So the payment might be for getting more people in jobs. It could be for cutting numbers of diabetics coming back into acute services. ‘No results, no payment’ appeals to those wary of spending scarce public money in novel ways.

He explains: ‘At Social Finance, we design new ways to support social change, helping cash to flow in that direction. We aim to help the people with the vision and the expertise to get the job done. That’s what our Social Impact Bond is all about. It’s a deal between innovative providers and the Government. The providers promise to deliver key outcomes and, in return, once they deliver, the Government pays up. But, crucially, it is all underwritten by investors – purchasers of the Social Impact Bond – who have faith in the providers’ claims. So they stump up the cash initially to get the job done, expecting to be reimbursed by the Government if everything goes according to plan. So the Government avoids risk, allowing greater imagination, the visionaries can put new ideas into action and, on the ground, we see real, positive change.’

Peterborough is good example of the style of programme envisaged. Social Finance has brought together a partnership investing in a £5m Social Impact Bond to cut re-offending. The providers, mainly from the Third Sector, are supporting prisoners in and out of jail. The investors’ return from the Government will depend on the providers’ success. They could, notionally, lose their shirts. But, if betting on the providers proves smart, everyone wins, with less crime, fewer prisoners and a more enlightened policy.

This template is producing programmes that are being tried across the public sector, says Mr Eccles, aimed, for example, at improving educational outcomes, reducing numbers of children in care, reducing substance abuse and numbers of rough sleepers. ‘Once the NHS changes settle down, there will be opportunities in health as well. PBR could help tackle healthcare’s perennial problem – providing incentives to shift services from acute hospitals and create a more community-based model.’

He argues for pragmatism when approaching discussion about PBR: ‘Let’s test it out, stick with what works, learn from what doesn’t. The naysayers will find lots of reasons to stifle change – the risks of perverse incentives, the variability in public services that may emerge, warnings that the private sector is replacing public provision. But they are in danger of forgetting the perverse incentives and variability in the present system. We can improve the incentives. In a world of complex needs, it is healthy for public services to vary. And, if the private sector is winning out unfairly, let’s check the commissioning process so there is a level playing field and healthy competition to achieve the best results.’

Mr Eccles accepts that there are problems with PBR: ‘The compulsion for revolution rather than evolution, and poor contracting and procurement practice have, in the work programme, combined to create an ineffective fledgling industry. There is fear that mistakes will be repeated rather than learned from. We need - particularly those in government - to learn from the initial experiences of PBR.

He has developed a list of things to avoid: ‘First, don’t set the maximum outcome payment at or below the value of the previous revenue contract. If you do, providers will be nervously trying to retain revenue, rather than innovating to improve outcomes. Second, don’t set outcome measures and values without engaging the marketplace. Measures take a while to achieve buy-in and - to motivate change - they need it.

‘Thirdly, don’t run a price-focused rather than a quality-focused procurement process. It favours naive or optimistic bidders over competent ones. Fourth, don’t 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 thought about it.

‘Fifth, avoid giving detailed information only after bidders have been asked their price, and then offering them only two options: to continue or withdraw. This is simply a way of ensuring poor services by desperate bidders. Sixth, don’t try to control interventions, inputs and processes as well as outcomes. It’s tempting, but not leaving room for innovation takes away much of the point of PBR.

‘Seventh, don’t aim to maximize the proportion on outcomes. The right balance of outcomes payments and service payments should be thought through, not decided on principle. Lastly don’t do it all at once. Test or learn by staggering your start across different sites - doing everything when you know least is simply irrational.’

Finally, Mr Eccles outlines some positive lessons to learn from experience of PBR so far: ‘First,’ he argues, ‘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.

‘Finally, manage your market 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. It is vital to ensure diversity, avoid oligopoly and maximise learning and innovation.’

Further PIRU blogs are available here >>