one - Introduction: outcome-based payment and the reform of public services

Summary

Outcomes-based commissioning

Over recent decades on both sides of the Atlantic we have experienced important social gains. Average life expectancy has continued to rise, employment rates have risen, participation in higher education has increased, crime has fallen and technological innovations have provided new opportunities for work and play for many. But change has also brought challenges, including increasing inequality, an ageing population, rising levels of childhood obesity, changes in family size and structure, loss of traditional industries, new working practices, a more mobile population in Europe and a less mobile population in the US, and the erosion of social capital. Almost 20 years into the new millennium, the ‘wicked problems’ (Rittel and Webber, 1973) we face are remarkably similar to those we faced at the end of last millennium: adults and families experience multiple social, economic and health challenges.

Meanwhile, the role and structure of the public sector has also changed, with government increasing its reach in some areas of social and economic life and withdrawing from others. New models of commissioning and delivering services have evolved and, since 2008, public services on both sides of the Atlantic have experienced budget cuts in real terms.

In this fast-changing world, outcomes-based commissioning has become an important element of the public service reform agenda, and underpins two distinct but related approaches. On the one hand, ‘Payment by Results’ (Pay for Success or outcomes-based funding in the US) is arguably rooted in New Public Management approaches, whereas ‘Social Impact Bonds’ (Pay for Success financing in the US) are associated more closely with the social finance movement and impact investing. However, Social Impact Bonds (SIBs) can also be understood as a class of Payment by Results (PbR) and analysed as the logical conclusion of outcomes-based performance management (OBPM) (Lowe and Wilson, 2015), as they are intended to ensure that financial rewards flow directly from the achievement of specified outcomes. OBPM is a general term used for using outcomes as a means of assessing performance (Lowe, 2013).

Currently, the study of Payment by Results and Social Impact Bonds is limited and emerging. The majority of publications to date have been policy briefings produced by government departments, industry leaders and think tanks.