At the next general election, much of the battle will focus on spending – who will cut what and how? But this misses a critical issue. It is the outcomes of public action that matter. Levels of expenditure only matter if converted into outcomes that the public value. This relationship of inputs to outcomes matters critically because, despite unprecedented increases in public expenditure, the public are not convinced that increases in inputs have delivered sufficient benefits.
In a time of acute fiscal constraint, the next government will need to generate more value from less public spending. Over the last few years, a range of approaches were used to improve performance, such as targets for literacy and maximum waiting times for health treatments. But this agenda can disempower frontline staff and limit the scope for innovation and personalisation – critical factors for achieving better outcomes.
To begin to address these questions, we undertook a study for the 2020 Public Services Trust – entitled Better Outcomes – to suggest a new approach, ‘outcome commissioning’, in which central or local government pays delivery organisations for the outcomes they achieve, rather than for inputs. The state ceases to focus on directing how outcomes are delivered and instead specifies what outcomes it wants, and then incentivises delivery organisations to achieve these by paying only for outcomes.
This approach is not untried. Last year the Department for Work and Pensions introduced the Flexible New Deal, whereby a mixture of public, private and voluntary sector organisations are tasked with returning the long-term unemployed to work. These providers are paid largely on the basis of how many people they return to and maintain in work. Put simply, if they don’t deliver the outcomes, they will suffer financially.
Our study explored why this was needed and the technical challenges of implementing it. We concluded that this model has great potential in many areas of public services. If the state defines its outcomes well it can incentivise a range of different innovations. These may involve tailoring the service better to meet individual needs. For example, unemployed people are jobless for a variety of health, educational, social or emotional reasons. Focusing on the right need means you get outcomes more efficiently.
In other cases, innovation may be technological. Remote treatment and diagnostics has the potential to revolutionise the treatment of sufferers of long-term health conditions – but you need the incentives in place to invest in the technologies that deliver the outcomes.
Outcome commissioning may also expose the need to think through how best to join up services. Where government struggles to coordinate service silos, the issue is often that each silo is focused on the part of the service it delivers rather than the outcome – and the result is poor outcomes.
For example, many different agencies are involved in rehabilitating offenders – the Probation Service, as well as organisations responsible for housing, employment, training and drug treatment. Outcome commissioning could join up these services by incentivising providers to knit these services together to achieve outcomes.
The introduction of outcome commissioning is not simple or without risk. It may involve treating individual service users differently, so it will need to be done carefully to ensure that no users are excluded. The incentives also need to be carefully designed to ensure that they do not encourage gaming behaviour by public service providers.
But these challenges are increasingly being overcome in a range of areas. The model has now been applied with some success in foster care services in the US, in welfare to work in the UK and in pharmaceuticals in both countries.
Both central and local government should explore applying outcome commissioning, looking, for example, at its potential in offender rehabilitation, the treatment of long-term health conditions or drug misuse treatment, to name just a few.
Government must now focus on how best to deliver outcomes the public wants. We suggest that paying for outcomes rather than for inputs should become a central theme of the manifesto of all parties.