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Editor’s blog 8 June 2010: Paying for success is KPMG’s answer

In the light of my recent comments about management consultants, I turned with interest to the new KPMG report – ‘Payment For Success’.

Thr quality of previous publications from KPMG has been indifferent-to-poor, with such widely-disputed initiatives as PFI being uncritically accepted as A Good Thing because they are free market solutions.

To give KPMG some credit, parts of their analysis of the problem are accurate. They suggest that “the real issues are about shifting control from providers to their customers and from bureaucrats to enterprising professionals” – and many indeed are.

However, in many public services (and particularly healthcare), there is also a crucial place for central planning and no market: functions like critical care, A&E, vaccination.

KPMG’s proposed solution is called ‘Payment for Success’. The report says that this will allow “politicians to decide on what they want to fund and achieve (the results). It sets competitive prices for those results (the funding). It puts power in the hands of the right customers and makes their satisfaction what matters (the accountability).

And it gives suppliers the requirement and the freedom to make whatever changes, however hard, to deliver the desired results for the prices on offer (the freedom to deliver)”.

The weakness is in the dogma. The authors suggest that a Payment for Success’ solution must follow these “three principles:
(a) Three distinct customer roles should be created for each of the different types of service – personal, local and national – with these customers radically empowered to decide what they want and from whom
(b) Payment by results should be implemented across the public sector without exception – where it exists already, it should be made more forceful and sophisticated, where it does not exist, it should be introduced with very limited transitional periods.
(c) Public service providers should be given almost total freedom to respond effectively to their customers and the PBR regime, supported by the active divestment of public sector staff into independent providers in control of their own future”.

The problem is that while market mechanisms may be starting to work in the NHS,  they are effective in services that are ‘highly contestable and highly measurable’, to draw on Simon Stevens’ taxonomy.

It is simply unrealistic to suggest, for example, that the three proposed ‘customer roles’ do not in fact overlap.

A personal public service is delivered in the context of a local social, public and private economy.

Healthcare is probably further advanced with the payment by results approach than any other public service. Studies by the Audit Commission and the Commons Health Select Committee (on commissioning) point out that it has been useful, but no panacea.

The notable thing about principle c is that for all the facilitation and encouragement to date, there remain very few examples of NHS staff choosing to set up mutuals and community interest companies: the only project of scale remains Central Surrey Health.

In terms of divesting provision to social enterprises, report recommends:
- A right to bid – where any public service provider (from any sector) can make a proposal to take on a service from another organisation

- A right to own – where staff and managers are able to propose a staff and / or management buy-out or mutualisation of their service, with or without external investors and joint venture partners

- A right to merge and acquire – where successful public service providers (from whichever sector) can propose mergers, demergers, acquisitions or disposals

- A right to manage – where public sector organisations are free to decide on resources issues (e.g. capital spending, workforce issues, IT, multi-year surpluses and deficits, etc).

In the NHS, the first three rights already exist. The fourth exists in a bastardized form for NHS foundation trusts.

The seven deadly sins of public service
KPMG’s report lists seven linked problems:
1. We are paying a lot more, but the extra money is buying less.
2. If the average UK public service provider was as efficient as the top quartile, there would be a 20 to 30% saving in the £250bn cost of most public services.
3. Instead of challenging public service providers to do more for less through tougher prices and more freedom to respond, we have tried (and failed) to solve the efficiency problem from Whitehall.
4. Public sector reform has failed to link good ideas with financial consequences (and vice versa), so there has been very limited reform.
5. Performance management has significantly improved across public service providers (whether public, private or voluntary sector), but it has focused on eliminating the worst performers, rather than liberating the best to thrive and grow.
6. Public service reform has not been radical – the underlying structure and culture of public service professions, institutions and management has not been fundamentally challenged.
7. Performance management has, in most cases, been undermined in most cases by its disconnect from financial management, which remains poor in many parts of the public sector.

Quick responses suggest themselves:
1. The extra money is buying more and better-paid staff. The NHS is certainly doing more, as in delivering a wider range of better-quality services.
2. This is always true of all performers in any sector.
3. Broadly true.
4. Broadly true.
5. Really? Quite a few patients of Basildon and Thurrock and Mid-Staffordshire FTs would not agree.
6. Redisorganising NHS structures has been radical, but even FTs – the free-est agents - have disappointed, as Monitor’s ex-exec chair Bill Moyes told the FT.
7. Not in the NHS.

Market mantras
The report suggests that “in effective markets, there is downward pressure on prices, competitive pressure to maintain quality and freedom for suppliers to respond to the market in the best way they see fit. Together these features combine to create the right balance of pressure and freedom for suppliers to deliver more for less, year after year”.

Wow. It is as if these people have never observed that in significant markets – such as those for banking and telecommunications – there is a remarkably homogenous range fo products and prices among the market. If this hypothesis were true, there would be market-leading providers offering significantly unique or cheaper / better-value products. In practice, most offers are disturbingly same-y.

Its comments on the common forms of government interference are very mixed – some are sensible; others less so. It lists:

1. Specifying in great detail what professionals should do in their core service
2. Making top-down decisions about precisely how funds should be allocated
3. Focusing on reducing inputs rather than what is achieved for the money
4. Taking national control of individual inputs
5. Imposing blanket pay deals onto public sector bodies
6. Forcing top down, ill thought-out structural change onto the public sector
7. Locking people into inflexible and expensive PFI deals –(which KPMG hailed in their last report on PFI)
8. Forcing contracts onto local areas
9. Failing to connect performance management with the money

Most of these (1, 2, 3, 6 and 8) are fair comments; 4 is basically a euphemism for 2; 7 contradicts their own point of a few months ago; and 9 has been, as stated above, untrue of the NHS for some years now.