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Payment by results ‘raises inequality risk’

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Increasing the use of payment-by-results models to allocate resources could penalise deprived areas and lead to de facto privatisation of services, senior figures have warned.

Dominic Harrison, director of public health at Blackburn with Darwen BC and Primary Care Trust told LGC a payment-by-results approach for rewarding health improvement work risked penalising areas with the biggest problems.

Increasing unemployment and a slowdown in housing improvement programmes were likely to exacerbate health inequalities in deprived areas, Mr Harrison said. “If we’re not careful, only middle-class white wealthy southern areas will get the premiums, whereas boroughs like Blackburn will have to work very hard just to stand still,” he added.

“They’re saying: ‘We’re going to reward you for improving health outcomes’, and it’s going to be so much easier to do that where you haven’t had so many cuts.”

Concerns about an increase in payment-by-results schemes were also raised by finance chiefs at the National Audit Office annual performance measurement conference, last week.  

The Big Lottery Fund’s director for finance and corporate service Mark Cooke said very few public and voluntary sector organisations were in a position to take the risk of not having funds guaranteed. Even if only 5% or 10% of the allocation was on performance by results, it would still prove challenging.

“The pattern of incentives that arises from payment by results matches much more closely the business model of private sector organisations where you are looking to receive additional profit for shareholders,” he said.

Director general for education standards at the Department for Education, Jon Coles, also urged caution about rolling out payment-by-results schemes across public services.

Mr Coles said payment by results had a “mixed impact” for the post-16 funding system. “It has tended on one hand to drive up completion rates of qualifications, on the other hand it has tended to drive colleges to put people in for lower-value qualifications that are easier to pass,” he added.

However, former charities minister and now chair of the 2020 Public Services Trust, Lord Filkin, said as long as only a proportion of funding was allocated on an incentive basis, such models could be viable.

He said: “Massive risk transfer is mad. If you try to transfer a very high risk and try to pay 100% on outcomes you will shrink the supply side and destroy value.

“There is a real judgment for commissioners about the scale of reward on outcomes. You would be wise to be thinking about 10% rather than 100%.”  

Debate surrounding payment by results is set to intensify following news that the model is being investigated as a mechanism to reward some of the councils piloting the community budgets programme.

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