This review examines the evidence of the effect of government-funded outcome-based contracts in public human services. Outcome-based contracts in public human services are defined as those where some proportion of payment is triggered by some measure of change in the lives of clients. There is a lack of evidence comparing outcome-based contracts for public human services with other means of funding. There is also little evidence comparing the effect of payment on the basis of one measure of outcome to another, comparing outcome-based contracts to grants or block-funding models. And there is no evidence of the effect on outcomes of changing outcome-based payment structures as contracts progress.
The evidence that does exist suggests that, given sufficient flexibility to do so, providers of services will deliver on the outcome metrics their contracts pay for. Outcome-based contracts developed so far have, however, struggled to create incentives to achieve the desired outcomes. The findings indicate that while outcome-based contracts increase the measures of outcome for which they pay, these measures do not always reflect the intention of the contract designers, or desirable outcomes for the end-client. Measures of outcome that were not related to payment did not improve and sometimes worsened. Some outcome payments created incentives for service providers contrary to the achievement of desired outcomes. For example, employment services contracts that were meant to increase tailoring and flexibility had the opposite effect. Some contract conditions or environments constrained providers’ ability to affect outcomes. The challenge for government is to define payment metrics that represent the outcomes they seek and that encourage behaviour from service-delivery organisations consistent with these outcomes.
Australia and New Zealand School of Government 2016