Conceptual Basis
“A person with a new
idea is a crank until
the idea succeeds.”
Mark Twain

Where we had been—
◦ Grants – programmatic accountability at risk
◦ Hourly payments - process focused; high maintenance monitoring;
inverse relationship to achieving consumer independence; outcomes
uncertain & costly
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And where we wanted to go—
◦ Performance Based or Outcome Contracting
◦ Single Outcome Payment - Creaming
◦ Milestones – Structure + Standardization + Flexibility and
Accountability
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Peter Frumkin, Assistant Professor of Public
Policy at the Kennedy School of Government,
Harvard University (now Professor of Public
Affairs at University of Texas)
How can government and nonprofit
organizations work together to deliver quality
services in a way that respects nonprofits’
need for freedom in defining and pursuing
their missions while responding to the public
sector’s need for accountability?
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Approaches to Performance-Based Contracting
(PBC) for Social Services by Lawrence L. Martin
PBC downplays considerations of what goes into
government funded programs and services (inputs)
and how they operate (process) and instead
emphasizes considerations of:
◦ Outputs—Amount of service provided
◦ Quality—Quality of the service provided
◦ Outcomes—Results, impacts or accomplishments

The Expanded System Model & Performance in
Government Funded Programs & Services
Typical Focus
----------Performance Focus----------
Inputs
Process
Outputs
Quality
Outcomes
Staff
Facilities
Equipment
Supplies
Materials
Funding
Service
Recipients
Methodologies
Service Delivery
Strategies
Treatment
Modalities
Service Volume
Units of Service
Timeliness
Reliability
Conformity
Certification
Licensure
Accreditation
Results
Impacts
Accomplishments
Adapted from Martin & Kettner (1996)

Problem: to create a reimbursement system with the right
incentives
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Cross-functional teams - Agency +Vendors
+Stakeholders plan the incentive structure
All planning partners agreed to create a system
which met customer, vendor & agency needs
The agency yielded power to teams
Committed to collaboration & negotiation
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KEY - collaborative team design
◦ realistic operational definitions of outcomes
◦ sub-divided into incremental observable
steps
◦ payment percentages tied to each milestone
◦ objective quality standards incorporated
Resulted in less resistance to change
Realistic implementation of best practices

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A system based on incentive payments for
outcomes
Win/Win/Win
◦ Consumers receive quick, quality service
◦ Providers receive adequate compensation, less
regulation and greater flexibility
◦ Funding Agency purchases outcomes not
process, achieving better results at lower cost
with greater accountability
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The payment percentages don’t necessarily
reflect the level of effort at each milestone.
Biggest payment at the end to push towards
closure.
Total payment is based on the average cost per
customer outcome.
Excludes payment of a milestone more than
once.
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Customer focused - Service Satisfaction = $
Less time on waiting lists
Self Regulating
Follow a Business Model & Market Principles
Include Incentives for “exemplary” service
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Placement planning includes consumer & family
Provider is only paid for a job which meets the
job goal in placement plan
Job placement quicker and better match
Reduce documentation to essentials

Uses familiar Management Concepts
◦ TQM - team approach, quality circles
◦ Reinventing Government

Managing incentives rather than
regulating process

Lean Production/Lean Supply - Re-thinking
system’s incentive structure & logic to
eliminate waste & increase productivity
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Sets up natural consequences for poor
performance
Results in faster correction of failing
performance - Micro-audits before payment
Corrects the tendency of outcome payments to
“cream” the best prospects
◦ higher payment for higher level of difficulty
◦ allows for the cost of dropouts

Example of Six Milestone Supported Employment
Prep-Place-Train structure representing best
practice for Mental Health
◦
◦
◦
◦
◦
◦
Determination of Needs Vocational Preparation Job Placement 4 Weeks Job Retention Stabilization on the Job Consumer Rehabilitated -
10%
10%
10%
20%
20%
30%
of
of
of
of
of
of
Bid
Bid
Bid
Bid
Bid
Bid

Example of Six Milestone Supported Employment
Place-Train structure, Best Practice for
Developmental Disabilities
◦
◦
◦
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Determination of Needs Job Placement 4 Weeks Job Retention 10 Weeks Job Retention Stabilization on the Job Consumer Rehabilitated -
10%
15%
15%
15%
20%
25%
of
of
of
of
of
of
Bid
Bid
Bid
Bid
Bid
Bid
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Milestone
◦
◦
◦
◦
◦
◦
◦
1.
2.
3.
4.
5.
6.
7.
Determination of Need (process)
Vocational Preparation (process)
Job Placement (output)
Job Training (process)
Job Retention (quality/outcome)
Job Stabilization (outcome)
Case Closure (outcome)
Case Rate
10%
10%
10%
10%
15%
20%
25%
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Milestone
◦
◦
◦
◦
◦
◦
◦
1.
2.
3.
4.
5.
6.
7.
Determination of Need (process)
Vocational Preparation (process)
Job Placement (quality/output)
Job Retention (quality/outcome)
Job Retention (quality/outcome)
Job Stabilization (quality/outcome)
Case Closure (outcome)
Case Rate
10%
10%
10%
10%
15%
20%
25%

The Bidding Process
◦ Vendors develop program budget
◦ Estimate the numbers who can be served
◦ Estimate the number who will complete each
Milestone (project the number of dropouts)
◦ Plug the above figures into the weighting formula to
arrive at a bid per consumer

B. PROJECTED ANNUAL CLIENT MILESTONES
Milestones
% of Bid
# Completing
x Weight
= Billing Units
1 - Needs Det & Plan
10
40
x2
= 80
2 - Voc Preparation
10
35
X2
= 70
3 - Placement
15
25
X3
= 75
4 - 4 Week Retention
20
20
X4
= 80
5 - Stabilization
20
15
X4
= 60
6 - 26 Closure
25
15
x5
= 75
Total units of 5%
= 440
BID COMPUTATION
$___225,000______  (divided by) __440___________ = __$511_______
Total Costs from A
Total Units from B
Cost/Unit
$___511 ______ X 20 = __10,220_____ per Client
Cost/Unit of 5%
Bid Amount
Rates for Services: Place/Train Model
Regular Rate: $9,000 paid in 6 milestones:
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Milestone
Milestone
Milestone
Milestone
Milestone
Milestone
1:
2:
3:
4:
5:
6:
Determination of Need/Career Planning: $500
Job Placement: $1,350
4 Weeks Job Retention: $1,800
8 Weeks Job Retention: $1,350
12 Weeks Job Retention (Stabilization): $1,700
Successful Rehabilitation: $2,300
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Highly Challenged Rate: $11,000 paid in 6
milestones:
Milestone
Milestone
Milestone
Milestone
Milestone
Milestone
1:
2:
3:
4:
5:
6:
Determination of Need/Career Planning $500
Job Placement: $2,500
4 Weeks Job Retention: $1,500
8 Weeks Job Retention: $1,500
17 Weeks Job Retention (Stabilization): $1,700
Successful Rehabilitation: $3,300
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Each Milestone is described in three
segments:
◦ Outcome expected
◦ Service description
◦ Documentation required
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Example: Job Placement Milestone
Outcome: The consumer has been placed in a job
of his/her choice as defined in the Job Success Plan
which meets the requirements of supported
employment guidelines and the objective in the
Individualized Plan for Employment. Job placement
is complete when the individual has started the
third day of work.
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Service Description: With the consultation of the Counselor,
the provider will develop the consumer’s chosen job with the
employer and perform a job analysis and a discrepancy
analysis identifying the specific supports the consumer will
require to perform the job tasks. A Training Plan will be
developed to address how supports will be provided. The
provider will notify the Counselor of the job title, the
employer, the start date, work hours, hourly wages, and
acceptance of the job by the consumer. In addition, the
provider will identify and negotiate necessary job
accommodations with the employer and discuss any need for
assistance with the Counselor.
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Required Documentation (All Provided to the Counselor):
Job Analysis;
Discrepancy analysis;
Description of job accommodations to be implemented;
Training Plan completed before the first day of work;
Employment verification from employer; and
Computerized progress report with summary note.
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High Challenge Criteria
Based on information provided by the provider, the DRS counselor
will designate whether the individual meets the criteria for the highly
challenged rate. In order to be considered highly challenged, an
individual must meet 2 of the following criteria:
Requires a personal care attendant at the job site;
Has exhibited an ongoing, documented pattern of explosive
behavior, physical aggression, self abuse or destruction of property
which would jeopardize himself/herself or others at the worksite;
During the last 2 years has experienced 3 or more events (e.g.
hospitalization, incarceration or other institutionalization, recurring
health or mental health issues) which interrupted work or ability to
live independently;
Etc.
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Minimum Contract Standards:
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Average Cost Per Closure (maximum set)
Average Work Hours for Consumers (state average)
Staff Qualifications (Training; Minimum salaries)
Required Reporting (Participation in electronic
reporting)
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Contract Sanctions (correction plan)
Contract Incentives
Providers may be paid a one time lump sum incentive at the
end of the contract year in the form of a 5% incentive (.05 x
amount of funds earned for successfully closed cases in
contract year) for meeting a minimum of 4 incentive
standards:
The provider’s average cost per closure for the contract year is below
the required average cost per closure for each of the applicable
services;
The average tenure for Employment Training Specialists working
under the contract is 2 years or more;
Etc.
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Milestones implemented in series of pilots.
Began 1st pilot of system Oct. 1, 1992.
Several iterations of contracts as a part of
the “experiment.”
Began conversion process 7/94.
23 SE contracts converted by January 1997.
Remaining contracts converted in 1997.