A Recipe for Outcomes Rate Cards

As outlined in the first instalment of this two-part article, there are intricacies and opportunities gleaned from the Australian rate card experience. This second instalment will delve into the key ingredients for developing effective rate cards. I hope it can serve as a high-level manual for practitioners to leverage – without having to ‘reinvent the wheel’ ­­­­– in future adoption of rate cards to improve social outcomes.

A rate card is simply one of the tools in the outcomes-based commissioning toolkit to bridge the perceived dichotomy of information and requirements between the public service and for-purpose sectors. Depending on the commissioning scenario, reasons for pursuing rate cards can include:

• providing clearer market signals as to the range of outcomes being sought and the price the commissioning agency is willing to pay; and/or
• reducing the complexity of measurement frameworks during program implementation through standardising the outcome payment schedule for the social impact investment (SII).

Being clear about your intentions in pursuing rate cards can help assess any trade-offs required between rigor and pragmatism in developing rate cards. As discussed in the first instalment of this article, rate cards may not be suitable for all commissioning scenarios. It may be that some other tools from the outcomes-based commissioning toolkit are more appropriate.

The rate card should ideally be grounded in a solid evidence base. This allows the commissioning agency to provide greater specifications of the desired outcomes and related proxy metrics. These specifications should be framed by a clear definition of the target cohort, including any segmentations such as by client complexities, service locations etc. This is because the associated outcome rates derived can be extremely sensitive to the target cohort – i.e. the rates cannot be simply interchanged for a different target cohort.

A strong articulation of the cohort definition, outcomes and proxy metrics will help determine the number of rate cards required (single or multiple). It will also set up the key parameters of the data analysis underpinning the development of the outcome rates.

The outcomes rates are essentially the ‘prices’ the commissioning agency is willing to pay for the successful outcome. To arrive at these prices, the commissioning agency first needs to understand the expected effect (or size of the change in the negative outcomes) that is being targeted for improvement by the SII, including:

• an appropriate counterfactual to estimate the ‘deadweight’, or the proportion of the desired outcomes that would have been achieved anyway in the absence of intervention. Using historic baselines that are relatively stable can be appropriate.
• estimating the expected intervention group success rates. While market testing should be performed as part of the rate card development process, it is advisable to re-run the rate cards again using the service provider’s own expected intervention group success rates during the SII contract negotiations. This can help minimise the potential risk of disconnect between what takes place during programme implementation and what is being expected under the rate card.

Uncertainties will still exist despite these suggestions. As good practice, they should be considered as part of any independent evaluation being conducted during or after programme implementation.

The range of fiscal, economic and/or social benefits accruing to the commissioning agency for achieving the desired outcomes should be holistically quantified. This goes towards setting the ‘right price’ in the rate card – one that is appropriate for both the commissioning agency and the market. It also helps assess the overall viability of any SIIs, including for:

• the commissioning agency – from an economic feasibility perspective, the avoidable cost savings and benefits achieved should be equal or greater than what have been estimated under the rate card.
• the service provider – the average outcome payment per client should support the service provider’s commercial sustainability to deliver the SII program.
• any social impact investors – to receive a viable return on their investment.

Ideally, having access to linked administrative data on the government service usage of the target cohort would be invaluable for underpinning data analysis. That may not always be possible, and in these situations, the practitioner should carefully weigh-up the trade-offs between rigour and pragmatism by reflecting on the commissioning scenario and intentions from key ingredient 1. Other mitigating mechanisms may also be considered, including appropriate review clauses, and building evaluation components into the SII contract, as appropriate.

While rate cards have been piloted in several countries, scholarship on this topic remains under-explored. This two-part article is merely a start in outlining some personal and generalised insights into the intricacies, opportunities, and fundamental success factors for rate cards to be applied effectively. Only time can tell on whether the full potential of rate cards can be realised. I would welcome further discussion and research on this topic.