Milestone Payment System

Purchasing Outcomes/Results for customers from private vendors rather than funding services

Awards/Recognition

n Winner Pioneer Institute Better Govt Competition

n Finalist in Ford Foundation/Harvard KSG Innovations in American Government ‘97

n Ford Foundation Dissemination Grant

n Finalist Council of State Gov’t ‘97

n Incorporated in Ticket to Work

n Harvard Kennedy School Case Study

Business Transaction

n Customer focused - Satisfaction=$

n Outcome Driven

n Self Regulating

n Market Principles

n Strategic Incentive Management

n Win/Win/Win

Overview

n Based on incentive payments

n Quick, quality consumer services

n Vendors receive adequate compensation, less regulation, greater flexibility and autonomy

n Funding Agency purchases outcomes not process, with better accountability

The Problem

n States want to improve outcomes for citizens while containing costs

n NGO’s/Vendors need to maintain a level of autonomy

n Financial incentives distort services-unintended consequences.

n How payment is made may work against the achievement of the outcome desired and simultaneously reduce both accountability and autonomy

Problem: Funding Methods

n Grants - autonomy may be high but accountability poor, limited sanctions

n Hourly payments - process focused, accountability for the wrong things high, autonomy low

n Performance- well designed Outcome Results Contracting CAN enhance accountability and autonomy, however,

– Single Outcome Payment - Creaming, anti-competitive, shifting all risk

Problem: Funding Methods

n Do not necessarily promote outcomes

n Create perverse incentives

– amount of income to vendor inversely related to consumer success and independence

n Problem: to create a reimbursement system with the right incentives

Comparison - $ Incentives

n Process - Hourly

– Staff Driven

– Slow progress = $

– Variable Quality - poor enforcement

– Dependence = $

n MILESTONE

– Customer Driven

– Rapid progress = $

– Quality Checkpoints = $

– Right Job 1st time = $

– Independence = $

Management Concepts

n TQM - team approach, quality circle

n Reinventing Government-Results Oriented Govt -Managing incentives rather than regulating process

n Lean Production/Lean Supply -Rethinking system’s incentive structure & logic to eliminate waste & increase productivity

n Partnering - cooperative planning

n Alignment - common focus - sub-units

Three Pre-requisites for a Competitive Market

n Well Defined Product: define the outcome and what funder and customer can expect at each step.

n Well Informed Customer: customers know what to expect, when & outcome to be achieved, consumer report card

n Easy entry for suppliers/providers: risk sharing allows small providers to enter market, lower capital requirements.

Old Idea - New Application

n Roman Const.- Ponte Fabricio - 62 B.C.

n Small Construction Paradigm-

– 15’x20’ Room Addition - Bid $15,000

n 10% Down to get project started

n 15% foundation finished & inspected

n 15% frame completed & inspected

n 15% roof/walls & passes inspection

n 20% electrical completed & inspected

n 25% Room complete & final inspection

POC vs Milestones

n Design Plan

n Payment Schedule

n Building Inspector

n National Standards

n Many Incremental Payments

n Bid by Project

n % of Project Completed

n Service Plan

n Payment Schedule

n Case Manager

n National Benchmarks

n 3-9 payments per individual

n Bid by Risk Group

n % of Work + Risk -Incentive

Risk Sharing

n Fee for Service - Funder carries all risk

– Profit Maximization over- billing hours

n Single or Delayed Payment Systems -

– Vendor carries all the Risk

– Limits competition to well capitalized organizations - barrier to Market entry

– Risk averse behavior - fruit on the ground

– Profit Maximization creaming

Risk Sharing - Milestones

n Milestones - middle way

– increases competition - ease of entry due to reduced capital requirements

– meets the funders need for accountability and vendors for liquidity

– Risk averse behavior - low hanging fruit

– Profit maximazation More product

n Bidding - allows customized risk and allowance for drop-outs

Milestones as Franchising

n A well defined product/service

n Standardized procedures -Quality indicators-Based on best practices

n Structures work for entry level worker

n Aligns critical players-Acctng+Field

n Implements strategic planning

n Operationalizes the key strategic outcomes

Milestone Design

n Final outcome is defined

n Payments are made at pre-determined check-points or “milestones”, using benchmarks

n Payments are based on the average cost per customer outcome

n Result is better quality services at lower cost with higher customer satisfaction

Milestones Four Essential C’s

n Customer Centric valued outcomes, services, length

– not Funder Centric (VR status’ and 90 day closure)

n Consumer Choice/Control over the funding flow

– Customer satisfaction is a payment criteria

– Customers can reallocate funds to Vendors who get more outcomes for them – ex. vouchers

n Collaborative Stakeholder Planning and Evaluation

– Customers, Vendors, Funders have equal voices in design

n Contains Creaming Countermeasures

– Risk Referenced Rates-more difficulty=higher rate

– Reasonable Risk-use a probability based (stochastic) model to allow for drop-outs and stop-outs

Harvard+: MPS Lessons Learned

n Design Stage

– Collaborate with non-profits/NGO’s in the initial design of system

– Use a small number of Milestones (3-9) and simple reporting forms

– Shape incentives to avoid creaming and simultaneously incentivize quality jobs and career placement

– Include Research/Best Practices as benchmarks for Milestone quality indicators

Implementation Stage (Frumkin)

n Help non-profits/NGO’s make the shift to an outcome based payment system

– arrange for Training and Technical Assistance through transition and ongoing

– Provide Milestone focused staff training

n Be flexible and revisit Milestone design questions once operational

n Study effective programs and disseminate best practice information

The Solution - Planning

n KEY - collaborative team design

n realistic operational definitions of outcomes

n sub-divided into incremental observable steps

n payment percentages tied to each milestone

n objective quality standards developed

n Results in less resistance to change

n Realistic implementation of best practices

Solution - Structure

n Example of Six+Retention MH Milestones

n Determination of Needs - 10% of Bid

n Vocational Preparation - 10% of Bid

n Job Placement - 10% of Bid

n 4 Weeks Job Retention - 20% of Bid

n Stabilization on the Job - 20% of Bid

n Consumer Rehabilitated - 30% of Bid

n Job Retention milestones - $400/Qtr.

Quality Indicators - Example

n Milestone 5-Stabilization on the Job

n Tenure on Job - 10 weeks minimum

n Job matches the career goal

n Job Coach has reduced job support to maintenance level, twice per month.

n Worker/Consumer Satisfaction

n Employer Satisfaction

Solution - Consequences

n Sets up natural consequences for poor performance

n Results in faster correction of failing performance - Micro-audits before payment

n Milestones corrects the tendency of outcome payments to “cream” the best

– higher payment for higher level of difficulty

– allows for the cost of dropouts

Stochastic Model for Bidding

n A stochastic model is a mathematical model which is used where events are neither determined nor completely random

n Human behavior falls into this category

n Banks and Grocery stores use to determine number of cashiers at a given time of day

n With a large enough sample we can predict on average how many individuals will go to work, recover from illness, etc.

n Milestone payments can be based on these predictions to incentivize better than average results

Vendor Milestone Bidding

n 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

– Bids represent average cost per customer outcome

– Costs out each partial result for the customer

Results of Bidding Process

n Vendors and Funder share risk

n Contractually agree on the qualities of the outcome, results for customer

n Meets funders need for accountability

n Vendors for autonomy and growth

n Service Quick, Quality, Consistent

n Bidding-vendors can customize risk

– allowance for stop-outs and drop-outs

– differing levels of difficulty

– allows vendors to adjust costs to reflect micro-economic factors

Results

n Time on Waiting List - reduced 53%

n Time before placement reduced 18%

n Assessed but not placed reduced 25%

n Time from placement to success reduced by 45%

n 102% increase in # consumers succeeding

n 95% Succeeding in first job placement

n 30% increase in Placements - Mass.

n Improved job Quality - pay & benefits

Results-State Agency

n Cost fixed in advance

n Cost per customer outcome reduced by 51%

n Accountability improved - Micro-audits

n Quality of Job Matches improved

n Role shifts from command and control (Sheriff) to Collaboration and Technical Assistance (Coach)

Results - Vendors

n Clear Quality Standards - expectations are clear in advance

n Reduced regulatory burden

n Reduced paperwork

n More predictable & faster Payment

n Better Feedback on staff productivity

n Greater flexibility on the HOW of results

n Ability to “Grow” the program

Results - Consumer

n Get the job they want

n Get it faster

n Direct the process

n Services can be described

n Clear standards for success progress & recognition of achievements

Obstacles to Change

n Ending US and THEM thinking

n Changing Adversarial to Collaborative

n Change Process thinking to Results

n Change from Ruling to Coaching

n Philosophy change from Command & Control (Soviet Model) to Strategic Incentive Management

Case Example #1

n THE RIP-OFF ARTIST/Honest Cheater Provider objective seems to be to milk the funding mechanism rather than provide service

n Before Milestones - $108,000 per outcome

n After Milestones - $6,500 per outcome

n Contract Terminated

n Savings limited to 1st yr

n Very small number, but drain resources and cause micro-management from funder

Case Example #2

n THE AVERAGE - The method of payment may become the goal and distracts from outcome

n Before Milestones- $25,701

n After Milestones - $11,715

n Majority of savings in first year

n Improvement in customer service- biggest payoff

Case Example #3

n THE ENTREPRENUER

n Cost Before Milestones - $10,033

n Cost After Milestones - $9,640

n Small cost improvements in 1st year & incremental thereafter as efficiency improves with a plateau reached after several years.

n BIG advantage - ability to grow program, increase funding, compensate and retain quality staff.

Oklahoma KEYS to Employment

n One of 12 SSA funded State Partnership Agreements, 6 additional funded by RSA

n Oklahoma Department of Rehab Services

n Purpose

– Inform consumers, advocates and MH Staff on the value of work in recovery and use of WI’s

– Facilitate Medicaid buy-in Oklahoma

– Pilot Several Voucher/Ticket Implementation Issues:

• Response Rate, effect of assertive engagement

• How Choice can be facilitated - Report Card

Oklahoma Vocational Voucher (Ticket to Work) Pilot

n SSA selects names of SSI and SSDI beneficiaries who have a primary diagnosis of Schizophrenia or Affective disorders.

n KEYS Project Coordinator randomly selects control group - experimental design

n WI Contractor invites selected beneficiaries to a Work Incentive Education Meeting - with Consumer Trainers

KEYS Process (cont.)

n OK KEYS Voucher (Ticket to Work)

n Choice of 4 Vendors

n Vendor Past Performance Report Card

n Consumer Assigns Voucher to Vendor

n Enrolled by VR who pays 6 Milestones

n SSA funds used for Quarterly Ongoing Support Payment

OK Pilot Milestone Payments

n Six Milestone Supported Employment payment structure + Ongoing Support

• Determination of Needs - 10% of Bid $650

• Vocational Preparation - 10% of Bid $650

• Placement 3rd day of work- 10% “ $650

• 4 Weeks Job Retention - 20% “ $1,300

• Stabilization 10 weeks work - 20% $1,300

• Rehabilitated 6 months work - 30% $1,950 Total = $6,500 BID

• Quarterly Job Retention Payment - SSA Funds - $400/Qtr.

Work Incentive Meeting

n Trainers and Exemplars/Role Models explain value of work as part of recovery

n Trainers review SSI/SSDI work incentives

n Trainers review “average” scenarios using VCU’s WorkWORLD software

n OK Ticket to Work vouchers and Provider Report Cards distributed

n The Four Providers explain their programs

n Consumers assign their voucher to Provider

Vendor Performance Report Card

n Developed over 3 months with consumer/ customer focus groups with vendor comment

n Identified key information for decisionmaking

n Report Developed with and Published by National Results Council

n Two Components

– Vendor Background - refreshed annually or on request

– Report Card - compares vendors, refreshed quarterly

Vendor Background Sheet

n Name, Address, Picture, Map, contact person

n Vocationally Related Services Available

– case management, medications, worker support

n Type of Job Placements by percentage, 4 F’s

n Percent of Customers with PASS Plans

– indicator of career focus

n Length of Job Experience of Job Coaches

– consumers tired of training new JC’s

Report Card

n Consumer Satisfaction - Independently Surveyed by Consumer Advocacy Organization at 30 days and 6 months on the job

n Percent of Jobs rated by

– Wage by High, Medium and Low

– Hours average per week

– Benefits percent with Medical Benefits

n Length of time prior to starting a job - Time from intake to first placement

Assertive Engagement

n Four contacts before each meeting

n Two by mail and two by phone

n If they can’t or don’t attend, invite to next meeting or give home visit

n Repeated attempts at contact for three months

n If no response, refuse or don’t assign voucher, beneficiary goes on inactive list

n About 40% of invitees attend a meeting

OK KEYS Voucher

n Individuals who get Ticket but don’t assign it get reminders and follow-up questionnaire

n If no response Ticket goes inactive after 30 days - can be reactivated or reassigned at consumers request

n Once beneficiary is working job satisfaction questionnaire for Report Card at one month and six month of work

Preliminary Project Results

n 400 Beneficiaries Invited to a WI meeting

n 50 Work Incentive Training Sessions held

n 165 Beneficiaries attended meetings

n 27 Home Visits using Work World

n 165 (40% of total) took a Voucher

n 51 Vouchers assigned to a Voc.vendor

States with Milestone based rates

n VR Milestone Employment Networks

– Oklahoma, Massachusetts, Alabama, Delaware, Louisiana, Pennsylvania,

– States working on it - Virginia, Kansas, Texas, New Mexico, Missouri, Florida, Indiana, California (region)

n MH Vocational Milestone Networks

– Terrant Co. Texas, NY State OMH, Texas MH/MR

Risk Sharing - Milestones

n Milestones - Win/Win situation

n Increases competition - Lowers barriers to small Vendors by reducing capital requirements

n Meets funders need for accountability

n Vendors for liquidity - cash flow

Obstacles to Change

n Ending US and THEM thinking

n Changing Adversarial to Collaborative

n Change Process thinking to Results

n Change from Ruling to Coaching

n Philosophy change from Command & Control (Soviet Model) to Strategic Incentive Management

Planning the Change

n Executive authorizes change and timetable

n Executive delegates planning to cross-functional team and sets parameters

n Planning Team process-6+meetings/3+mths

– Develop operational definitions for outcome(s)

– sub-divide into incremental steps/Milestones

– develop payment % for each step/Milestne

– define quality indicators for Milestone payments

Grant Revell (VCU) How To’s

n Define the specific outcome desired

n Define the Payment Units or points

n Establish a cost or percentage for units

n Establish the total cost of final outcome - bid or cost averaging

n Add any supplemental services

The Solution - Planning

n Cross-functional teams - Agency +Vendors +Stakeholders plan the incentive structure

n All planning partners agreed to create a system which will meet customer, vendor and agency needs

n Committed to collaboration and negotiation

n Resulted in less resistance to change

Stakeholder Planning

n A stakeholder is a person who has an interest in a business, project or task of major importance.

n By collaborating we can distill the wisdom of the different perspectives and create a WIN/WIN situation for all stakeholders.

n Collaboration - To work together

n Consensus - to think together and consent to the final product.

Planning Principles

n Equality

– Every participant has wisdom to bring

– Decisionmaking by consensus

n Integrity and Transparency

– Rules and Decision boundaries should be clear

– Decisions should be recorded at meetings

– No changes without consultation

n Simplicity - simplest solution is the best

Web site Address:

www.milestonemanagement.com

email:

dan.obrien@milestonemanagement.com

deobrien@aol.com (Dan O’Brien)