Linking Payment to Results Rena Eichler, PhD Broad Branch Associates Results Based Financing to Reduce Maternal, Newborn, and Child Mortality, (Session 7; Kigali, June 25, 2008)

Outline Why incentives matter Designing payment rules Supply side Demand side Degree of financial risk The importance of formalizing your payment rules- write it down! Funding issues

A typical scenario?

Incentives exist in all environments. New incentives are introduced on top of existing ones- the interaction matters. Will the funds you “control” represent a significant portion of total funds received by the recipient?

What are your payment “rules”? How much payment will be linked to results and how much is not exposed to financial risk? How often will you pay? Will you pay “all or nothing” ? How far “up the chain” will your performance payments go?

A “menu” of options to consider for supply side payment Sub-national level: Aligned with facility or population level targets Institution level: Frequency of performance payment Amount at risk Stepped Per service provided Adjustment for quality score Combination

The supply side menu continues… Teams: Rules for distribution vs. allow team to determine? Individual provider level: Salary plus? (or withhold and “bonus”) Amount at risk?

Demand Side Payment options Linked to measurable results or actions. Household level: Determine recipient (often woman in CCT programs) Frequency All or nothing? Individual patient level:

How much risk? Amount of risk depends on: Payment regularity needed to cover routine costs To assure uninterrupted service delivery. Type of recipient Institutions may be able to absorb more risk than individuals. Other funding and the terms of that funding Will the performance based funding be a small or large portion of total funds going to the recipient? Existing incentive environment We observe that roughly 10% is the norm- but this is not “evidence based”

Develop a formula, write it down, include it in contracts Example from Haiti Potential payment received by NGO = 95% of historical budget + award fee. Maximum award fee = 10% of historical budget. (Note: 5% is “withheld” and an additional 5% can be earned)

Award Fee is earned when targets are reached

Where will the money come from and is it enough? From existing funding: There may be pressures to remain “budget neutral”. From new funding: New donor funding. Increase government funding for health CAUTION: Changing incentives changes behavior and changing behavior can have budget implications!