Direct Payments:
Cost-Effective Implementation
Commissioned for the
Department of Health by the
Care Services Efficiency Delivery Programme (CSED)
May 2007
Copyright © 2007 Alastor Ltd, All Rights Reserved
Contents
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Background, context and approach
Summary of findings
The economic case
Delivering best practice
Benefit realisation
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Background and Context
• There is a strong political drive towards self-directed support for social care,
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with individual budgets (IBs) due to become the norm
Direct payments (DPs) are a recognised mechanism for getting money to
individual clients to access social care services and personal assistance as an
adjunct/alternative to those services provided by the Local Authority (LA)
Although DPs have been available to LAs as a means of distributing funds after
assessment for ten years, uptake of DP has been variable
DPs are expected increasingly to become the norm. LAs that have promoted
DPs have demonstrated that it is a cost-effective approach as well as one that
supports better outcomes for the client in terms of a better and more flexible
way of life: “independence, social inclusion and enhanced self-esteem”
According to the “Choosing Well” report by the Audit Commission, May 2006:
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“Benefits for local authorities include lower administration costs…. and lower overall
costs of provision”. But there is a “perception that LAs and the public would incur
additional costs that made introducing choice less desirable”
• This paper focuses on:
– A “best practice” process model based on LAs that have made DP work effectively
– Key best practice elements to support the success
– Evidence that the adoption of DP can deliver financial as well as social benefit
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Approach
• Development of the case for DP has applied a Backcast Planning approach,
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working back from the implementation of DP to define what needs to be in
place, in terms of policy, organisation structure and processes to deliver DP
efficiently and effectively
Backcast Planning is therefore based on the future state, where DP and IB
are the norm, and where any redundant costs associated with reduced
direct provision of services have been eliminated
The economic case is therefore based on the IB and DP future state, not on
a series of incremental steps
The benefit of the Backcast Planning approach is that it focuses on the
desired outcome (rather than the incremental steps)
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Copyright © 2007 Alastor Ltd, All Rights Reserved
Contents
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Background, context and approach
Summary of findings
The economic case
Delivering best practice
Benefit realisation
5
Copyright © 2007 Alastor Ltd, All Rights Reserved
Summary
• The study has produced a validated DP process, in terms of what needs to
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be done – leaving free the option of how (in-house or outsourced, and, if
in-house, by which operational function) it is done
The study, both top-down and at the detail level, demonstrates that a
properly-implemented DP payment process should be at least cost neutral,
and be potentially beneficial in terms of cost
A critical component in achieving a cost neutral implementation of DP is
recognition by the LA that DP is not an exception or incremental process,
but is a core component of the care process
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Copyright © 2007 Alastor Ltd, All Rights Reserved
Contents
•
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Background, context and approach
Summary of findings
The economic case
Delivering best practice
Benefit realisation
7
Copyright © 2007 Alastor Ltd, All Rights Reserved
The Economic Case
(DP Processes)
• Setting up the Direct Payments
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Support Service (DPSS) is an
incremental cost
Once the DPSS and DP have been
implemented, this will be offset by
significant savings in the payment
process and by elimination of
redundant costs in the direct
provision functions
The detailed process model is
available separately
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The Economic Case
(DP Payments)
• Current (Direct Provision)
Funder
(the LA)
Variable monthly payment
Based on PO, timesheet & invoice
Service
Provider
(a PA?)
• Future (Direct Payments)
Funder
(the LA)
Buyer
Fixed monthly (or
one-off) payment
(the client)
Service
Provider
(a PA?)
• The only incremental cost is related to any additional BACS payments to
clients (over and above those paid to service providers), offset by savings in
the PO/timesheet/invoice reconciliation and payment processes
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The Economic Case
(Transition to DP and IB)
• The way in which costs and
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savings accrue to the LA will
depend on the migration
sequence to a new operating
system
Prioritising IB (a) will set up the
appropriate infrastructure for
managing DP payments
Prioritising DP (b) will, by
implication, set up a significant
component for future IB provision
IB
Implementation
a
b
DP
Implementation
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The Economic Case
(Transition to DP)
• It is recognised that in the transition process to DP there may be a period
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when DP costs are incurred without commensurate savings in direct provision
It is critical that, once DP is established, redundant costs are taken out of
direct provision
Total Costs
Total cost (of payments)
Cost of direct payments
Cost of direct provision
DP Implementation Timescale
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Copyright © 2007 Alastor Ltd, All Rights Reserved
Contents
•
•
•
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•
Background, context and approach
Summary of findings
The economic case
Delivering best practice
Benefit realisation
12
Copyright © 2007 Alastor Ltd, All Rights Reserved
Policy Prerequisites for Best Practice
• Recognise that DPs and IBs are the way of the future and support the
initiative:
– “Choosing Well” by the Audit Commission May 2006: “Benefits for local authorities
include lower administration costs…. and lower overall costs of provision”
• Consequently, treat DPs as the norm rather than as an exception. Exception
management will always generate additional costs:
– “Choosing Well” by the Audit Commission May 2006: “DP users bear a higher
proportion of fixed and overhead costs compared with the much larger number of
domiciliary social care clients”
• Actively seek to change the hearts and minds of practitioners and
administrators, and provide effective training to support DP as “business as
usual”. Recognise that:
– The change to DPs does not change the provision of care and accountability for it
– Many of the activities carried out under a DP regime (e.g. interviewing and
recruitment of PAs, requisition of services etc.) would also be carried out or paid for
in a direct provision environment
– The focus on outcomes means that more is available than “care hour £”
• Develop a pragmatic policy to simplify administration (contracts etc.) and
financial risk management processes (adopting new lighter touch CIPFA
guidelines)
• As the proportion of DPs and IBs increases, actively seek to
redeploy administrative effort away from redundant
procedures and processes
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Planning to Deliver Best Practice
• Create a Direct Payments Support Service (DPSS) function that helps clients
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(and, where appropriate, their PAs) to set up and administer funds under a
DP regime
Make an initial investment to ensure that DPs are the norm
Provide effective training for relevant LA staff and practitioners
Help clients to fulfil their statutory obligation to use a discrete bank account
(or accepted alternative financial arrangement) to manage DPs when there
are multiple payments
Set up simplified and easily-understandable contracts for individual clients
to use with service providers
Where clients are less likely to be able to provide accurate information for
regular reviews, help them to use payroll services to guarantee that
provision
During assessment and implementation, focus on outcomes, not care hour
£ equivalents
• There is an upfront cost, but applying best practice is worth the investment.
As identified by the Audit Commission in “Choosing Well”, however, “when
choice is introduced inefficiently, it can add to costs and reduce value for
money”
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Delivering Best Practice
• The rest of this presentation sets out best practice guidance for handling
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DPs, based on components of DP processes already implemented by a
number of LAs
Implementing “best practice” guidance as set out in this presentation will
limit additional DP implementation costs incurred by LAs
The model represents “what” needs to be done rather than “how”. It is not
proscriptive: LAs are free to implement alternative processes for managing
DP payments, including the use of in-house and external resources
If the LA proposed (alternative) method of payment for DP imposes
significant cost increases, particularly when compared to the “best practice”
guidance, the proposed DP payment method is inappropriate
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Provide DP Support Service
• The DP Support Service is a key element of effective service provision. It
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drives and champions DP across the LA, with practitioners and with clients
It offers, where appropriate:
– Support to clients to set up bank accounts and payroll services
– Support to clients to procure services and recruit PAs
– Brokerage of information on service suppliers
• As part of its core function, the DPSS also:
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Sets up contracts with individual clients
Manages payment to clients
Manages financial reviews and (where appropriate) risk reviews
Offers training to practitioners and administrators
• The LA may manage all of these in-house, but may also outsource service
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provision to a third party or set up a separate organisation internally and
treat it as a third party
The DPSS represents a management cost to the LA for the DP advocacy
role, but all other incremental costs are offset by:
– Improved/reduced processes and effort elsewhere
– Transition of effort from redundant activities
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Process Model
The detailed
direct payments
process model
is available
separately
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Key Process Differences
Traditional Direct Provision
Direct Payments / IBs
May not always account for individual client
funding (though many have reference)
Funding is allocated to individual client
Client does not manage finance or need
bank account
Client needs bank account (or alternative)
Provision of care controlled and prescriptive
Multiple options for service provision
Where PAs are used, the HR element of PA
recruitment handled internally or by
outsourced supplier
Where the client recruits a PA and the
client so requests, DP Support Service
(DPSS) will help to advertise, interview,
CRB check etc.
Monthly, variable supplier payment by LA
based on match of purchase order, supplier
timesheet and invoice
Standard monthly BACS transfer to client
once the budget and financial arrangement
have been set up
Review linked to payment matching
Annual review (or sample)
No (client) risk-based financial review
Review after initial three months, additional
reviews in line with (client) risk profile
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Significant Savings
• Implemented as a supplier payment process in Accounts Payable, DP
payments by the LA should incur only additional BACS transaction costs…
Traditional Direct Provision
Direct Payment
Set up payee
Set up budget
Process requisition
Produce purchase order
Receive/process timesheet
Process invoice
Match PO, timesheet & invoice
Authorise payment
Make (variable) payment
Set up payee
Set up support plan/funding
Set up monthly payment
Make (fixed) payment
• …while generating significant savings from the simplification of the payment
process
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Main DPSS Process Elements
Initiate DP
Process
for Individual
Provide DP
Support Service
Service Delivery
(meet Outcomes)
Payment
Management
Risk
Management
Subsequent pages show
how direct payments are
not only cost-neutral for
LAs in comparison to
direct provision,
but can also
demonstrate real savings
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Initiate DP Process for Individual
What is Involved
Cost neutral vs. direct provision
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Set up client details and budgets
Complete contract for DP
Make initial payment to fund DP
setup
Agree support plan
Best Practice guidance
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Simple standardised contracts and
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Many authorities already track
individual clients for timesheet crossreference to supplier invoices
Budgets are a prerequisite for IBs
Use of existing accounts payable
procedures and systems minimises
cost
Financial cost/benefits
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No effective change
terms for clients
Standardise initial payment
Treat each client as a “supplier” for
payments by standard accounts
payable procedures including
payment authorisation and budget
tracking
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DP Support Service: Advisory
What is Involved
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Provide help and support to clients to
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set up and run DPs
Also manage financial administration
and risk reviews
Best Practice guidance
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Regard DP as the norm
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Apply rigour and energy – develop
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Small extra cost vs. direct provision
The advisory element of the DPSS
represents an additional management
cost, offset by process savings in
other areas
Financial cost/benefits
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Small additional management
overhead
procedures and apply them
Do not double count cost – actively
redeploy administrative resource for
direct provision as DP volume increases
Effective advocacy through user-led
organisations
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DP Support Service: Bank Account
What is Involved
Small extra cost vs. direct provision
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Provide help and support to minority
of clients who do not have a discrete
bank account and need to set one up
Manage (or facilitate management
of) third party supported account
where appropriate
Support alternative financial
arrangements where policy dictates
Best Practice guidance
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Several LAs outsource this process to
third parties effectively
Additional management cost
Only for the small proportion of
clients that require support
Financial cost/benefits
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Small additional management
overhead
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DP Support Service: Payroll Service
What is Involved
Small extra cost vs. direct provision
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Facilitate provision of payroll service
for PAs and other service providers
directly employed by clients
Statistics show that while many
clients do provide accurate and timely
information, it is more consistently
provided for clients using a payroll
service
Best Practice guidance
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Actively seek accurate and timely
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financial information, and encourage
use of payroll service where there is
a risk this will not be provided
Manage through third party supplier
Optionally charge the client
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Additional management cost if not
recharged to clients
Only for a proportion of providers:
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Not self-employed staff, agency staff, or
support organisations
Only for those clients requiring
support
For both DP and direct provision, PAs
and service providers have to be paid
Financial cost/benefits
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Additional overhead for setting up
and managing service
Broadly cost-neutral (as PAs have to
be paid in both scenarios)
Some LAs cross-charge additional
payroll costs to the client
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DP Support Service: Sourcing Advice
What is Involved
Small extra cost vs. direct provision
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Help clients to find suitable service
providers, including agency suppliers
and support organisations
Where the service is provided by a
directly-employed PA, or where help
with interviewing individuals is
required, HR support is available via
the DPSS (see next page)
Best Practice guidance
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LAs may wish to continue to
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negotiate with agency, support
organisation and other providers to
achieve economies of scale
There is an option to outsource
sourcing advice to a third party
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Additional cost for “helpdesk”
function
Minimal requirement for providers
identified via relatives and friends
For both DP and direct provision
there is a sourcing requirement
Financial cost/benefits
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Small additional overhead for setting
up support function
Broadly cost-neutral (as services have
to be sourced in both scenarios)
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DP Support Service: HR/Recruitment
What is Involved
Cost neutral vs. direct provision
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Manage recruitment of a PA (selfemployed or agency), including help
where appropriate with job
description, interviewing, CRB check,
contract, liability insurance, holiday
cover etc.
Best Practice guidance
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LAs may wish to continue to
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All components required only when
requested by client directly recruiting
and employing staff
Interview help may be needed with
agency or support organisation
For both DP and direct provision
there is a recruitment process, either
by in-house staff or paid for as part
of an outsourced service
Financial cost/benefits
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Cost-neutral
negotiate with agency, support
organisation and other providers to
achieve economies of scale
There is an option to outsource HR
and recruitment advice to a third
party
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DP Support Service: Brokerage
What is Involved
Cost neutral vs. direct provision
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Maintain an overview of supplier
(agency) costs and capabilities
Act as a broker to provide this
information to clients where
appropriate, thus providing additional
benefit and managing cost base
Best Practice guidance
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LAs may wish to continue to
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Minimal effort, more than offset by
reduced cost of procurement of direct
provision
The LA role is the provision of
information, not the procurement
process (on behalf of the client)
Financial cost/benefits
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No effective change
negotiate with agency, support
organisation and other providers to
achieve economies of scale
There is an option to outsource HR
and recruitment advice to a third
party
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DP Support Service: Training
What is Involved
Cost neutral vs. direct provision
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Provide training to practitioners,
administrators and (where
appropriate) clients
Critical for a smooth process and
“buy in” to DP
Best Practice guidance
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Introduce as part of normal training
cycle with ad hoc support available
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Initially seen by LAs as a cost
because it is a new process
Once DP is incorporated into normal
training cycles it will be cost neutral
Financial cost/benefits
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Cost-neutral after initial
training/conversion
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Service Delivery (out of scope)
What is Involved
Cost savings vs. direct provision
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Focus on outcomes, so many
potential approaches
Delivery of a creative range of
services (not just domiciliary or day
centre care)
No reduction in quality to client
“Benefits for local authorities include
lower administration costs…. and
lower overall costs of provision”
(Audit Commission May 2006):
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Best Practice guidance
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Use third party to manage payroll
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services (with client agreement)
Continue to review supplier costs,
and broker information accordingly
LAs may still be able to exploit
volume discounts on behalf of clients
For most authorities, hourly cost of
care is less when directly contracted,
even when compared to block
contracts
Reduced volume of commissioning
and supplier tender management
Financial cost/benefits
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Ability to redeploy resources
associated with administration of
traditional direct provision as volumes
decrease
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Payment Management
What is Involved
Cost savings vs. direct provision
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Once direct payment has been set
up, a BACS payment is made monthly
to the client’s bank account (or
alternative)
Best Practice guidance
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Treat each client individually as a
“supplier” for payments by standard
accounts payable procedures
including payment authorisation and
budget tracking
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Simple BACS payment replaces
significant financial processing for
direct provision
Direct provision usually requires
monthly reconciliation of variable
supplier payments based on the
match of purchase order, timesheet
and invoice
Financial cost/benefits
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Significant savings of administrative
process by reducing three-way
reconciliation and variable supplier
payments
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Risk Management
What is Involved
Cost savings vs. direct provision
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Regular financial (and care) reviews
CIPFA recommends “light touch”:
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Minimum requirement: three months
after programme starts; annual check
of bank account and paperwork
Additional quarterly or ad hoc review
as required based on risk or request
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Potential for claw back of unused
funds (where and when appropriate)
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Best Practice guidance
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Balance light touch and appropriate
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diligence, in line with new CIPFA
guidelines
Only carry out more frequent reviews
where justified by the risk reduction
or benefits (e.g. claw back)
Annual reviews of client bank
statements/paperwork equate to
monthly accounts payable
reconciliations to vendor statements
Risk-led or requested financial
reviews are an extra, but by
exception
Still need care reviews– no change
Financial cost/benefits
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Light touch minimises additional cost
Overall cost reduction when
compared to monthly three way
matching and payment authorisation
(see Payment Management)
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Contents
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Background, context and approach
Summary of findings
The economic case
Delivering best practice
Benefit realisation
32
Copyright © 2007 Alastor Ltd, All Rights Reserved
Benefit Realisation
• DP implementation will be recognisably successful when the following
Recognition Events TM occur:
– DP is a standard payment procedure within the LA
– The deployment of DP is a standard component of all LA sourcing strategies
– DPs (including charging, paying, monitoring, review and claw back) are routine
Accounts Payable activities
– The only direct, additional cost that DPs incur are direct BACS transaction costs
– Redundant costs (management and administration) of direct provision have been
eliminated
– DP training is provided to all relevant council staff, partner agency staff,
information providers and DP recipients
– All eligible clients are offered the DP option (at initial contact, assessment and
review)
– Support for people about to, and using, DP is readily available
– DP is promoted by, and to, staff as a standard option
• A number of these components have also been included in
the self assessment tool
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