PIP and ESA assessments Contents

6Incentives and contracting

74.The Department uses contractors to assess PIP and ESA claimants on the grounds of efficiency and providing objective, independent assessments. Consulting on PIP in 2010, the Department argued that the benefit it replaced, Disability Living Allowance (DLA), had become “unsustainable” in caseload and cost, that it was “not well understood”, and there was “no process to check that awards remain correct”.228 The Department intended PIP to be “easier to understand” and “more transparent” for claimants, and easier and more efficient for DWP to administer.229 The assessment process was a means of achieving these objectives. DLA awards were determined by self-assessment. PIP, however, would offer “an objective assessment of individual need” by a health professional.230 The intention behind contracting out the Work Capability Assessment for the ESA, replacing Incapacity Benefit in 2008, was similar. It was intended to “modernise the processes so that the system is more efficient and the number of appeals is minimised”.231

The PIP and ESA contracts

75.The original contract for ESA, with Atos, was due to run from 2008 to 2015. Atos negotiated an early exit from the contract in 2014. The circumstances leading to the exit were somewhat contested. The former Minister told our predecessor Committee that the loss of public confidence in Atos meant the Department viewed an early exit as preferable, but Atos blamed the “very toxic” environment their staff had been working in and concerns about the financial viability of the contract.232 Maximus’s contract began in 2014. They have delivered all ESA assessments since 2015, under a new three year contract. This new contract allowed for an extension of up to two years, which has since been exercised. It now runs to early 2020.233 The estimated value of the contract at the outset, up to 2018, was £595 million.234

76.The PIP contracts began in 2012, with service delivery starting from 2013. There are three separate contracts or “lots”, covering different parts of the country. Lot 2, held by Capita, covers Wales and the Midlands, comprising approximately 23% of assessments. Lots 1 and 3, held by Atos, cover the rest of England and Scotland. Like the ESA contracts, the PIP contracts were initially due to finish in 2018. They also allowed for the possibility of contract extension of up to two years. This has been exercised, and the contracts are now due to finish in mid-2019.235 The combined estimated original value of the PIP contracts, from 2012 to mid-2017, was £512 million.236

Contract structures and actual costs

77.Both sets of contracts are based on the volume of assessments conducted. The amount paid to the contractors depends on the number of assessments carried out, with higher fees paid for face-to-face assessments compared to those conducted in other ways (for example, paper-based assessments). Owing to this, the actual amounts paid to each contractor can vary substantially from the original valuation. The Department told us that up to March 2017, Maximus had been paid £291 million to carry out ESA assessments—much less than the original estimated contract value. Atos and Capita, on the other hand, had received a combined total of £678 million—£166 million more than the original contract value.237

78.Although both contracts are based on the volume of assessments carried out, they differ in how the amount paid per assessment is calculated. Maximus’s contract has a target cost per assessment. If Maximus conduct assessments at below this target cost, they are eligible to receive an extra payment from the money saved by the Department. If their costs rise above the target cost, they have to pay a penalty. This arrangement—known as “pain share/gain share”—incentivises Maximus to keep their costs down. The earlier-let PIP contracts do not contain such an incentive. Capita and Atos instead receive a fixed price for each assessment, varied if the total volume of assessments they carry out each month is outside specified boundaries.238

79.Each contract also allows the Department to make deductions—”service credits”—from its payments to contractors if they fail to meet targets for turning around assessments, customer service, and report quality.239 The amount that can be deducted monthly is capped. Service credits are the Department’s main financial lever for managing contractor performance. The Department can use discretion in deciding whether or not to apply them in the event of below standard performance. It might choose not to if, for example, it is concerned that doing so would mitigate against the contractor being able to take action to fix poor performance. Its use of service credits throughout the contracts has varied. The NAO noted in 2016 that the Department appeared “to have applied service credits with fewer exceptions and better enforced available financial levers” in recent months.240

80.The costs of assessing claimants for PIP and ESA go beyond the costs of the contracts themselves. The Department also incurs costs carrying out MRs and going to appeal.241 It supplied us with estimated unit costs of:242

The Department also told us it will recruit 150 new Presenting Officers, split between PIP and ESA, to represent the Department at Appeal and to “provide valuable insight into why decisions can be overturned”.245 DWP staff at the grade of Presenting Officers are paid an average of £25,631 per year.246

81.The legal process of disputing decisions incurs further costs. The Ministry of Justice (MoJ) estimated that in 2015/16, the average unit cost to the Tribunal Service of a PIP or ESA appeal was £543.247 This unit cost is dependent on a range of factors, including the complexity of cases. The MoJ noted that average unit cost has risen sharply in recent years, driven by an increase in PIP appeals which require more members on the tribunal panel. In 2015/16, the total cost of PIP and ESA appeals to the MoJ alone—exclusive of DWP costs—was £103 million.248

Quality targets

82.The Department has struggled throughout the current PIP and ESA contracts to ensure that reports are of sufficient quality to enable accurate decision-making.249 In recent years, it has changed its approach to quality auditing PIP reports in an attempt to bring them consistently up to standard. Since February 2016, it has operated an independent audit process, whereby a controlled random sample of HCP reports from each provider “lot” are audited each month.250 In addition to Departmental auditing, PIP contractors are required to conduct their own, internal quality auditing. This includes auditing 100% of new assessors’ reports until they have reached a certain standard and “regular” review of new assessor reports thereafter. Contractors should also audit an “appropriate proportion” of HCP reports every three months, and conduct targeted audits if evidence of on-going problems with specific assessors becomes clear.251 The Department suggests contractors may use the same criteria as it uses in independent audits for their own, internal auditing.

83.The Department’s quality auditing assesses reports in four areas:252

i)Opinion: the extent to which the HCPs descriptor choices and advice on prognosis are reliable and well-supported by all the available evidence;

ii)Information gathering: whether the HCP has sought out appropriate information, including from observations, examinations and the claimant’s history;

iii)Further evidence: whether appropriate supporting evidence has been sought and referenced;

iv)Process: whether reports conform to professional standards, for example by being free of spelling or grammar errors and not using excessive jargon.

In each area, reports can be judged “Acceptable” or “Unacceptable”. “Acceptable” contains three sub-categories that denote the extent to which the report is accurate and error-free:253

Reports are generally considered “unacceptable” if they would either cause a Decision Maker to be unable to make a decision, or if they would lead them to make the wrong award.

84.A similar process is in place for ESA reports. The Department operates an independent audit process, based on a controlled random sample. Maximus has its own internal auditing in place to complement this. New entrants have 100% of their reports audited until they have attained a sufficient, consistent standard. Thereafter reports are audited on a random basis, or if issues with quality or productivity come to light.254 Maximus HCP’s reports are graded from A to C. Maximus told us that key requirements include ensuring assessment reports are “legible and in plain English” and that “the advice provided is fully justified and medically logical”.255

85.The PIP contracts set targets for contractors to deliver fewer than 3% “Unacceptable” reports. Neither PIP contractor has met the 3% target to date in any rolling three month period.256 The Department told us, however, that it has implemented a “range of activities” that have delivered “substantial improvement” since the NAO reported concerns about quality in January 2016.257 Officials further claimed that “year on year”, all providers have improved their quality standards.258 The implementation of the independent audit in February 2016 did coincide with apparently substantial improvements in some contract lots—notably Capita’s, where up to 56% of reports had been graded “unacceptable” in rolling three month periods prior to that point (see figures 1 and 2).259 Contractors have struggled to achieve steady and sustained improvements, however. Both Capita and Atos have seen increases in the proportion of reports graded “Unacceptable” in recent months.

Figure 2: Three month rolling average of percentage of reports graded “unacceptable” (Atos):

Break in series represents a change of audit methodology.

Figure 3: Three month rolling average of percentage of reports graded “unacceptable” (Capita)

Source: PIP and ESA Assessments inquiry: supporting statistics

Break in series represents a change of audit methodology.

86.Maximus is required to deliver 70% of reports at A grade, and 95% at either A or B grade (ie. fewer than 5% at C-grade).260 It, too, has struggled to meet all of its contractual targets. Maximus told us that it has exceeded targets for reports at A grade in each month of the contract since it replaced Atos. It has never met the target of fewer than 5% of reports at grade C (see Figure 3).261 Again, however, the Department informed us that performance has improved in each contract year.262 Maximus told us it continues “to work with the Department to determine how we can continue to improve”.263 Missing quality targets has led to fines (service credits) of £86 million being payable by the current contractors over the last four years.264

Figure 4: Maximus three month rolling average of the percentage of reports meeting the required standard

Source: PIP and ESA Assessments inquiry: supporting statistics

87.The Department’s quality standards for PIP and ESA set a low bar for what are considered acceptable reports. The definition of “acceptable” leaves ample room for reports to be riddled with obvious errors and omissions. Despite this, all three contractors have failed to meet key performance targets in any given period. It is difficult not to conclude that this regime contributes to a lack of confidence amongst claimants.

88.The Department’s use of contractual levers to improve performance has not led to consistent improvements in assessment quality, especially in relation to PIP. Large sums of money have been paid to contractors despite quality targets having been universally missed.

The future of PIP and ESA contracting

89.The termination of a contract—and transition to a new one—is an important stage in the contract life cycle.265 The National Audit Office (NAO) noted risks to future contract stability and value for money if “renewal is left too late or the transition is badly handled”. Transition may also offer an “opportunity to learn from the experience of previous contracts”.266 The NAO suggested that differences between the earlier-let PIP contracts and the later ESA contract with Maximus indicated the Department had learned lessons about the way it manages contracts while they are running. Its approach to transition, however, had been weaker.267 The transition between ESA providers, for example:268

Was only six months earlier than the planned end date of the original contract. Despite this, the Department had done limited preparatory work for contract transition.

90.This had led to missed opportunities to improve contracting arrangements. In particular, the Department continued to rely on a largely reactive approach to managing contractors’ performance.269 The NAO noted this was likely to be insufficient to overcome “problems arising from how contracts were set up”.270 It identified particular weaknesses in the Department’s ability to challenge contractors’ operating assumptions, leading to unexpected costs.271 It also suggested the Department had tended to develop targets for contractors without sufficient evidence to know whether these were set correctly.272 The NAO recommended, therefore, that the Department needed to allow more time to prepare for future transitions, and to improve the quality and rigour of preparatory work that it undertakes.273 Both the PIP and ESA contracts have already been extended as far as permitted under their original terms. They will come to an end in 2019/20, limiting the time the Department has to prepare.

91.We heard that the Department must have from the outset of its preparations a clear sense of what it wants to achieve from contracting. Witnesses told us that rebuilding claimant trust must be at the heart of its approach.274 This will necessitate a much stronger emphasis on quality, using expert evidence, and ensuring reports and assessments are more frequently error-free than is currently the case. To evaluate effectively prospective contractors’ ability to deliver its intentions, the Department will need a strong understanding, drawn from its experience and detailed preparatory work, of the costs of providing a good quality assessment.275 These include the volume of face-to-face and paper-based assessments it expects to provide, set alongside the costs of assessor training, gathering and analysing written evidence, providing home visits as needed. It will also include the costs of implementing more thorough internal quality auditing, alongside audio or video recording to enable this.

92.Once it has established what it wants from contractors, the Department must also consider whether there is a truly competitive market to provide future contracts. The Department told us its early tendering work suggested “there are a number of suppliers who [ … ] will bid for these contracts when they go out”.276 The NAO noted in 2016, however, that the Department had seen “limited improvement in market interest” up to that point.277 It is unclear how a renewed emphasis on quality, perhaps with consequential effects on volume of assessments, would affect profitability and market interest. Continued negative perceptions of assessments increase the reputational risk to contractors, which may further damage market interest. Reputational factors were, for example, a factor in Atos’s departure from the ESA contract.278 Insufficient competition for the contracts brings a danger that they will be poor value for money, or that contractors will become complacent.279

93.The Scottish Government is due to take responsibility for PIP assessments in Scotland from 2020, under the terms of the Scotland Act.280 We heard it has already begun extensive preparatory work.281 Jeane Freeman MSP, Scottish Minister for Social Security, told us about her Government’s plans to make much greater use of existing medical and social care evidence to assess eligibility. In turn, it hoped to reduce substantially the number of face-to-face assessments, limiting these to claimants who are unwilling to give access to their health records. Assessments that do take place will be carried out by public sector health and social care professionals, including specialists where possible.282 Jeane Freeman explained that a key tenet of Scotland’s approach is that assessments will not be carried out by private sector contractors. This is because the Scottish assessment system aims to emphasise “standards and quality rather than case volumes”.283 The Scottish Government has concluded that carrying out assessments according to this approach is incompatible with the “necessary and understandable profit motive” of private companies.284

94.The PIP and ESA contracts are drawing to a close. In both cases, the decision to contract out assessments in the first instance was driven by a perceived need to introduce efficient, consistent and objective tests for benefit eligibility. It is hard to see how these objectives have been met. None of the providers has ever hit the quality performance targets required of them, and many claimants experience a great deal of anxiety over assessments. The Department will need to consider whether the market is capable of delivering assessments at the required level and of rebuilding claimant trust. If it cannot—as already floundering market interest may suggest—the Department may well conclude assessments are better delivered in house.

233 Q379 (Janet Smethurst)

235 Q379 (Janet Smethurst)

237 DWP (PEA0539)

241 The Department explained that the unit costs for appeal and MR are direct operational costs only; total costs will also include management costs and overheads. See DWP (PEA0539).

243 Since 2013 there have been 352,000 new applicant MRs and 317,000 reassessment MRs. DWP, Personal Independence Payment: official statistics.

245 DWP (PEA0441)

246 DWP (PEA0539)

249 Public Accounts Committee, Contracted out health and disability assessments, 33rd Report of Session 2015–15, HC 727, March 2016 p.3

250 DWP (PEA0449)

254 Maximus, Integrated quality audit system process guide, June 2017, pp.12–14

255 Maximus (PEA0446)

256 PIP and ESA Assessments inquiry: supporting statistics, table 22; Q188–190 (Dr Barry McKillop and Dr Ian Gargan). Atos’s lowest proportion of Unacceptable reports is 4.3%, and Capita’s is 3.5%.

257 DWP (PEA0449)

258 Q378 (Sarah Newton), Letter from Sarah Newton to Chair of Committee, February 2018

259 Prior to February 2016, Capita and Atos reports were also graded “A”, “B” and “C”. In February 2015-May 2015, between 50% and 56% of Capita’s reports each month were graded “C” on three month rolling averages. DWP, PIP and ESA Assessments inquiry: supporting statistics, table 22

260 DWP (PEA0449)

261 Q249–250 (Leslie Wolf/Paul Williams). DWP, PIP and ESA Assessments inquiry: supporting statistics, table 23. The closest it has come is 6.4%.

262 DWP (PEA0449)

263 Maximus (PEA0446)

264 Letter from Sarah Newton MP to Committee Chair, 8 January 2018

274 Citizens Advice Sheffield (PEA0247), Disability Agenda Scotland (PEA0414), Green Party Northern Ireland (PEA0390), Headway (PEA0330), Mencap (PEA0398), National AIDS Trust (PEA0371), RNIB and RNIB and Thomas Pocklington Trust (PEA0393), Start Ability Services and the Association of Disabled Professionals (PEA0336), Shaw Trust (PEA0424)

276 Q383 (Janet Smethurst)

281 Q331–337 (Jeane Freeman)

282 Q333–334 (Jeane Freeman)

284 Scottish Parliament, 7 September 2017, Q2

12 February 2018