Oklahoma Milestone Payment System

Daniel O’Brien and Rebecca Cook

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The Problem

Funded by several state and federal programs, the Oklahoma Department of Rehabilitation Services provides a variety of opportunities for people with disabilities through vocational rehabilitation, education, independent living programs, library and other specialized services for the blind, and the determination of medical eligibility for Social Security disability benefits, serving approximately 30,000 consumers each year. The Community Rehabilitation Services Unit is charged with providing employment rehabilitation, a combination of services designed to enable clients to succeed, with or without supports, in productive, paid employment.

The employment programs target individuals with any type of severe disability who have been determined “eligible” for services according to federal definitions under the Rehabilitation Act of 1973, as amended. Individuals selected for employment programs need assistance in obtaining, learning, and/or keeping a job. The majority of the individuals served have either never worked at all or never worked successfully. Although the majority of individuals currently served are those with primary disabilities of mental retardation or mental illness, many other types of severe disabilities are represented in the target population, including traumatic brain injury, cerebral palsy, dual sensory impairment, and other severe physical disabilities. Employment rehabilitation programs serve approximately 800 individuals annually by several providers scattered across the state.

Like many public agencies, the Department of Rehabilitation Services has traditionally used fee-for-service payment systems to reimburse providers, usually based on hourly rates for services. Unfortunately, this system worked against the very goals we sought to accomplish, rewarding failure instead of success. Hourly billing bore an inverse relationship to consumer independence: the more independent the consumer, the lower the billing. The provider was financially encouraged to provide billable hours rather than work toward consumer independence.

No publicly funded service agency has adequate dollars to fund every worthy program or to meet the needs of every potential customer. Government agencies must make tough choices about the quality, scope, and extent of services for their customers. Faced with limited resources, our agency sought methods to improve outcomes while containing costs, stretching funds to reach more customers. The specific problem for the Department of Rehabilitation Services was to create a reimbursement system with incentives for providers to move customers toward their choice of employment in the most cost-effective, efficient way.

The Solution

One of the methods of cost containment at the agency’s disposal was the choice of provider reimbursement systems. Generally, what is paid for gets measured, and what gets measured gets done. Since funding mechanisms tend to distort both the kinds of services delivered and how they are delivered, careful thought went into designing a funding scheme that would minimize unintended consequences and perverse incentives.

The Community Rehabilitation Services Unit developed the Milestone reimbursement system, which pays the provider in increments when the consumer passes predefined checkpoints, or milestones, on the way to the desired outcome. The Milestone system creates financial incentives through these incremental payments, which are based on the severity of the individual’s disability. It differs from fee-for-service funding because it reimburses the provider for the average cost of achieving the outcome, rather than for the time spent on the process.

Individual milestones represent realistic implementation of the best practices in the field. The milestone definitions include objective standards derived from research and best practice data, creating practice and payment standards as well as quality benchmarks. This innovative system has the potential to cut government spending, streamline service delivery, and, ultimately, to increase consumer satisfaction.

The Milestone System

The Milestone payment system integrates Total Quality Management concepts with payment mechanisms. Total Quality Management (TQM) is defined as “…a continuous improvement process which involves participatory management and makes use of teamwork.”1 TQM concepts are at the heart of the Reinventing Government and National Performance Review advocated by Vice President Gore. TQM is customer-driven, involving employees at all levels and using a team approach to eliminate waste and continuously improve quality.2  The fundamental problem that Womack et. al., identified for business systems is identical for government-funded programs. They state that the “…problems are inherent in the system’s incentive structure and logic.”3 The Milestone system rethinks the logic and incentive structure of the process for purchasing vocational services.

The systematic application of cooperative planning and teamwork is the cornerstone of the Milestone system. Setting aside the traditional adversarial approach of American business and government, all parties approach decisions with the long-term health of the total system and the success of all contributors in mind. The short-term gains of individual players are subservient to these long-term goals. In the development of Milestones, the goal was to establish a system that delivered a high-quality product at a reasonable price with incentives for continuing quality improvement.

Critical to the Milestone system is a commitment from all parties to create a payment system that meets customer needs while addressing the financial realities of both the state agency and its service providers. State agency staff devoted significant effort in the year prior to the initial pilot and during each revision to achieving consensus with providers on the milestone definitions. This was critical to reducing both unanticipated consequences and resistance to change from the service providers.

At the outset, state staff set the parameters within which the planning committee had to work. The two parameters were that the Milestone system had to create financial incentives to reach the outcome, and that the final design had to represent a Win/Win/Win situation. To be stable, the design had to accommodate the long-term needs of the consumer, the provider, and the state agency.

The planning committees were working groups with six to twelve members. Membership was held constant for the two- to three-month planning phases. The committee met every two weeks with drafts of decisions mailed to members between meetings.

The key issue was the collaborative development of realistic operational definitions of the service outcomes. The outcome was then subdivided into incremental steps or “milestones” to which payment was tied. First, state agency staff developed an outline of the Milestone concept. Then, a representative group of providers was convened to assist the staff in developing the detailed design. The initial questions were how the final outcome would be operationalized and how it would be verified. Decisions of the planning committee were made by consensus. The next question presented to the committee was, “If we were to stop you on the way to the final outcome and take a snapshot, what would we be able to see?” To answer this question, six logical payment points were defined where progress could be observed by the funding agency staff.

This process was used for each of the two primary populations served, persons with a mental illness and persons with a developmental disability. Each group has distinct needs, and therefore a different pattern of service is required.

Payment percentages were then negotiated for each of the milestones. If the providers had their wish, all the money would be paid up front, while the state agency would pay 100 percent at the end. Neither solution would have been stable in the long term. The following is an example of a payment structure for a Milestone contract: 1) Determination of consumer needs – 10 percent of bid; 2) Vocational preparation completion – 10 percent of bid; 3) Job placement – 10 percent of bid; 4) Four weeks job retention – 20 percent of bid; 5) Job stabilization – 20 percent of bid; and 6) Consumer rehabilitated (Stabilization+90 days) – 30 percent of bid. Negotiations on this structure achieved a balance between the providers’ desire for ease of implementation and the state agencies’ concern for quality of outcomes.

The resulting Milestone payment structure was distributed to all current providers for comment. The revised payment structure was tested in a pilot program. The first stage of the pilot program involved establishing new programs using Milestone funding. Two pilot programs were funded in October 1992. The committee was called together to review the results of the first pilot and revise the structure. The second stage of the pilot involved conversion of the 23 existing Supported Employment programs to Milestones from hourly contracts, which was completed in January 1997. Implementation was on a voluntary basis. Typically, the more entrepreneurial vendors converted to Milestone funding in the first round. Before mandatory conversion, the committee again reviewed the Milestone structure and made adjustments to correct problems. The final stage will convert the remaining 17 contracts to Milestones before the end of 1997.

The total number of potential clients for Milestone-based employment programs is difficult to estimate. The service capacity is projected to increase to 1000 individuals when the final existing fee-for-service programs are converted to milestones. In fiscal year 1998, the Department of Rehabilitation Services plans to increase the number of new providers delivering Milestone-based services through new contracts, increasing the total budget by $780,000 to a total of $4.8 million. These new programs will expand the client base by another 150 to 200 consumers, creating opportunities in more areas of the state.

The Bidding Process

The bidding process is critical to the success of the Milestone system. By allowing providers to bid based on their projected costs, the system assures that pricing will be adequate and competitive. This assures that the state agency can purchase the service, and that it will not pay too much.

A structured process guides providers in making a milestone bid. Providers develop a program budget, then estimate the numbers of individuals they can assist with the projected level of staffing. Initially, these estimates are based on past performance under hourly funding. The final step in developing a bid is to project, based on historical data, the number of persons with disabilities who will complete each step or milestone in the process. This allows the provider to include in average cost calculations the projected number of “drop outs” at each milestone.

The bid formula multiplies the estimated number completing each milestone by the weighting factor for that milestone. The weighting factor is the number of units of 5 percent contained in that milestone. For example, a milestone paid at 10 percent of the bid has a weight of two (2 units of 5 percent). If eight consumers are projected to complete that milestone, the formula is 8 X 2 = 16. Each milestone represents a number of units of 5 percent that will be accomplished. The total units of 5 percent are added up, divided into the total budget for the program, and multiplied by 20 to get back to 100 percent (5% X 20 = 100%). The resulting figure is the bid per consumer. Chart 1 demonstrates the formula.

Chart 1. Formula for Milestone Bid


% of Bid

# Completing

 x Weight

= Billing Units

1 – Needs Det & Plan


x          2


2 – Voc Preparation


x          2


3 – Placement


x          3


4 – 4 Week Retention


x          4


5 – Stabilization


x          4


6- 26 Closure


x          5


                                                                                                                Total units of 5%  =


Bid Computation

1) $_______________  ¸ _______________ = ____________

   Total Program Budget                Total Units of 5%           Cost/Unit of 5%

2) $____________ X 20 = _______________ per Consumer

    Cost/Unit of 5%           Bid Amount

This bid per consumer is a realistic projection of the cost of providing the predefined quality outcomes and includes the costs of dropouts. In other words, if the provider completes the milestones as projected, it will have adequate income to support the continuation of the service. The bid process requires that service providers develop a reasonable business plan. Those who do as well as or better than projected are rewarded, and providers who fall below agreed-upon projections suffer revenue shortfalls that must be made up by increasing outcomes or from reserve funds.

Bids are submitted to the funding agency along with supporting documentation. Bids are evaluated equally on quality factors and costs, as compared to statewide average cost figures. Bids significantly above or below the average range may be rejected.

One of the weaknesses of an outcome-based payment system can be the tendency to create disincentives to serve the most difficult customer. In line with the philosophical commitment to managing incentives rather than regulating behavior, we looked for a way to create incentives to serve the more difficult customer. The Milestone system requires multiple bids based on the anticipated level of need/difficulty. The higher level of difficulty is reimbursed at a higher rate. This creates an incentive to find and serve the more difficult customer in order to increase agency income.

Bids in many rural areas of the state, where multiple providers are not available, are not truly competitive. These bids are evaluated on quality factors and compared against average statewide rates.

Costs and Benefits

The force field graph illustrates key differences in the forces at work in employment of persons with severe disabilities, contrasting the “before” and “after” implementation of Milestones.

Staff members who value rapid placement of consumers in jobs of their choice create push in the right direction. Milestones strengthen this by tying provider income, staff evaluation, and sometimes bonuses to these values. Payment for reaching milestones encourages providers to perform the tasks that make reaching the goal difficult: contacting employers, analyzing jobs, training the consumer on the job, assisting the consumer to keep the job, etc.

Consumers and their families create push toward the goal to the extent they are empowered. Under Milestones, the consumer and family are directly involved in the planning process and must be satisfied with the final outcome, creating greater positive push toward the goal.

Chart 2. Evaluating Milestones: Force Field Analysis

Before Milestones        
Forces Advancing Goal       Forces Resisting Goal


Staff Values ———————  


———————————————Staff Convenience

Consumer Choice—————  

——————————————— No Work History


———————————————  Provider Income

After Milestones      






Staff Values ————————————————

—————  Staff Convenience

Consumer Choice——————————————

—————   No Work History

Provider Income  ——————————————    


The greatest difference is generated by moving the provider income force vector from resisting to assisting the consumer. Under the hourly payment system, the provider generated more income by dragging the process out for the statutory maximum of 18 months. Under Milestones, the provider’s cash flow and income improve if the consumer gets a job of his or her choice as rapidly as possible.

The opposing forces of Staff Values versus Staff Convenience present implications for a public agency’s choice for whether to deliver services directly by using state employees or to contract out services to providers. The force field analysis helps demonstrate the nature of the problem and illustrates why contracting out services works better. Outside contracting creates valuable extra push in the direction of the consumer’s choice with fewer constraints on the manipulation of force vectors. The equation is shifted in a positive direction, primarily by relocating the financial incentives to work for the consumers rather than against them.  

The resistance of some state agency staff to getting out of the office and getting their hands dirty is difficult to counter in a state merit system. For merit system employees, the consequence of not doing the work effectively may be a transfer to an easier job. Needless to say, this makes it difficult to generate the necessary push toward the goal. A partial solution in state systems may be performance-based budgeting. The future budget and staffing of the agency or work units could be based on past performance. This does not provide the immediate pressure for productivity that Milestones provides through external contracting. It may, however, be the only option in state systems where contracting out is difficult.

Evaluating Milestones: A Case Study

The Players

Vocational Rehabilitation Counselor: The VR Counselor is a rehabilitation professional, usually of Masters degree level, who is an employee of the state rehabilitation program. The counselor is knowledgeable about consumers with disabilities and their vocational needs and is responsible for assisting the consumer to determine and achieve a suitable vocational objective. The counselor works with the consumer and family, as appropriate, to devise a plan for achieving that vocational objective. The counselor has funds to purchase services for the consumers; he or she is responsible for issuing authorizations to vendors and for assuring that services are delivered for the consumer by the vendor before payment is made.

Consumer: A person with a disability who has been determined eligible for services by the VR Counselor according to federal guidelines.

Provider: A private or public vendor of services who has a contract with the Department of Rehabilitation Services to deliver specific services leading to employment of the consumer in a competitive job. For individuals with severe disabilities, the assessment, job placement, and training services are delivered by a “job coach,” who goes with the individual to the job site until the work tasks are learned to the employer’s satisfaction..

Meet John, A Consumer:

John is a 24-year-old man with Down syndrome, an IQ of 42, and a history of mild heart problems. He graduated from high school at age 21, having completed a special education program for individuals with mental retardation. John, who receives Supplemental Security Income (SSI), now lives in a group home with other young men with disabilities. John’s parents are still actively involved with his life, and he continues to spend time with them. He is not able to speak intelligibly, except to those who know him well, and he does not read or drive. 

Since graduating from high school, John has worked at the Sunny Day Sheltered Workshop, performing contract work for 37 to 60 cents per hour. The state pays Sunny Day a $5,000 “slot” per year to keep John in the workshop. His parents, not satisfied with this type of employment for their son, have requested a job in the community through Sunny Day’s new Supported Employment Program.

If John is to work in the community, he will need specialized support to get a job that fits his interests and abilities, and he will need assistance in learning the tasks of his job once he gets it. Since he does not communicate efficiently by speech, John will need some assistance in learning to communicate with his work supervisor and his fellow employees. John will also need a job within walking distance of his home.

John likes people, gets along with the other group home residents, and is enthusiastic about performing tasks he has learned, such as making his bed at home. John is known for his love for pizza, one of the words he can communicate quite clearly. He tends to get excited and distracted if there is a lot of activity going on around him and as a result sometimes forgets the sequence of the tasks he is to perform. It takes many repetitions of a task before John learns it, but once he learns it, he retains it. If John is not able to perform all the tasks of a particular job, it may be necessary to negotiate a special position with an employer willing to allow John to perform only certain tasks of a job description. 

John’s Service under Hourly Funding:

Because there were many others on the waiting list for supported employment at Sunny Day, John had to wait eight months from the time of his parents’ request to begin services to lead toward community employment.

Once John rose to the top of the waiting list, he was referred to the Vocational Rehabilitation (VR) Counselor who determined John to be eligible for the service. The VR Counselor authorized for 200 hours of Supported Employment Assessment at $23/hr., and services were initiated. During the next 12 weeks, John was assessed extensively on several jobs. Reports of the assessments and mountains of papers documenting staff time were presented to the VR Counselor. During the assessments, John demonstrated ability and interest in working at a restaurant, preferably during the day shift of one of those near the group home. The cost of assessment was $4,600.

The VR Counselor authorized another 200 hours at $23/hr. for job placement services. John was placed on the first job that became available—on a cleaning crew working a night shift at a hospital. Unfortunately, the results of the earlier work assessments were not matched to the job selected for John, nor did they match his job choice. John was not able to walk to this job, and night hours were not his preference. John had trouble staying awake, and the group home staff were unreliable about getting him to work on time. As a consequence, John did not perform well and quit the job after two weeks. Total billing for the unsuccessful work attempt was $2024, which included 80 hours of training on the job and eight hours transportation time.

The provider continued billing hours of service on the original 200-hour authorization to develop a second job as a bus boy at a restaurant serving a large buffet. The restaurant was near John’s home, but the demanding pace of the restaurant and the profusion of customers asking things from him was confusing for John. John refused to go back after the second week. In this second unsuccessful work attempt, $2,576, or the remainder of the $4,600 authorized, was billed.

After two job failures, John was labeled “non-compliant” and was required by the provider to complete additional evaluations before being placed again. Feeling that he could not lose the $9,200 investment already made in attempts to place John successfully, the VR Counselor authorized another 200 hours for a third job placement.

After another six months’ wait, John was offered an opportunity to work at a pizza restaurant near his home. John’s tasks were to fold boxes for the carry outs, to clean the bathrooms and floors, and to take out trash and pick up trash in the parking lot. Although John loved this job, he required extensive training to learn the several tasks involved to the employer’s satisfaction. In addition to the 200 hours authorized, another 46 hours were requested by the provider.

After three jobs and a total billing of $14,858, the provider had found a job that pleased John and suited his skills and abilities. He settled into a successful job after 18 months in the program.

John’s Service under Milestones:

Under milestones, John’s story is quite different. From the time he applies, John waits four months to begin services. The VR Counselor issues an authorization for Milestone One, Assessment/Needs Determination, at a fixed rate of $870. Once he starts the program, John progresses quickly through this phase, in which his strengths, interests, and support needs are identified.

Through the job coach’s discussion with John, his family, his counselor, and the group home staff, it is clear that John wants a day shift within walking distance of his home. Since John has never worked in a community job, the provider wants to make sure he gets a chance to try out more than one option. John’s favorite pizza restaurant nearby might be a potential employer. The job coach learns from the group home staff that John smiles and gives the restaurant manager a “high five” at his weekly visits to the restaurant. Several of the other restaurant staff know John by name. Based on these discussions, the job coach arranges three assessments, one with the pizza restaurant. The on-site assessments indicate John likes the work at the pizza restaurant best and evidences the ability to learn the tasks, although there is some concern over the amount of training time that will be required because there are several multiple-step tasks for John to learn.

The results are discussed with John, his family, and his VR Counselor. The provider presents the required assessment documents to the VR Counselor along with the bill for $870. The counselor reviews the proposed support plan and documentation, pays the bill, and determines that the severity of John’s disabilities evidenced during assessment meets the criteria for a higher level of payment for the remaining five milestones.

The job is analyzed prior to it being offered to John, and the demands are compared with John’s assessments. After some negotiation, the pizza restaurant manager has agreed to the tasks John is to learn: to fold boxes for the carry outs, to clean the bathrooms and floors, and to take out trash and pick up trash in the parking lot. John is offered the job, and he and his parents accept. The VR Counselor issues authorization for Milestone Two, Placement, at $1575. For the agency to be paid, the job must match the job goal identified in his vocational plan.

The VR Counselor reviews the verifying documentation, makes authorization for the remaining four Milestones, and the provider is paid for the placement milestone after his third day of work. When John starts work, his job coach has devised a training plan with clearly defined objectives describing the job demands and techniques for learning/teaching each task. After John has worked successfully for four weeks the job the provider is paid $2625, and after 10 successful weeks the provider receives another payment of $2100. The provider receives the remaining payments when John is stable on the job, $1050. This is determined by John’s successful completion of 17 weeks on the job, satisfactory work ratings by the employer, and documentation that John and his family are satisfied with the job. The VR Counselor reviews these documents and pays the final payment of $2100 for a total cost of $10,320. John is successful, working independently with support from his work supervisor, and is satisfied after eight months in the program. John works 30 hours per week and has received one raise since he started work. He earns $5.50 per hour. John loves his paycheck and wants to work more hours. His SSI benefits have been reduced by $300 per month, for a savings to SSI of $3,600 per year. This results in a payback of the milestone costs in three years. As a result of his earnings, John has significantly more money to spend and is a taxpaying citizen.

Milestones also create more savings in SSI benefits when compared with the fee-for-service system. For example, John’s employment results in savings to SSI of $3,600 per year. John achieved stabilized employment after 18 months in the fee-for-service system, and after only 8 months in Milestones, saving 10 months of SSI benefits. In addition, it would take only three years of $3,600 reduction to reimburse the cost of Milestones, versus four years to reimburse the fee-for-service costs.

Milestones create a customer-driven process. Consumers make rapid progress with higher quality standards and less wasted effort and less cost. Assessments are more focused on consumer needs and interests. Job placements are faster with better job matches. Since the agency is paid only once for each milestone, more care is exercised. The payment system encourages the agency to find the right job the first time and to get John stabilized on his job quickly. The hourly system reinforced poor job matches and created financial incentives for lengthy training. As a result of the change to Milestones, John’s independence is encouraged rather than discouraged.

Chart 3. Comparison of Successful Employment Outcomes for John




Time in Process

18 months

8 months

Number of Jobs Required to Achieve Success



Cost to state agency




One Provider’s Story

Chart 4. Comparing Fee-for-Service to Milestones

Fee-For-Service Milestones
The message of the Manager to direct service staff is “bill hours!” The pressure to maintain billable hours is high, especially when there is turnover of direct service staff.Training of direct service staff is difficult with so many rules to follow and so much detail to maintain with hourly rates of service. The once-per-month billing time takes a lot of time and is viewed with dread.Direct service staff focus on keeping their jobs and meeting their managers’ guidelines. Although they want to do a good job with the consumers they serve, the system makes it difficult. Staff are confused about priorities, burdened by paperwork, and overwhelmed by detail. Morale is low; turnover is high.Counselors working with the program are becoming hesitant to refer consumers to the program. The Counselors’ ability to maintain quality control with huge amounts of documentation is low, and the results of the program for the consumers are disappointing.The Executive Director considers the employment program a problem. The funding agency is constantly complaining about outcomes. He gives it low priority and little support. The only reason he keeps the program is that it makes money.The program made 10 successful closures at $25,701 per closure. A new Manager steps in when the employment program converts to Milestones. She is able to learn the program requirements quickly. Her message to her staff is “get outcomes for our consumers!”Training of direct service staff is simple and clear-cut. Requirements are clear, and processes are streamlined and organized. Billing is spread out over the month because Milestones are billed as they are achieved for the consumer.Direct service staff understand their jobs. They have projected milestones for each of their consumers. They keep a board posted with all the consumers listed, the dates the Milestones should be achieved, and the dates the Milestones are reached. Staff like the many opportunities for feedback during the process of working with their consumers. Morale is high; turnover is low.The program is working so effectively, they can’t keep up with counselor referrals.  Their successes are creating more business.The Executive Director has seen dramatic increases in positive outcomes in this program. It has changed from “a problem child” to the star of all his programs. Best of all, it’s still paying its way.The program made 22 successful closures at $11,028 per closure.



Under the Milestone system, everyone who plays a role in the service delivery process benefits. The consumers of the service benefit because they receive the best in support to obtain jobs of their choice. The service providers benefit because they receive fair compensation from the state agency for achieving results for their consumers. The state agency benefits because the payment system links funding to outcomes for its consumers. The system is self-correcting, since incentives are tied to quality results rather than process. Milestones naturally rewards those who do what they contract to do and financially disciplines the providers who don’t meet contract projections. This replaces the cumbersome formal discipline system, which could drag out for years.

Measuring Outcomes

The three most important measures of success are customer satisfaction (both employers and consumers of the services), reduced need for regulation and oversight by the state agency, and increased achievement of the core outcome, successful competitive employment.  

Opportunities for customer satisfaction checks come into play at several points in the Milestone process. For instance, if a provider places an individual on a job which he or she does not like or for some other reason does not want, the provider is not approved for payment for that milestone. This motivates the provider to please two major customers, the consumer of the service and his or her Vocational Rehabilitation Counselor, so that payment may be received. Since job satisfaction is a major component of success and the provider cannot be paid without achieving it, a major shift of emphasis toward quality as defined by the customer has resulted. For example, goal planning is reinforced by the requirement that the job achieved matches the customer’s career goal.

Each milestone definition includes quality outcome indicators to be accomplished before payment. The final two milestones include verification that the consumer and employer are satisfied with the job placement, training, and support provided. Formal customer satisfaction surveys are required for payment of the final milestone. This creates a quality check by the most qualified evaluators, the recipient of the service and his or her supervisor. This information is submitted to the agency staff overseeing the service. The state agency’s counselors are instructed to withhold final payment unless it is confirmed that the consumer of services and employer are satisfied. This has resulted in providers’ returning to the job site to correct problems they could have ignored under previous payment structures.

The Community Rehabilitation Services Unit conducted an evaluation of results during August 1997. Data were collected from agency records and supplemented with data gathered from service providers.4 These data show that waiting lists are reduced because consumers are now more efficiently and effectively served. The average number of months consumers spent on waiting lists was reduced from 8.14 months under hourly to 3.85 months under Milestones. This represents a reduction of customer months of waiting by 53 percent  among the providers who have a waiting list. Consumers who previously had been perpetually “assessed” now move quickly through the milestone process to employment and independence. The average weeks spent in assessment before job placement dropped 18 percent from 12.1 to 9.9.

Provider efficiency is improved by reducing the paperwork load required of the direct service provider. When hourly rates are the basis for payment, the process of documenting increments and categories of services provided must be meticulously tracked. Providers previously completed as many as 18,000 data entry screens each month to insure payment for every increment of service time. Now, time formerly devoted to detailed documentation is redirected toward accomplishing the outcome for the consumer. The only information which must be documented by the provider and approved by the counselor is the proof that the outcome was achieved. The change to Milestones has resulted in a 33 percent overall reduction in the work hours required by record keeping. Providers report as much as a 100 percent increase in productivity in terms of consumers placed and stabilized in competitive employment.

One of the best features of the Milestone program is that providers generally like it better and feel it benefits the consumers they serve. Six months after conversion to milestones, a survey of direct service staff indicated that 81 percent believe the quality of services under Milestones is better or much better than under hourly.


The cost to the agency is fixed in advance, making it possible to make accurate predictions of future expenditures. The average cost of the service outcome under Milestones, competitive job placement, is expected to be reduced by 25 percent, based on provider bids. The average cost per successful outcome in the fee-for-service programs serving individuals with developmental disabilities was $14,043, and the average cost post-Milestones implementation according to bid amounts is $10,541.

Actual program outcomes among three early programs to convert, described in chart 5, bear this out. The results of these providers for one year of operation indicate a 35 percent reduction in cost and a more than 100 percent increase in successful closures. While we do not expect the results to be so dramatic for the entire group of programs converting, the trend, as these results indicate, is expected to be positive overall.

Chart 5. Cost Comparisons, Before and After Milestones for Three Providers

Provider Measure

Fee for Service*


1 •cost/successful consumer •number of successes

•$10,238 • 9

•$9,093 • 17

2 •cost/successful consumer •number of successes

•$25,701 •10

•$11,028 •22

3 •cost/successful consumer •number of successes

•$11,358 •9

•$9,936 •10

Totals •avg. cost/successful consumer •total number of successes

•$15,765 28

•$10,019 •49

*Figures for FY 1995

Additional cost savings are the reduction or elimination of the consumers’ Supplemental Security Income benefits through their earnings and taxes paid once they go to work. While this benefit is also achieved through the fee-for-service system, the Milestones’ benefits are significantly increased because the system works faster, serving more consumers and at lower costs.


Obstacles include changing attitudes from process thinking to outcome thinking. Systems change is often resisted by those comfortable with the status quo. Others will fear the change because of the performance demand it places on systems that previously were only required to “try hard.” It requires government agencies and providers to think like a business. Conversion from fee-for-service to Milestones can best be achieved through collaboration of the staff and providers effected by the change. This requirement for collaboration based on the principle of reciprocal obligation may be difficult for state agency staff who take a more adversarial approach to service providers.

Reciprocal obligation is the key to a Win/Win/Win scenario. The providers’ initial mistrust was overcome through consistent adherence to the principle of reciprocal obligation, i.e., that the state owed the provider adequate income in return for meeting the required outcomes. This is the only stable long-term basis for a business relationship that has the potential to improve productivity and quality simultaneously.

The Oklahoma Department of Rehabilitation Services’ staff provided extensive training on the conversion process prior to Milestones implementation. Training included “how to” processes (for example, how to claim for Milestones, how to use the new computer-based client data system, case management, predicting individual milestone achievements, etc.). It also included how the change would affect the philosophical orientation of the agency. Despite the many hours of training provided the providers prior to converting to Milestones, there was still some last minute distress among providers at the time the change occurred, especially over the bid process. State agencies or others implementing a Milestone system should anticipate the problems that occur with any major conversion process, especially one that shifts philosophy as well as funds. Training and technical assistance in advance of the conversion is a requirement for success.

Assessment for Replication

The Milestone model of funding is adaptable to any public service with a definable outcome where service provision is contracted out to providers. The State-Federal Vocational Rehabilitation system, of which the Oklahoma Department of Rehabilitation Services is a part, has the advantage of having a clear outcome: competitive employment of people with disabilities. This system could certainly be used by the 80 state rehabilitation agencies (blind and general rehabilitation agencies). It has been recommended to the Texas Rehabilitation Commission by the Texas Comptroller as part of the Texas Performance Review, and the Alabama Rehabilitation agency is in the planning process for replication of the Milestone payment system. Representatives from 15 other states and the Commonwealth of Australia have requested information about Milestones as has the Social Security Administration’s Division of Employment and Rehabilitation Programs.

Many other federal and state programs desire the same employment outcomes for their customers. For instance, state agencies implementing Welfare-to-Work programs would be a key audience for this type of payment system.

The model could be the foundation of a voucher payment system. The milestone steps could each be vouchered separately, allowing the customer to move their voucher to a new provider at the end of any step. A voucher system built on a milestone foundation would have the advantage of a clearly defined product with integrated quality standards. The development of a market for these services would empower the customer and increase service quality through competition fostered by customer choice. Vouchers would be issued by the state staff serving as gatekeeper. They would determine eligibility and level of need and issue a voucher for each milestone. The vouchers would need to have staged expiration dates or be issued in three sets. This would avoid obligating state funds long-term for drop-outs. Vouchers could be used at any certified vendor. The state agency would establish simple standards for certification primarily designed to prevent unscrupulous vendors from abusing the consumers and payment system. If a consumer chose to change providers in the middle of the Milestone process, the new provider would have to accept the remaining vouchers as full payment or justify the need for repeating a milestone(s). As with the existing Milestone system, state agency staff would determine whether there was reasonable cause to issue a second voucher. If the consumer stayed with the same provider for the entire process, each milestone would be paid once.

In Reinventing Government, Osborne and Gaebler list issues that are relevant to the replication process: watch out for creaming, anticipate powerful resistance, involve providers and employees in developing correct measures, regularly review and modify measures, and don’t use too few or too many measures.5 Creaming, serving only the easiest to serve, was overcome in Milestones by the multiple payment levels based on disability and the allowance for dropouts in the bid. Resistance was reduced by involving providers in the planning process and through successfully staging implementation. These steps allowed providers to have some control over the outcome and to see others prosper under the new system. The terms of the milestones were reviewed with providers and revised after each iteration of the model, seven times in five years. The number of milestones was balanced at six to seven, which use a small number of observable outcomes: job retention, wages, employer satisfaction, and consumer satisfaction.

About the Authors

Daniel O’Brien has a Masters Degree in Public Administration and extensive management experience as a provider of services and a small business owner. Rebecca Cook has a Masters Degree in Psychology and extensive experience managing various provider-based services and related payment systems for the state agency. Detailed information on the methodology can be obtained at the DRS Milestones website at http://www.onenet.net/~home/milestone.

  1. Introduction to Total Quality Management (TQM) Participant Manual, Oklahoma Department of Human Services, Staff Development Unit, April 1992, p. 3.
  2. Ibid, p. 7.
  3. Womack, Jones and Roos, The Machine That Changed The World: The Story of Lean Production (Harper, Collins Publishers: 1991), p. 167.
  4. All figures cited in this section are from that evaluation.
  5. Osborne and Gaebler, Reinventing Government (Addison-Wesley Publishers, 1992), pp.357-359.
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