“Pay for Success” Projects: Financing Interventions That Address Social Determinants of Health in 20 Countries

Abstract

Over the past eight years, there has been an increase in the use of pay for success (PFS) as a financing tool whereby private investors provide initial funding for preventive health and human service interventions. If an independent evaluator deems the interventions successful, investors are repaid by the government.

To better understand how PFS is used, we created a global landscape surveillance system to track and analyze data on all PFS projects that have launched through 2017. We focus on the potential for PFS to improve population health by funding interventions that target the social determinants of health.

Our findings show that all launched projects to date have implemented interventions aimed at improving the structural and intermediary social determinants of health, primarily in socioeconomically disadvantaged populations. Although there are some challenges associated with PFS, we believe it is a promising tool for financing interventions aimed at social determinants of health in underserved and marginalized populations.

Pay for success (PFS) financing is gaining momentum across the globe as a relatively new public–private partnership model for funding a wide range of interventions.¹ Social impact investing—the concept underlying PFS—is a broad category of activity in which private sector investments have the potential for both financial return and the creation of social or public benefits.² Also known as “social impact bonds,” PFS is a unique type of social impact investing that enables private investors to provide the upfront capital to finance an intervention of interest and value to the public sector. In turn, the government repays investors (often but not always with interest) if a third-party evaluation demonstrates that the intervention successfully met targeted outcomes detailed in a performance-based contract.^3,4 Although the design and degree of rigor vary across projects, the evaluation is meant to ensure that the outcomes measured are attributable to the intervention. In this financing model, interventions can be implemented and scaled at little to no risk to taxpayers, because investors are paid back only if predetermined metrics of success are achieved and verified via evaluation.

PFS intervention projects have been launched in 20 countries; these projects address important public health issues, such as homelessness, unemployment, mental and behavioral health, and youth education.¹ To date, there has been little research or commentary regarding the potential for and challenges of PFS financing from a public health perspective.^4,5 In addition, efforts to gather detailed information on launched PFS projects have been fragmented and incomplete, and they often contain a number of inaccuracies. Our objective was to provide an overview of PFS projects that have launched to date and to discuss the potential of this financing model to address population health concerns.

GLOBAL SURVEILLANCE SYSTEM

To further the understanding of PFS projects globally, we created a landscape surveillance system to track all launched PFS projects. This ongoing system organizes a standard set of descriptive information on all PFS projects, including investors, levels of government involved, intervention content and focus, objectives and success metrics, evaluation approaches, and payout terms and decisions. We retrieved data used to populate the surveillance system by extensively searching public sources, including government Web sites, funder Web sites and reports, project contracts, documents published by third-party organizations, press releases and other media sources, legislative databases, and a variety of additional online sources. We searched sources weekly to continuously update project information. We chose a cutoff date of December 31, 2017 for analysis, although populating the surveillance system is ongoing. The amount of information publicly available varies across PFS projects and countries, is challenging to find, and is sometimes contradictory. To verify the data collected on launched projects, experts at organizations whose mission includes the advancement of PFS and are involved as partners in multiple projects (Third Sector Capital Partners, Inc. and Social Finance, Inc.) reviewed some of our data for accuracy and completeness.

Lack of consensus on what constitutes PFS has resulted in discrepancies in reports on the number of projects launched.⁶ Our definition of a launched PFS project includes several criteria: the end payor is a government entity, a PFS contract has been signed, funding has been secured, service delivery has begun, and repayment to investors is contingent on outcomes achieved. Numerous PFS databases include projects that do not meet our criteria of being launched or include projects for which the end payor is not a government entity, which explains the discrepancies in reporting the number of launched PFS projects.^1,7,8

PFS financing is often viewed as a way for the public sector to expand and support primary and secondary prevention interventions that focus on “upstream” factors, especially in marginalized or disadvantaged populations.^9,10 Therefore, we categorized all PFS interventions in our global surveillance system according to the World Health Organization (WHO) Commission on Social Determinants of Health conceptual framework.¹¹ The WHO framework posits that health and well-being are determined by structural social factors, such as the socioeconomic and political context and an individual’s socioeconomic position (education, income, and occupation). These structural factors in turn influence a broad set of intermediary social determinants—including material circumstances of living (housing, food, safety, etc.), behaviors, biological factors, psychosocial processes, and health care—that directly influence individual health and the population-level expression of health inequities.¹²

THE GLOBAL LANDSCAPE THROUGH 2017

The descriptive information we have presented reflects all PFS projects launched globally through 2017, complementing a previously published landscape analysis of the first 11 PFS projects launched in the United States.⁹

PFS began in the United Kingdom in 2010 with a project to reduce recidivism after incarceration in Peterborough Prison.¹³ Through 2017, 82 PFS projects have launched in 20 different countries. Of these projects, 33 (40.2%) have launched in the United Kingdom and 18 (22.0%) in the United States. The remaining 31 projects (37.8%) launched in 18 other countries (Table 1). To date, most PFS projects are in developed or industrialized countries.

TABLE 1—

Social Determinants of Health Foci of Pay for Success Projects by Country: 2010–2017

Major Social Determinants of Health Foci	No. of Projects
Multicountry: health system	1
Australia	4
Behavioral/psychosocial	3
Employment, housing, behavioral/psychosocial	1
Austria: employment, behavioral/psychosocial	1
Belgium: employment	1
Canada	3
Education	1
Health system; behavioral/psychosocial	1
Housing; behavioral/psychosocial	1
Colombia: employment	1
Finland: health system; behavioral/psychosocial	1
France: employment	1
Germany: employment; behavioral/psychosocial	1
Israel	2
Behavioral/psychosocial	1
Education	1
Mexico	2
Behavioral/psychosocial	1
Education	1
Mozambique: health system; environment	1
Netherlands	7
Employment	5
Employment; education	2
New Zealand: employment	1
Portugal: education	1
South Korea: education; behavioral/psychosocial	1
Sweden: Education	1
Switzerland: employment; behavioral/psychosocial	1
United Kingdom	33
Housing; behavioral/psychosocial	6
Education; behavioral/psychosocial	5
Employment; education; behavioral/psychosocial	5
Employment; education; housing	3
Behavioral/psychosocial	2
Employment	2
Employment; housing	2
Employment; behavioral/psychosocial	2
Employment; education	1
Health system; behavioral/psychosocial	1
Housing	1
United States	18
Housing; behavioral/psychosocial	6
Behavioral/psychosocial	3
Education	2
Employment; behavioral/psychosocial	2
Employment	1
Employment; housing; behavioral/psychosocial	1
Employment; education	1
Health system; behavioral/psychosocial	1
Physical environment	1

Most PFS projects have multiple investors, most often a combination of nonprofit and for-profit organizations (Table A, available as a supplement to the online version of this commentary at http://www.ajph.org). For the 82 projects launched through 2017, there have been 265 distinct investors, of which 145 (54.7%) were foundations, philanthropies, charities, or nonprofits and 99 (37.4%) were banks, private companies, or investment funds (including 32 socially minded or social impact investment funds). The remaining investor groups included five individuals, five consortiums of investors, and six government or public agencies. Only 11 (13%) projects were funded solely by for-profit private investors. Notably, investor details are not publicly available for seven projects. The financial structure of each project is unique, with some projects opting for higher levels of risk mitigation for senior investors. In these cases, guarantors and recyclable grantees may be used to offset the potential for loss of investment.

The level of government involved in each project also varies (Table A). The most common government back end payor supporting PFS projects is a federal or national government (37.8%). Cities and states or provinces comprise 19.5% and 17.1% of PFS government payors, respectively. The remaining PFS end payors are counties (8.5%), public sector employers (2.4%), and a combination of federal, county, state, or city commitments (14.6%).

Through 2017, 21 (25.3%) of the launched PFS projects appear to be completed, but whether investors received success payments is difficult to know with certainty. As shown in Table A, 11 of the 21 completed PFS projects have publicly reported a positive payout decision, in which investors recouped some or all of their investment because the project achieved some level of success (three of these payout reports came from secondary sources without attribution or independent verification). Only one project, the first PFS project in the United States (at Rikers Island jail), has reported making no payout to investors.¹⁴ Notably, payout information has not been publicly reported for the nine remaining completed PFS projects.

SOCIAL DETERMINANTS OF HEALTH

All (100%) of the PFS projects launched through 2017 map to the WHO Conceptual Framework of the Social Determinants of Health, meaning they implement interventions that address nonmedical factors that contribute to health and well-being. Table A lists each intervention delivered by all 82 PFS projects, totaling 137 distinct intervention components. Because most PFS projects involve multiple interventions, these projects often address more than one determinant of health. Table 1 lists the social determinants of health foci of each project, organized by country. Table 2 details the specific determinants that are addressed by each of the 137 distinct intervention components as described in Table A.

TABLE 2—

How 137 Pay for Success Project Interventions Launched Through 2017 Map to the World Health Organization Framework of the Social Determinants of Health: 2010–2017

WHO Model Level and SDOH	No. of PFS Interventions Addressing SDOH
Structural determinants
Socioeconomic and political context
Governance	0
Macroeconomic policy	0
Social and public policy	0
Cultural/societal values	0
Individual socioeconomic position: education
Early childhood	2
Youths and young adults	20
Special needs	2
Immigrants	1
Incarcerated or paroled populations	1
Individual socioeconomic position: employment/occupation
Youths and young adults	18
Adults	4
Incarcerated or paroled populations	4
Immigrant populations	4
Homeless	2
Supportive employment for mental illness	2
Subtotal of individual socioeconomic position	60
Intermediary determinants
Material circumstances
Housing	21
Physical environment	2
Resources (food, clothing, social services)	10
Behavioral factors	30
Psychosocial factors	35
Health care system	6
Subtotal of intermediary determinants	104
Totals
Interventions	137
Determinants targeted by interventions	164

Note. PFS = pay for success; SDOH = social determinants of health; WHO =World Health Organization. n = 82 projects.

For example, several PFS projects are aimed at unemployed youths and young adults and have education as well as job training and employment components. Similarly, supportive housing interventions often provide the material resource of housing along with psychosocial services or employment training. In addition, many interventions target more than one determinant of health, for example, providing behavioral and psychosocial support “wrap-around services” alongside improving access to basic material needs.

As shown in Table 2, most interventions (104/164, or 63.4%) are aimed at intermediary or “downstream” determinants of health, such as housing, behavioral risk factors, psychosocial factors, and health care.¹¹ The remaining interventions (60/164, or 36.6%) target structural factors related to individual socioeconomic position, such as employment, education, and income. To date, no PFS project has addressed any aspect of the macroenvironment (e.g., socioeconomic structure, culture, policy context) or the systemic upstream social determinants of health.

POPULATION HEALTH: POTENTIAL AND CHALLENGES

Our global landscape analysis, combined with the literature, leads us to several conclusions about the potential and challenges of the PFS financing model from a population health and health equity perspective. Because of growing interest in the PFS financing model and its ability to garner private capital to provide upfront funding to address the social determinants of health, we believe that PFS has great potential to improve population health and reduce health disparities across the globe. PFS financing allows governments to implement and expand evidence-based interventions focused on prevention and upstream determinants of health without raising additional public revenue. As Galloway has stated, PFS can “increase investment in upstream, nonmedical determinants of health, which is welcome. But the long-term implication may be more interesting: the seeding of a new market that values health, not just health care.”^10(p1903)

Some express concern that PFS incentivizes governments to reduce investments in prevention and other social goods or that it allows profit motive to unduly influence government action and interventions.¹⁵ We disagree with this view, as PFS is a public–private partnership that—in practice—has primarily expanded government investments in prevention and the social determinants of health. For example, many governments do not have the upfront capital to provide services for the number of people in need.¹⁶ The promise of PFS is not as a tool to replace currently funded government services; rather, it provides an opportunity for governments to expand interventions and programs, especially in vulnerable and marginalized populations, while ensuring that taxpayers do not pay for services that are ineffective.

Furthermore, as our data demonstrate, very few PFS projects are solely funded by for-profit private investors. Our landscape analysis also supports existing research, showing that the rates of return on investment (including any interest payments) are typically below market rates.¹⁷ In addition, some nonprofit investors have committed to recycling success payments back into program delivery to ensure the continuation and sustainability of effective services.^18–20

PFS prioritizes interventions and associated outcomes that bring value to the public sector, which can involve cost savings yet may also include programs that are cost effective (e.g., the outcomes achieved do not save the public sector money but are worth the investment because of the social value they provide for the costs involved). Selecting interventions with a strong evidence base to achieve desired social outcomes for which the public sector is willing to pay is the fundamental key to the PFS financing approach.^21,22

There are some significant challenges in the nascent field of PFS. First, our surveillance system has demonstrated the lack of availability and reliability of data on PFS projects and outcomes. Most PFS projects launched to date have some contradictory or missing data, including limited to no public information on the achievement of success metrics or payout decisions for some projects. PFS payouts are typically publicized and celebrated. So it is possible that of the nine completed projects without public payout results, some failed to make success payments, thereby losing money for investors. The lack of information publicly available on these projects makes the outcome impossible to know with certainty. For PFS to grow, project partners should commit to transparency and information sharing, even when a project does not end in a payout to investors. Organizations and governments interested in PFS can learn from the successes and failures of all projects and use that information to strengthen future PFS initiatives.

Second, there are challenges regarding some incentives in the PFS financing approach. Because private investors typically do not want to wait a long time to receive a return on investment, PFS prioritizes interventions that achieve outcomes relatively quickly. Third, to accomplish value or cost-effectiveness objectives, PFS projects are incentivized to target interventions in high-risk subgroups rather than broader populations, sometimes to the detriment of primary or secondary prevention goals.⁹ For example, supportive housing interventions are needed by a wide range of individuals and families but often exclusively target chronically homeless populations with serious behavioral health issues. This is because of the greater economic efficiency of interventions in this high-need group.²³

Finally, there are a number of administrative, legal and regulatory issues associated with the PFS financing model. This includes governmental capacity to engage in the type of outcomes-oriented performance-based contracting required by the PFS model—and laws and regulations in some countries that make it difficult for the public sector to make payouts to private investors.^9,24,25 For example, federal Medicaid dollars may not be used to repay private investors in a PFS contract, even when the intervention delivers savings directly to the Medicaid budget. This creates impediments for the model in this large US public program, especially as the potential for cost savings is high.^9,24

As discussed, all PFS projects launched to date have implemented interventions targeting individual-level structural and intermediary determinants of health. Moving PFS further upstream to the structural and macroforces that shape the social, economic, political, and cultural systems and contexts of communities is challenging. The PFS projects that have launched are relatively small, targeting a very select group of individuals in a narrow setting. To move the focus upstream, projects will need to grow in size and financing to invest in broad-scale system change. This approach, referred to as “scale finance,” envisions amplifying the PFS approach to address challenging societal problems by creating a more market-centric environment for social impact.¹⁷ By offering competitive returns for achieving positive, measurable system-level outcomes, scale finance could incentivize upstream system change, such as community-based juvenile justice reform or broad-scale structural improvements in the quality of the low-income housing stock in a city.

CONCLUSIONS

PFS is still in a nascent phase of development with a number of challenges to overcome. Nonetheless, PFS financing has already been used to implement a wide variety of interventions aimed at the social determinants of health in socioeconomically disadvantaged populations—interventions that likely would not be implemented without upfront private sector capital and a willingness to take an economic risk for social impact potential. Creating a more transparent PFS community will allow the field to further mature by sharing lessons learned, identifying best practices, and further disseminating evidence-based approaches to population health improvement.