Illinois to put social service providers on pay for performance | Crains

By Paul Merrion April 22, 2014

The Quinn administration is experimenting with a new way to pay for social services for adolescents, starting with a concerted effort to keep wards of the court out of trouble and out of group homes or juvenile detention centers.

A coalition of Chicago-area foster care agencies and other providers of youth services will lead the state's first effort to pay for successful outcomes, rather than specific services, a concept pioneered in the United Kingdom four years ago. The selection of Conscience Community Network was posted yesterday to the state's contracting website.

“This is definitely one of the most complicated, most ambitious things we as a set of providers have ever done,” said Mark McHugh, executive director of Chicago-based One Hope United, the lead agency for the network. “It's not just, 'Hey this is a cool thing to do.' It's a lot of work and a risk.”

Basing the contract on outcomes, rather than specific services, will allow the providers to adjust the types of counseling, family therapy, addiction help or other services they provide in order to improve results. Key terms of the contract, including whether to impose potential financial penalties on providers if they don't meet benchmarks, must still be negotiated.

Another new wrinkle is that private investors will fund the upfront costs and get a modest return on their investment from the savings that enhanced social services are expected to achieve.

Several other states are working on similar programs, but only New York and a few other states have started them. In Utah, Chicago venture capitalist J.B Pritzker teamed up with Goldman Sachs Group Inc. to invest in a similar program for early childhood education.

Originally dubbed “social impact bonds," this new arrangement is now called “Pay for Success” to more accurately reflect its nature.

What makes it akin to a “bond” is that the state envisions the nonprofit network will bring in private investors to pay the upfront cost of providing more services to troubled youth, ranging up to $30 million over five to seven years.

If the enhanced services provided by Conscience Community Network keep more children in foster homes or with their biological parents, it will generate quantifiable savings by reducing the number who end up in group homes or a juvenile detention center, which are more costly options to the state, Illinois officials said.

'A WIN-WIN-WIN'

In the last fiscal year, the Illinois Department of Children and Family Services paid about $155.3 million to keep 1,323 adolescents in group homes or other institutions under 92 separate contracts with the state.

“This can really be a win-win-win,” said Cristal Thomas, deputy governor of Illinois. “The state will be able to measure what works, bring in additional services and achieve savings if our program works.”

The state will use those savings to pay back the investors, plus a modest return on their investment, with the state expecting to break even or even save money after paying back investors. That doesn't include the savings that will accrue if keeping adolescents out of group homes or detention centers means fewer will end up in jail as adults.

“If they're successful, they will avert quite a bit of expenditures,” said Rebecca Leventhal, director of product development at Social Finance Inc., a Boston-based spinoff of the British firm that put together the first “social impact bond” program in the United Kingdom. “It's really going to create an amazing economic case over the long term.”

Social Finance submitted two bids but was not selected for the Illinois contract.

The other members of the Conscience Community Network, which teamed up last year before the state's Pay for Success experiment was unveiled, include Lawrence Hall Youth Services, Maryville Academy, OMNI Youth Services, SGA Youth & Family Services, UCAN and Youth Outreach Services. All of the nonprofits are based in the Chicago area.