Pay-for-success (PFS) campaigns using social impact (SIB) bonds for funding are becoming a little more common. Why is this? The model is quite appealing to government executives – governments get a risk-free way of funding creative social programs (seeSocial Impact Bond Initiatives Move Ahead).
Just how much has this model grown? There are fifteen states with active SIB-financed initiatives (see Fact Sheet: Social Impact Bonds in the United States). And, the Harvard Kennedy School SIB Lab reported in 2015 that it had received applications for assistance with SIB from 30 state and local governments (see State and Local Governments Receive Assistance to Launch Pay for Success Projects Across the Country).
Over the past few months, we have seen the concept make national headlines:
Indiana – On December 31, 2015, Youth Advocate Programs, Inc., began a two-year PFS contract in Marion County, Indiana to provide a juvenile court diversion pilot program called “Alternatives to Incarceration” (ATI). Investment funding of $800,000 for the project was provided by the Annie E. Casey Foundation, The Lilly Endowment, the Clowes Fund, and an anonymous donor (see Youth Advocate Programs Launches Indianapolis-Area Juvenile Court Diversion Pay-For-Success Program).
Florida – The Florida state legislature is considering two bills (House Bill 1049 and Senate Bill 1200) that would allow the state to implement PFS contracts for social services. Introduced in December 2015, the bills would direct the state Department of Management Services, which oversees all state social service procurements, to establish a PFS contract program (see Florida Legislature Considers Allowing Pay-For-Success Social Service Programs).
Connecticut – In February 2016, the Connecticut Department of Children and Families (DCF) announced it was preparing to launch a PFS project called the “Connecticut Family Stability Project” to promote family stability and reduce parental substance use for DCF-involved families. The state is still seeking $11.5 million in private investment to fund the project (see Connecticut Preparing To Launch Family Stability Pay-For-Success Project).
In addition to these state-level projects, we’re seeing another interesting development to the PFS landscape – the rise of organizations like the recently formed Blue Meridian Partners, a partnership between the Edna McConnell Clark Foundation (EMCF) and a group of nine other philanthropic foundations (see 10 Philanthropic Foundations Launch Blue Meridian Partners To Invest $1 Billion In Evidence-Based Child-Focused Programs). This partnership will invest at least $1 billion in non-profit organizations that serve disadvantaged children and young adults, with plans to make flexible, unrestricted, long-term grants tied to performance – with up to a total of $200 million for each grantee.
When I review the headlines, what I see is a heavy focus on children’s programs and related social services. This has big implications for executives of children’s services provider organizations. The problem, outlined in an interesting report written for The Federal Reserve Bank of San Francisco (see Social Impact Bonds: Lessons Learned So Far), is that these initiatives are short on “adequate” provider organizations to participate.
What is this new breed of funders looking for? According Bill Pinakiewicz, the Vice President, Eastern Region for the Nonprofit Finance Fund(see Social Impact Bonds: The Rising Influence Of Pay-For-Success Contracting On Non-Profit Funding), there are some key criteria:
- Leadership, board, staff capabilities – Strategic insight, experience, and collaboration skills to achieve the desired “impact.”
- Connection with community & partnership capabilities – A connection with the surrounding community and the ability to create and maintain collaborative relationships with service providers, intermediaries, and evaluation advisors.
- Data, accounting, & quality assurance capabilities – Ability to manage to outcomes and effectively use data to make decisions.
- Enhanced contracting capabilities – Experience with performance-based contracting, and the ability to determine appropriate rates and management variable payment.
- Ability to scale operations – Ability to deliver an intervention at scale and quickly grow their capacity for larger populations.
Sound familiar? This is the combination of meta-leadership skills (see Thinking In Terms Of Meta Leadership), performance-based culture (see Is Your Culture Performance-Driven? Take The Test), and metrics-based management systems (see The ‘Five-Step Formula’ For Making Data-Driven Decisions), that are needed for success in the emerging health plan-driven, pay-for-value initiatives (see What Is The Future Of Value-Based Contracting? The Health Plan Perspective and Value-Based Contracting In Practice: The Mercy Maricopa Integrated Care Case Study).
For more, check out these resources from the OPEN MINDS Industry Library.
- Have Social Impact Bonds Had An Impact?
- The Potential and Limitations of Impact Bonds
- Is Your Organization Ready For Social Impact Bonds?
- Thinking About Competing For Social Impact Bonds? A Few Considerations
- The First Social Impact Bond Project – Where Are We?
- Another View Of Social Impact Bonds For Health & Human Service Financing
- Emerging Themes In The Use Of Pay-For-Success Contracting
- Are Social Impact Bonds Financing The Future Of Social Services?
- Pay-For-Success Takes A Huge Leap Forward In Children’s Services
And for even more, join Jamie Stewart, Chief Administrative Officer, Grafton Integrated Health Network; Amy Gallagher, Psy.D., Vice President, Whole Health, LLC, a subsidiary of Mind Springs Health; and Robert Q. Kreider, President & CEO, Devereux; when they present “Need Capital? A Non-Profit’s Guide To Financing New Services”, on June 8 at The 2016 OPEN MINDS Strategy & Innovation Institute.