How the U.K. pays for success (Urban Institute)

By Matthew Eldridge

For governments that want to a straightforward way to pay for outcomes, rate cards offer an interesting but limited solution.

Common in social impact bond projects in the United Kingdom which are similar to pay for success (PFS) projects—the idea behind rate cards is simple: a government agency outlines a list of desired outcomes and identifies a fixed amount it is willing to pay for each individual that achieves each outcome (an example from the UK government is shown below). Achievement of the outcome is confirmed by verified administrative data and, depending on the way the rate card is structured, projects can set maximum prices per outcome and/or maximum payout per individual participant in an intervention who achieves the outcome.

Conversely, in most U.S. PFS projects, governments set an outcome target threshold for the entire population participating in the intervention and only pay if that target is reached, with results verified by an evaluation. For example, a jurisdiction may select an outcome target of a 50 percent reduction in recidivism, measured by a rigorous evaluation. This is the threshold for making outcomes payments; if there is a 40 percent reduction, no payments will be made.

Benefits

The rate card solution has proven popular in the U.K. due to a few benefits of this approach. Rate cards present a simple concept that can be implemented easily and affordably. Rate cards have not required advanced evaluations to measure the project’s impact because the payment structure only needs to count and pay for each individual outcome as recorded by administrative data. In this structure, project leaders are not required to show a causal link between the outcome and the intervention--only that the outcome happened.

Additionally, by making it easy to select a range of desired outcomes from a “menu” with fixed prices, this approach allows the government to clearly identify social outcomes it considers worthwhile to pay for. This can enable a broad discussion amongst stakeholders on what outcomes the community prioritizes.

Further, while most evaluation designs that have been used in the United States do not pay at all if total outcomes fail to reach a target threshold, this approach pays something even if only one participant achieves a desired outcome. As such, it may be more attractive to funders as a less risky “all-or-nothing” payment structure.

Limitations

Rate cards have significant limitations. Chief among them is that they sidestep rigorous evaluation. Strong evaluations, ranging from randomized control trials to a variety of quasi-experimental models, are important not only to establish with confidence what results have been achieved, but also to see whether these results can be attributed to the program or would have happened even without the program.

This question of attribution of impact is important because it ensures governments only pay for real results achieved by the funded program. For example, a weak evaluation design might find that students in a five-year program met test score targets but, because the evaluation did not control for other factors, it could obscure the fact that the results were caused by things other than the program itself (such as improved economic conditions in the community). In this case, government is actually paying for results that would have been achieved without the program. Strong evaluations can also help inform governments on whether they should invest in a program again in the future.

In addition, the more common approach of pricing outcomes based on establishing an outcome target for the entire population (i.e. 60 percent of participants achieve outcome A) has its own benefits. By setting system-wide targets rather than individual ones, this approach links projects to the government’s bigger strategic plans, better insulates governments from making payments for results that cumulatively fall short of desired objectives, and gets government and other stakeholders in the habit of assessing existing evidence of program effectiveness to set realistic results targets.

Rate cards can provide an attractive way for some governments to embrace a focus on results. This is particularly true in contexts where change is resisted or capacity is limited. However, they fall short of the full potential of PFS. PFS potentially offers a mechanism to shift the way governments view public management and effective delivery of social services by explicitly tying payments to the outcomes they drive, measured through evaluation. 

As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research.