Structuring a Pay for Success Project with an Eye to Replicability (Nonprofit Finance Fund)

By Kavita Narayan

On January 1, 2017, the County of Santa Clara launched its second Pay for Success project, Partners in Wellness. Over the six-year project term, Telecare Corporation will provide intensive, community-based behavioral health treatment services to 250 severely mentally ill County residents, seeking to stabilize them in the community, reduce their reliance on costly psychiatric emergency room and inpatient care that has not proven effective for this population, and reduce their contacts with the criminal justice system. 

In addition to being the first mental-health-focused Pay for Success project in the nation, Partners in Wellness was structured with a few unique qualities designed to enhance its replicability, both as other governments begin to explore the Pay for Success model, and as the County of Santa Clara considers expanding its own capacity to pursue Pay for Success.  Throughout the project structuring process, the County received invaluable support from the project facilitator, Third Sector Capital Partners.

Project Evaluation Design

The evaluation for Partners in Wellness was designed with unique features intended to make it replicable for other government entities considering Pay for Success.  As in other PFS projects, an independent evaluator will assess the success of the Partners in Wellness intervention.  However, the evaluation has been designed to cost far less than a traditional academic study while maintaining a high level of rigor, making it easier to reproduce, particularly in the area of health or mental health care.

Telecare’s services will undergo an independent evaluation by Dr. Keith Humphreys, a Professor of Psychiatry at Stanford University.  Dr. Humphreys will conduct two parallel assessments.  First, he will assess the efficacy of Telecare’s services at reducing clients’ utilization of emergency, inpatient, and contracted psychiatric care as compared to a historical baseline utilization profile of similarly situated County residents.  This component of the evaluation will inform whether Telecare receives success payments for providing effective services.  Second, Dr. Humphreys will conduct a randomized controlled trial to assess Telecare clients’ overall health and wellbeing as compared to a control group of 250 severely mentally ill County residents being treated in the usual system of care (i.e., not by Telecare). 

The unique replicability of Dr. Humphreys’ study stems largely from the fact that the data he will analyze will be generated within the County’s own health and criminal justice systems by staff working in their usual roles, and does not require Dr. Humphreys to engage in any in-person client meetings or research procedures.  The streamlined nature of the evaluation has brought its cost down to one-fifth to one-tenth of what a National Institutes of Health clinical research trial, for example, would cost. This approach to analyzing existing data – or data collected within existing processes – makes this a more accessible, low-cost approach for smaller government entities looking to replicate the project.

No Outside Financing

The County also decided not to pursue outside financing for this project, again making the project more replicable for the County and more accessible for service providers interested in participating in a Pay for Success project by significantly reducing the time and expense associated with transaction structuring. Instead of outside financing, the project is relying on the County’s own resources as well as Telecare’s financial stability to fund the project’s upfront costs. 

The decision has improved the strength of the partnership between the County and Telecare, because they – and not outside investors – jointly bear the financial risk of an unsuccessful project.  That strong partnership is an important asset to this project. As there is no precedent for a mental health-focused Pay for Success project, the parties were required to spend a lengthy period in project construction, ironing out the desired outcomes for the project, the ability to objectively evaluate those outcomes in light of limitations in the County’s data systems, and the best structure for risk-sharing between the County and Telecare.  The elimination of outside financers, however, meant the parties could focus entirely on their clinical and operational needs instead of investor needs, which proved to be a great benefit in terms of efficiency. While for some, the option of attracting outside capital is central to the goal of launching a Pay for Success project, this structure best addresses the County’s priority to streamline project construction and expedite successful outcomes for clients.

The County hopes that its experiences can provide valuable contributions as the Pay for Success model continues to adapt and evolve to ensure that its benefits are accessible to diverse government entities and service providers.