Future of PFS: Can PFS lead to sustainable funding for social programs? (Urban Institute)

By Will SchupmannMayookha Mitra-Majumdar 

In theory, once a program funded through pay for success (PFS) demonstrates measurable improvements in outcomes, the government could start funding it through traditional financing streams, providing an avenue to stable funding. The alternatives are for service providers to return to grant funding or continue with additional PFS projects—neither of which offers a sustainable solution. Particularly if a program has a significant evidence base, why not bypass some of the more challenging aspects of PFS and have government fund it directly? 

The ability and likelihood of governments to make this shift is uncertain.

This is partly because so few projects have gotten to that point: of the 17 launched PFS projects, only the Rikers Island ABLE PFS project has ended, and the results of that program suggested it didn’t work. And to date, none of the launched projects has provided a guarantee that funding for services will continue if the project is successful. Few would argue against the use of evidence when deciding how to allocate taxpayer dollars, but offering such firm commitments in advance may be precluded by a jurisdiction’s procurement rules, difficulties in multi-year appropriations, slow bureaucracies, and an unwillingness to saddle or commit future administrations.

This can put the onus of continued funding for successful programs on philanthropy.

Given these governmental challenges, some stakeholders have designed their PFS projects to ensure continued funding for effective services. Tamar Bauer, Chief Policy & Government Affairs Officer for Nurse Family-Partnership (NFP), discussed this challenge in the context of NFP's PFS project in South Carolina at Urban’s Pay for Success Symposium in June. NFP was concerned about a funding “cliff” once the PFS project ended, even if the project was found to be successful. In response, philanthropic funders structured the PFS contract so that if the project was successful, they would recycle success payments to fund future services from NFP. However, even the $7.5 million in available success payments can only fund NFP for so much longer. 

It’s still worth considering if and how governments can continue supporting successful programs.

Governments that are committed to supporting programs shown to be successful in a PFS project can enter into an achievement compact—“a statement of intent from government to integrate successful services, providers, and performance-based funding mechanisms into ongoing funding streams or new funding streams to support them.” An achievement compact provides security to service providers that the government will continue to support services that work. How governments structure the compact could be affected by several factors, including their understanding of what constitutes an "evidence base." They may also stipulate that continued funding be contingent on short-term results; given the realities of election cycles, the timing of when results become apparent to constituents will almost certainly affect political will.

If the project concludes successfully, governments can fulfill the terms of the achievement compact by entering into a performance-based contract with the service provider. A performance-based contract upholds the principles of PFS by incorporating evidence-building through evaluating service outcomes. If the government has never entered a performance-based contract before, they may need additional technical assistance to limit financial burdens on service providers and grow capacity for vital active management skills such as data analysis and course correction during service delivery. Catalytic investment from philanthropy could be vital.

But this is only one way that government can support effective programs. For example, as a secondary strategy of securing sustainable funding, NFP project stakeholders applied for federal Medicaid funding through a waiver, which ultimately constituted 13 of the $30 million of the project’s total investment. Stakeholders hope that braided Medicaid funding could potentially create a pathway to sustain NFP services, if the project is successful. Jurisdictions interested in directly funding effective programs should explore the option that best fits their needs.

The states, counties, and cities currently engaged in PFS efforts tend to be relatively more progressive and better-resourced, and can provide a “best-case-scenario” for demonstrating if PFS can indeed shift funding decisions towards proven programs. The true test of PFS’s ability to meaningfully reorient governments towards funding effective programs will come when a completed PFS project demonstrates success. How that jurisdiction decides to approach continued funding for the program can provide a tangible indicator of PFS’ potential to secure sustainable funding for other evidence-based programs.

This is the ninth blog in our Future of PFS blog series.

On June 22nd and 23rd, 2017, the Pay for Success Initiative hosted a National Symposium on the Future of Pay for Success in Washington, D.C. The invite-only Symposium brought together leaders from government, nonprofits, and organizations active in pay for success to consider the big questions facing the field, as well as highlight lessons for engaging in PFS efforts. More information on the Symposium can be found here.

Over the next several months, the Initiative will be releasing a series of blogs highlighting important conversations, themes, and questions that arose during the Symposium. To join the conversation, visit pfs.urban.org, follow @UrbanPFSI and #FutureofPFS on Twitter, and subscribe to our monthly newsletter.

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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. Photo via Shutterstock.