Pay for Success is a new financial and contracting tool that pays investor-funded nonprofits for delivering measurable social outcomes. This approach, while still new, increases investment in evidence-based programs and creates investable opportunities for impact investors and potentially CRA-motivated banks as well. One particularly ripe opportunity for Pay for Success is in health improvement. “Using Pay-For-Success To Increase Investment In The Nonmedical Determinants Of Health,” written by Federal Reserve researcher Ian Galloway for the health policy journal Health Affairs, explores how Pay for Success could be used to increase investment in illness prevention, save health care costs, improve patient outcomes, and create a market that values health, not just health care.
The combination of fee-for-service payments and the US health care system’s standing commitment to treating existing illness discourages spending on the behavioral, social, and environmental (that is, the nonmedical) conditions that contribute most to long-term health. Pay-for-success, alternatively known as social impact bonds, or SIBs, offers a possible solution. The pay-for-success model relies on an investor that is willing to fund a nonmedical intervention up front while bearing the risk that the intervention may fail to prevent disease in the future. Should the intervention succeed, however, the investor is repaid in full by a predetermined payer (such as a public health agency) and receives an additional return on its investment as a reward for taking on the risk. Pay-for-success pilots are being developed to reduce asthma-related emergencies among children, poor birth outcomes, and the progression of prediabetes to diabetes, among other applications. These efforts, supported by key policy reforms such as public agency data sharing and coordinated care, promise to increase the number of evidence-based nonmedical service providers and seed a new market that values health, not just health care.
Beyond the Hype: The Promise and Pitfalls of Pay for Success
August 12, 2013
By Ian Galloway, Federal Reserve Bank of San Francisco
Community Development Investment Review
Pay for Success Financing – Volume 9, Issue 1
The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.