Painter, coauthor preview new book on social impact of ‘pay-for-success’ initiatives

January 8, 2018

By Matthew Kredell

To view the full video of the seminar, please click here »

“Pay for success” has emerged in recent years as an innovative way for governments to fund social-service programs without having to provide up-front funding or compensation for services that don’t achieve the desired outcomes.

The USC Price Center for Social Innovation hosted a seminar Nov. 30 with CSI Director Gary Painter and Kim Bailey, a senior associate at the Nonprofit Finance Fund, who discussed the U.S. and U.K experience with pay for success, as well as reflected on how pay for success fits within the constructs of public management, risk management and social innovation.

Painter and Bailey were previewing their new book, Payment by Results and Social Impact Bonds: Outcome-based payment systems in the UK and US, of which they are among the co-authors.

Bailey, a 2013 Master of Public Policy graduate from the USC Price School of Public Policy, provided an overview of pay for success and how it improves social outcomes.

Pay for success involves an existing social service provider being funded upfront by private investors. If agreed-upon outcomes are delivered, as determined by an independent evaluator, a back-end payer (in many cases, the government) provides a return on the investment.

Focused on results

USC Price Professor Gary Painter (Photo by Deirdre Flanagan)

Since the first pay-for-success project launched in the U.S. in 2012, there have been 20 such projects started, and there are another 30 in development. Early projects concentrated around criminal justice, homelessness and early childhood, though Bailey indicated there is a trend toward healthcare and workforce development.

A benefit of pay for success, compared to other models of funding social services, is that it supports outcomes rather than outputs.

“Even when a contract fails, a lot of people counted it as a success of the use of pay for success and why we’re doing this, which is giving the government the ability to innovate and try something new without taking on the risk – without tax payers having to take on the risk of a large and new program,” Bailey said.

Painter explained that the U.K. started using this method in 2010, calling it “payment for results.” It began in the healthcare sector as a way for the government to reimburse only when certain targets were achieved. In the U.S., contracts tend to be around $10 million, while in the U.K. they have ranged from 10 million to several billion pounds.

Investors are willing to take on the risk to receive a bond return, and possibly social return. Elected or appointed government officials can support programs without the political risk of losing tax-payer dollars.

Opening up new opportunities

Kimberly Bailey, senior associate of the Nonprofit Finance Fund (Photo by Deirdre Flanagan)

Based on the use of pay for success in the U.S. and U.K. thus far, the authors asserted that opportunities include scaling promising outcomes-focused programs, providing service providers with multi-year contracts and capital, transparent and efficient use of public and philanthropic dollars, strengthening evaluation of social services, and deepened partnerships and cross-sectorial collaboration.

Challenges include: service providers understanding the true costs and capacity of their programs from the get-go; the complexity of evaluation and measurement; evidence and data are still nascent for certain programs or interventions; and difficulties from multiple stakeholder involvement.

“Given our constrained resources, this is a tool that really opens up the ability to try all sorts of new things,” Painter said. “But it’s not really a silver bullet. It takes a long time to put together, then you need to have a strong agreement on the evaluation metrics, and it also needs to somehow be tied to a particular government savings that would accrue if the program is successful.”

He added, “Whether it’s a silver bullet or not, it’s certainly exciting to think about.”