Implementing Pay for Success and Social
Innovation Finance Webinar
October 25, 2012
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Agenda
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Opening remarks from APHSA and logistics
Overview of Pay for Success (PFS)
Update: Existing PFS Exploration
Q &A
Existing PFS Pilots & Questions:
–Massachusetts
Q &A
–Cuyahoga County, OH
Q &A
PFS Outcomes Measurement
Potential Applications for PFS
Roadmap for PFS Exploration
Q &A
5 min
15 min
10 min
10 min
5 min
10 min
5 min
20 min
10 min
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Third Sector Capital Partners
Transaction Advisory Services
Mission
Program
Feasibility, Program Risk Evaluation
Accelerateand
America’s
Partnership Formation
Services
transition to a
Nonprofit financial
performance-driven
advisory firm and
social sector.
intermediary in
emerging fields of
Pay for Success and
Social Innovation
Finance
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Overview of Pay for Success
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What is Pay for Success?
Pay for Success (PFS): performance-based contracting for
outcomes between government and social service providers
Social Impact Financing (SIF): financing that supports PFS.
“social impact bonds” are one type of SIF financing.
PFS requires a public-private collaboration focused on outcomes
and preventive initiatives that are rigorously measured
Investors bear the majority of up-front risk, government
reallocates expenditures towards success payments only when
results are achieved
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PFS Construct
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How is Impact Rewarded?
• Reward for impact is an outcome-based success payment from
government
• Outcomes determined with support of project parties and
evaluator to design rigorous, feasible and appropriate measures
• Success payments are triggered when a PFS program achieves
mutually, pre-determined metrics outlined in contract
• Outcome metrics are critical for alignment between
government, service providers, intermediaries, and investors.
• Role of 3rd Party Evaluator is essential to independently track
and validate outcomes.
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Types of Investment
Pay For Success programs allow investors to structure their
investments using various financing options:
Non-recoverable Grants
Recoverable Grants/Program
Related Investments
Loans
Private Investment
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Existing Landscape of PFS Exploration
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National Developments
= Third Sector Projects
= SIB Interest/Developments
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Key State and Local Agencies
Executive
Office
Administration
and Finance
Health and
Human
Services +
Other
Departments
Performance
Management;
Data Systems;
Procurement
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Goals and Timeframes
• Requires up-front community education with providers,
funders, government stakeholders and evaluators
• Contingent on government approach (procurement vs.
sole-source pilot)
• Dependent on access to administrative data for
evaluation and cost-benefit purposes
– MA: 15 Months to select winning bidders- still in
negotiations
– Cuyahoga: 12 months of exploration and RFR
procurement launch
• Significant time and resource investment for government
and all partners
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Question Break
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Existing PFS Pilots:
Massachusetts & Cuyahoga County, OH
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Metrics: Massachusetts
• Procurement Process:
– Request for Information (RFI)
– Request for Responses (RFR) for both intermediaries and
providers in two areas: juvenile justice and homelessness
– Negotiations to contract with first apparent bidders in each
area
• Trust
– Legislative approval for up to $50M of pay-for-success
contracts, backed by the full faith and credit of
Commonwealth
– Ongoing analysis to estimate and capture budgetary
savings
– Independent Evaluator hired by Commonwealth will be
responsible for validating outcomes that trigger payments
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Stakeholder Roles: Massachusetts
Commonwealth of
Massachusetts (ANF, HHS, LWD)
Political leadership and staffing,
project management,
procurement, fiscal commitment
Evaluator & Validator
Evaluation design and outcomes
for contract; validation/auditing
function
Professor Jeffrey Liebman
Government advisor and
technical assistance for
evaluation, procurement and
contract design
Department of Youth Services
Leadership and staff resources,
parties to project and contract
negotiations
Third Sector Capital Partners
Chosen intermediary; project
manager with Pay for Success
Expertise
Roca Inc.
Chosen lead service provider;
program expert
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Question Break
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Mechanics: Cuyahoga County Pay for
Success Process
How is this different to MA? Similar?
Community
Outreach and
Education
Landscape
Analysis and
Identification
of Suitable
Interventions
Process
Advice for
County
Technical
Assistance for
Responders
Technical
Assistance
and Deal
Construction
For Finalists
July 2012
August-Sept.
Sept-October
November
Dec-May 2013
Early Stakeholder Roles: Cuyahoga
Leader: County Executive
Political leadership and County
staffing, project management,
procurement, fiscal commitment
Department of Health &
Human Services
Leadership and staff
resources, liaison with
funder, provider and
evaluator communities
George Gund Foundation &
Foundation Community
Project initiation & financial
support, RFR review,
leadership within funder &
political community
Third Sector Capital Partners
Project Management, Landscape
Analysis & Technical Assistance
and Pay for Success Expertise
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From Interest to Action: Cuyahoga
Success Factors:
• Leadership from County Executive Ed FitzGerald
– Public Commitment to PFS in Western Reserve Plan
• Collaboration and early engagement with funders and
providers
– George Gund Foundation investment; Public Community
Meetings and Landscape Education; Funder Convening;
• Commitment to improved social outcomes and savings
– Willingness to explore intersection between County savings and
programmatic priorities across multiple areas
– Openness to failure or inability to find alignment in County
• Access to Technical Assistance
– Third Sector brings PFS Expertise, Landscape analysis and project
management skills
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Question Break
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PFS Outcomes Measurement
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Evaluation Mechanism for PFS
• Evaluation of project outcomes is at the core of PFS and is key
to validating a project’s impact and cost-savings.
• Impact measurement is a notoriously subtle science.
• The world is full of false-positive evaluations due to a large
number of factors:
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Underpowered experimental designs,
Publication bias,
Low-fidelity execution,
Wishful thinking,
– Regression to the mean, and many others.
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Developing Outcome Metrics
Critical to establish ambitious yet realistic target metrics and thresholds that define
program success. This requires significant discussion and negotiation between the
intermediary, government, and potential investors. Process includes:
1. Select a technical assistance provider or evaluator with
experience measuring outcomes with government
administrative data
2. Determine what administrative data sources and data
collection strategies are available to measure key outcomes
and process for accessing this data.
3. Define and articulate a shared vision of what a successful
program would accomplish for the target population.
4. Negotiate and establish ambitious but realistic outcome
measures with clearly defined thresholds for success.
– Pay “per” Success (ie foregone incarceration)
– Pay for overall reduction (reduced recidivism rate)
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Who Measures Outcomes?
• The number one risk of PFS failure is tied to the possibility of
non-rigorous evaluation.
• Essential to have independent, 3rd Party evaluators, with a
strong focus on counterfactuals, and a power to audit.
• Administrative data is also essential for PFS as a key enabler
of evaluation. Requires government collaboration with PFS
project partners and may initially limit potential intervention
areas if data is prohibitively costly or unavailable
• Outcome measurement and achievement of contractuallyestablished metrics drive government success payments
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Potential Applications for PFS
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Key Characteristics of PFS
Cashable
Fiscal
Savings for
Government
Government
Leadership
Significant
Unmet Needs
& Targetable
Populations
Safeguards
Scalable
Service
Providers
Credible
Data
Interventions
that Work
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Challenges for PFS Implementation
Unproven or
Mandatory
Programs
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Promising SIB Intervention Areas
Social Challenge
Potential Interventions
Homelessness (family or individual)
Permanent Supportive Housing
Child Welfare/Foster Care
Redirection from Out-of-Home Placement
Re-entry/Recidivism
Community Based Alternatives to
Incarcerations
Kindergarten Readiness/
Early Childhood Education
Universal Pre-K Interventions; Home
visiting
Mental & Behavioral Health
Community Based Clinical Interventions
Workforce Development/ Employment
Apprenticeship Programs
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Roadmap for PFS Exploration
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Steps for Exploring PFS Opportunities
Document
Agreements
Problem
Identification
Target areas
w/high social &
fiscal costs
Performance,
Financing and
Operational contracts
Developing
Funding
Arrangement
Establish Return
Parameters
Government
Solicitation
Process
Pilot vs.
Procurement
Determination of
Intervention
Focus on Impact
Organizational
Construct
Lead Contractor
and Provider
Construct
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Key Questions
• Is there initial community interest in Pay for Success?
• Is there government human and fiscal capacity to explore nontraditional procurement and payment policies?
• Are there interventions that are potential fits and also fall
within existing community priorities?
• What are key concerns about a potential Pay for Success pilot in
your locality?
• Will there be an investor base interested in funding a PFS pilot?
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Questions & Contact Information
• Commonwealth of Massachusetts
Ryan Gillette, Government Innovation Fellow
ryan.k.gillette@state.ma.us
• Cuyahoga County, Ohio
David Merriman, Special Assistant to the County Executive
dmerriman@cuyahogacounty.us
• APHSA
Larry Goolsby, Director of Strategic Initiatives
lgoolsby@aphsa.org
• Third Sector Capital Partners
Caroline Whistler, Partner
cwhistler@thirdsectorcap.org
George Overholser, Co-Founder and CEO
goverholser@thirdsectorcap.org
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