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Tag: Social Impact Bonds

A New Kind of Payment Mechanism Targeting Social Determinants of Health?

It’s been established that an effective way to manage an individual’s health is to address the root cause of health complications, known as social determinants of health (SDOH).  Unfortunately, interventions that address SDOH often exist outside the scope of the traditional healthcare payment system. 

There is a relatively new methodology that can be used to increase spending on SDOH while transparently enforcing accountability and outcomes. Social impact bonds, also known as  “pay-for-success” models, are multi-stakeholder performance-based contracts.

The five key stakeholders and their roles are as follows:

1) Service Provider:  Agrees to conduct a program designated to yield a future outcome that is valuable to the payer.  (Usually a nonprofit organization.)

2) Investor:  Provides up-front working capital for the service provider to channel toward the designated program.  In exchange, the investor will receive a “success payment” if the committed outcome is produced on schedule.

3) Payer:  Commits to pay the service provider a “success payment” when the specified outcome is produced.  (Usually a government agency.)

4) Intermediary Organization:  Facilitates the SIB contract, establishes payment and financing terms, and supervises the service provider’s program.

5) Independent Evaluator:  Determines if the committed outcome was achieved upon conclusion of the contracted period.

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Could Social Impact Bonds Help Restore Public Budgets?

Government budgets are tight during the recession, with cuts to public health budgets being announced on almost daily basis. What strategies are available to enhance revenues for public welfare programs–for the kinds of health and education expenses that won’t “pay for themselves”(at least in the short term), and therefore are often the first to get slashed in hard times? Raising tax rates among the wealthy, and introducing new taxes like a Robin Hood Tax, have been widely discussed. But some researchers have also studied entirely new revenue-generating strategies for social welfare programs that don’t rely on taxes—including a popular pay-for-performance scheme based on “social impact bonds” (SIBs).

How they work

A SIB is one of many “payment by results” plans. Just like other types of bonds (for instance, the municipal bonds we invest in to fund a local community college), SIBs involve private investors paying for a particular program that funds some social welfare operation. But SIBs are organized such that if the social welfare program is successful, there should be some net savings to the government and benefits to society.

For example, if a public health program prevents diabetes by successfully sustaining a weight loss intervention, the government should save money that would have otherwise been spent through Medicaid or Medicare on future hospitalizations caused by diabetes. As part of a SIB, the government agrees to pay a portion of these savings back to the investors who funded the weight loss program. And just like any investment, if the program fails, the investors lose money—theoretically attracting investors towards the most effective social welfare programs.Continue reading…