Launching Pay for Success projects

Rachel Levy and Emily McKelvey October 26, 2020

We recently we announced the launch of a series of issue briefs on Pay for Success (PFS) that provides practical guidance for government officials interested in pursuing PFS within their agency or jurisdiction.

In our previous post, we highlighted the first three briefs in the series, which focus on early-stage exploration of PFS and deciding whether it is a good fit for a particular social problem. Here, we focus on the next stage in the project development process: launching a PFS project. The five briefs in this section lay out each of the key steps jurisdictions must take as they work to design and implement a PFS project, from assembling the right team, to selecting and pricing outcomes, to drafting the legal agreements that bring the project to life.

  • Brief 4: Getting Started on Pay for Success
    Initial actions outcomes payers can take to build strong project foundations.
  • Brief 5: Defining Success in Pay for Success
    Identifying and selecting meaningful outcomes for PFS projects.
  • Brief 6: Measuring Success in Pay for Success
    Choosing the right evaluation methodology for PFS projects.
  • Brief 7: Is the Price Right?
    Strategies for valuing project outcomes.
  • Brief 8: Pay for Success Contracting
    Creating legal agreements for PFS projects.

“Brief 4: Getting Started on Pay for Success” outlines three critical first steps that outcomes payors (such as governments, employers, and managed care organizations) can take at the start of a project to build a strong foundation. These three steps include:

  1. Ensuring that the right stakeholders are involved from the very beginning of the project design process, including a senior champion, agency lead or topic expert, budget analyst, performance oversight manager, and project manager (who may be from a different organization than the payor).
  2. Defining a project’s first principles, a set of 3-5 principles that distill a project’s underlying objectives and priorities and can act as a guiding framework for decision making
  3. Considering sources for outcomes funding, which could include a state’s general fund, a Section 1115 Medicaid waiver, or a federal grant.

In “Brief 5: Defining Success in Pay for Success,” we outline an approach for identifying and selecting outcomes for a PFS project that align with policy priorities and represent value for a community. The approach incorporates lessons learned from nearly 10 years of designing, launching, and managing PFS projects. It includes the following (non-linear, iterative) steps: identifying a preliminary list of potential outcome metrics; prioritizing metrics by developing a set of criteria, such as alignment with beneficiary and program need, evidence-based, and feasibility to track; selecting outcome metrics; and defining metric definitions for the project. The brief also shares an example of outcomes chosen for one of our launched PFS projects, Massachusetts Pathways to Economic Advancement, a partnership between the Commonwealth of Massachusetts, Jewish Vocational Service (JVS Boston), and Social Finance to provide workforce development services in order to increase employment opportunities for limited English speakers and help them progress up the economic ladder.

In “Brief 6: Measuring ‘Success’ in Pay for Success,” we weigh the relative merits of different types of evaluations for PFS projects including non-experimental, quasi-experimental, and experimental designs. The brief also discusses some of the factors PFS project developers should consider when selecting an evaluation design, ranging from ethics, to operations, to timeline, to cost, and details key criteria to look for when selecting an evaluator. Finally, we share an example of how we tackled these decisions along with JVS Boston and the Commonwealth of Massachusetts when selecting the evaluation design for the Massachusetts Pathways project.

“Brief 7: Is the Price Right?” lays out parameters to consider when attaching prices to the outcomes that have been selected for a PFS project. While the outcomes selected for a PFS project help to signal what the outcome payor cares about; the prices assigned to each outcome signal how much it cares about them. While there is no single formula to determine outcome prices, some of the factors that project developers should consider include the fiscal value (budgetary impact on government, such as reduced emergency room costs) and social value (broad benefits for constituents, such as quality-of-life improvements) generated by project outcomes; provider costs for delivering services; and the total available outcomes dollars available.

In “Brief 8: Pay for Success Contracting,” we highlight important considerations when designing PFS contacts. In a typical government social services contract, a government agency pays a service provider on a fee-for-service basis for each person they serve, regardless of the program’s impact. The PFS model, on the other hand, fundamentally changes this contracting model from paying for services to paying for outcomes, and consequently necessitates a shift in the underlying contract structure. The primary legal agreements typically used in PFS projects include a PFS agreement, intervention agreement, evaluator agreement, and (where outside capital is involved) a funder agreement, each of which is outlined within the brief. In addition, we discuss the importance of ensuring that governments have the contracting authority by which to enter into an outcomes-based contract and outline legal mechanisms by which they can secure outcomes payments.

Download the briefs >>

Read our previous post on exploring PFS >>

Read our post on managing a PFS project >>