Financing Effective Housing Interventions With Pay for Success

Financing Effective Housing Interventions With Pay for Success

Highlights

• The Pay for Success (PFS) model can help governments ensure that their resources are spent on successful programs and has the potential to encourage evidence-based policymaking. A variety of housing-related PFS interventions are in progress.
• The Massachusetts Housing and Shelter Alliance and Santa Clara County, California, are using PFS interventions to expand and test permanent supportive housing models in their communities.
• The Green & Healthy Homes Initiative, the Calvert Foundation, and the Johns Hopkins Hospital and Healthcare System in Baltimore have partnered to develop a PFS contract to reduce asthma-related hospitalizations and emergency room visits in the city.

In an era of tight public budgets, private and philanthropic organizations increasingly are underwriting public services through impact investments, which support a social good while also generating a financial return. In one form of impact investing, pay for success (PFS), an organization (typically a government) sets specific targets that another organization, such as a service provider or intermediary, must meet in return for payments. Private and philanthropic investors supply the upfront capital that service providers use in exchange for a capped rate of return derived from the payments. The payments, however, are released only if the desired targets are successfully met, which must be verified by an independent evaluator. An intermediary organization with experience in PFS or the relevant policy area manages the contract and lines up investors. State and local governments have begun using PFS to implement interventions to address education, asthma, homelessness, and prison recidivism. Housing-related PFS contracts designed to improve conditions for vulnerable populations are currently underway or under consideration in the state of Massachusetts; Santa Clara County, California; Cuyahoga County, Ohio; and Baltimore, Maryland. Officials in these communities expect to see not only better individual outcomes but also cost savings in fields that housing quality affects, such as criminal justice, childhood welfare, and health care.1

Innovations and Drawbacks

Caroline Whistler, co-president of Third Sector Capital Partners, a nonprofit that helps construct PFS projects in the United States, says that the key innovation of PFS is that payments are structured to reward results rather than reimburse providers for services rendered.2 One benefit of this approach is that the cost of failure shifts from the government to private and nonprofit entities. Because payment for services is contingent on meeting specific targets, governments can ensure that their resources are spent only on successful programs.3 This shift in risk gives providers an incentive to be innovative and flexible in how they deliver services, swiftly adapting to changes and offering individually tailored services without fear of violating the terms of their contract.4 In addition, PFS has the potential to encourage greater evidence-based policymaking because rigorous evaluation is built into the contract; many PFS contracts include randomized trials and control groups to measure success. Also, private investors who bear the financial risk for success are unlikely to support programs that are not backed by strong evidence because the possibility of nonpayment would be too high.5

Sherman (pictured above) found housing through MASH and has been able to turn his life around by improving his health, volunteering, and reconnecting with his 15-year old son. Massachusetts Housing & Shelter Alliance

Most PFS contracts have been implemented in policy areas with the potential for large savings from a new, more effective program or preventive intervention, such as in prisoner recidivism, early childhood education, chronic homelessness, and workforce development.6 The very first PFS contract, the Social Impact Bond program at Peterborough prison in the United Kingdom, focused on reducing recidivism among ex-offenders who served short prison terms. About 60 percent of people in jail in the United Kingdom serve short sentences and cost the Ministry of Justice about £40,000 (approximately US$60,000) per person per year. Launched in 2010, the Peterborough project was projected to save £44 million (approximately US$66 million) and up to a possible £90 million (approximately US$135 million) if returns were better than expected.7 Social Finance, a nonprofit, served as the contract’s intermediary organization, lined up funders, and helped assemble ONE Service, the contract’s service provider. ONE Service did not use a fixed intervention model or specific theory but instead implemented a flexible contract that deployed a combination of housing support, employment training, drug and alcohol counseling, and mental health services to keep ex-offenders out of jail.8

The potential for savings in excess of a program’s cost and the fact that payments are deferred until the project is successful have made PFS attractive to local and state governments with constrained budgets. In the Peterborough project, for example, interim results showed that recidivism rates dropped compared with a control group, but that drop was not enough to trigger the first round of payments. This example highlights the appeal of PFS for governments: the Ministry of Justice either got the predetermined outcome or it did not pay.9 Jeffrey Liebman of Harvard’s Social Impact Bond Laboratory observed that although constrained funding environments are forcing programs to justify themselves, “it remains the case that most government spending is not allocated based on the evidence or with a focus on innovation or performance.”10 PFS is one possible strategy to encourage greater innovation and efficiency in the delivery of government services.

Despite its promise, PFS remains largely untested, and a number of important questions remain. In the United States, only a handful of contracts are underway or in negotiation (four are discussed in this article), and only one, a prisoner recidivism contract with Riker’s Island, New York, has concluded.11 More completed examples are needed, says Yennie Tse, program manager in HUD’s Office for International and Philanthropic Innovation, to understand the risk and reward of PFS and establish best practices, especially those surrounding the structure of contracts and negotiations.12 Without an adequate understanding of risk versus reward, many investors remain philanthropic entities who can justify prioritizing social benefits. In cases where private investors have signed on to PFS projects, such as the Riker’s Island initiative, their investments were partly guaranteed by a philanthropic organization.13

PFS currently applies only to a limited number of policy areas. Programs that offer nonfinancial societal benefits or have difficult-to-measure outcomes may not be suited to PFS.14 Many advocates and researchers also note that PFS should not deliver essential government services (such as fire and police protection) because providers and investors have an incentive to end programs that are not on track to meet targets and payout. John Cassidy, a senior manager at Deloitte Consulting working with the Centers for Disease Control and Prevention (CDC) on PFS, says that governments must design programs that achieve outcomes without harming the target population. Finally, interventions that reach across agency boundaries and levels of government face legal and practical restrictions that make aligning potential payers with effective service providers difficult.15

Permanent Supportive Housing

Permanent supportive housing programs help families and individuals “break the cycle of homelessness,” says Andy McMahon, managing director of government affairs and innovation at the Corporation for Supportive Housing (CSH), which improves the quality of life for vulnerable populations, such as individuals experiencing chronic homelessness, and decreases associated service costs by reducing participants’ use of expensive emergency services.16 Unlike traditional models, which address the causes of homelessness before providing housing or as a precondition for remaining in housing, a permanent supportive housing program provides individuals experiencing homelessness with housing and voluntary services first.17 McMahon argues that permanent supportive housing is well adapted to PFS contracts because the evidence base supports its effectiveness and because it can significantly reduce utilization costs in the healthcare and criminal justice systems. Permanent supportive housing, however, suffers from the “wrong pocket problem,” which means that the savings from the intervention accrue to an organization, agency, or government different from the one paying for the intervention.18

A 2014 review of permanent supportive housing studies found a “moderate” amount of evidence supporting its benefits, adding that “[s]ubstantial literature, including seven randomized controlled trials, demonstrated that components of the model reduced homelessness, increased housing tenure, and decreased emergency room visits and hospitalization.”19 A HUD study of families experiencing homelessness in Washington, DC, found that permanent supportive housing was 49 percent cheaper than apartment-style shelter housing and 65 percent cheaper than congregate shelter housing.20 New York City found that for every unit of permanent supportive housing it provided, the city saved $16,281 per year in medical and mental health care, and a 2008 study of a Rhode Island permanent supportive housing project found the program reduced service costs by 25 percent pre- and post- entry into the program by reducing the number of hospital stays, emergency room visits, and trips to drug and alcohol treatment centers, and encounters with the court system.21 Uniting permanent supportive housing and PFS has the potential to infuse new money into a housing intervention model that sees significant savings in health and criminal justice fields.22

Source: Third Sector Capital Partners. 2015. “What is Pay for Success?” (www.thirdsectorcap.org/what-is-pay-for-success/). Accessed 18 February 2016.

Leveraging PFS To Combat Homelessness in Massachusetts. The first PFS contract for permanent supportive housing was awarded in 2014 in Massachusetts, where state officials hope to house up to 800 individuals over the next 6 years and reduce the number of individuals in the state experiencing chronic homelessness by half. The Massachusetts Housing & Shelter Alliance (MHSA), a nonprofit dedicated to ending homelessness in Massachusetts, has partnered with CSH and the United Way of Massachusetts Bay and Merrimack Valley to provide 500 units of supportive housing. CSH, United Way, and Santander Bank N.A. are investing $2.5 million in the project. If the project meets its target — all participants housed during the year remain stably housed for at least one year — then the state of Massachusetts will make up to $6 million in success payments.23

The PFS initiative will allow MHSA to expand its Home & Healthy for Good program, a permanent supportive housing program that has served 860 individuals experiencing chronic homelessness who are difficult to house and frequently use high-cost services. Sixty-nine percent of participants report having a mental health disability and 50 percent report having a physical health disability, and tenants report being homeless for an average of 5 years before entering the program. During the six months before entering housing, the average tenant spent more than four days in the hospital, three days in detox, and five days in jail and made nearly three trips to the emergency room. By providing Home & Healthy for Good participants with housing, MHSA saved the state $12,101 per person per year, with most of those savings coming from reductions in medical expenses.24

The new PFS program, called the Massachusetts Alliance for Supportive Housing (MASH), works with local housing and service providers to place individuals who have been identified as high-cost users of Medicaid in supportive housing. Using a mix of scattered- and single-site housing throughout Massachusetts, the program has placed 104 individuals in supportive housing so far, with a goal of placing 250 participants in its first year and 250 in its second year. The supportive services are based on lessons learned from the Home & Healthy for Good program and link paraprofessionals with tenants to help them navigate local resources, find employment opportunities, and mediate potential landlord-tenant disputes. One of the innovations of this project, says Tom Brigham, director of MHSA, is a web-based data collection tool that local providers and MHSA use to track individuals’ use of services and bouts of homelessness. This tool, which will be part of the eventual evaluation of the program, allows MHSA and local providers to better understand different trends in different communities and make improvements to the housing programs to ensure that they have a positive impact.25

The PFS financing is a “highly leveraged funding source,” explains Brigham, that brings in additional resources to fund permanent supportive housing. The contract states that Massachusetts will pay $3,000 per individual placed after a year of successful tenancy, but most of the costs of providing housing and services — about $17,000 per person — are covered through other sources, such as $1 million in foundation grants, rental vouchers, Medicaid billing, and provider resources.26 Massachusetts has funded 145 project-based vouchers and made them available to local housing providers, and the state is also setting aside up to $11 million to fund health-related services through MassHealth, which administers the state’s Medicaid and Children’s Health Insurance programs.27 MHSA, working through MASH, helps local providers manage their Medicaid billing and provides immediate financial support until payments are released. One strength of this arrangement, says Brigham, is that after the PFS contract ends, program participants will retain most of their supportive services because Medicaid has no end date. The rental vouchers that are tied to MASH will also continue after the contract expires.28

Permanent supportive housing programs help families achieve housing stability. Alain McLaughlin

Incentivizing Housing Stability in Santa Clara County. Every night, more than 6,500 people in California’s Santa Clara County do not sleep in their own homes. Instead, they stay with friends, sleep in shelters, or live out on the street. Of this group, approximately one-third has experienced chronic homelessness, meaning that they have a disabling condition, such as a mental illness, and have been homeless for a year or have had four periods of homelessness in the past three years. In addition to the human costs, homelessness costs the county a lot of money; a 2015 study found that 104,206 county residents who experienced homelessness between 2007 and 2012 used more than $3 billion in public services.29 Santa Clara County launched its first PFS program in 2015, contracting with Abode Services, a nonprofit committed to ending homelessness, to provide 112 permanent supportive housing units to individuals experiencing chronic homelessness with comorbidities such as a physical disability, a mental health issue, or a substance abuse problem. Project Welcome Home hopes to house 150 to 200 individuals over 6 years. Abode Services will provide housing and client-based supportive services, and Third Sector Capital Partners will help manage the contract. CSH and Google, among others, are providing $6.9 million in investment capital and the University of California, San Francisco will evaluate the project.30

Matt (pictured) was homeless for five years until he connected with an Abode Services worker who helped him find a home in Oakland’s Lake Merritt neighborhood. Alain McLaughlin

The project’s overall goals are to improve the quality of life of individuals experiencing chronic homelessness and reduce participants’ reliance on costly government services. The project’s official target is to have 80 percent of participants achieve 12 months of continuous, stable tenancy. After about a year of continuous housing, says Louis Chicoine, chief executive officer of Abode Services, individuals experiencing chronic homelessness tend to stabilize and become much less likely to lose their home.31 The payment structure is designed to reward long-term housing, says Whistler, and “minimize having people drop out after a few months.”32 Payments are divided into three-month periods of stable, continuous tenancy and increase each period. The contract pays $1,242 per participant for 3 months of stable housing, then an additional $1,863 after 6 months, $2,484 after 9 months, and $6,831 after 12 months, up to a potential total of $12,420 per participant for 12 months of housing.33

Individuals who utilize county services frequently, particularly those experiencing chronic homelessness, place an inordinate financial strain on Santa Clara County. The 2015 study also found that individuals experiencing chronic homelessness cost the county $83,000 annually in public services per person.34 Abode’s various housing options and supportive services allow it to find the appropriate match for each participant’s needs, says Chicoine.35 Individuals can live in master-leased, scattered-site units throughout the county or in single-site affordable housing developments. For services, Abode has adopted the Assertive Community Treatment (ACT) model, a multidisciplinary approach that uses a team of professionals to deliver the specific mix of services a participant may need.36 According to Chicoine, ACT is nonpunitive; the program is not overly concerned with enforcing rules, focusing instead on keeping people on track to meet their individual goals.37

Project Welcome Home is also being used as an opportunity to build the evidence base for permanent supportive housing.38 Although payment is linked to the number of months of stable tenancy, a randomized control experiment is being run concurrently with the project. Potential program participants are identified by the county and randomly assigned to either the PFS group or a group that receives normal county services. According to Whistler, individuals will be tracked when they come into contact with jails, shelters, and emergency rooms, among other places, to see whether stable housing reduces their use of county services. The ability to introduce evidence-based evaluation into county policymaking made PFS an attractive prospect, says Whistler. “When Pay for Success first came out, there was this attachment to the idea of cost savings by investing in interventions, but the primary interest for Santa Clara is to better spend the limited resources they have.”39 Although results from the Project Welcome Home study are not yet available, Abode reports that in fiscal year 2015, 90 percent of Abode supportive housing residents either remained housed or exited to other stable housing.40

Reuniting Families in Cuyahoga County

In January 2015, Cuyahoga County, Ohio, launched a PFS initiative, Partnering for Family Success, to help 135 families struggling with homelessness reunite with their children placed in foster care. Although children are not placed in foster care specifically because of their parents’ homelessness, problems such as substance abuse can create a lack of safe and stable housing that can cause children to be removed from their parents’ care. Through the Partnering for Family Success initiative, FrontLine Service, a homelessness service provider, and Enterprise Community Partners will help vulnerable families access supportive housing and connect to various community supports to reduce the number of days that children spend in foster care, called out-of-home placement days.41 According to David Merriman, administrator of Cuyahoga County Job and Family Services, “[W]e decided to explore Pay for Success because it fit with what we see as a new way of tackling homelessness and improving childhood welfare as well as a strategy to effectively provide services at scale.”42 The county expects savings in 3 service areas — criminal justice, childhood welfare, and homelessness — and will pay $75 per reduced foster care day based on the results of a randomized control trial. The program’s overall target is a 25 percent reduction in out-of-home placement days, at which point all funders will be paid back and the county would potentially save $130,000. Reducing the placement rate by up to 50 percent could save Cuyahoga County $3.5 million.43

Representatives from Santa Clara County, Abode Services, The Health Trust, the James Irvine Foundation, and Google.org celebrate the launch of Project Welcome Home. Alain McLaughlin

FrontLine Service is using a Housing First strategy and adapting Critical Time Intervention (CTI), a therapy designed to help individuals transition from an institution into housing, to help family caregivers struggling with homelessness remain stably housed. Under CTI, individuals receive different levels of service, which Russell Spieth, director of family services at FrontLine, refers to as “dosages.” The first dose is intensive, says Spieth. Case managers work with program participants in their new housing units three to four days per week for approximately the first three months. “We want to make sure they are off to a good start,” explains Spieth. “For example, we work with landlords to help mediate disputes and help individuals access services within their community.” FrontLine gradually reduces the dosage as participants establish relationships within their community and require less direct support, eventually ending CTI services once families are stable. Funding CTI services through PFS allows FrontLine to offer a greater variety of services than it would if it relied on Medicaid reimbursement alone. Many of the families served through the program face unique, varied, and sometimes nonmedical challenges that may not be covered by Medicaid. According to Spieth, it was important that “our CTI workers feel free to do whatever need[s] to be done to successfully help families reunify.”44

The long-term success of the program will depend on the strength of the relationship among the partner organizations, says Merriman.45 In addition to FrontLine Service and Enterprise Community Partners, numerous nonprofit, philanthropic, and government agencies must work together to achieve program objectives. The George Gund Foundation, for example, was an early financial supporter of the initiative and funded an initial assessment performed by Third Sector Capital Partners. The Cuyahoga Metropolitan Housing Authority is providing the bulk of the housing, creating a priority preference for caregivers enrolled in the program, and Cuyahoga County’s Office of Homeless Services and the Children and Family Services department will manage referrals, with assistance from the nonprofit Domestic Violence and Child Advocacy Center.46

A GHHI environmental assessment technician documents home health hazards during a comprehensive home assessment. Photo by Andre Chung

Remediating Asthma Triggers With PFS Financing

Asthma affects millions of people in the United States, including 7 million children, and, according to the CDC, results in $50.1 billion in direct costs and $5.9 billion in indirect costs such as lost productivity.47 Although a number of factors can trigger an asthma attack, many asthma triggers are environmentally based and can be reduced through housing remediation.48 The CDC’s Community Preventive Services Task Force recommends a home-based, multitrigger, multicomponent approach for children with poorly controlled asthma.49 Interventions and remediation programs reduce dust mites, pollen, mold, pet dander, cockroach droppings, and cigarette smoke and work on a variety of scales. Minor interventions provide residents with education on asthma triggers and low-cost items such as allergen-impermeable covers for beds and pillows. Moderate interventions include multiple low-cost options, in-home training, or professional cleaning. Major interventions tackle structural improvements such as changing ventilation systems.50

Asthma interventions are well suited to PFS because in-home changes can substantially reduce medical costs, benefit low-income individuals who frequently use public resources such as Medicaid, and have a long track record of success. The U.S. Department of Health and Human Services has estimated that every dollar invested in asthma interventions saves between $5.30 and $14.00.51 Poor, urban, and minority children are more likely to be affected by asthma and are more likely to depend on publically funded healthcare options, meaning that a reduction in asthma attacks and subsequent hospitalizations can translate into large savings for governments and public hospitals.52 Asthma interventions, however, are affected by the previously mentioned wrong pocket problem; despite their wide range of health benefits, they are funded largely by housing programs such as HUD’s Healthy Homes Program.53 Using PFS to link housing to health would allow more resources to be spent on preventive interventions instead of expensive emergency care.

The Green & Healthy Homes Initiative (GHHI), the Calvert Foundation, and Johns Hopkins Hospital and Healthcare System in Baltimore have partnered to develop a PFS contract to reduce asthma-related hospitalizations and emergency room visits. GHHI, a nonprofit organization with a history of reducing environmental hazards that undermine the health of children and families, will remediate 1,800 homes.

The Calvert Foundation, a community development financial institution, is the primary investor, and Johns Hopkins’ Medicaid managed care organization will make success payments. Johns Hopkins will cover the cost of the contract through decreases in emergency room visits and hospitalizations from those with chronic asthma.54 According to Ruth Ann Norton, president and CEO of GHHI, the goal is to make the “health clinic to the home a seamless connection. We are trying to make contractors who do remediation the new face of health care. How we repair our homes and what we put into them have everything to do with health.”55

By providing remediation and energy-efficiency services, GHHI helps families like Lekquan and her son improve the quality of their housing. Photo Courtesy of Green & Healthy Homes Initiative

GHHI takes a holistic approach to creating healthy homes, improving energy efficiency as well as remediating toxins, making home improvements to reduce asthma triggers, and providing housing and health education. GHHI works to develop relationships with families and has found that home improvements coupled with asthma education produce the best long-term results. The remediation process begins with an in-home assessment and educational session about asthma triggers followed by the removal of known triggers. GHHI follows up with families throughout the first year to ensure that GHHI’s healthy home standards are being maintained.56 The intervention model, which was established with input from HUD and the U.S. Environmental Protection Agency, has been shown to reduce asthma-related hospitalizations by 66 percent and emergency room visits by 28 percent.57

GHHI, the Calvert Foundation, and Johns Hopkins are currently in the final stages of negotiation and are still developing the economic and actuarial modeling necessary for the contract. The payment structure for the contract will be tied to either a success metric, such as the number of homes remediated, or the reduction in emergency room visits and hospitalizations. Norton reports that a secondary goal is to examine the effect of remediation programs on school and work attendance, but this examination has not been built into the economic modeling. GHHI and Johns Hopkins will have access to the medical usage database, Chesapeake Regional Information System for Our Patients, which will allow them identify children going to the emergency room for asthma-related issues and quickly recommend in-home assessment and remediation.58

Working with a health system as the payer rather than a government entity involves considerable upfront work, says Norton, but doing so is essential to the long-term scalability of the health-based housing intervention. She explains that changing financial incentives are encouraging hospitals to emphasize preventive care to “reduce hospitalizations and repetitive use of the emergency room by addressing asthma triggers in the home environment.” Demonstrating the business case and strong financial returns of asthma remediation to hospitals and state Medicaid programs should encourage other communities to adopt remediation programs.59 GHHI recently received $1.011 million from the Corporation for National and Community Service to evaluate the feasibility of asthma-related PFS contracts in five other locations: Buffalo, New York; Grand Rapids, Michigan; Memphis, Tennessee; Salt Lake City, Utah; and Springfield, Massachusetts. GHHI, the Calvert Foundation, Milliman, and Health Management Associates are working with service providers and health systems in these five cities and are adapting the lessons and models developed in the Baltimore program to these remediation programs.60 HUD’s Office of Healthy Homes and Lead Hazard Control is also expanding PFS by supporting program development that will provide new capital investment for home interventions in two pilot locations: the city of San Diego and Alameda County, California.61

Other Potential Housing Interventions

As the body of research linking housing and neighborhood to health, wellness, education, crime, and childhood outcomes grows, more housing programs might benefit from PFS contracting. Where a person lives can affect his or her risk of diabetes and obesity, level of school achievement, and access to economic opportunity. Poor-quality housing (often found in high-poverty neighborhoods) can also contribute to childhood asthma and lead poisoning, and other dimensions of housing, such as crowding, affordability, and stability, have been shown to affect childhood development and overall success (see the Fall 2014 issue of Evidence Matters). Programs that improve the physical dimensions of housing, move families to amenity-rich, low-poverty neighborhoods, or improve high-poverty neighborhoods could feasibly generate savings for the government that exceed the cost of the program.

One of 60 apartments in Palo Verde, L.A. Family Housing’s first permanent supportive housing project for low-income adults formerly or currently experiencing chronic homelessness or who are living with mental illness. Corporation for Supportive Housing

Housing interventions shown to reduce medical costs may attract Medicaid funding as the Patient Protection and Affordable Care Act expands Medicaid in 31 states (including the District of Columbia) to cover more high-risk individuals.62 Although Medicaid does not currently cover direct housing costs, evidence attesting to housing’s role in health outcomes may change what is seen as a medical expense. Santa Clara County and Massachusetts, as well as numerous other permanent supportive housing projects, all demonstrate the value of linking Medicaid-funded supportive services to housing. According to Brigham, Medicaid funding is a critical component of the MASH program.63 In addition to permanent supportive housing programs, PFS contracts could potentially cover interventions to remediate lead and reduce asthma triggers in the home. According to Norton, in-home asthma and lead remediation are healthcare expenses because they are directly tied to the health of the individual.64

PFS contracts could also potentially link housing mobility programs to Medicaid because where people live affects their health. HUD’s Moving to Opportunity for Fair Housing Demonstration Program (MTO) found that moving to lower-poverty neighborhoods correlated with better health outcomes, especially for women, who experienced lower rates of obesity and diabetes and fewer incidents of psychological distress and depression.65 In a study modeling the savings that result from a housing mobility program, Rinzler et al. found that reductions in adult diabetes and extreme obesity could generate savings that more than cover the cost of a mobility program. Using data from HUD’s MTO experiment and a Baltimore mobility program, Rinzler et al. found that the programs, which cost $2.2 million to run over a 10-year period, generated $3.8 million in medical savings.66 Pollack et al., however, write that researchers would need to answer several questions about the optimal way to obtain healthcare savings before a housing mobility PFS contract could move forward.67

Conclusion

Interest in PFS has grown quickly over the past few years as more communities look for innovative ways to solve social-sector problems, says Cassidy. “There have been dozens of attempts to solve problems in a traditional way … and this model brings new people to the table who wouldn’t normally be here.”68 This growing interest, however, does not mean that PFS is an easy solution or appropriate for every type of intervention. Governments and practitioners need to “dissect the data to understand the problem’s prevalence, geographic scope, and target population” before embarking on a PFS contract, explains Cassidy. Beginning a PFS contract requires a long-term commitment from a number of dedicated organizations.69 The precontract assessment and analysis of the target populations and financial modeling of possible interventions can take up to two years to complete on top of months of contract negotiations among governments, service providers, investors, and intermediary organizations.70

According to Tse, many investors look for strong local leadership and strong partnerships with local actors before they will consider supporting a PFS-funded intervention. Contracts are improved by having good working relationships among all partners and by using service providers with proven track records of running successful programs.71 Using trusted service providers can help assuage local government fears over the loss of control that PFS requires. Abode, FrontLine, GHHI, and MHSA have decades of experience with permanent supportive housing or asthma remediation. Granting these organizations flexibility allows them to individually tailor their services to their clients and increases the likelihood of success. In permanent supportive housing, for example, landlord-tenant management can be crucial to a participant’s success in remaining stably housed but often is not covered because it is not a medical expense. In Santa Clara County, Abode is able to use PFS funding to cover this crucial service.72

Governments need to decide on an appropriate evaluation system for the intervention that is derived from the goals of the contract. Santa Clara County based payments on a success metric — the duration of stable housing for individuals experiencing chronic homelessness — because county officials felt that the evidence base for permanent supportive housing was strong enough to do so. In Cuyahoga County, officials contracted with Case Western Reserve University to employ a randomized control trial to measure the impact of the intervention and serve as the basis for payments.73

The wrong pocket problem remains difficult to overcome. The intricacies of social policy, especially surrounding housing and its impact on health, education, and economic opportunity, are difficult to unwind in a way that can link savings in one program to costs in another. Asthma and lead remediation often more than pay for themselves, says Cassidy, by reducing hospitalizations, the need for special education classes, and the number of youth interacting with the juvenile justice system, but forecasting the exact dollar amount and to whom it will accrue is difficult, and any savings may only be realized years in the future.74 When savings accrue at different levels of government, aligning all of the necessary players can be challenging. In Massachusetts, the MASH program operated at the state level and therefore was tied to Medicaid savings based on the state’s contribution rather than the federal government’s contribution.

Many PFS contracts focus primarily on cost savings, but encouraging more governments to reimburse for results in all of their programming could “measurably improve the lives of people in need,” says Whistler.75 Many of the organizations involved in these early examples see PFS as a means to increase evidence-based policymaking. “We are looking to use pay for success and social impact investing,” says McMahon, “as a lever to change public policy in the way government allocates money, focusing more of it on solutions with proven efficacy.”76 Numerous interventions that offer significant quality of life improvements — for example, those that link housing and neighborhoods to school improvements — could be enhanced by emphasizing the success of the program rather than the program’s specific inputs.

Related Information:

HUD Engages With Partners in Pay for Success Demonstrations

1. Jitinder Kohli, Douglas J. Besharov, and Kristina Costa. 2012. "Social Impact Bonds 101: Defining an Innovative New Financing Tool for Social Programs," Center for American Progress, 2; Drew Von Glahn and Caroline Whistler. 2011. "Pay for Success Programs: An Introduction," Policy and Practice (June), 19–22; George Overholser and Caroline Whistler. 2013. "The Real Revolution of Pay for Success: Ending 40 Years of Stagnant Results for Communities," Community Development Investment Review 9:1, 7; U.S. Government Accountability Office. 2015. "Collaboration among Federal Agencies Would Be Helpful as Governments Explore New Financing Mechanisms," 6–8.
2. Interview with Caroline Whistler, 10 October 2015; U.S. Government Accountability Office, 6–8.
3. Eileen Neely. 2014. "Unlocking Private Capital to Invest in Human Capital," Institutional Investor website (www.institutionalinvestor.com/blogarticle/3303554/Blog/Unlocking-Private-Capital-to-Invest-in-Human-Capital.html#.VplaNSorKUk). Accessed 15 January 2016.
4. Overholser and Whistler, 5–6.
5. Glahn and Whistler, 21; Hanna Azemati, Michael Belinsky, Ryan Gillette, Jeffrey Liebman, Alina Sell­man, and Angela Wyse. 2013. "Social Impact Bonds: Lessons Learned So Far," Community Development Investment Review 9:1, 30; U.S. Government Account­ability Office, 52.
6. Azemati et al., 7, 29.
7. Currency conversion is based on November 2015 exchange rate.
8. U.K. Ministry of Justice. 2014. "Peterborough Social Impact Bond HMP Doncaster: Payment by Results pilots — Final reconviction results for cohorts 1," Ministry of Justice Statistics Bulletin (7 August); Centre for Social Impact Bonds. 2013. "Ministry of Justice: Offenders released from Peterborough Prison” (data.gov.uk/sib_knowledge_box/ministry-justice-offenders-released-peterborough-prison). Accessed 15 January 2016; U.K. Ministry of Justice. 2014. "Revision to: Phase 2 report from the Payment by Results Social Impact Bond Pilot at HMP Peterborough" (www.gov.uk/government/uploads/system/uploads/attach­ment_data/file/325738/peterborough-phase-2-pilot-report.pdf). Accessed 15 January 2016.
9. U.K. Ministry of Justice 2014. "Phase 2 report."
10. Jeffrey Liebman. 2013. "Building on Recent Advances in Evidence-Based Policymaking," Brookings Institution, 2–4.
11. "Pay for Success U.S. Activity," Nonprofit Finance Fund website (www.payforsuccess.com/pay-success-deals-united-states). Accessed 23 October 2015; Justin Milner, Erika C. Poethig, John Roman, and Kelly Walsh. n.d. "Putting evidence first: Learning from the Rikers Island social impact bond," Urban Institute.
12. Azemati et al., 29; Overholser and Whistler, 7.
13. Overholser and Whistler, 8; Azemati et al., 27.
14. Kohli, Besharov, and Costa; U.S. Government Accountability Office, 35.
15. Interview with John Cassidy, 14 October 2015; Ian Galloway. 2014. "Using Pay-for-Success to Increase Investment in the Nonmedical Determinants of Health," Health Affairs 33:11, 1901.
16. Interview with Andy McMahon, 11 October 2015.
17. U.S. Interagency Council on Homelessness. "Permanent Supportive Housing" (www.usich.gov/solutions/housing/permanent-supportive-housing). Accessed 23 October 2015; U.S. Department of Housing and Urban Development. n.d. "Housing First in Permanent Supportive Housing" (www.hudexchange.info/resources/documents/Housing-First-Permanent-Supportive-Housing-Brief.pdf). Accessed 15 January 2016.
18. Interview with Andy McMahon.
19. Debra J. Rog, Tina Marshall, Richard H. Dougherty, Preethy George, Allen S. Daniels, Sushmita Shoma Ghose, and Miriam E. Delphin-Rittmon. 2014. "Permanent Supportive Housing: Assessing the Evidence," Psychiatry Services 65:3, 287–94.
20. Brooke Spellman, Jill Khadduri, Brian Sokol, and Josh Leopold. 2010. "Costs Associated With First-Time Homelessness for Families and Individuals," U.S. Department of Housing and Urban Development.
21. Dennis P. Culhane, Stephen Metraux, and Trevor Hadley. 2002. "Public Service Reductions Associated with Placement of Homeless Persons with Severe Mental Illness in Supportive Housing," Housing Policy Debate 13:1, 107–63; Eric Hirsch and Irene Glasser. 2008. "Rhode Island's Housing First Program Evaluation," United Way of Rhode Island; "Permanent Supportive Housing: A Cost-Effective Alternative in the District of Columbia," Coalition for Nonprofit Housing & Economic Development website (www.cnhed.org/blog/2011/11/permanent-supportive-housing-a-cost-effective-alternative-in-the-district-of-columbia/). Accessed 15 January 2016.
22. Kohli, Besharov, and Costa, 3.
23. Corporation for National and Community Service, Office of Research and Evaluation. 2015. "State of the Pay for Success Field: Opportunities, Trends, and Recommendations," 26; Marcy Thompson, Keith Harris, and Richard Cho. 2015. "When Homelessness Becomes Rare, Brief, & Non-Recurring: Clarifying the Federal Criteria and Benchmarks," U.S. Interagency Council on Homelessness website (www.usich.gov/news/clarifying-the-federal-criteria-benchmarks). Accessed 23 December 2015.
24. Massachusetts Housing and Shelter Alliance. 2015. "Permanent Supportive Housing: A Solution-Driven Model — June 2015 Home & Healthy for Good Progress Report."
25. Interview with Tom Brigham, 16 October 2015.
26. Interview with Tom Brigham.
27. Commonwealth of Massachusetts and Massachusetts Alliance for Supportive Housing. 2014. "Pay for Success Contract by and between the Commonwealth of Massachusetts and Massachusetts Alliance for Supportive Housing," 7–8, appendix M.
28. Interview with Tom Brigham.
29. Economic Roundtable. 2015. "Home Not Found: The Cost of Homelessness In Silicon Valley," County of Santa Clara, 14.
30. County of Santa Clara, Office of Public Affairs. 2015. "County of Santa Clara Launches California's First 'Pay for Success' Project," press release, 13 August; County of Santa Clara. 2015. "Project Welcome Home Fact Sheet" (www.payforsuccess.org/sites/default/files/final_-_150811_scc_ch_pfs_fact_sheet_vfinal_0.pdf). Accessed 23 December 2015.
31. Interview with Louis Chicoine, 5 October 2015.
32. Interview with Caroline Whistler.
33. County of Santa Clara.
34. Economic Roundtable, 2.
35. Interview with Louis Chicoine.
36. Susan D. Phillips, Barbara J. Burns, Elizabeth R. Edgar, Kim T. Mueser, Karen W. Linkins, Robert A. Rosenheck, Robert E. Drake, and Elizabeth C. McDonel Herr. 2001. "Moving Assertive Community Treatment Into Standard Practice," Psychiatric Services 52:6, 771–9.
37. Interview with Louis Chicoine.
38. University of California, San Francisco. 2015. "Evaluation of Provision of Permanent Supportive Housing for Chronically Homeless Individuals Through Pay for Success," ClinicalTrials.gov website (clinicaltrials.gov/ct2/show/NCT02440360). Accessed 15 January 2016.
39. Interview with Caroline Whistler.
40. Email Correspondence with Katie Derrig, Grants and Communications Manager with Abode Services, 14 October 2015.
41. Cuyahoga County Office of the Executive. 2014. "Nation's First County-Level Pay for Success Program Aims to Reconnect Foster Children with Caregivers in Stable, Affordable Housing," press release, 3 December.
42. Interview with David Merriman, 15 October 2015.
43. "Fact Sheet: The Cuyahoga Partnering for Family Success Program" Pay for Success Learning Hub website (www.payforsuccess.org/sites/default/files/141204_cuyahoga_pfs_fact-sheet.pdf). Accessed 15 January 2016.
44. "Fact Sheet: The Cuyahoga Partnering for Family Success Program."
45. Interview with David Merriman.
46. "Fact Sheet: The Cuyahoga Partnering for Family Success Program"; Interview with David Merriman.
47. U.S. Centers for Disease Control and Prevention. 2011. "Vital Signs: Asthma in the U.S.," CDC Vital Signs (May).
48. Green and Healthy Homes Initiative and the Childhood Asthma Leadership Coalition. 2014. "Issue Brief: Using Social Impact Financing to Improve Asthma Outcomes."
49. U.S. Centers for Disease Control and Prevention. 2011. "Recommendations from the Task Force on Community Preventive Services to Decrease Asthma Morbidity Through Home-Based, Multi-Trigger, Multicomponent Interventions," American Journal of Preventive Medicine 41:2S1, S1.
50. U.S. Centers for Disease Control and Prevention. "Common Asthma Triggers" (www.cdc.gov/asthma/triggers.html). Accessed 23 December 2015; Tursynbek A. Nurmagambetov, Sarah Beth L. Barnett, Verughese Jacob, Sajal K. Chattopadhyay, David P. Hopkins, Deidre D. Crocker, Gema G. Dumitru, and Stella Kinyota. 2011. "Economic Value of Home-Based, Multi-Trigger, Mulicomponent Interventions with an Environmental Focus for Reducing Asthma Morbidity: A Community Guide Systematic Review," American Journal of Preventive Medicine 41:2, S39.
51. Deidre D. Crocker, Stella Kinyota, Gema G. Dumitru, Colin B. Ligon, Elizabeth J. Herman, Jill M. Ferdinands, David P. Hopkins, Briana M. Lawrence, and Theresa A. Sipe. 2011. "Effectiveness of Home-Based, Multi-Trigger, Multicomponent Interventions with an Environmental Focus for Reducing Asthma Morbid­ity: A Community Guide Systematic Review," American Journal of Preventive Medicine 41:2S1, S5–S32.
52. T. Bryant-Stephens and Y. Li. 2008. "Outcomes of a home-based environmental remediation for urban children with asthma," Journal of the National Medical Association 100:3, 306–16; G. Flores, C. Snowden-Bridon, S. Torres, R. Perez, T. Walter, J. Brotanek, H. Lin, S. Tomany-Korman 2009. "Urban minority children with asthma: substantial morbidity, compromised quality and access to specialists, and the importance of poverty and specialty care," Journal of Asthma 46:4, 392–8.
53. U.S. Department of Housing and Urban Development. "The Healthy Homes Program" (portal.hud.gov/hudportal/HUD?src=/program_offices/healthy_homes/hhi). Accessed 23 December 2015; U.S. Department of Housing and Urban Development. "Lead Hazard Control and Healthy Homes: Lead Hazard Reduction — 2016 Summary Statement and Initiatives," 33-3; Kavita Patel, Steve Farmer, Meaghan George, Frank McStay, and Mark McClellan. 2014. "Pediatric Asthma: An Opportunity In Payment Reform And Public Health," Health Affairs Blog (18 September).
54. Green and Healthy Homes Initiative and the Calvert Foundation. 2015. "RFP #2 for Pay for Success/Social Impact Bonds Projects” (www.greenandhealthyhomes.org/sites/default/files/GHHI-RFP-2.pdf). Accessed 16 January 2016.
55. Interview with Ruth Ann Norton, 16 October 2016.
56. Green and Healthy Homes Initiative. 2015. "Green & Healthy Homes Initiative Selects Service Providers to Participate in Asthma-Related Pay for Success Projects," press release, 19 May.
57. Interview with Ruth Ann Norton.
58. Ibid.
59. Ibid.
60. Green and Healthy Homes Initiative.
61. Alameda County Community Development Agency. 2015. "Accept Grant Award From the U.S. Department of Housing and Urban Development Via Quantech, Inc. for a Pay for Success Asthma Demonstration Project in Alameda County," correspondence with the Alameda County Board of Supervisors, 26 May.
62. Janet Viveiros. 2015. "Affordable Housing's Place in Health Care," National Housing Conference's Center for Housing Policy, 2–8; Kaiser Family Foundation. "Current Status of State Medicaid Expansion Deci­sions" (kff.org/health-reform/slide/current-status-of-the-medicaid-expansion-decision/). Accessed 26 October 2015.
63. Interview with Tom Brigham.
64. Interview with Ruth Ann Norton.
65. Lisa Sanbonmatsu, Jens Ludwig, Lawrence F. Katz, Lisa A. Gennetian, Greg J. Duncan, Ronald C. Kessler, Emma Adam, Thomas W. McDade, and Stacy Tessler Lindau. 2011. Moving to Opportunity for Fair Housing Demonstration Program: Final Impacts Evaluation, U.S. Department of Housing and Urban Development, Office of Policy Development and Research, foreword.
66. Dan Rinzler, Philip Tegeler, Mary Cunningham, and Craig Pollack. 2015. "Leveraging the Power of Place: Using Pay for Success to Support Housing Mobility," Federal Reserve Bank of San Francisco, 2–13.
67. Craig Evan Pollack, Rachel L. Johnson Thornton, and Stefanie DeLuca. 2014. "Housing for Health: Targeting housing mobility vouchers to help families with children," Journal of the American Medical Association Pediatrics 168:8, 695–6.
68. Interview with John Cassidy.
69. Ibid.
70. Interview with Yennie Tse, 19 October 2015.
71. Ibid.
72. Interview with Louis Chicoine.
73. Interview with Yennie Tse.
74. Interview with John Cassidy.
75. Interview with Caroline Whistler.
76. Interview with Andy McMahon.