This wrong pockets problem particularly affects prevention programs, whether they are behavior modification programs, public health programs, structural prevention programs, or broad policy changes. Despite a growing body of empirical evidence rigorously demonstrating the effectiveness of many programs across numerous social services, advances in the implementation of evidence-based practices has been slow.
Pay for success (PFS) tries to solve the worng pockets problem: It is an innovative financing mechanism that shifts financial risk from a traditional funder—usually government—to a new investor, who provides up-front capital to scale an evidence-based social program to improve outcomes for a vulnerable population. If an independent evaluation shows that the program achieved agreed-upon outcomes, then the investment is repaid by the traditional funder. If not, the investor takes the loss.
Key drivers of the model:
- Pay for outcomes: With PFS, the government only pays for new programs if they meet agreed-upon results, shifting away from traditional outputs-focused funding that does not account for whether a program is having the intended impact;
- Scale evidence-based policymaking: PFS funds tests of potential social programs, amplifies the evidence-base around promising programs, and scales proven programs with a strong evidence base, allowing governments to invest in what is working;
- Shifts risk to new actors: Setting up a new program is risky for governments, both financially and politically. PFS shifts that risk to an outside funder and bypasses typical bureaucratic challenges.
Some interesting articles by Urban institute:
- Some problems with Social impact bonds in health: Article (2013)
- Social impact bonds in health: Article (2015)
- Impact Bonds in Health. Seminar (2017)
- Social impact bonds in health and social care: Article (2017)