Diversifying Pay for Success Providers

Diversifying Pay for Success Providers

May 27, 2014 | Anne Marie Burgoyne, Managing Director, Emerson Collective

annemarieburgoyne

Pay For Success (PFS) is predicated on capturing future cost savings created by interventions and providing those savings back to service providers—a refreshing and bold idea that rewards execution and good effort. By including impact assessment in the funding model, PFS focuses on concrete and measureable social outcomes after they are achieved and verified.

Pay For Success (PFS) is predicated on capturing future cost savings created by interventions and providing those savings back to service providers—a refreshing and bold idea that rewards execution and good effort. By including impact assessment in the funding model, PFS focuses on concrete and measureable social outcomes after they are achieved and verified.

I was lucky enough to be part of the Roberts Enterprise Development Fund (REDF) cohort in the early days and see the PFS movement as the 2.0 version of that era. Focused on execution and quantifiable outcomes, versus simply measuring outputs, PFS provides a vehicle to embrace service providers who can deliver. The difference today is that there are a lot more data to collect and compare, signaling more clearly what programs work and how to value outcomes. That said, the ability to collect, access, analyze, and use data is uneven and the number of providers in a position to consistently deliver high outcomes is small.

I like that the PFS approach brings new energy and focus to historically unembraced topics: homelessness, recidivism, workforce development, and foster care, as well as programs that can always benefit from more investment, such as healthcare and education. I also like that PFS brings new donors to the market. A new breed of impact investors who want to make money and do good are being provided with a new instrument for engagement, and as more deals are made, there is a promise that various risk-sharing scenarios will be structured between investors and governments that will drive even more donors to the market. Within the donor community, PFS provides something for everyone: opportunities to scale strong interventions, opportunities to align social impact and financial goals, and opportunities to match geographic and topical interests with investment vehicles.

PFS programs are in a position to align the needs of all of their stakeholders. Governments are incented to seek out good investments for which they set performance goals with the promise of accessing private capital at no cost. Service providers are rewarded for strong execution, and investors are provided with an opportunity invest in real social change—and perhaps turn a small profit to boot. And of course, tax payers save money and receive better service.

I also like that PFS focuses on preventive programs, which make people’s lives better, are often the first things to be cut when times are hard, and drive many downstream benefits. Saving money and preventing negative outcomes—such as hospitalizations, unemployment, or a higher likelihood of reincarceration—is a great gift to our society.

But here is the hard part: PFS funding is dependent on the performance and caliber of service providers, because without strong execution, there is no basis for the model to work at all. This is great news because it means that PFS rewards the field of capable service providers by incenting scale and rewarding execution and willingness to measure impact. The downside today, though, is that there are few providers of the caliber of execution that the PFS model demands; the same provider names come up repeatedly when there are conversations about this work. It is our challenge as a sector to increase the number of providers who can execute consistently on proven interventions that are replicable and scalable. In addition, service providers require the ability to gather robust performance data and make this data accessible and analysis-ready. As a funder, I am very aware of the role that I need to play in helping providers to think about making themselves investment-ready for these sorts of opportunities.

In the end, because PFS incents quality and cost-effectiveness, this movement should drive both innovation and scale—often dichotomous goals. On the innovation front, focus on outcomes, rather than process, means that service providers are free to solve problems in ways that best serve their populations, which will certainly create new models that drive high-quality outcomes at competitive prices. Concurrently, PFS is a fit for programs that are rigorously proven and evidence-based—models that have been implemented and honed for years by service providers and are now ready to replicate, grow, and be pushed further into the mainstream.

This is an exciting juncture point. Although the PFS market may take time to gain momentum as data is collected and analyzed, investors better understand their own appetites, and providers step forward to deliver consistent outcomes, the alignment that these deals can create over time has the capacity to create great outcomes for our communities.

Anne Marie Burgoyne is a managing director at the Emerson Collective, where she funds and supports nonprofit and for-profit social entrepreneurs and innovators. Her work spans across domestic and international geographies with a focus on strong leaders and strong models that have the capacity to scale. Before joining the Emerson Collective, she was the managing director of the Draper Richards Kaplan Foundation, where she made early-stage grants to high-growth, high-impact nonprofits, including Education Superhighway, Grassroot Soccer, The Mission Continues, One Acre Fund, VisionSpring, and Welcoming America. Ms. Burgoyne is on the advisory boards of IDEO.org and REDF. She received her MBA and a public management program certificate from Stanford University’s Graduate School of Business. Ms. Burgoyne also holds a BA in English and a BS in economics from the University of Pennsylvania and its Wharton School, respectively.