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Future of PFS: Bringing rate cards to the United States

Evaluation matters in pay for success (PFS) projects. Evaluation results not only determine whether or not investors are repaid, they can also contribute to the evidence base of the intervention and can give us a better sense of what works. Because of these stakes, most of the first wave of PFS projects in the US have integrated rigorous evaluation designs and more than half have included a randomized controlled trial (RCT) design.

Projects in the UK, where the PFS model is known as social impact bonds (SIB), have generally taken a different approach. The majority of the 32 social impact bonds in the UK use what is called a “rate card.” Here’s how it works: The government agency spearheading the SIB conducts research to identify a “menu” of outcomes of interest accompanied by a “rate” representing the maximum amount that the government agency is willing to pay per participant who achieves that outcome. For example, for an education-focused PFS project, the rate card may include "High School Graduation" as a target outcome. For each participant who graduates high school, the government will repay investors a set amount at a given rate. As Tracy Palandjian, founder and CEO of Social Finance US commented at our recent National Symposium on the Future of Pay for Success, “Rate cards build projects around the challenge, not the intervention.”

Rate cards, due to their potential to standardize, simplify, and speed project development, may be appealing given the slow growth of the pay for success field in the United States: only 15 PFS projects have fully launched in the U.S. since 2013. Recent developments, such as the Outcome Rate Card Development Competition from Social Finance US, supported by Social Innovation Fund interest and investment, should spur work on how to apply rate cards in the US.

We’ve written about the possible advantages and limitations of the rate card model. Because the approach sidesteps rigorous evaluation, projects using rate cards may have difficulty concluding whether the results achieved happened because of the intervention or if they would have happened anyway. Another risk of the rate card includes “cream skimming,” where providers might focus recruitment on participants most likely to achieve the desired outcomes (and meet rate card targets) rather than work with populations that might need help the most. Potential rate card advantages include greater public clarity, a shorter development timeline, a less resource-intensive evaluation, and the potential to serve more people and launch multiple projects from one request for proposal (RFP).

Some features might not translate neatly to PFS. For example, the centralized nature of SIBs in the UK might help facilitate rate cards’ rapid replication benefit; under rate cards, the government agency does the work of selecting and pricing outcomes, as well as defining measurement methodology, so the project design phase can be significantly shorter. On the other hand, in the US, this is work traditionally done in collaboration among all project partners. Centralizing it within the government partner could decrease the meaningful collaboration among all PFS partners that is thought to yield important long-term systems change in how social services are designed and delivered.

At the end of the day, the pay for success field in the United States is just four years old. It may be unrealistic to expect that PFS practitioners will all follow the example of existing projects. Deploying rate cards in the US could spur innovation in the mechanism itself – after all, what’s to say that there couldn’t be a parallel, rigorous evaluation in a PFS project using a rate card? (In fact, in the Santa Clara Partners in Wellness Pay for Success Project, the evaluator will determine whether or not the project hit the three outcome thresholds that determine repayment, but will also conduct a randomized controlled trial to evaluate the intervention’s effectiveness that has no bearing on repayment.) This variation speaks to the different motivations for pursuing pay for success, and could add value to the field if stakeholders understand both the benefits and risks of rate cards.

Social Finance recently announced the first round of awardees to develop the first rate cards in the US. Social Finance will work with the Yale Child Study Center along with Connecticut's Office of Early Childhood, to improve early childhood outcomes, and with Riverside County, California to improve outcomes for children whose parents are currently incarcerated. Social Finance’ competition comes at a timely point, with the field continuing to tackle crucial questions about which features define the PFS model, what it will look like in the future, and what we ultimately hope it can achieve.

This is the fourth blog in our Future of PFS blog series.

On June 22nd and 23rd, 2017, the Pay for Success Initiative hosted a National Symposium on the Future of Pay for Success in Washington, D.C. The invite-only Symposium brought together leaders from government, nonprofits, and organizations active in pay for success to consider the big questions facing the field, as well as highlight lessons for engaging in PFS efforts. More information on the Symposium can be found here.

Over the next several months, the Initiative will be releasing a series of blogs highlighting important conversations, themes, and questions that arose during the Symposium. To join the conversation, visit pfs.urban.orgfollow @UrbanPFSI and #FutureofPFS on Twitter, and subscribe to our monthly newsletter.

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As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research. Photo via Shutterstock.