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Future of PFS: Three challenges to making PFS more attractive to service providers

Providers of social services often grapple with a disconnect between the impact they want to have and the funding they have available to make it happen. The pay for success (PFS) model is a potential remedy but, as we heard at the Urban Institute’s national symposium on PFS, the model itself poses challenges for providers.

During a conversation on past successes and future challenges of PFS, Tamar Bauer of Nurse-Family Partnership (NFP), Eric Letsinger of Quantified Ventures, and Dave Wilkinson of the Connecticut Office of Early Childhood discussed how PFS incentivizes providers to focus on what truly matters: meaningful outcomes for the people they work for. There’s a great deal of promise in aligning payments and outcomes, but to realize PFS’s systems change potential, service providers need to think through three key challenges.

1. Sustaining funding beyond the life of the PFS project.

If the program in a PFS project delivers the agreed-upon outcomes, as verified by an evaluation, investors will receive their success payments from the government. In theory, successful outcomes may encourage more resources for the provider to scale their services, but there is no guarantee that the providers will receive a commensurate boost in their funding.

Such funding “cliffs” are worrisome for two reasons: (1) they eliminate a benefit of PFS for service providers—more predictable multi-year funding—by forcing the provider to downsize after potentially growing to implement the project, and (2) they can discourage providers by undermining PFS’s promise to better align funding and outcomes. Indeed, one may ask, if providers have to enter one PFS project after another in order to maintain funding, how is that different from the status quo of applying for grant after grant?

Bauer identified one possible solution: providing sustained funding for successful programs as part of the PFS contract or a separate nonbinding memorandum of understanding. Including  this support in the contract is a powerful way of ensuring the sustainability of outcomes-oriented service delivery, and could incentivize many more service providers to enter into PFS projects.

An alternative to a government commitment is a commitment from the project’s philanthropic investors (or interested philanthropies outside of the project) to recycle their success payments to fund future services. In the South Carolina PFS project, the philanthropic funders have made this pledge.

2. Ensuring that time and resources are available for investment in the project.

Designing and negotiating a PFS contract can be a long and difficult process. NFP's PFS project in South Carolina, for instance, took 2 ½ years to set up. Fraser Nelson of Sorenson Impact Center remarked at the Symposium that organizing two PFS projects in Salt Lake County, UT became a full-time job. Bauer noted that NFP has been able to shorten the process of negotiations for a future project down to six months, but she is still concerned about how to make projects more replicable.

For providers, particularly smaller ones with limited resources, the length, complexity, and cost of PFS project design and negotiation may be prohibitive and could undermine a key benefit of PFS: focusing resources on delivering outcomes.Resources that share best practices from existing PFS projects on feasibility, evaluation design, and estimating project costs, and other important but time-consuming elements of project design are a step in the right direction.

3. Growing and strengthening data operations.

Before participating in a PFS project, providers must have, or quickly build, the capacity to collect, track, store, and analyze the data necessary to measure outcomes. Providers should also have access to administrative data from relevant government agencies to identify target populations and establish baseline metrics from which to measure impact. The latter can pose a significant challenge for many providers: even if the government agency in question has complete data – which is not always the case – jurisdictions often have not linked their agency data and lack clear processes in place for sharing it with providers. Improving access to data will require greater communication and sharing practices among the state and local agencies that collect the data and the providers and other stakeholders that use it. Support from technical assistance providers and strong partnerships with government agencies can help providers strengthen their existing capacities.

As panelists at the Symposium noted, we can’t expect service providers to turn on a dime and focus on outcomes after decades focused on compliance and outputs. But by building provider capacities to overcome challenges to adopting models like PFS that better align incentives with outcomes, a sustainable transformation in service delivery is possible.

This is the sixth 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.