Pay for success: The gateway to an outcomes-driven future?

Two years ago, my team at Living Cities took a pioneering step forward as an investor in one of the first pay for success (PFS) deals in the United States. At the time, PFS was largely untested in the U.S. context, but was gaining interest among social investors.  The project—which supported a juvenile recidivism program in Massachusetts—was considered a risk. But we plowed ahead, because we believed that PFS could be a gateway to a more outcomes-driven approach to solving social problems.

A focus on better outcomes for low-income people must be at the heart of any effort to fight poverty. This means orienting all work towards meaningful and tangible changes in people’s lives.  Instead, we too often focus on ‘outputs,’ such as the number of people served. When the public, private, and nonprofit sectors prioritize outcomes and invest in what works, America will be a thousand steps closer to achieving dramatically better results for our nation’s most vulnerable populations.  Pay for success is helping us to take some first steps in that direction. In a relatively short period of time, we are already seeing how pay for success can build an evidence base for what works, shift governments from focusing on outputs to outcomes, and create a forcing mechanism to maintain alignment around those outcomes.  And, by expanding possibilities of attracting private capital for public good purposes, pay for success is also contributing to scaling and spreading what works.

Building an evidence base

Many people are excited about PFS because it provides a vehicle for scaling evidence-based solutions or approaches proven to work when rigorously tested through randomly controlled trials or similar mechanisms.  We are excited by that too; however, we don’t believe that there is enough evidence to know what really works across all the problems that we want to solve.   Unfortunately, we have been pouring government and philanthropic dollars into programs without measuring the outcomes that those programs are achieving.  And, in the relatively rare instances when we have done that well, we haven’t made the evidence of success easily accessible to other practitioners so that they can learn from successes and avoid repeating mistakes. 

We believe that pay for success provides us with the opportunity to bring the currently known evidence-based practices to the mainstream but also to begin to more rigorously build the evidence we don’t yet have.  Last month, for example, we made an investment in the Denver PFS project which will provide supportive housing for chronically homeless individuals.  While supportive housing has been evaluated with specific populations over short periods of time (generally less than 18 months), the Denver project will evaluate the impact of supportive housing on reducing the number of days participants spend in jail over three years.  This is the type of evidence we need to build to ensure we’re investing in, and scaling, the right programs.  

Helping to create a culture of outcomes

While evidence-based practices are important, creating a culture that demands outcomes is even more so.  For far too long governments have been paying for seats in classrooms, beds in jail, or units of housing without holding anyone accountable for the long term outcomes of the people in them.  As Third Sector Capital Partner’s George Overholser noted last week at our semi-annual meeting of mayoral chiefs of staff, “PFS should be viewed more as procurement reform with a feedback loop that prompts the re-allocation of government dollars towards better outcomes.” 

It is this focus by government on re-allocating dollars towards better outcomes that really matters. Will PFS alone get us to an outcomes-driven government? No, but it is helping to stimulate very different practices and conversations.  The energy, excitement, and high-profile national dialogue about PFS, including in the media, has resulted in hundreds of jurisdictions looking into the feasibility of taking more outcomes-driven approaches to their work. 

Using capital as a forcing mechanism

A shift to a culture of outcomes gets us part of the way towards actually achieving the desired results, but equally important is that PFS also creates a ‘forcing mechanism’ or a financial reason that keeps public, private, and philanthropic actors working together for the extended time that it takes to see if the intervention being implemented actually works.  It is one of the few antidotes to the ‘short termism’ created by election cycles, leadership tenures, and grant timelines that keep us from large-scale results.

As my colleague Eileen Neely—who leads Living Cities’ pay for success work—has noted, sometimes it’s the promise of the pot of gold at the end of the rainbow that moves people from talk to action.  In the Massachusetts Juvenile Justice PFS Project , the investors, the government, and the providers all have money at risk.  This "skin in the game" means they are all deeply committed to ensuring that the young people who are being served stay out of jail, not for six weeks or six months, but for six years. And, we will do whatever we need to do to continuously improve on the program and process to ensure the desired outcomes.  Governors and staff from partner organizations have changed, but the institutions have stayed committed to the effort.

Despite all of our best efforts, forty-six million Americans are still living in poverty. The challenges that low-income individuals and families face are enormous.  It is clear that no one leader, organization, or sector can create enduring change on their own. Pay for success not only provides a platform for unprecedented types of collaboration and collective problem-solving, but also helps to identify the most promising solutions and to make it easier for them to be adapted and adopted in more places. We often think that what we need to solve our most wicked problems is simply more money. But, pay for success reminds us that there is a lot that can be achieved by working together in smarter ways towards shared outcomes, aligning and orienting money and other resources towards the interventions that actually change lives.

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Ben Hecht is the president and CEO of Living Cities.

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