Are Social Impact Bonds Right for Your Collaboration?

Many data sharing partners struggle with how to sustain their collaboration and their work towards improving community health after a grant ends. On a recent All In webinar, Brendan O’Connor, Impact Manager at Quantified Ventures, presented one potential pathway to sustainable funding through the private sector: social impact bonds.

What are Social Impact Bonds?

Social impact bonds or the “Pay for Success” model is a type of investment that allows for below-market returns in exchange for some type of social benefit. In this triangular model, investors provide capital directly to service providers who in turn, deliver services or benefits to a payer’s target population. An evaluator determines if the intended outcomes are achieved and if so, the payer repays the investors the principal and the modest returns generated. If the outcomes are not achieved, neither the payer nor the service provider have to repay the initial investment. Once the social impact bond or outcomes-based loan ends, the return on investment will be clear to the payer, thus piquing their interest in continuing to fund the project in the future.

Current Market for Social Impact Bonds

According to Quantified Ventures, the U.S. market for social impact bonds is $20 billion and is growing substantially at approximately 25% per year. One of the biggest challenges investors face is a shortage of projects to invest in, suggesting large untapped funding opportunities. The average investment is $7-10 million, lasts 4-6 years, and offers 5-6% returns. Social impact bonds involve a variety of stakeholders and allow the flexibility of including multiple payers and investors in any given transaction.

Case Study: Johns Hopkins Bayview and Meals on Wheels

O’Connor presented an example in which Johns Hopkins Bayview Medical Center (the payer) partners with Meals on Wheels (the service provider) to ensure low-income seniors receive daily meals and socialization post-hospital discharge. Meals on Wheels volunteers scan for any safety or health concerns and may contact the patient’s care coordinator with any issues. Meals on Wheels’ ultimate goal is to reduce emergency department visits, hospital readmissions and inpatient bed days of their target population. The ongoing project will last three years and will be evaluated using a randomized-controlled trial methodology. If the evaluators determine that Meals on Wheels has met its goals, Johns Hopkins Bayview will repay the $5 million initial investment and returns to the investors.

Advantages and Disadvantages

The Pay for Success model can have many benefits, such as providing funding to rigorously evaluate interventions, expand the evidence-base of effective interventions, catalyze collaborations between healthcare systems and community-based organizations, and expand non-medical services by removing payment restraints. Successful social impact bond applications usually address a growing problem with an unmet need, have strong leadership, contain a cost-benefit component, and are scalable.

However, it might not be the right fit for every project. Certain social benefits may be difficult to quantify or may not produce cost savings, which would make it challenging to attract investors. This could cause organizations to shift away from providing these unquantifiable but still important benefits and move towards easier-to-measure or short-term goals that may not be as crucial to their mission. Additionally, negotiating a social impact bond can require extensive contracting experience and the ability to align all of the stakeholders around a common agreement.

Deciding Whether Social Impact Bonds Are the Right Fit

O’Connor proposed aiming for low-hanging fruit when considering social impact bonds. He suggested collaborating with state Medicaid agencies, managed care organizations, and Medicare Advantage plans to align service provider outcomes with these groups’ quality improvement metrics that are already tied to their compensation. These types of opportunities could have significant on payers’ profits or costs while already having an established data and metrics infrastructure for the evaluation component.

Learn More

For more information on sustainable funding pathways, read our previous blog post on this topic. To learn more about projects that share data across sectors to improve health, sign up for the All In newsletter.