Invest in Results

Pay for Success and Other Outcomes Funding

What are outcomes, and why should we care?

Introduction

Mission-driven organizations dedicate their time, talent, and resources to improving lives and communities. Yet they are hindered by a system that too often measures process instead of progress, enforces red tape and unnecessary regulations instead of rewarding innovation, and pays for outputs instead of actual outcomes. For example, a nonprofit dedicated to fighting homelessness is likely to be paid according to how many people they shelter on a given night. Their funding – despite their mission and passion – doesn’t drive a focus on outcomes, such as how many people move into permanent housing, or progress against the root causes of homelessness.

Things are starting to change, as outcomes-oriented projects addressing issues from homelessness and criminal justice reform to health and education prove their value. By sharing knowledge, providing tools, investing in projects, and building networks, we are among those helping to accelerate a focus on outcomes, and to make sure nonprofits are well-equipped to thrive in a social sector where funding is increasingly tied to the ability to demonstrate results.


Pay for Success

Pay for Success (PFS) is an approach to outcomes-based funding that has changed the conversation about how to most effectively and efficiently fund social good. Back in 2010, Nonprofit Finance Fund and other pioneers set out to bring PFS to the United States, without knowing how the field would develop, if the hype around it was deserved, or what “success” would look like.

PFS ties payment for service delivery to the achievement of measurable progress and outcomes. It has been used to fund efforts like early education, job training, criminal justice reform, and health interventions where the most desired outcomes (elementary-school readiness, long-term employment, reduced recidivism, better health) occur over time. In PFS financing – first developed as “social impact bonds” – strong service providers deliver high-quality programs designed to improve lives and prevent future problems. Typically, mission-driven investors cover the up-front costs of delivering these programs. If the predetermined goals are achieved, investors are repaid – often by government – with a return.

Improving Social Outcomes circle. Investors -> Intermediary -> Social Service Providers -> Target Population -> Independent Evaluator -> Back-End Payor --> Intermediary -> Investors
The Pay for Success Cycle

For nine years, NFF owned and operated the Pay for Success Learning Hub, a website that housed the latest articles and research on PFS as well as resources on active and developing PFS projects across the United States.  We also consulted on and invested in PFS projects and conducted more than 250 PFS trainings, presentations, webinars, workshops, and convenings across the country for service providers, governments, and investors. 

Pay for Success: The First 25

This report is a detailed, comparative analysis of the first 25 projects to launch in the United States.

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Examples of Some of Our PFS Initiatives

In 2014, The James Irvine Foundation and Nonprofit Finance Fund (NFF) launched the California Pay for Success Initiative, a $6.6-million effort to support the exploration of new approaches to funding social services in California. In addition to helping structure PFS agreements, which resulted in multiple launched projects including the Alameda County Justice Project to reduce recidivism and Santa Clara County’s Project Welcome Home focused on supporting chronically homeless individuals, the Initiative nurtured a cohort of leaders that learned from each other and shared knowledge as they took PFS from concept to reality. The Pay for Success Scorecard shares learnings from the Initiative and recommendations for how to accelerate social-sector transformation.

Between 2014-2018, Nonprofit Finance Fund (NFF), in partnership with the Corporation for National & Community Service(CNCS), Social Innovation Fund (SIF), and with support from the Laura and John Arnold Foundation, was awarded a total of $5,400,000 to support Pay for Success (PFS) transaction structuring efforts across the United States. Through a series of open grant competitions, NFF provided funding to governments, service providers and transaction coordinators - third-party partners that facilitate capital raising, contract negotiation, and stakeholder engagement – to help structure and launch innovative and diverse Pay for Success projects. Awards made included the Institute for Child Success to improve child and maternal health and welfare in Spartanburg, South Carolina; Center for Employment Opportunities to reduce recidivism and provide job opportunities to individuals re-entering the workforce in Pennsylvania; and the Denver Housing to Health initiative to provide 250 individuals experiencing homelessness with permanent supportive housing, among others. These projects were selected based on their ability to deliver positive social outcomes and serve as replicable models for the use of PFS to accelerate adoption of promising approaches to effecting social change. 

Outcomes-Based Funding

Pay for Success is evolving, and we are evolving with it. One important change is that payors other than the government agencies that led on PFS are exploring results-based financing. Healthcare systems and insurers are pursuing value-based contracting, a form of outcomes contracting, to address important social determinants of health. They realize that, for example, children in safe and stable housing are more likely to have better health outcomes. With this in mind, we are working with community-based organizations (CBOs) and networks of CBOs on how to more effectively partner with these large healthcare organizations to achieve better health outcomes across the United States. 

NFF has developed a suite of tools to help organizations evaluate their readiness to participate in outcomes-based financing like a value-based payment partnership.

What Matters

There have been significant innovations in models of service delivery and outcomes payments, expanding “Pay for Success” to become synonymous with “outcomes-based funding.” To showcase these models and bring attention to the need to orient our sector around outcomes, NFF partnered with the Federal Reserve Bank of San Francisco to publish a book and launch a nationwide campaign called Invest in Results. We have hosted events in New York, San Francisco, Washington DC, Dallas, Boston, Los Angeles, and Philadelphia, engaging experts from the nonprofit, philanthropic, government, and academic sectors. We look forward to continuing to partner with those invested in better outcomes for our communities.  

What Matters: Investing in Results to Build Strong, Vibrant Communities
What Matters: Investing in Results to Build Strong, Vibrant Communities

Centering Community

The outcomes conversation has encouraged scrutiny of the often inefficient and unfair ways that money flows in the social sector. Organizations led by and serving people of color are less likely to have equitable access to significant financial resources required to change the way they operate, measure detailed outcomes, and seek and secure new types of funding, and their voices are often left out of the conversation about how to structure outcomes-based projects. Therefore, without intentional action, the shift toward outcomes-based funding threatens to exacerbate inequity. NFF is committed to challenging the way things are done, and to change our own practices to be more inclusive, equitable, and just. We are partnering with community members and other leaders to better understand the assets, strengths, and opportunities that are often overlooked in our current funding system.

In August 2019, NFF spoke on equity in outcomes-based funding at the Federal Reserve Bank of San Francisco. Watch the session below and download the presentation materials.

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Are you a service provider hoping to move your organization towards outcomes? Start here!

Voices from PFS Pioneers

The California Pay for Success Initiative—underwritten by the James Irvine Foundation and implemented by Nonprofit Finance Fund (NFF)—spurred governments to test-drive outcomes-based projects in California.. Read more
Building on NFF's experience navigating the complexities of Pay for Success projects, here are three observations for CDFIs considering involvement in this type of funding structure. Read more
This blog offers guidance to service providers on how to distinguish the distinction between program evaluation and systems evaluation in successful Pay for Success projects. Read more
Hear from NFF staff and other leaders in the Pay for Success field. Read more