What is Pay for Success?
Pay for Success is a performance-based structure that drives financial resources towards serving local needs and measurably improving lives. Through the framework, a private investor pays upfront for an intervention and an end payor agrees to repay that investment should the intervention meet or exceed its predetermined target outcome measures. Pay for Success allows community-oriented organizations to pay for tangible benefits, transfer risk of outcome achievement to external funders, and align their community towards achieving beneficial outcomes.
Benefits of Pay for Success
- Focuses community resources on evidence-based programs and outcomes that measurably improve lives
- Builds a culture of evidence and accountability into community-focused spending decisions
- Transfers the risk of a program not meeting its intended outcomes to risk-oriented funders
- Shifts community-focused spending towards paying for beneficial outcomes instead of inputs or outputs
- More closely aligns the payment of social outcomes to when the outcomes occur
- Provides a framework for multiple community payors to contribute to outcomes of their importance
- Affords service providers upfront long-term funding so that they can strategically plan and adapt
Overview of Pay for Success
Pay for Success (PFS) projects provide financial resources to pursue community-relevant social outcomes while generating social value and cashable savings to government and other community organizations. A bipartisan coalition of political leaders has endorsed the strategy, including Governor Nicki Haley (R, SC), Mayor Ben McAdams (D, UT), Speaker of the House Paul Ryan (R, WI), and President Barack Obama. Since 2010, when the concept first started spreading across the country, 15 projects have launched and at least 75 localities are currently considering projects in a variety of areas including early childhood education, criminal justice, health care, homelessness, workforce development, foster care, green infrastructure, and land conservation. PFS is most effective when community leaders have the will to address an issue but current strategies:
- Lack preventative investments that would provide long-term benefits,
- Fund local interventions but concerns exist about program performance,
- Provide limited resources to effective local programs that are ready for scaling-up, or
- Could improve by adopting promising interventions or programs from other localities.
University of Virginia Pay for Success Lab
The mission of the UVa PFS Lab is to research and efficiently advance viable Pay for Success (PFS) project models. The UVa PFS Lab works with local stakeholders during the earliest stages of project development to determine whether PFS will benefit their communities. The following blog post will describe the Pay for Success Project Basic Feasibility Components that the UVa PFS Lab undertakes while engaging with local community members. Should local stakeholders decide to move forward with the Project Develop phase, the UVa PFS Lab is able to provide connections to external resources that can facilitate project development.