How much should government pay for outcomes in a Pay for Success contract? The Center for American Progress has released a new paper on pricing outcomes in Pay for Success deals. “From Cashable Savings to Public Value: Pricing Program Outcomes in Pay for Success” is co-authored by Jitinder Kohli, ICS Senior Fellow Megan Golden, Joe Coletti, and Fullbright Scholar and ICS Pay for Success intern Luke Bo’sher. Although governments have often determined the price they are willing to pay by looking at how much money an intervention will save them, the paper calls for moving beyond just monetizable savings to realize the potential of PFS financing. Specifically, the authors provide a framework for pricing potential outcomes:
“…[T]he authors propose that governments consider three factors in determining how much funding to commit for a PFS initiative:
- Well-being benefits: Does the outcome lead to improvements for individuals and communities that are greater than the intervention’s costs?
- Public willingness to pay: Is the outcome important enough to the community that additional public dollars should be allocated to achieving it?
- Cashable savings: Will government achieve cashable savings by investing in this initiative?
No single consideration is essential to an initiative’s viability: Programs that have limited cashable savings but higher public support and well-being benefits might generate enough value to support a PFS contract. This is not a mathematical formula for determining outcome payments nor does it assume that governments will have enough funds to pay for every initiative in which benefits outweigh costs. Rather, the aim is to present key factors that responsible governments can consider in pricing outcomes for PFS contracts. Whether a government actually enters into a PFS contract, the process of disaggregating the values as outlined here will strengthen any program. It also creates a framework to measure and evaluate existing programs or contracts.”
The paper also provides several examples of how these factors can be applied. To view the full document, download it here.