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Pay for Success Financing for Early Childhood Interventions: pushing through challenges and building momentum.

The Institute for Child Success was thrilled to work with ReadyNation/America’sEdge to organize a conference on using Pay for Success financing to scale up effective early childhood interventions.  Sponsored by the Pritzker Children’s Initiative, and hosted by Bank of America, last week’s event brought together folks representing 133 organizations, from 27 states and three countries, who are working in this field.  The participants included bankers, non-profit executives, business executives, and representatives of every level of government – from the White House to local school systems.

This event was very much a working conference.  The participants are pioneering Pay for Success financing in the early childhood space, and they came to Charlotte to share their experiences and strategize about the best paths forward.  We worked through issues surrounding feasibility studies, data systems, the contracting process, financing models, and policy and legislative issues at state and federal levels.  One of the sentiments that most of the speakers repeated: Pay for Success deals are hard to create – harder than most expect – but it continues to build momentum because the results are so valuable to everyone involved.

Why is it so difficult?  

  • Identifying rigorously tested interventions: we have to find and develop interventions with rigorous evidence of outcomes.  As one legislator put it: there are lots of interesting programs out there with great confidence in, but little proof of, their results.  So the first hurdle is working with those promising programs to develop the kind of evidence that investors and governments need before investing.

  • Identifying governmental entities: we have to identify agencies or departments that reap savings from programs’ outcomes and are interested in scaling up those outcomes.  One difficulty here flows from the fact that cost-savings from early childhood interventions often cross governmental domains – from medicaid to juvenile justice to education.  It is sometimes difficult to find a single entity that reaps enough of the benefits to afford the full costs of a successful program.  In South Carolina’s developing project, for example, both the head of our Medicaid agency and the Governor’s office are representing the state.

  • Identifying a metric: we have to identify a metric to demonstrate success with which the service providers, the investors, and the government are all comfortable.  In proposals we discussed, these metrics included reductions in: pre-term birth, remedial education, ER visits, and time spent in criminal justice system, to name a few.

  • Building the system to measure success: we have to develop the data systems required to identify potentially eligible participants for programs, and then measure the outcomes for those participants.  That process sometimes requires government agencies to upgrade their data tracking systems – both technical and human systems.  For example, one participant discussed that existing hospital and medicaid systems could determine whether pregnant women were eligible for a home visiting program, but they could not report the information in time to enroll the women in the service.

  • Negotiating a deal between diverse bureaucracies: we have to overcome the sometimes conflicting negotiating processes of investors, governments, service-providers, guarantors, and intermediaries.  As one example, the federal government recently had to pass legislation specifically authorizing pilot Pay for Success programs; it literally took an act of Congress.

Why are we getting it done anyway?

  • Investors are asking for it:  As one bank’s executive noted: one in two of the bank’s high net-worth clients want investments that are in line with their values.  The younger the investor, the more likely that is true.

  • Governments need the breathing room in the budget: Several panelists noted that governments are spending a tremendous amount of resources responding to crisis situations and providing remediation services.  Those governments would normally have to sacrifice some of those critical services to invest resources in early interventions.  Pay for Success allows governments breathing room to pay for interventions out of the long-term savings they produce.  One panelist asserted that this phenomenon makes Early Childhood the ideal sector for Pay for Success financing, given the magnitude of long-term savings produced.

  • Building readiness in the service-provider community: service providers have been steadily working to manage based on outcome measures over the last two decades.  Many still have a lot of work to do in that area, but the community’s expertise has become sophisticated enough that this type of financing structure is now viable.

We can’t thank the Pritzker Children’s Initiative enough for making it possible to convene this group of innovators, and we look forward to seeing what these folks do over the next year.  Until next time!

-The i(cs) team

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