What if the federal government paid for a health care program only if it demonstrated quantifiable improvement in the health of the people it served?
What if private investors had a financial stake in the actual performance of such programs in preventing injury, illness, and disease?
What if health care providers had access to the capital needed to make the investments necessary to deliver those results?
If we could do these three things, we would be well on our way to dramatically improving our health care payment and delivery system, and improving the health of our communities.
As we see right now in Washington, it is difficult to make the political case for investments in preventive care. They require us to sink significant sums of money into programs with no guarantee that they will achieve their intended outcomes. Funding nutrition education does not guarantee that children will develop good eating habits and thus avoid diabetes and other diseases. Each such investment is a gamble, and the odds are against funding any program that reaches outside the box to address health issues.
However, a promise to make payments for a program in the future only after it achieves demonstrable success is far easier to make. And such a promise is even relatively easy to keep, given the cost savings realized by eliminating the need for costly health care services.
A British company, Social Finance, has been in the business of promoting social impact bonds since 2007. It’s a relatively simple concept:
A Social Impact Bond is a contract with the public sector in which it commits to pay for improved social outcomes. On the back of this contract, investment is raised from socially-motivated investors. The investment is used to pay for a range of interventions to improve the social outcomes. The financial returns the investors receive are dependent on the degree to which outcomes improve. By enabling non-government investments to be raised, Social Impact Bonds should lead to greater spending on services that prevent costly health and social problems.
Take, for example, the repeat offenders. Individuals who commit crimes after being released from prison cost federal and state governments millions of dollars each year. Under a social impact bond, the government would promise to pay investors a portion of the savings achieved by reductions in recidivism. The investors then would identify promising programs, and provide the necessary start-up and operating capital for those programs. Those investors would hold the programs accountable for results, demanding success in a way a government agency never could.
Of course, the devil is in the detail. Social Finance admits social impact bonds present a viable option only in certain circumstances: government expenditures due to the identified social problem must be measurable; those costs must be such that, if avoided, those expenditures would be reduced; there are viable options for preventing the identified social problem that can demonstrate measurable results once adequately funded; and the cost of such interventions are less than the savings to be realized by reducing the social problem.
Even with these limitations, however, social impact bonds hold promise, especially in health care. Right now, all eyes are focused on accountable care organizations and the Medicare Shared Savings Program. Probably the biggest obstacle to the program’s success is the high cost of forming ACOs, with many organizations dismissing ACOs out of hand due to the lack of available capital. If, however, we inserted another party into the equation – the private investor to whom the government would agree to share cost savings – that investor would become the source of much-needed capital. The chance of success improves dramatically, but at absolutely no cost or increased risk to the government.
As proposed, the Medicare Shared Savings Program permits non-providers to hold up to a 25 percent interest in an ACO, thus allowing private investors in on the game. The shared savings payments, if any, still would go to the ACO, and it would be up to the ACO’s governing body to determine allocation among participants, including investors. Under the social impact bond model, however, the full payment would go to the investor, creating a greater incentive for the investor to provide necessary capital.
Social impact bonds could help drive health reform by lining up incentives and providing necessary resources while reducing government spending care and improving overall health. While the concept is new and relatively untested in health care (but has demonstrated success in other areas), we need to explore whether there are investors who would value an opportunity to drive health care reform. With CMS soliciting comments on the proposed Advanced Payment Initiative – under which CMS would make advances on shared savings payments to ACOs to cover development costs – it makes sense to consider private investors as the source of such funding at the same time.
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