DESIGNING OUTCOMES METRICS FOR AN OUTCOMES-BASED CONTRACT

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1 DESIGNING OUTCOMES METRICS FOR AN OUTCOMES-BASED CONTRACT Social Impact Bonds are a form of financing that aligns investor returns with social outcomes. There is an outcomes-based contract between a public sector commissioner and an investor/group of investors which measures success by changes in social outcomes. A crucial stage in the development of SIBs is the selection of outcomes and the measurement and metrics used to evaluate success. This factsheet will present an overview of the key factors to consider when designing outcomes metrics for an outcomes-based contract. DEFINING SUCCESS 1 What does success look like for the project? 2 What objective measures of success are available? 3 Of these measures, which ones are linked to existing data sources than can be practically used? 4 Would this be a meaningful assessment of genuine positive improvements in people s lives? 5 If this data does not already exist, could it be captured objectively and without requiring significant additional resources? PRACTICAL CONSIDERATIONS When designing outcome metrics, simplicity, ease and cost of accurate measurements are key considerations: Objective metric how much does it cost to measure? Can the system be gamed? Can a fuller picture of wellbeing be tracked beyond the payment metrics? WHAT WORKS Outcome metrics incentivise the right behaviour that works to achieve the commissioner s objective and avoids perverse incentives. A distinction should be drawn between outcome metrics measurements which trigger payments and other measurements which will be monitored by service providers and commissioners during implementation.

2 COMMISSIONERS WILL WANT TO CONSIDER THE FOLLOWING QUESTIONS: What outcomes am I seeking and how much am I willing to pay? 100% payment on outcomes, or hybrid of outcomes and fee-for-service payments? Payment on outputs to demonstrate distance travelled, as well as outcomes? Individual or cohort measurement? One-off outcomes or sustained binary vs frequency metrics? Matched control trials, historical baselines or tariffs as a means of measuring outcomes? Hierarchy of Evidence The Cabinet Office has developed a hierarchy of evidence quality, which we have adapted: Results can be compared within and between more than one replicated randomised interventions Participants randomly allocated assigned to either the intervention or the control group Each individual in the intervention matched - using propensity score matching - to at least 1 individual not in intervention The outcomes are compared to outcomes achieved by a previous identical or similar cohort Outcomes measured against a pre-agreed framework Outcomes are compared to the outcomes achieved by the same cohort pre-intervention SERIES OF RANDOMISED CONTROL TRIALS RANDOMISED CONTROL TRIAL MATCHED CONTROL TRIAL HISTORICAL BASELINE OUTCOMES TARIFF BEFORE AND AFTER STUDY CASE STUDY: PETERBOROUGH PRISON SOCIAL IMPACT BOND The Peterborough Social Impact Bond was the first ever SIB. It raised 5m to work with 3,000 short-sentence offenders leaving Peterborough prison. The SIB funds a wraparound support service designed to address the multiple and complex needs of the client group. The success of the project is measured by reductions in reconviction events. This is a proxy outcome for reductions in reoffending, which as described above is harder to measure as not all crimes reach a conviction. Outcomes are measured across cohorts of 1,000 individuals. The attribution mechanism is a matched control group, against whom the number of reconviction events is compared. The control group is selected from the Police National Crime Database using Propensity Score Matching. For every one individual worked with in Peterborough, up to ten statistically similar individuals are selected for the matched control group. Individuals can access the Peterborough intervention for 12 months post-release. Their reconviction history is then monitored for a further 12 months to indicate sustainment of outcomes. Results for the first cohort of 1,000 prisoners on the Peterborough Social Bond (SIB) demonstrated an 8.4% reduction in reconviction events relative to the comparable national baseline. The results were compiled by independent assessor Professor Darrick Joliffe and his team from Qinetiq and the University of Leicester, for the Ministry of Justice, using the PSM methodology.

3 BUILDING A BUSINESS CASE FOR A SOCIAL IMPACT BOND Social Impact Bonds are a form of financing that aligns investor returns with social outcomes: investors only receive a return if the social outcome is achieved. This fact sheet provides an overview of the key questions to consider in order to assess the strength of the business case for implementing a Social Impact Bond. ASSESSING THE SIB BUSINESS CASE Social Impact Bonds can be a way of delivering improved outcomes and fostering innovation when applied to the right circumstances. However, variable outcomes and a thin evidence base can lead to significant implementation risk for preventative programmes. Some commissioners may be unwilling to test such services, particularly at a time where budgets for testing innovation are squeezed. Experience has indicated that there are two ways in which a SIB might be able to help construct a business case for prevention: 1 Focusing on service innovation to improve and measure outcomes whilst transferring the risk of failure for example by funding a new service for people for who existing services were not working. 2 Delivering value for money through cashable cost savings for example through diverting expensive care placements A strong SIB business case shows improved outcomes and reduced costs for government. Net savings Better outcomes achieved Investor return Cost of failure (e.g., care placement costs) Cost of failure Total spend by government Preventative spend Preventative spend Status Quo With SIB-financed intervention Cost Saving

4 BUILDING A BUSINESS CASE: KEY ACTIVITIES Understand needs Understand current costs Assess interventions Value and measure outcomes KEY PRINCIPLES TO SUPPORT AN INVEST TO SAVE MINDSET Prevention is cheaper in the long term getting to problems earlier can deliver cost savings down the line Promoting service innovation preventative services often adopt more flexible models of working that test innovation. One way of promoting service innovation is through commissioning on outcomes rather than outputs. Placing a focus on the social outcomes that a service is trying to achieve can potentially deliver stronger performance Reducing demand over time commissioning priorities are likely to require greater levels of spending to address problems earlier so that demand is taken off acute services CASE STUDY: MANCHESTER MULTI-DIMENSIONAL TREATMENT FOSTER CARE SOCIAL IMPACT BOND Manchester Council has around 1,300 children and young people in its care with nearly 200 of these children in residential placements, significantly higher than the national average and its statistical neighbours. These children and young people have poorer school attendance, a greater likelihood of a substance abuse problem, a greater chance of having entered the criminal justice system, and a greater chance of becoming NEET to name but a few. Foster care has two kinds of benefits. First, it is seen as giving better prospects for a young person in terms of their educational, social and emotional well-being. Second, it is more cost effective as compared to the use of an internal or external residential placement. Manchester wanted to explore how social investment could support the transition from residential care to foster care and target those individuals who have experienced the breakdown of multiple foster placements. We designed a SIB model that funded Multi-dimensional Treatment Foster Care (MTFC), an intensive intervention where young people live with specially trained foster parents who are supported around the clock by a team of professionals from health, education and social care. Each set of foster parents looks after just one child for 9 12 months, concentrating on behaviour management to promote emotional stability and the skills needed to live in a family setting. It is expected that 66% of young people will Graduate from the programme, meaning they will complete their individual programmes and move on to family-based placements. Although a year of MTFC costs 100,000 per total package of support, the residential costs per year are estimated at 125,000 per annum for the remainder of a young person s care journey. If successful, MCC s Children s Services and Central Government will benefit from the cost savings.

5 COMMISSIONING AND PROCURING A SOCIAL IMPACT BOND Social Impact Bonds are a form of financing that aligns investor returns with social outcomes: investors only receive a return if the social outcome is achieved. A number of commissioners across the UK (and overseas) have now successfully commissioned and procured Social Impact Bonds and similar partnerships. This fact sheet considers the applicability of Social Impact Bonds and potential approaches to procurement and contracting. GOOD PRACTICE IN COMMISSIONING SOCIAL IMPACT BONDS Know what you want to achieve and specify it clearly Understand the dynamics of the market will providers be able to deliver what you want? Follow standard principles of fairness, openness and transparency Specify outcomes and share risks Engage with investors as well as providers in the market An innovative service may require an innovative contract Overview of potential procurement design Process akin to open or two stage procedure DWP Innovation Fund SIBs Youth Engagement Fund SIBs Process akin to competitive dialogue procedure GLA Rough Sleeping SIBs Essex Edge of Care SIB Partnership or JV with the scope to negotiate within the partnership Shared Lives Incubator Newcastle Ways to Wellness SIB Purchasing individual outcomes from a provider Adoption SIB

6 KEY ATTRIBUTES TO TEST MAY INCLUDE: Quality of proposal - ability to meet outcomes and other aims of the programme, including statutory responsibilities, safeguarding, etc Ability to finalise finance and providers if relevant Price per outcome (sometimes set in advance) Ability to work with others to achieve outcomes Strategy for sharing learning and innovation PROCUREMENT FOR SIBS: GENERAL LESSONS These will usually be Part B services use that flexibility and meet good procurement principles rather than necessarily following standard routes. Engage potential investors and providers as part of the feasibility stage/pre-procurement phase to learn the ideas of providers and the interests and expectations of investors. It is often appropriate to contract with investors, who will then need to bring on board providers, but procuring partnerships is also possible. If one of the first outcome-based contracts in a field, dialogue/negotiation will be essential, usually during the procurement and following preferred provider stage. Recognise that investors are learning too, and may have limited capacity. CASE STUDY: WORCESTERSHIRE REBUILDING CONNECTIONS SOCIAL IMPACT BOND Enabling the growing population of older people to stay healthy longer, and reduce periods of ill-health and disability will be a challenge for Britain over the coming years. The number of over 65 year olds is expected to grow by 5.5 million over the next 20 years and the NHS and social services are already facing rising demand and constrained budgets. Rather than waiting for older people to become ill or infirm and relying on acute services to rectify these problems, we need to explore new ways of preventing ill-health and other needs arising. Reducing social isolation and promoting mutual support among older people could be a critical element of preventing ill-health and meeting other needs. Social isolation not only reduces older people s immediate quality of life, it is often linked to poor physical and mental health outcomes over the following years. And with over a third of older people estimated to suffer from at least some elements of isolation, the scope for making improvements is significant. Social Finance has worked with four commissioning bodies including Clinical Commissioning Groups and Worcestershire County Council to develop an outcomes based service to reduce loneliness and social isolation among those aged 50 plus in Worcestershire. The Social Impact Bond will fund programmes to reduce social isolation and improve the wellbeing of older people. Payments from commissioners would be made on the basis of a reduction in loneliness and improvements in indicators of health and wellbeing. The service will support up to 5,000 people without social connections and support over three years across Worcestershire County.

7 HOW CAN VCSEs ENGAGE IN OUTCOMES BASED CONTRACTS? Social Impact Bonds are a form of financing that aligns investor returns with social outcomes. A SIB can provide up-front funding to charities and social enterprises to deliver new services, with investors risking cash on outcomes achieved. This fact sheet outlines the key considerations a Voluntary, Community and Social Enterprise (VCSE) organisation will need to take on board before deciding whether working within a SIB contract is right for it. CONSIDERATIONS FOR VCSEs BEFORE ESTABLISHING A SOCIAL IMPACT BOND Commissioning partner: To develop a SIB VCSE organisations will need to collaborate with a public sector commissioner Long lead-in period and Clearly defined target group procurement: The process of applying for development support and SIB design may take place over extended time periods Commitment to evidence-based Cost of procedure: Investors will need to intervention is small relative to potential be comfortable that outcomes public sector will be achieved in order to take savings on the risk Additional reporting and Issue area a measurement: A SIB provides an priority for opportunity to better measure and public sector learn from what achieves the best outcomes Working with investors: Service providers will build relationships with new sources of investment Adapting your model: As services grow, they should adapt and flex to learnings around how outcomes could be improved Routes to success Robust outcome metric Evidence based interventions Issue area a priority for investors

8 Planning for successful financing of a outcomes based contract Careful preparation of due diligence materials Detailed research of the market opportunity and evidence base Clear proposition of amount and risk allocation Demonstrate management capability and organisational robustness Management strength and depth Track record of success Finance and Risk management systems work efficiently Clear chains of responsibility and accountability Build a relationship with funders Funding is the start of a relationship with investors Expect funders to seek controls and accountability Investment as a motor of capacity building Investment rigour helps to build internal business skills Investors bring skills, networks and wider experience Alignment of interests Provider benefits from success financially Investor has an interest in capacity building CASE STUDY: ACTION FOR CHILDREN AND THE ESSEX SOCIAL IMPACT BOND In November 2012 Social Finance launched a 3.1m Social Impact Bond to deliver a five year Multi-Systemic Therapy (MST) programme to 380 adolescents at the edge of care in Essex so that they can remain safely at home with their families. MST is an evidence-based programme with 30 years international track record and is being provided by Action for Children, a leading children s charity that supports the needs of the most vulnerable children and families in the UK. The charity has a track record in developing and delivering early intervention programmes. The Social Impact Bond funds two MST teams over five years to deliver a five month family intervention at home. They equip families to manage future crisis situations, improving parenting and rebuilding positive relationships within the family and between the family and the wider community. Action for Children is operating under a traditional fee for service contract with risk of intervention failure transferred to the investors, and away from the local commissioner.

9 WHAT MAKES A SOCIAL IMPACT BOND AN INVESTABLE PROPOSITION? A Social Impact Bond (SIB) is a financial mechanism in which investors pay for a set of interventions to improve a social outcome that is of social and/or financial interest to a government commissioner. If the social outcome improves, the government commissioner repays the investors for their initial investment plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to lose their investment. Bridges Ventures Research June 2012 SIBs provide The investment Power of Advice to address social problems and in the look UK Sustainable to fund preventative interventions. and As Impact such, they present an Investment Market opportunity to provide support to reduce the strain on acute services. This fact sheet outlines the motivations and key considerations of potential SIB investors. Examples of investors include TYPES OF INVESTORS Social Investment is the use of repayable finance to achieve a social as well as a financial return. Social investors have a range of motivations and risk appetite - some are interested in addressing particular social challenges. Investors seek clear and visible payment metrics that align social impact with financial return. Foundations / Capacity Building bridgesventures.com Funds Big Society Capital Co-investor alongside funds Individuals (HNW) Now able to access Social Investment Tax Relief (SITR) Other Stakeholders County Councils, Housing Associations

10 WHAT DO INVESTORS LOOK FOR IN A PROJECT? Need: A clearly articulated social need, where current provision can be improved Additionality: A programme which adds to current services, rather than simply replaces existing public funding Evidence: An evidence base for the core intervention Innovation: Scope for innovation in delivery of the services Replicability: If successful, potential for future replication and scaling Range of Investor approaches - level of engagement Before investing Once invested Passive Decision to invest is strategic often happy to rely on work of the lead investor(s) Engagement through receipt of regular reports Active, but following Actively involved, but within the process defined by the lead investors Engagement through receipt of regular reports and periodic investor meetings Lead investor Principal role in due diligence and drafting contracts Active ongoing engagement - principally through Board role CASE STUDY: TEENS AND TODDLERS SOCIAL IMPACT BOND In October 2012 Social Finance and Teens and Toddlers were awarded a Social Impact Bond (SIB) through the Innovation Fund, a Department for Work and Pensions (DWP) initiative which is part of a series of government measures to tackle youth unemployment. The Teens and Toddlers programme combines an 18-week intensive intervention with regular support through to GCSEs. It aims to support more than 1150 young people aged 14 to 16 who are at risk of becoming NEET over a three and a half year period. Unlike typical social service delivery, the funding is provided at risk by social investors, who only achieve a financial return if pre-agreed educational, training and employment outcomes are met. The DWP has identified a number of outcomes against which the contracts will be measured including improved behaviour, school attendance, educational qualifications and employment opportunities. Outcomes payments from the Innovation Fund are being paid over three and half years. Unlike typical social service delivery, T&T Innovation Limited was funded by six social investors whose financial return is aligned to the positive social impact of meeting targeted educational, training and behavioural outcomes.