High demand for public resources often leaves service providers struggling to deliver a broad range of health, education, and social services that truly make positive change. At the same time, public and private funders require evidence to show that investing in such services achieves intended benefits and outcomes. AIR is applying the Pay for Success model to address these challenges in communities around the country. The model brings together investors with local, state, and federal government agencies to fund and improve services. For example, a local company or community investor might fund programs to reduce homelessness or strengthen literacy among young children.
Connecting upfront funding to specific program outcomes requires independent evaluators to determine whether the outcomes have been met. If these services deliver their intended results (e.g., reducing homelessness, improved student literacy), the government then reimburses investors for the cost of the service, along with a modest return on their investment (typically 1-2% of the overall investment). In this design, the investors bear the initial cost of services and take the risk of not being reimbursed, should the service not produce the intended outcomes, as measured by the evaluators. Typically, an intermediary organization may provide technical assistance to the service agencies, strengthening their capacities to deliver evidence-based programs and strategies to achieve outcomes.
Why would investors take that risk? Because improving these near-term outcomes (for example, greater literacy in pre-Kindergarten through 3rd grade) may achieve important effects on the broader social and public sectors (e.g., increased earnings, greater consumer buying power, and decreased reliance on government safety nets).
Currently, there are more than 60 Pay for Success projects at various stages of operation worldwide with 17 of these being implemented in the United States since 2012.