A general update on the US position as SIBs gain ground…
‘Social Impact Bonds’ Tap Private Money For Public Health
Government Technology
South Carolina is turning to an unusual source to finance a new program intended to reduce the state’s high rate of premature births: private investors.
If the program succeeds in slicing that rate among Medicaid beneficiaries and reduces state spending as a result, South Carolina will repay the principal plus a healthy, yet-to-be determined rate of return. If the program doesn’t meet expectations, the state will owe the investors less or even nothing at all.
The state sees the plan as a way to launch a promising health program without having to bear the costs for years to come, if ever.
“If we achieve the results we hope for, the state wins by getting an innovative program that works and the investors get a payback,” said John Supra, a deputy director of the state Department of Health and Human Services.
The financial instrument powering the project is called a “social impact bond” (SIB), also referred to as a pay-for-success contract. In the last several years, a number of states and municipalities have used SIBs for multiyear projects pertaining to education, homelessness and prisoner recidivism. In most cases, the money goes to a nonprofit that actually provides the services.
Lately, as in South Carolina, projects related to health care have begun to turn to the same mechanism. In Fresno, California, for example, where more than 20 percent of children have been diagnosed with asthma (compared to 8 percent nationally), the city is expected to use an SIB in a project aimed at reducing the number of emergency room visits and hospitalizations resulting from childhood asthma.
Connecticut, New Jersey, North Carolina, Utah and Oregon also have or are considering using SIBs to fund a variety of innovative health-related programs ranging from substance abuse treatment to early childhood health interventions. The District of Columbia is turning to an SIB for a teen pregnancy prevention program.