Will Pay for Performance Strategies Improve Impact?
Is Further Innovation Needed?
Posted by Debbie Koh
A few years ago, someone who wanted to give money to a nonprofit would likely head to Charity Navigator’s website, check that the organization’s program expenses amounted to at least 90%, and give it a green light. If the majority of the nonprofit’s money was going straight to programs, it must be an effective organization making a significant impact on the population it served… right?
Donors (whether individuals, governments or other entities) have become more sophisticated in their approach. “Measurable impact” is funders’ new mantra, especially as many have tightened their purse strings in the continued economic uncertainty. It’s no longer sufficient for a nonprofit to point to their program ratio as evidence of their ability to reduce hunger or increase access to health care. Nonprofits must be able to specify the indicators they will measure to demonstrate the larger impact they hope to achieve.
Tying funding directly to outcomes is one way donors are trying to get the most bang for their buck. The popularity of pay-for-performance (P4P) programs, for example, is on the rise – especially in healthcare. Linking compensation to physicians or hospitals in the U.S. is hoped to achieve targets that range from reducing readmission rates to improving patient satisfaction survey scores (see Wagner professor Jan Blustein’s post on P4P in NYC’s public hospitals here). In resource-poor settings where governments seek to increase the utilization of certain health services, a P4P scheme might provide monetary incentives to providers who enroll a target number of patients in a vaccination program, for example.
Social impact bonds (SIBs), another “pay for success” model, are structured so that private investors supply the initial capital for a program, and receive a return on their investment from the government only when the program achieves previously specified targets or outcomes. Goldman Sachs provided a nearly $10 million loan to New York City to help reduce recidivism rates at Rikers Island. A rate reduction of 10 percent will earn back Goldman’s investment; but a rate increase will lose Goldman up to $2.4 million (read more about the program here). New York State recently announced potential funding for up to $100 million in SIBs over the next five years (press release here). Development impact bonds (DIBs) apply the SIB model to international development programs, where donors or host-country governments will be responsible for repaying private investors if the agreed upon targets are met.
Finally, direct cash payments may be the most radical example of connecting aid to social change. Perhaps most well known, the Government of Mexico pays cash to target families through the Oportunidades program when families fulfill certain conditions, such as enrolling their children in school or taking their children to regular health exams. India is experimenting with making direct payments into recipients’ bank accounts; if it goes well, they may expand such payments to replace fuel and food distribution that may be more easily misdirected away from its intended recipients. After all, is there a better way to claim impact than putting money directly into the hands of beneficiaries?
The tools mentioned above may not work in all circumstances; more evidence and testing is certainly required. Achieving social change is a highly complex problem; improving health, for example will require a multitude of approaches whether in the United States or abroad. As someone who works in the traditional “fund a program” model, I welcome innovation in this area. I believe that the more methods we have available, the greater chance of success we have.
Debbie graduated from Wagner in 2010 with her MPA in Health Policy and Management, International Health. She returned to her native California in 2011 and currently works forVenture Strategies Innovations. Follow her on Twitter at @thedebkoh or connect viaLinkedIn. All views expressed are her own.