Innovative Finance Series: launching Pay for Success

As part of our Innovative Finance Series, we’ve been following Cuyahoga County’s proposal to use Pay for Success to help homeless Ohio families remain intact. Today, we take a closer look the first steps of launching a Pay for Success initiative and the role that Third Sector Capital Partners, Inc. has played.

Cuyahoga County's Pay for Success plan could help homeless families stay togther

Cuyahoga County (the most populous county in Ohio, home to Cleveland) has initiated the first ever county-level Pay for Success (PFS) procurement in the nation. County Executive Ed FitzGerald explained that the ultimate goal is to “transform how human services are provided in Cuyahoga County.” Their plan could serve vulnerable families and save taxpayers money.

By providing mental health services and housing support, the County’s program seeks to get to the root of family instability before it reaches crisis point. Additionally, with the PFS model, the government pays service providers only if the program is deemed to be a success.

“Most funding sources are tied to very clear and strict rules on how the dollars can be used. Sometimes, those rules prevent you from applying a flexible and adaptive intervention to a complex family situation,” said David Merriman, Deputy Chief of Staff of Cuyahoga County’s Health and Human Services. “That’s why this initiative is exciting. It lets us wrap financing and contracting around a problem through innovation.”

Any Pay for Success plan requires a team effort, and Third Sector Capital Partners, Inc., a nonprofit firm, has been integral to the early stages of the program.

We spoke with Third Sector’s Liya Shuster (Associate, Advisory Services) to learn more.

What does providing advisory services for a Pay for Success plan entail?

LS: Third Sector has worked with the Cuyahoga community as an advisor from the nascent days of educating political leaders, providers and local funders about PFS to working closely with the County to identify the cost savings and impact associated with potential PFS projects.

During the past year, Third Sector’s role has transitioned to focus on project finalization and deal construction. Third Sector has worked closely with Case Western, the Office of Budget and Management, the Office of Homeless Services and the Department of Children and Family Services to hone in on the size of the target population and to calculate what the County would save for every day of foster care avoided by the children FrontLine could serve.

The procurement process helped the County decided on service providers. How did Third Sector assist in this process?

LS: Third Sector assisted the procurement process by working with the County to include PFS language within the RFR. More specifically, Third Sector created an evaluation and scoring template based on key PFS components.

Once the RFR respond period closed, Third Sector and other community partners helped the County to evaluate and score the responses for both the intermediary as well as the service provider roles, which ultimately resulted in the selection of FrontLine and Case Western.

How is PFS procurement different from traditional government procurement?

LS: Our PFS procurement was different than many traditional government procurements in the sense that many of the specific contract terms were not spelled out in the RFP.  Rather, the winner of the RFR process entered into a significant scope refinement process after the RFP award was made.

Why is the Pay for Success model ideal for helping homeless families stay intact?

LS: The target population identified in this community could be found in communities across the county. Even in the scenario that Frontline is not successful, the County will have built an evidence base showing that this type of intervention does not work, and the project would shut down with limited cost to taxpayers. This avoids the traditional method of adding programs into the annual budget and never ending those that are ineffective.

What do you see as the future of social impact bond financing and Pay for Success models in America?

LS: You’re probably hearing this everywhere these days, but the power of Pay for Success or Social Innovation Financing hinges on the data. If we can precisely track who the government serves in the community, which dollars are associated with the populations and are those dollars effecting a positive social outcome, then we have a valuable proposition – for both taxpayers and PFS funders.

Pay for Success initiatives are powerfully transforming government’s leveraging the power of data; incentivizing governments to set up new data-sharing agreements amongst agencies, as well as with local social science academics who can match data systems and illuminate new answers on the trajectory of high-need populations across government systems as well as on either the true impact sustained or the lack thereof, and thus the need for an alternative intervention.

This was the model led by Cuyahoga County and the Mandel School of Social Sciences at Case Western University – it is a model that if replicated across the country, will help effect lasting impact. Although the initial deals will be more difficult and expensive to construct, we will, over time, see the emergence of highly replicable PFS arrangements that could transform important pockets of our social services system into a much more performance-driven environment.

Courtesy of Third Sector

Courtesy of Third Sector

Third Sector is involved in other PFS plans across the nation, such as Massachusetts’ Juvenile Justice PFS Initiative. You can learn more about their work online, including Case Study: Preparing for a Pay for Success Opportunity, which walks you through the early stages of a PFS plan.

For more in our Innovative Finance Series, check out:

About Holly

Holly Jensen is a writer and poet who has worked with nonprofits and businesses for over a decade. She also serves as editor of The Ghazal Page, an international literary journal.
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