I attended a recent Senate hearing on wasteful spending in the federal government, and some of the witnesses pointed to examples such as the legislative requirement that the Defense Department ship coal to Germany to heat American bases there. Others pointed to failures of large-scale computer projects and the dozens of programs on the Government Accountability Office’s High Risk List.
While many of the examples were seen as shocking, there was little conversation about focusing on what works and expanding those programs.
Interestingly, there is a movement underway across the U.S. to do just that. There are advocacy groups, foundations, states and localities promoting the idea of “let’s find out what works and fund it.” Some call this “evidence-based government,” “Moneyball government,” or “pay for success.” The federal government has dipped its toes in the water, a well, with several pilot programs in various agencies and bipartisan legislation pending in Congress.
The hot, new thing that has captured the imaginations of many policy wonks is called “Pay for Success,” or in some circles, “social impact bonds.”
In 2010, the British government launched an innovative funding scheme, which it called social impact bonds, where private sector investors committed funding upfront to pay for improved social outcomes that result in public sector savings. The investors were repaid by the government only when the outcomes were determined to have been achieved.
This funding scheme has attracted substantial attention in the U.S. where it and many variations are being piloted.
What is “Pay for Success?” According to the Urban Institute, PFS is a type of performance-based contracting used to support the delivery of targeted, high-impact preventive social services, in which intervention at an early stage can reduce the need for higher-cost services in the future.
For example, experts believe that preventing asthma attacks among at-risk children reduces emergency room visits and hospitalization, which are more costly than preventive services. When the government pays for preventive services, it hopes to lower its costs….(More)”