Monday, December 8, 2014
25th anniversary guest blog series: The case for SIBs
Four very different social issues, but with one important thing in common: they’re all the subject of new interventions funded by social impact bonds.
For the uninitiated, the basic principle behind social impact bonds is that rather than governments (or some other donor) funding a particular set of activities in the hope that it will lead to a certain set of outcomes, they instead define a set of outcomes up front – and only pay if those outcomes are achieved (usually in a set timeframe).
The provider then raises capital to cover the cost of the intervention from third party investors – who agree to invest on the basis that their returns will depend upon the success of the intervention. This is not a bond in the typical sense used by investors: it may be time-bound, but the risk/return profile is more like equity. The ‘bond’ here refers to the three-way contract between service commissioners (usually government bodies or donors), service providers and investors.
The concept is still relatively new, but it’s already gaining traction around the globe. As of the end of October, some 26 SIBs were in operation worldwide (of which Bridges Ventures’ funds have invested in seven), with dozens more in the pipeline. They span a diverse range of social issues, and have already raised around $120m in capital from a broad range of investors, including individuals, pension funds, foundations and investment banks.
So why all the fuss? For governments, the concept is attractive because it allows them to test new approaches to difficult social issues – and since they only pay for successful outcomes, the cost of failure becomes lower. When providers are being paid to perform a set of pre-defined activities, they have little room to experiment, and no incentive to surpass expectations. With SIBs, because the focus is on outcomes, providers have much more leeway to innovate in the way they deliver their service – and the better they do, the better the outcomes for beneficiaries and the more they get paid.
It’s also an attractive proposition for investors, for three reasons. An SIB can provide an opportunity to address the sort of social issues investors might not be able to access elsewhere in their impact portfolio (because these are usually state or donor-funded services). The link between payment and outcomes creates a direct alignment of interests between all the parties involved, which ought to increase the likelihood of success. And over time, the hope is that SIBs can deliver attractive risk-adjusted returns – in a way that is not necessarily correlated to the broader economic cycle. Taken together, this ought to draw in more private capital to help tackle difficult social problems.
Of course, there’s still plenty that can go wrong, especially since SIBs often involve relatively unproven interventions. To mitigate the risk, it’s vital that the SIB is structured properly up front, with the right incentives and metrics, and managed properly thereafter – which means that the provider has to have the right team, and that investors need to be very engaged and hands-on throughout (if they don’t have the capacity to do this themselves, they can use an intermediary, as Greater Manchester and Merseyside local authority pension funds have done by investing in Bridges’ Social Impact Bond Fund, for example).
Clearly there will be successes and failures in this early cohort. But judging by the pipeline of potential SIBs globally, policy-makers are enthusiastic about the idea, and not just because SIBs can bring in funding and new ideas.
Some of us believe that SIBs might turn out to be a more efficient way of commissioning public services. Many organisations across all sectors have already made the change from providing critical services in-house to buying outcomes they can better cost and monitor. And they’re finding that when given the opportunity to be paid for successful outcomes rather than prescribed inputs, providers have developed and invested in entrepreneurial solutions – which ultimately leads to better and more cost-effective services. If SIBs can have the same impact on public sector services, the scope for this market to grow may be beyond even the most optimistic forecasts.
Antony Ross is Partner, Head of Social Sector Funds at Bridges Ventures
About the series
OPM is celebrating its 25th anniversary this year, and as a public interest organisation, we’ve always contributed to the debate about the future of public services.
With this and the next general election in mind, we’ve asked a number of senior thinkers to give their views on the challenges and opportunities facing public services and society in the near future.
This is one of a series of guest blogs, which we’ll be adding to in the coming weeks and months. To read previous posts in the series, go to our news and comment page.
Monday, December 1, 2014
Social impact bonds: a little less theory, a little more practise
A few weeks ago OPM played host to a delegation of senior academics from Meiji University, Tokyo, as part of a research project funded by the Japanese Government into social impact bonds (SIBs). The purpose of their visit was to conduct empirical studies of social impact investments, especially SIBs, already implemented in the UK and US. Their aim was the launch of the first Japanese SIB in the hope that the Japanese government will adopt similar social impact investment schemes in the future.
At OPM we were in a unique position of being able to share with our Japanese colleagues what we have learned from evaluating two very different SIB models to date. The first evaluation was of what has now become widely known as the ‘Essex SIB’, based on the delivery of Multi-Systemic Therapy by the charity Action for Children to reduce the likelihood of children going into care. This was the world’s first SIB to be commissioned by a local authority and only the second to be implemented in the UK. The second SIB to be evaluated by OPM was the ‘Peninsula LIST Project’, which although still in its planning stage, is no less ambitious in its desire to experiment the commissioning of public services across geographical and sectoral boundaries in the South West of England.
Social impact bonds, or payment-by-results contracts designed to achieve specified ‘social outcomes’, have been much heralded for their potential to unlock private investment for services that government, and particularly local government, would not otherwise have funded. However, for all the hyperbole championing SIBs as the answer to our most intractable social problems when public expenditure is constrained, there has been a noticeable gap for some between the rhetoric and the reality. The SIB model is still very much in the embryonic stages of development, and given its short history this is hardly surprising.
Much of the narrative so far has been dictated by the unchartered territory that SIBs are exploring. There are 26 self–declared SIBs worldwide, with at least another 100 in development. They are being used in very diverse contexts – around the world and across social issues – in order to unlock better outcomes for vulnerable individuals. The first wave of SIBs have been experimental in nature. OPM’s evaluations reveal that lengthy periods of planning were not only required to focus on the form of financial instrument and the establishment of a robust counterfactual, but also in order to agree sensible outcomes measures upon which payment schedules could be defined. Many others have encountered implementation challenges and invisible costs, while surfacing questions about the scale of potential savings. The approach has also demanded a significant behavioural shift in all parties involved:
- Firstly in governments and donors, to concentrate on defining and costing their desired social outcomes instead of managing the delivery of activities.
- Secondly in service deliverers, encouraged to prepare their impact performance for greater scrutiny upfront.
- Thirdly in investors, who must calculate the financial risk associated with a defined cohort of individuals over a set timeline, given that returns are contingent on the successful delivery of specific social outcomes.
In the beginning SIBs may have appeared as an innovation in public finances driven by government enthusiasm for payment-by-results contracts during periods of austerity, shifting the risk of investment onto a range of funders motivated by a desire, to a greater or lesser extent, to achieve ‘blended returns’ for their capital by uniting both their money and their values. But there are now signs that a future proliferation of the model may be accelerated by a greater variety of social investors and service providers entering the market, each prepared to tolerate different levels of risk in exchange for different levels of financial and social returns.
OPM’s Director of Evaluation, Research and Engagement Dr Chih Hoong Sin was recently invited to speak at the launch of a new Bank of America Merrill Lynch social impact bond report, authored by Bridges Ventures, reflecting on lessons learnt and to provide a set of practical recommendations for government, service providers and investors. This is no coincidence. Financial institutions are beginning to view SIBs as a genuine opportunity to meet the demands of this expanding pool of investors in the market wishing to align their financial returns with social benefits, as crucially, it is their younger clients who are motivated more by social impact and less by financial return.
The momentum behind social impact bonds as a major source of social change funding is building. But for the promise to be fulfilled a proven framework is needed that is built on a robust evidence base particularly for preventative or early interventions, to be of benefit to Government or donor, investor, service provider, and service user. Unlike most of the existing published literature that deals with the aspirations and desirability of SIBs, OPM’s studies highlight the operational issues around procuring and delivering services through an SIB model. This is why these independent evaluation findings are of fundamental importance in contributing to the understanding of what does and doesn’t work for SIB structures and designs.
If you would like to find out more about OPM’s evaluations of the ‘Essex SIB’ and ‘Peninsula LIST’ projects, please contact Chih Hoong Sin, Director of Evaluation, Research and Engagement on CSin@opm.co.uk or 020 239 7877.
Wednesday, May 7, 2014
A new commissioning deal for hospices
At St Helena Hospice, a well-established charity serving North East Essex, we receive about a third of our net funding from the NHS – which is about the same as the national average. This means that two thirds of our expenditure for things like patient and family services and palliative and end of life care education, comes from the generous support of our local community and our own income generation activities. Yet despite the untypical nature of our funding, the contractual and working relationship between St Helena and the local CCG – like that of many hospices – remains that of the standard purchaser/provider split.
Like most hospices we offer a number of unique benefits to the local health economy. Firstly, we generate considerable social value by being the leading, and largest, local charity in the area, with a great reputation that generates considerable community goodwill and trust. This is something which many other NHS providers are unfortunately struggling to maintain in the context of austere public sector economic conditions and escalating demand (and public expectations).
Professionally hospices are the experts in palliative and end of life care, with an established holistic philosophy and ability to deliver truly integrated health and social care. Financially we invest more than £3 million of our own income each year direct into local services; more than the CCG spends on palliative and end of life services in the community in total. We also mobilise over 1,000 volunteers in support of palliative and end of life care, who contribute the equivalent of another £1.3 million to the local economy through their time and expertise. We follow a social, outcomes-based mission rather than bottom line or profit driven approach to delivery. We also offer benefits to commissioners because of our legal status as charities, such as the flexibility to receive and distribute income and expenditure over a number of financial years; autonomy from arbitrary national targets and bureaucracy; and, where we believe in the best interests of our constituents, a potentially higher risk-appetite than other providers.
Given this, I believe that the relationship between hospices and commissioners would be vastly improved, and the services offered to patients enhanced if, hospices were not treated as just another provider of services, but rather a trusted partner and co-commissioner aligned to long-term strategic goals.
Taking this approach hospices would be empowered to be more proactive and to take on a wider responsibility for the quality of and equitable access to palliative and end of life care in their localities. We need to remind our commissioners of the unique benefits we offer and go to them with solutions that are pitched in a language that they can relate to and that help address their challenges as well as those of the wider community. This means moving away from an over-reliance on qualitative benefits, and a track record of regulatory compliance to make our case, and instead translating our impact into avoided admissions, avoided A&E attendances and reduced acute excess bed days; after all the investment we want to see in the community can only come from unlocking resources being sucked into the acute sector.
This approach will be just as challenging for us as it will be to commissioners. Hospices will have to learn to a change their culture, build trustee engagement and understanding of the wider health and social care agenda, and to develop commissioning, contractual and business intelligence capability needed to co-commission. Commissioners in turn will have to learn to relinquish control and prove themselves open to an alternative procurement process premised on a more mature relationship with hospices. I for one believe that with the right attitude, approach and relationships it will be possible to negotiate a new deal.
Tuesday, March 18, 2014
Commissioning Academy: Mutuals Module
The Commissioning Academy Mutuals Module has been newly tailored for commissioners in adult social care and health. On 1st December 2014 in London this module will run for the first time and there is a unique opportunity to:
- Hear direct from Francis Maude, Minister for the Cabinet Office, about the Government’s vision and plans for mutuals in this sector.
- Develop your understanding of how to successfully spin out a public service mutual in adult social care or health.
- Look at new integrated models across social care and health.
- Grow sustainable PSMs as part of a vibrant market.
Successful commissioning of public service mutuals depends on a combination of understanding of the environment, sound processes and effective relationships between commissioners and providers. In social care and health, new mutuals also need to respond to changes in policy and practice and to new opportunities, including integration at different levels.
The Cabinet Office (Mutuals Support Programme team, with the Commissioning Academy) have been supporting skills development and shared learning for commissioners. This bespoke, one day development module draws on learning from commissioners of mutuals across sectors and is based on practical examples and tailored resources. It will develop participants’ understanding of potential models and of how to successfully spin out public service mutual in ways that are likely to lead to long term success and will share peer experience.
For more details and to secure a place, please get in touch with Memona Ahmed at email@example.com or on 0207 239 7851.
Tuesday, March 4, 2014
Commissioning Academy Mutuals Module
The Commissioning Academy has been set up by the Cabinet Office in order to equip commissioners with the expertise, confidence and skills to enable them to transform public services in a climate of fewer resources through improved commissioning.
The academy is being supported by the Cabinet Office, the Local Government Association, the Department for Communities and Local Government, the Ministry of Justice and the National Offender Management Service, the Department for Education, the Department of Health, the Department for Work and Pensions and the Home Office.
OPM has been involved in the delivery of the pilot which involved over 60 commissioners in a modular programme of development to test out how the project could best be delivered.
In addition, OPM was commissioned to run the Commissioning Academy Mutuals Module which was designed specifically for commissioners and decision-makers who are interested in supporting the mutual model.
What we did
OPM ran three modules for commissioners from across different public service organisations. The model aimed to ensure that participants:
- Increased their understanding and confidence in commissioning of mutuals and how to handle relationships at different stages in the process
- Identified the next steps they will take to support commissioning of mutuals
- Helped develop the Mutual Commissioners Toolkit further
- Helped refine the design of the module before further roll out
The module provided participants with advice about key stages in the commissioning process and how it applies to setting up a Mutual. Participants from across sectors took part in discussions about recent case studies, shared experience of mutual spin-outs at various stages of development, tested out relevant tools and resources, and developed an action plan for how they can take forward their work with mutuals
The module was well received by participants and additional modules have been offered on the back of the first module OPM ran. One participant said:
“The audience dynamic was really helpful – with colleagues involved in various stages of mutualising services. And there was a richness in learning because participants had huge experience from across the public sector”
Richard Selwyn, Harrow Council.
Tuesday, October 1, 2013
Sector defends use of out-of-area care homes
These figures highlight the distinction between volume of provision locally and the ability to match this provision with need – it is not simply a question of how many homes or beds there are locally, but whether these places are an appropriate match for the needs of local children and young people.
Our research has revealed examples of the steps that local authorities are taking to better match provision to needs, but more could be done. Major reviews of children’s residential care commissioning have been undertaken, with authorities scrutinising the extent to which homes in their area are a suitable match for forecasted needs.
Read the full article on the Children and Young People Now website (£).
Monday, September 30, 2013
Effective strategic commissioning of children’s residential care homes
OPM was commissioned by the LGA to conduct research into the more effective strategic commissioning of children’s residential care homes. The research focused on three aspects of commissioning: needs analysis; matching needs and supply; and quality assurance and monitoring. We reviewed published literature, undertook extensive interviewing, conducted an online survey of children and young people in care and care leavers and facilitated action learning groups with the ten participating local authorities.
Friday, August 30, 2013
Changing Times with Dr Maggie Atkinson, Children’s Commissioner for England
This week’s Changing Times’ guest is the Children’s Commissioner for England, Dr Maggie Atkinson.
If you compare today’s society and the society into which you were born: what’s most strikingly different, and what’s most surprisingly similar?
Just as when I was a child in the late fifties, children today need support, boundaries, nurture, understanding, a listening ear, and people who’re interested in them for them.
The biggest and most striking difference is the 24/7 nature of communication and the availability of technology today, which is a cause of both equality and inequality. This technology has served to shrink the world, but also to reiterate the same sorts of inequalities which existed when the elite could read Latin and had access to books and the poor didn’t.
Modern media-driven and technologically enabled communications mean these inequalities are made starker and are constantly in your face in ways they might not have been in previous generations.
Given difficult choices have to be made, what one public service or source of support do you think we should prioritise most highly, and why?
Age discrimination affects children and young people very significantly. Transport is a good example of this: if you’re under sixteen in this country you travel for free whoever you are wherever you are, and however much money you have in your pocket. But if you’re over sixteen, in most places, you pay an adult fare despite the fact that at 16 you are not an adult, you don’t vote, and you probably don’t earn enough money to make travelling an option for you, unless you have some sort of support. I’m with Nelson Mandela here: a nation should be judged by how well it treats its children. We put great importance on the provision of services, especially health-related ones, for the elderly, and so we should, but it should not be at the expense of the young and in some instances it is. Because children are both voiceless and vote-less there are times when their views are not properly considered.
If you could choose one person to be the Prime Minister’s adviser, who would that person be, and why?
I would say to the Prime Minister let yourself be shadowed by a member of the executive of the United Kingdom Youth Parliament, not just for a day, but for an entire parliamentary session and listen to what they have to say to you.
The UK Youth Parliament is quite an amazing organisation. Its critics would say that it takes kids who are already articulate and who are already leaders and just lets them be articulate and lead, but I’ve met young people who’ve been voted onto the United Kingdom Youth Parliament who were very far from those stereotypes when they were first elected. Since then they’ve been trained and shown how to present themselves, present an argument, listen to somebody else’s argument, lead a debate, second a debate, pose questions and offer answers.
Public services rely on voluntary support more than ever: is this to be welcomed?
I think we’ve sometimes undervalued the strength and depth of communities’ voluntary endeavour and expertise. But I also think it’s asking rather too much to expect people who’re doing what they do in their spare time, to carry out what are often wholly statutory functions like caring for the elderly, ensuring they’re fed, checking up on vulnerable neighbours, and driving community transport. If there isn’t a statutory safety net then you are asking an awful lot of people who’re doing what they do in order to give something back to their communities. I genuinely don’t think that the voluntary sector could step into every aspect of public responsibility were statutory bodies to fall away entirely, I think that would be a step too far.
In the best case scenario, what will public services be like by 2023? What about the worst case scenario?
In the best case scenario there will have been the blurring of some unnecessary professional boundaries. I’m not saying that a reasonably qualified person could leap between being a teacher one day, a social worker the next, and a nurse every third Wednesday. What I am saying is that there remains a good deal of professional boundary guarding and for the families and children experiencing the services some unnecessary duplication of effort, which hopefully by 2023 won’t be the case.
I would hope that by 2023 Mr and Mrs Bloggs and their children would only have to tell their story once when they hit crisis, or preferably before they hit crisis, not over and over to agency after agency after agency. I’d hope that the agencies in their locality know the Bloggs’ because they’re known to health, they’re known to education, they’re known to social care and everybody is working around them to make things better for that family, not to safeguard old hierarchies and old boundaries.
Nobody should run away with the notion that simply making the public sector into a market is going to solve its problems, because if you make it into a market who are you paying if it’s not your shareholders? If you are in the business of making a profit for a FTSE 100 listed company, then you maybe shouldn’t be involved in the running of a public service, unless you’re also pumping profits back into that service, for its users’ benefits.
Previous Changing Times contributors
Monday, June 3, 2013
Commissioning: the secrets of success
Good commissioning can transform public services, create savings and develop sustainable and more local provision. So how can organisations make this happen?
A couple of years ago I feared that the progress made with good commissioning would be lost, and replaced by short-termism and knee jerk cuts. There has been some of that, of course, but it is cheering to see a strong emphasis on commissioning in many places, from the Cabinet Office’s Commissioning Academy to many local councils and the confidently emerging clinical commissioning groups.
Read the full article on Public Finance magazine’s website
Tuesday, March 26, 2013
Decommissioning the effective and responsible way
The ongoing need to reduce total spend means the already difficult and sometimes misunderstood task of de-commissioning will be taking place in virtually all localities, writes Ayesha Janjua.
In the recent past, many councils have been guilty of poor decommissioning; sometimes by cutting too hard, sometimes by cutting too fast. The result is something that was expected to be a money-saving exercise ended up costing more in the long run. Take, for example, the 2011 ruling against Birmingham City Council which was found to have acted unlawfully after it cut care provision for its disabled citizens.
Read the full article on the Municipal Journal website (£).