The asthma project is among the first to focus on improving health outcomes. But a rising number of “pay for success” projects are planned or underway around the nation, including in Ohio, Connecticut, South Carolina, and Massachusetts. One seeks to expand early childhood education in Utah, for instance, and another to reduce homelessness in Colorado.
Typically, private investors or foundations provide at least a portion of the seed money. Bank of America Merrill Lynch, for instance, raised $13.5 million from its investors for a New York project aimed at reducing recidivism and increasing employment among former inmates. Depending on the outcomes, which must be evaluated by an independent third party, the government will repay the investors and provide a return. Generally, it is a slice of taxpayer savings, ranging from 5 to 12 percent of the original investment.
“We were all excited about the idea of a whole new form of impact investing,” said Kirstin Hill, a managing director in Merrill Lynch’s global wealth management business.
Social-impact bonds, which first were devised in England, appeal to investors who want part of their portfolio go toward what they see as a social good. “People with lots of money are anxious to invest at least a portion in things like this, especially if you give them a reasonable return,” said John Vogel, who teaches business administration at Dartmouth’s Tuck School of Business.
Organizations are looking for ways to “grow the pie of funding that is available to the social sector” rather than relying only on philanthropic and government funds, said Rick Brush, CEO of Collective Health. The Connecticut company is helping to organize the Fresno project with Social Finance, a Boston nonprofit that designs social-impact bonds.
Nirav Shah, director of Social Finance, said many health programs that can have a significant impact on patients are outside of clinical settings, so aren’t typically reimbursed by insurers
In the asthma program, for example, a social-impact bond could pay for home renovations such as stripping out carpet or getting rid of mold.
The Fresno project is still in its pilot stage: Organizers, now relying on a grant from the California Endowment, won’t start reaching out to investors until late next year. By then they hope to be armed with claims data, tracking emergency-room visits and showing clear evidence of savings to insurers and taxpayers.
Funding from banks, individuals, and foundations would enable the asthma-prevention program to expand from about 200 children to 3,500, they said. The estimated savings per child: more than $7,700 in health care costs.
One day in September, Sixay stopped by the cramped house of 6-year-old Jovani Garcia-Vasquez. His mother, Maura Vasquez, said she used to rush her son to the hospital every time he had an asthma flare-up. A doctor had advised her not to give an inhaler to her son because he could get addicted to Albuterol. “So I didn’t give it to him, hardly ever,” she said.