A session on 14 December, attended by 28 figures from across Whitehall, local government, the NHS and the social investment sector, discussed the development of approaches based on outcomes, including the use of social impact bonds, to drive innovation.
Daria Kuznetsova, strategy and market development director at Big Society Capital, described the role of social investment in helping to achieve outcomes.
This repayable finance, which allows charities to expand and bid for public sector contracts, has a long history, she said. It gained particular traction when it became apparent around 2000 that organisations with a social purpose – and a business model to achieve it – were not receiving loans from banks. As a result, these organisations were unable to provide services.
Investment such as social impact bonds (SIBs), issued to fund new approaches to tackle social problems, can now help local social enterprises and charities.
This is particularly important in supporting outcome-based commissioning in the public sector, she added – for contracts to provide public services where most payments are only made once targets or objectives have been met.
“Paying by outcomes creates a working capital need, especially when the delivery body of those outcomes is a charity or social enterprise that doesn’t have either the financial resources or the appetite to take that risk. Social investment can help with that model.”
SIBs allow outcome-based commissioning and payment-by-results schemes to be brought together with funding, according to Kuznetsova. A total of 31 SIBs have been issued in the UK across social policy areas such as homelessness, looked-after children, social isolation and supporting people with long-term conditions.
“The commissioner still commissions for outcomes and pays for outcomes, but the investor takes on some of the risk and puts in upfront working capital for the charity or social enterprise to deliver a service that then might achieve those outcomes," she says.
“The investor is paid back only if those outcomes are achieved, and the charity or social enterprise is therefore shielded from some or all of that risk.”
Sarah Henry, head of intelligence and performance at Manchester City Council, set out the authority’s experience of the UK’s first SIB to fund foster placements for looked-after children.
The multidimensional treatment foster care (MTFC) programme was designed for adolescents with extremely challenging behaviour who had had several placement break-ups with carers, leading to them entering residential care. The scheme was intended to improve outcomes for this group by placing them in intensive foster placements.
“We really homed in on the idea that SIBs can help you share risk,” she added.
“MTFC was an intervention that had been tried at the time 18 times in the UK and it had failed in nine. Some of the failure was due to cuts, but it has certainly had a rougher time in the UK than multi-systemic therapy (MST, an intensive community and family-based intervention for 11-17 year olds).
The financial model for this SIB was kept simple, she said, as, from the moment children who had been in care enter the programme – even when receiving very expensive foster care – the cost to the authority is lower than residential care.
Having successfully put this scheme in place, Manchester is now exploring what more could be done around what Henry called “wicked social issues”, such as NEETs – young people who are not in education, employment or training.
However, the financial model for interventions in these areas would not be as simple, she told attendees, and Manchester was also keen to explore how to commission for outcomes across more than one part of the public sector.
“That’s quite a difficult nut to crack now,” she stated.
“There are diminishing numbers of policy areas we can actually touch on before we go and discuss the really difficult issues, which are the arbitrary arrangements around delivering social policy in the UK and the fact that people suffer from multiple issues. That’s where this will become really interesting.”
Brian Roberts, director of corporate resources at Leicestershire County Council, highlighted the government’s Troubled Families scheme as helping to encourage this type of approach. The project has seen local authorities develop intervention plans to coordinate provision around 120,000 high-need families in England on a payment-by-results basis.
“This has made us think how they deliver services around families,” said Roberts, who is also vice-president of CIPFA.
“It has forced some good partnership working, and I think payment by results and some focus on targets are good.”
Andrew Levitt, an executive at Bridges Venture, which invests in social enterprises, highlighted the potential for payment by results to be used to boost efficiency as well as supporting more experimental services.
“For something like an MST service, rather than treating it as a really innovative, risky thing – because there are examples of it being implemented successfully – maybe a more appropriate way to think about it is in terms of number of families it works with,” he suggested.
“If the average service works with 35 families, then incentivising the provider to deliver more than that – 40 or 50 families a year – is using outcome-based commissioning to drive efficiency. There are different ways of looking at the benefits that an outcome-based contract could bring, over and above sharing risk.”
Roger Bullen, chief executive of Evidence-Based Social Investments, said the schemes, although covering different policy areas, were creating a body of evaluation not always present in traditional procurement. This could also drive performance improvement.
“Evidencing whether this is a more efficient way of commissioning will be quite interesting because, on the face of it, it can look a bit expensive,” he stated.
“But there is growing evidence that it can drive higher levels of performance and efficiency, which I think was the point Andrew [Levitt] was making as well.”
In addition to debate about cost, difficulties in using outcome-based commissioning more widely were also highlighted by some attendees.
Bob Ricketts, director of commission support services strategy at NHS England, said that, although the NHS was thinking about these approaches, it would be difficult to implement them in health.
“For a start, it is blindingly obvious you need to know what you want to achieve,” he stated.
“You then need to turn that into outcomes and that’s pretty difficult, then you’ve got to think through what behaviour do you want to incentivise in the system and how to do that.”
Henry said this meant outcome-based commissioning methods were likely to be focused on complex issues such as troubled families and children in care, and Kuznetsova acknowledged there was a lack of clarity on where it might be the best model.
“Pricing an outcome and determining what that outcome is are really challenging. Cabinet and members [in local authorities] have certain views about what outcomes are, and individuals who are receiving a service have certain views on what outcomes are. Bringing that together – and then paying on it – is really challenging.”
This shows there is still a steep learning curve to be overcome. As Kuznetsova said: “I don’t think we’ve yet concluded that this is the solution to every social issue, but I think we’re at the stage where this is interesting enough to continue exploring it.”
