Social impact bonds can finance public health initiatives

Public health initiatives are being more widely financed with private investors, Kaiser Health News has reported. "Pay for success" or "social impact bonds" originated in the United Kingdom, although they are getting some purchase in the United States.

Healthcare entities are using such financing to "grow the pie of funding that is available to the social sector," said Rick Brush, chief executive officer of Collective Health, a Connecticut-based firm that works to help organize financing, , according to the news service.

Funding for public health initiatives has been on the wane, particularly at the height of the Great Recession. In 2010, for example, federal grants for public health initiatives were flat, while local governments cut their investments in public health by 3.4 percent, or by nearly $400 million. At the same time, evidence suggests that public health outreach programs can cut down on inpatient admissions and other costs.

Under the pay for success model, money for such projects usually come from private investors or foundations provide at least a portion of the seed money. An independent third party evaluates the outcome, and the government repays the investors based on how the program has fared an any savings that have been generated.

"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," John Vogel, a Dartmouth University business professor, told Kaiser Health News.

In one project, intended to cut the rates of childhood asthma in California's Central Valley, the California Endowment has put forward $1 million to help out about 200 kids. With private investors, the program could cover as many as 3,500 children and generate an average of $7,700 each in savings linked to avoidable costs.

Using initial data, the project managers expect to reach out to private foundations, banks and private investors. Collective Health is working with Boston-based Social Finance, a nonprofit that designs social impact bonds.

To learn more:
- read the Kaiser Health News article