While there is a lot of excitement about new gadgets and solutions in the ‘age-tech’ space (with good reason, we all love shiny, new gadgets), one area that has received less attention is business model innovation. However, as the US health care system evolves towards ACOs, capped and value-based-payments, innovative business models are becoming increasingly important.
One of the more interesting takeaways that came up during my recent trip to UK to attend the G7 Summit follow up on financing a breakthrough in dementia, as well as the OECD workshop on the Silver Economy was the potential for social impact bonds to be used to finance innovative models for aging in the community. This post will outline what social impact bonds are, why they could be an excellent fit for aging in community and some suggestions for next steps.
1. About social impact bonds
A social impact bond is a promise by a funder (usually the government) to pay a group of service providers (usually non-profits) for delivering a specific social outcome. The payment is generally aligned with the outcomes – if the project delivers great results, the payments can be significant, if the project doesn’t deliver, the government pays nothing, or a small amount. They are generally structured˝ so that a coordinating entity contracts with the government to deliver services (either directly or via partners) and receive investment from socially-minded investors to pay for the project running costs in the interim. If the project succeeds, the social investors receive their reward via the government funding (which is still intended to be a lower overall cost than if the government was paying for the project).
The most famous, and first case involved the UK government offering to pay a non-profit for running a program to keep young offenders from reoffending when they leave prison. The first results are just in, and the program seems on track, although there are some complications. This approach is powerful for a number of reasons:
- It focuses on outcomes not on inputs. There’s often precious little accountability in government programs, and this approach makes everybody focus on what are these programs actually trying to achieve. In the case above, it doesn’t matter how much training or therapy or whatever the ex-prisoners receive, what matters is the impact on society.
- It encourages innovation in services delivery. It leaves the choice of how to achieve the social outcomes to the experts in the field who are working on providing services. In the case of public provision of services, there is often precious little market data to support projects in the field. As such it is particularly relevant for those areas in need of innovation, and when there is little consensus about the best approach.
- It shifts the risk of trying new approaches from the government to the private sector. The private sector – for profits and non-profits / for-purpose organizations are generally closer to the issues, more nimble and more adept at trying things out. Startup entrepreneurs are the epitome of this high risk approach.
2. Why it’s a good fit for aging in community
One thing that most people can agree on is the importance of allowing older people to remain healthy and independent in their community, rather than all moving en masse into nursing homes. There aren’t enough beds, the costs would be prohibitive and more importantly it’s not what 90% or more of people actually want. This is a complex, multi-party problem requiring innovation with a clear outcome and established benchmarks. For social bonds to be a good fit, a few things need to be true:
There’s a need for innovation. As noted above social impact bonds are good for when innovation is needed in the delivery of new services. If you have a well oiled public services machine delivering great services efficiently then you wouldn’t want to go to the extra effort of setting up a social impact bond that involves new players and the cost of adding a risk premium for the social investors.
Solving the problem requires lots of players. Again, if achieving the desired social outcomes was simple and achievable by one organization, you may as well save the time and not create this incentive structure. However, keeping people active, safe, healthy and independent in the community is a multi-faceted challenge that requires the interplay of social, economic, technical and medical factors. This coordination role is unlikely to be best achieved by government.
There’s a clear, measurable outcome. There are at least two easily measurable outcomes that you could track with such a bond – hospital / doctor visits and a happiness score. There are a variety of ways this could be conducted to
There’s a clear benchmark. It’s important to be able to know if the program has made an impact by comparing the results with a benchmark category. This would require a control group of similar people who are not receiving the services.
3. What we need to make this happen
We need players, programs and parameters.
Players: A social impact bond requires a motivated government agency (or private sector funder / insurer, although that is less common) who is willing to test out this approach, social impact investors who are willing to fund the operations of the project before the success fee of the government kicks in, an intermediary who creates the bond, raises the financing and contracts with the providers, and services providers who deliver the services.
Program: This is the fun bit – the intermediary needs to chose a variety of service providers who feel confident that their solution will be effective at contributing to the desired social outcome – i.e. keeping older people at home. As we now there are now a plethora of innovative startups, established organizations and non-profits who are developing new ways to enable this for older adults: from providing services in the community, making their homes smarter, making it easier to communicate with family members, caregivers and doctors, make new acquaintances, monitor their vital signs, track medication, improve local transportation or better manage their finances. As we’ve seen at Aging2.0, the list of high quality new services focused on seniors is rapidly expanding. This approach would also allow the intermediary to bring in other companies that aren’t focusing on older adults, but should. The promise of a large new customer base, guaranteed distribution and a performance bonus would be a wake up call to many of the more myopic tech firms who think the only demographic that matters is the under 30s.
Parameters: The success of a social impact bond will rest largely on the choice of the right metrics. How will we define the goals of the program? How large should the population be? How to make a comparable benchmark group? My proposal would be to focus on things that can be easily measured with clear benchmarks – so it could be hospital admissions / doctors visits and a quality of life index. These could provide relatively quick indications of the success of a program.
The good news is that Aging2.0 is already well connected with many of the key stakeholders in a position to make this happen – innovative services providers, funders and governmental organizations who are interested in driving wholesale change. It would be good to hear from providers, payors and government organizations who are interested in exploring innovative new business models such as this, which can potentially help lower costs and improve the quality of life for older adults around the world.
