The desire to improve health care outcomes and reduce costs has led states to rethink how they deliver health care services. One approach is to focus on the underlying social determinants of health, which is why governors are incorporating public health, community, social support, and other nonclinical services into their efforts to transform their states’ health care systems.
Effective delivery of such services requires innovative programs. Social impact bonds (SIB) are a financing mechanism that states can use to support such innovative programs. Governors can use a SIB model to provide funds to nonprofit organization that can successfully deliver social, health, or educational services on a small scale. The funding from a SIB is used to scale up the nonprofit’s program, a process done through an intermediary organization that private investors finance. The intermediary organization contracts with the nonprofit to cover the cost of the scaled-up activities and with investors to negotiate an appropriate rate of return. That intermediary in turn has a contract with the state government that requires the government to pay the intermediary only if the nonprofit successfully produces the measurable outcomes specified in the contract. The intermediary is responsible for dispersing those government payments to the nonprofit and investors.
Several experiments are underway in states and cities across the country that use SIBs to finance innovative programs that improve access to quality health care and reduce the per-capita cost of care. Areas that such programs address include maternal and child health, substance abuse, diabetes management, and general preventive health services. The dollar value of those experiments that have SIBs as a financing mechanism is not precisely known but is estimated to be small compared with overall state spending for health care.
