Pay for Success (PFS) is a mechanism for funding public sector programs with financing from private investors who receive a payout from the public sector only if metrics identified in a performance-based contract are met. PFS has the potential for financing innovative and cost-effective prevention programs. Recognizing that little has been written about the potential for and challenges of PFS initiatives in Medicaid, the Assistant Secretary for Planning and Evaluation of the U.S. Department of Health and Human Services commissioned a research team from The George Washington University, The University of Michigan, and Altarum to investigate the feasibility of PFS initiatives that provide new preventive services to Medicaid populations.
As part of this project, we assessed the potential impact of a PFS initiative to fund a childhood asthma intervention that targets children enrolled in Medicaid. The assessment included an economic analysis to determine whether the intervention would generate sufficient savings to Medicaid to repay the PFS investor with a reasonable financial return.
The target population for the intervention consisted of pediatric asthma patients with Medicaid managed care coverage in the city of Detroit. The intervention was a multicomponent home-based single-year demonstration project that includes (1) home assessment followed by a “moderate” level of remediation for environmental triggers and (2) education and case management for improved disease control. The source of savings to Medicaid was reduced capitation payments over a seven-year time horizon resulting from fewer emergency department visits and hospitalizations; these savings were partially offset by the cost of the intervention. The resultant net savings were allocated among the PFS investor, the federal Medicaid program, and the state Medicaid program.
We found that such an intervention has significant potential in a PFS financing scheme if the intervention targets the most severely-affected children. It would provide considerable returns to the federal and state governments following timely repayment to the investor that includes a reasonable return on the investment. However, current Medicaid rules and regulations pose significant barriers to capturing federal Medicaid savings for use in the PFS payouts to the investor, leaving the financial burden of PFS outcome payments to the state government. This suggests a need for policy reform and guidance from the federal government to enhance the viability of such a PFS program.
Details of the analysis were recently published in the Milbank Quarterly.