Social Impact Bonds The Good, the Bad and the Ugly. The Network Annual Conference New York City June 6, 2013

Transcription

1 Social Impact Bonds The Good, the Bad and the Ugly The Network Annual Conference New York City June 6, 2013

2 What is Social Innovation Financing? Social Impact Financing restructures the relationships and the risks and rewards in the funding, design and financing of social services. KPMG Outcomes over outputs Increase scale of innovation Increase efficiency of systems Alter risk structure Utilize private capital to increase public capacity

3 A Note on Terminology Social Innovation Financing Social Impact Bonds Pay for Success Contracts

4 Bonding, Tax Credits, SIF time $ $ Private Sector

5 How it Would Work

6 How is a Social Impact Financing structured? Social Impact Financing restructures the relationships and the risks and rewards in the funding, design, delivery, and financing of social services. Social Impact Investors (Lenders/NGOs) 5. SIF repayment 1. SIF investment Government (Sponsor and funder) Intermediary (Financing or bond issuing organization) 4. Outcome payments Service Team (Subcontracted service providers) 3. Outcome verification 2. Services funding = contracts = cash flows The structuring, issuance, and administration of a SIF initiative are heavily dependent on the robustness of evidence and measurement of the efficacy of program interventions. Evidence and measurement give confidence to government, NGOs, and investors that the target outcomes can be achieved KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

7 Key Elements

8 High Utilizers $2,000 $1,000 $0 -$1,000 -$2,000 -$3,000 -$4,000 -$5,000 -$6,000 Monthly costs when living in permenant supportive housing 5th 6th 7th 8th 9th 10th 5th 6th 7th 8th 9th 10th Decile Change from costs before permanent supportive housing Probation Mental health jail Medical jail General jail Homeless srv. GR Housing Vouchers General Relief Food Stamps Paramedics Public Health Mental Health Private hospital-er Health Srv - ER County clinic Priv. hospital-inpatient Co. hospital-inpatient

9 Medicaid Cost Drivers Top 5% Enrollees Children 3.5% Adults 1.6% Disabled 29.2% Elderly 22.5% TOTAL 57% Total = 57.4 million Total = $265.4 billion SOURCE: Kaiser Commission on Medicaid and the Uninsured and Urban Institute estimates based on MSIS 2004.

10 Olmstead Institutional Care

11 Child Welfare Involved Families and Youth Aging Out of Foster Care

12 Aging Nursing Home Diversion/Aging Homelessness Accessible units Services titrated to geriatric needs Geriatric Health Services Brooklyn Community Housing and Services Public Housing Authorities

13 National SIF Developments Legislative Progress: Utah, New Jersey, Maryland, Connecticut, Santa Clara County, Los Angeles County Procurement: New York State, New York City, Cuyahoga County, Minnesota Pilots: New York City, Massachusetts Federal Movement: Department of Labor, Second Chance Act

14 Procurement Efforts Massachusetts State savings target Intersection of homelessness and healthcare Legislative appropriation of success repayment trust Minnesota Intersection of healthcare and state correctional costs Human Capital Performance Bonds Cuyahoga County, Ohio County cost drivers

15 SIF s Role in Broader Procurement Procurement A SIF I Procurement B SIF II

16 Home & Healthy for Good (HHG) Began Sept 06 Flexible funding Housing and/or Services Embraced by Massachusetts Commission to End Homelessness as best practice Housing and services provided by 14 agencies and model for MA Interagency Council Cost evaluation mandated by Legislature To date, 674 people have been housed through HHG

17 HHG Cost Savings

18 Actual Medicaid Claims (HHG Sub-Cohort)

19 HUES to Home Supportive housing resulted in: % reduction in emergency department visits 33% reduction in inpatient hospital stays 86% reduction in EMS ambulance transports ED visits/month Inpatient nights/month EMS Trans/month Before Housing During Housing Dr. Jessie Gaeta, Boston Health Care for the Homeless Program

20 Massachusetts Roles

21 Timeline for Implementation (MA)

22 What are some of the lessons learned from recent transactions? Complexity of SIF programs will require a robust framework for decision-making. Upgrade systems as needed for accurate data Start with identifying priority population(s) Get good data on effectiveness and savings Be prepared to iterate solutions Social Impact Financing Program Secure a Project Champion within Government Expect SIF process to take time Get help from skilled advisors Create dedicated SIF teams 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

23 What are the typical phases in structuring a SIF program? KPMG has identified at least four phases in the life-cycle of SIF program. Phase Identifying / Strategizing Developing / Structuring Negotiating / Closing Implementing / Tracking Tracking SIF Project Lifecycle Key Outputs Identifying potential SIF Project / Program opportunities Strategizing and partnering Proposed SIF Project/Program Developing key performance indicators and outcomes Analyzing cash flows and return requirements Structuring terms and transactions SIF Funding & Financing Plan Negotiating with counter-parties Executing and closing key SIF agreements and financing transactions SIF Commercial & Financial Close Implementing services Establishing systems to track and report on target outcomes Report and adjust, as needed to achieve targets Implementation & Monitoring 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

24 What are some alternative delivery models for SIF programs? Image below illustrates the umbrella delivery model Prime contractor provides single point of contact and accountability Allows for tailored package of care that can evolve over time Prime contractor may not have proper financial incentives to involve specialist providers 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

25 What are some alternative delivery models for SIF programs? Image below illustrates the wrap-around delivery model Network of providers work together to support target population and achieve outcomes Shared outcome payment incents cohesive and coordinated services Set of providers in network may be fixed, thereby reducing ability to tailor services to meet evolving needs of target populuation 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

26 What are some of the complexities and risks involved in SIF projects? Risk management considerations are numerous and inter-connected. Complex Negotiations Process Acceptability / Stakeholder Mgt. / Legal & Regulatory Timing / Schedule Both Services and Payment Performance Standards / Measurement / Reporting Social Impact Financing Program Implementation Teams & Services - Integration and Coordination Financial Funding and Payment Conditions Target Clients and Outcomes Investor(s) and Expectations 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

27 What are some of the criteria for successful SIF programs? KPMG has identified four categories of Social Impact Financing success criteria. Categor y Financial Case Stakeholder Support Tracking Key Criteria Defined SIF target population Measurable SIF outcomes Innovative interventions not widely in use Measurable counterfactuals Available and capable providers to deliver the program Workable structure for the delivery method Financial case for government cashable savings Financial case for investors return on investment Workable commercial model for providers Workable financial model for all Staff support Client and family support Political stakeholder support Interventions that meet objective standards of ethics and quality 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS