New money for chronic diseases: can clinicians and entrepreneurs deliver outcomes eluding governments?

It is to our collective shame that those with chronic conditions in Australia suffer “a miserable existence in trying to organise their health care and prevent further deterioration”.1 With more than 1 million adults with cardiovascular disease and at least 800 000 with diabetes,2 we are ill equipped for the looming “tsunami of chronic disease”.1 In our patchwork health care system, consensus-based tinkering trumps the fundamental transformation necessary to deliver a 21st century system that is fit for purpose. A gear shift in health policy towards outcomes is imperative.3 In this article, I propose a radical arrangement that rewards genuine attainment of long-term results in chronic disease management by adapting a new financial instrument known as social benefit bonds (SBBs) for this purpose. In SBBs, private investors provide up-front funding to make it possible for service providers to achieve specific outcomes of social worth. Market rates of return on investment are predicated solely on the delivery of valued outcomes.

SBBs are a specific type of financial investment instrument. They are designed to yield commercially competitive rates of return to investors through bankable public sector savings contingent on documented and verified outcomes.4,5 SBBs are not the same as conventional government bonds. Conventional government bonds are considered low-risk investments because both the principal and interest (usually low) are returned with certainty to the investor on maturity. SBBs are unique in the investment landscape, because they return neither principal nor interest unless prespecified social outcomes of importance to communities are achieved. Return on investment is singularly dependent on quantifiable impact in the social sphere.

SBBs have the potential to solve intractable social challenges, particularly those for which governments have neither sufficient funds, nor political imperative, nor the long-term outlook or accountability (due to short electoral cycles) that such social challenges require.6 There must also be a clear line of sight between the achievement of quantifiable social outcomes, long-term government savings and investment return. When these conditions are met, private funds can be mobilised to unprecedented levels for outcomes that matter.4 SBBs permit staffing, delivery and management of services to be left completely to local service providers. Government is relieved of the dual role of funder and manager, instead becoming a commissioner. Bureaucracies no longer have cause to micromanage inputs, stultify innovation or prescribe inflexible models of care. Additional responsiveness is built in, because service providers are selected on capacity and performance, whether they are public, private or non-government.

There is a “proof of concept” experiment now underway in correctional services in the United Kingdom.6 Original calculations by the UK Ministry of Justice showed that, if the typical reoffending rate for short-sentence male prisoners of 60% was to be cut by 20%, £50 million was needed on top of the current costs of existing government programs to fund the effective rehabilitation of prisoners after their first release. Because a 20% reduction in the reoffending rate would permit four prisons to be closed within 5 years as a result of reduced demand, the government would save £62 million if this target were achieved. An incoming government was willing to experiment. Social Finance UK, a financial services company, issued the SBB. It secured a contract with the Ministry of Justice in March 2010 to reduce reoffending in a population of recently released short-sentence male prisoners in Peterborough. To achieve this social impact, it raised £5 million, to be drawn over 6 years from 17 private sources. The rehabilitation services are provided by community-based organisations, selected and contracted by Social Finance UK and retained on the basis of their performance. With the new resources and sense of purpose, these service providers have been re-energised to focus on what counts: effectively meeting prisoners’ needs. This SBB provides a genuine incentive for services to maximise coordination, share information for their client’s benefit, and eliminate duplication and double handling of cases. Service providers are not diverted from their purpose by the whims of a remote bureaucracy. Similarly, investors are not involved in operational matters. The Ministry of Justice maintains a strategic commissioning relationship with Social Finance UK and, through it, has raised new funds for social purpose. Early reports of service delivery debrided of bureaucratic micromanagement are reassuring.7,8

What happens next is also illustrative. Investors receive their first financial return on investment through Social Finance UK only if the contracted service providers achieve a 10% reduction in reoffending rates for the first 1000 prisoners from Peterborough. To corroborate net impact over and above secular trends, the reoffending rate of these first 1000 prisoners will be measured against a control group of 10 000 prisoners (matched for age, criminal history and time served in prison) who do not receive the services contracted through Social Finance UK.6,7 The next financial return on investment is only paid to investors once 3000 prisoners have gone through the scheme and when a 7.5% reduction has been shown in their overall reoffending rates. The payout “pot” comes from savings recouped by the Ministry of Justice and funds from Big Lottery. Total return on investment to investors is capped at 13%, or about £8 million.7 An independent auditor will scrutinise the soundness of outcome measures and the veracity of their reporting by Social Finance UK. If contractual reductions in reoffending rates are not achieved, investors get nothing back — not even their principal.

Box 1 presents five questions to help identify situations in which SBBs hold promise.5,9 While investors always seek a financial return on investment, it is the “social return on investment” expressed up front as a quantified population outcome that clearly matters: nothing vague, abstract, forgettable or open to interpretation. It also is striking that a population-based approach figures so prominently in SBBs. The requirement for agreed outcomes to be attained for a predefined population avoids distortions of earlier pay-for-performance schemes in social and community services, such as “gaming”, where both jurisdictions and providers exploited loopholes for their own interests, and “cherry picking” of easy cases to the exclusion of others who might cost more to treat.10 In contrast, SBBs specify a clear denominator, a negotiated population-based rate as a deliverable and reward for performance that is agreed in advance and proportional to effort. There is international interest in such arrangements among governments of diverse political persuasions.11,12 Readiness to explore SBBs also exists in Australia.13 New South Wales is the first jurisdiction to go “live” with SBBs in juvenile justice and correctional services14,15 (Box 2). The NSW government recently announced the financial institutions selected to partner on the joint development of SBBs.16

Is chronic disease a candidate for SBBs?

Two of the priorities spurring national health reform, namely “potentially preventable hospitalisations” and “potentially avoidable GP-type presentations to emergency departments”,17 might be effectively achieved through SBBs. Chronic disease is a major contributor to both of these performance indicators, yet current performance in managing chronic disease is poor.2 Australia’s rate of separations for potentially preventable hospitalisations resulting from chronic disease is 15.8 separations per 1000 population, with significant variation by jurisdiction.18 In NSW, an incoming government has committed to reduce unnecessary demand on hospitals during the term of its state plan. Potentially preventable hospitalisations must be reduced by 2.5% for Aboriginal populations and by 1% for non-Aboriginal populations no later than June 2015.19 This heralds a galvanising opportunity to explore SBBs in chronic disease.

In common chronic diseases, causal pathways and natural history are well understood. Predictors of complications and preventable hospitalisations as well as the reasons for presentation to emergency departments have been established empirically. Reference to the Cochrane Effective Practice and Organisation of Care Group database shows that there is already sufficient knowledge of the design features of effective service models.20 Yet clinicians, like other front-line staff working in public organisations, are hamstrung in their professional decision making by central bureaucracies.3 Imagine instead the energy at the front line that would ensue from a substantive bolus of new money carefully and contractually bound to the delivery of specific, long-term and clinically meaningful population-based outcomes in chronic disease — and only for those outcomes.

Two options for exploration come to mind. Consider how a specific SBB could be designed to reduce preventable hospitalisations to a specified benchmark. While the NSW rate is 2345.9 per 100 000, the benchmark in the North Sydney local government area is 1733.7 per 100 000, nearly a third less.21 This suggests that better outcomes are within reach with better alignment of effort, services and incentives. Another option might be a specific SBB designed to reduce diabetes-related hospitalisations in a specific region. For example, the rate of such hospitalisations in Gosford (an urban centre between Sydney and Newcastle) is nearly twice the rate in NSW overall.21 There are more than 6000 people with diabetes in Gosford, suggesting that a convincing SBB trial is possible. Savings that would accrue from predicted reductions in hospitalisations for both these SBBs could be readily estimated as the Independent Hospital Pricing Authority (IHPA) in June 2012 announced the nationally efficient hospital price to which governments will be bound. Services not contributing effectively to the prescribed outcome would be redeployed. Productivity and patient-centred care would improve. In the second SBB, an increase in services would be readily visible to people in Gosford with diabetes.

Other inefficiencies of the current Australian health care system could be tackled by the outcomes orientation of SBBs. Because all of the investors’ capital is “at risk”, and their return on investment is predicated on results, the demand for practical outcomes-oriented evidence would create an unprecedented market for interventional research and strategic academic partnerships. Rather than being ends in themselves, initiatives such as telemedicine and electronic health records would be more clearly corralled for purpose. As inequity is a distinct cost driver in health care, SBBs could be issued specifically to achieve materially better outcomes for socioeconomically disadvantaged populations. If, through the combination of new money, entrepreneurship and local autonomy, we could reduce the fourfold difference between the rate of diabetes-related hospitalisations of Aboriginal people and non-Aboriginal people in NSW, that would be cause for celebration.

I invite those exasperated by the intractable inadequacies of Australia’s health care system to imagine how SBBs could cut through the duplication, fragmentation and blame games that render health one of the least productive service sectors in Australia.22 Perhaps the IHPA could be tasked with further conceptualisation. Support would be readily forthcoming from cash-strapped governments looking for new ideas to obtain results with probity, foresight and the wellbeing of patients at heart.