| Notes |
Early Health “Pay for Success” Social Impact Finance:
Scaling Up Prenatal Health Care in Virginia
Strengthening business through
effective investments in children and youth
Janis A. Dubno MBA, Robert H. Dugger PhD,
Debra L. Gordon MS, David Levin MD, and Philip A. Peterson FSA
ReadyNation Working Paper
November 2014
Washington, D.C.
www.ReadyNation.org
2013 ReadyNation. All Rights Reserved.
Table of Contents
EXECUTIVE SUMMARY...............................................................................................................................................4
INTRODUCTION ...........................................................................................................................................................6
THE BUSINESS CASE FOR IMPROVING BIRTH OUTCOMES..............................................................................6
Virginia’s Workforce Challenge.......................................................................................................7
Building a Workforce: Do it Right, From the Beginning.......................................................................7
Impact of Birth Outcomes on Workforce ......................................................................................8
PRENATAL AND INFANT HEALTH AND DEVELOPMENT....................................................................................8
Low Birthweight and Preterm Births in Virginia.......................................................................8
Consequences of Preterm/LBW Births ............................................................................................8
Long-Term Effects of Preterm and LBW Births ..................................................................................10
Cost of Preterm/LBW Births.................................................................................................................10
Risk Factors for Preterm and Low Birthweight Births .........................................................10
ADDRESSING PRETERM AND LOW BIRTH WEIGHT BIRTHS ..........................................................................12
Home Visiting Programs for Pregnant and New Mothers.....................................................12
Nurse Family Partnership...................................................................................................................12
Healthy Families America..................................................................................................................13
IMPACT OF HOME VISITING ON PRETERM AND LOW BIRTH WEIGHT DELIVERIES ................................14
Return on Investment from Home Visiting Programs .............................................................15
Challenges with Home Visiting Programs ..................................................................................17
Home Visiting Programs and the Affordable Care Act.........................................................17
USING PAY-FOR-SUCCESS TO SCALE UP HOME VISITING PROGRAMS......................................................18
New York City’s Rikers Island ...............................................................................................................18
Salt Lake City, Utah, Granite City Preschool Project..........................................................................19
Case Study: South Carolina Pay-for-Success Nurse Family Partnership ..........................................20
CHALLENGES TO IMPLEMENTING PFS PROJECTS ...........................................................................................20
IMPLEMENTING A PAY-FOR-SUCCESS HOME VISITING PROGRAM IN VIRGINIA ....................................21
Implementing Home Visiting Programs through Medicaid...................................................21
Medicaid Cost Avoidance Savings from Home Visiting ...........................................................22
Challenges with Medicaid Financing of Early Childhood Home Visiting Program..........22
3
SCALING UP VIRGINIA PRENATAL COUNSELING WITH PAY-FOR-SUCCESS FINANCE...........................23
Virginia Comprehensive Health Investment Project (CHIP)................................................23
Assessing PFS Feasibility of a Partners in Pregnancy Program...........................................26
Excel Spreadsheet Model to Assess PFS Feasibility .............................................................................28
A PFS ACTION PLAN FOR VIRGINIA......................................................................................................................34
REFERENCES................................................................................................................................................................36
APPENDICES ...............................................................................................................................................................41
Appendix A: Notes on Virginia’s Workforce Challenge: Demographic and Income Trends .....41
Appendix B. Pay for Success Social Impact Finance Basics: Organization,
Funds Flows and Examples .............................................................................................................49
We greatly appreciate the generous support of the Pritzker Children’s Initiative, a
national project of the J.B. and M.K. Pritzker Family Foundation, for sponsoring
our Pay for Success work.
4 www.ReadyNation.org
Executive Summary
The Problem
This is the latest in a series of ReadyNation papers on using Pay
for Success (PFS) social impact finance to improve early child
health and education outcomes. This paper focuses on using PFS
finance to scale-up effective early health interventions.
PFS is a new financial and contracting arrangement that
increases investment in evidence-based programs resulting in
measurable social outcomes. Savings from these outcomes can
repay investors and fund continued services.
ReadyNation is leading a project to provide technical
assistance to state and city teams developing PFS contracts
(www.ReadyNation.org/PFS).
A child’s prenatal and infant months are the most important
in shaping its later health, educational performance, work
productivity, and lifetime success. Premature and low birth
weight (LBW) infants face lifetime threats to their adult
productivity. Findings from brain and child development
research show that that child development is a cumulative
process. What happens at the beginning and every month
thereafter, effects everything that follows. And remediation
costs to correct problems are far higher than the costs of doing
things correctly early on.
Pre-term and LBW infants face significant risks for medical
and developmental disabilities, which, as this paper discusses,
saddles government and private entities with billions in
additional spending from birth and infancy and throughout a
child’s life. In addition to health, education and welfare costs,
the impaired ability of these infants to become productive
young adults, increases tax burdens on citizens, and worsens
emerging workforce deficits in Virginia and the United States.
Though the U.S. is one of the wealthiest nations in the world,
and Virginia is one of its most prosperous states, both have
among the highest rates of premature and low birth LBW
births in the developed world.
The major cause of preterm and LBW births is not medical, but
social. Poverty, stress, alcohol and drug use, smoking, obesity, and
adolescence pose the greatest risks for poor birth outcomes.
The costs of poor birth outcomes are huge, both medically
and socially. Studies show that these children fare worse in
school and are more likely to require special education; are less
likely to attend college and enter the professional workforce;
and rank in the lower third of the country in terms of income.
Nationally, preterm and LBW births cost more than $26 billion
in direct medical and other costs in 2005 – implying the costs
to Virginia were about $676 million.
This is particularly troubling given the pending workforce
shortages facing this nation and Virginia as a result of
declining birth rates, weakening migration, and high numbers
of youth who simply do not have the skills and drive necessary
to succeed in the jobs required to replace retirees and support
economic growth.
A Solution
One option for reversing these trends is home nurse visiting,
in which nurses and peer counselors provide support and
education to high-risk pregnant women in their homes. Such
programs have had excellent results over the past 30 years
in improving birth outcomes and long-range outcomes such
as reduced teen pregnancies, child abuse, injuries treated in
the emergency room, crimes and arrests, alcohol, tobacco,
and drug use, and need for government assistance, among
other benefits. These long-term benefits, as well as short-term
reductions in medical costs resulting from healthy infants,
could significantly reduce state expenditures, freeing up capital
for economic, educational, and infrastructure programs.
However, only about 15% of high-risk mothers in Virginia with
children under age 5 receive such services. As a consequence
government expenses and tax burdens are higher than they
need be.
This paper proposes an innovative approach to expand nurse
visiting programs to the 30,900 high-risk pregnant women in
Virginia who need these services but are not receiving them.
Using Pay for Success Finance to Pay for
Home Visiting Prenatal Counseling
Pay for Success (PFS) finance can be used to pay for expanding
nurse visiting programs through the Virginia’s Medicaid
program. Medicaid covers all low-income pregnant women
in the state. PFS finance involves a partnership between
philanthropic and business entities (organizers and investors)
and governments to provide performance-based investments
in social programs, with payments made to the investors from
5
cost avoidance savings that governments enjoy as a result of the
program, or because the program meets certain prespecified
outcome improvements.
PFS finance encourages investments in cost-saving preventive
services to: reduce the need for more costly remediation;
establish a framework for sustained multi-year collaboration
between public, private and non-profit actors to help solve
complex social problems; and bring market discipline to
government decisions about which programs to expand while
using rigorous evaluation to advance our knowledge of which
interventions are most effective.
We believe that PFS finance can work in Virginia, given the
successful outcomes of a pilot program conducted by Sentara
Healthcare’s OPTIMA Medicaid managed care plan and the
Virginia Comprehensive Health Investment Project (CHIP), a
nurse visiting program. Using a foundation grant and Sentara
funding, the two developed the Partners in Pregnancy (PnP)
program, a community-based pregnancy care partnership
based on the nurse family partnership model. Nurses and
social workers provide home visitations, coordinate medical
care, link families to community resources, offer education
around prenatal and infant care, and encourage self-care and
advocacy for this vulnerable population.
An analysis from the University of North Carolina found
significant improvements in birth outcomes between the CHIP
mothers and a control group, as well as significantly lower
short-term costs. Overall, the analysis estimated a benefit
cost ratio of 1.26, implying a 26% return on investment, even
without considering cost avoidance savings beyond the first
year of infancy, including savings from fewer subsequent
health problems, child abuse and neglect prosecutions, and
special education assignments.
Spreadsheet Model of How PFS Finance
Works to Scale Up Prenatal Counseling
To enable those interested in scaling up early health
interventions using PFS finance, we provide a spreadsheet
model that enables users to test different project and outcome
parameters and understand the mechanics of PFS finance in a
detailed way, and even carry out a preliminary assessment of
the financial feasibility of a specific project.
The key idea in a PFS project is that private investors (the
managed care organization and/or senior and subordinated
lenders) are repaid only from success payments, amounting
usually to 80% to 90% of total cost avoidance savings.
The model contains the health and cost outcomes of the PnP
project and shows that when the success payment percentage is
80%, the PnP project is not feasible if funding comes only from
private sources, but it is when the success payment percentage
is 100%.
Further, if funding includes public sources, for example, 80% from
private lenders and 20% from state government, then the project is
feasible with a success payment percentage of 80% to the investor.
The PnP project is feasible in the sense that total cost avoidance
savings are greater than the amounts borrowed to scale up the
intervention, and in the sense that the return on investor capital is
competitive with alternative uses of that capital.
Under these assumptions, the return on investment to the
private lenders is 11.2%. And importantly, the portion of cost
avoidance retained by the state for its own uses is more than it
invested in the project, resulting in a return on investment to
the state of 11.2%. In this instance the state receives a positive
financial return on its investment as well as the benefits of
lower health, welfare and prosecution costs in the future.
By taking out the PnP data and inserting the cost and outcome
data for a specific intervention, and adjusting the project
parameters such as the mix of funding sources to reflect
the financing terms of a proposed project, users can test in
a preliminary way the financial feasibility of scaling-up the
intervention using PFS finance.
Steps to Identify and Implement Early
Childhood PFS Finance in Virginia
There are many challenges to implementing early health PFS
finance. Identifying the obstacles and working out ways to
address them will take time and may require changes in state
law. These challenges include (1) the method for allocating
Medicaid patients in a region, (2) the disappearance, or
“churning”, of Medicaid patients and reappearance of them
when they need care, and (3) immediate downward adjustments
in Medicaid service payments by Virginia’s Department of
Medicaid Assistance Services as soon as the department learns
that a service or patient group is costing less.
To address these and other challenges and pursue a process of
identifying and funding promising projects, we suggest a series
of next steps to develop effective PFS programs in Virginia
designed to improve birth outcomes, so the next generation
can contribute fully to the state’s economic success.
6 www.ReadyNation.org
Introduction
The Institute of Medicine calls the gestational period “one of
the most important predictors of an infant’s subsequent health
and survival.”1
Yet the United States, which spends more per
capita on health care than any other developed country in the
world, has one the highest infant mortality rates among those
nations, and one of the highest rates of preterm (before 37
weeks) and low birth weight (less than 5.5 pounds) babies.2
These infants have significant risks for medical and
developmental disabilities, which, as this paper discusses,
saddles taxpayers with billions in additional spending from birth
and infancy and throughout the child’s life. In addition to health,
education and welfare costs, the impaired ability of these infants
to become productive young adults, increases tax burdens on
citizens, and worsens the emerging workforce crisis in Virginia.3
This paper is latest in a series of ReadyNation research reports
on early childhood social impact finance.4
This report presents
an approach to reducing preterm and low birth weight
births and paying for the interventions that bring about the
reductions using “pay for success” (PFS) finance principles.
The increasingly noted problem of newborn obesity is not
discussed in this report, though clearly it is highly likely that
what is done to improve maternal, prenatal and newborn
health will mitigate obesity also.
PFS finance has many advantages. It draws on the judgment
and initiative of private sector investors in combination with
philanthropic institutions and local and state governments. It
is based on statistical evidence of sufficient quality to persuade
private investors to put their own money at risk. It provides
a way to pay for needed interventions using near-term
monetizable cost avoidance savings within an arrangement
that provides for clear performance assessment. And it
provides a framework for states to capture the longer-term
benefits of outcome improvements such as fewer neglect and
child abuse prosecutions, improved school-readiness, higher
3rd and 4th grade reading and math scores, higher graduation
rates and improved job-readiness. While longer-term benefits
are not immediately monetizable, their effects on budget and
tax burdens are concrete and very important.
Together, these near-term cost avoidance and longer-term
outcome improvements are the reasons why partnerships
of business investors, philanthropies, and governments may
be an important answer to finding what early childhood
interventions work and scaling them up for full effect.
The Business Case for Improving Birth
Outcomes
With good parenting, nutrition, healthcare and education, the first
months and years of life translate not only into healthier children,
adolescents, and adults, but into a more productive work force.
Nobel Prize winner James Heckman, PhD, the Henry Schultz
distinguished service professor of economics at the University
of Chicago, expresses this in the “Heckman Equation.” It
shows the significant effect that early childhood development
has on later-life health, economic, and social outcomes for
individuals and society. His research, and that of others, clearly
demonstrate the substantial return on investment that comes
from investing in the youngest residents—beginning in the
prenatal months (Figure 1).5
Indeed, LBW and preterm babies have significantly increased
risks of developmental, motor and social development
disabilities. They are more likely to have learning disabilities,
be enrolled in special education classes, have a lower IQ, and
drop out of high school than children born full-term.6,7 These
consequences and others are discussed later in this paper.
The Heckman Equation
Prenatal 0-3 4-5 School Post-school
Prenatal programs
Programs targeted
toward the earliest years
Preschool programs
Schooling
Job training
Rate of Return to Investment in Human Capital
Source: The Heckman Equation Brochure. Available at http://heckmanequation.org/content/resource/heckman-equation-brochure-0.
Figure 1:
The Heckman Equation
7
Early childhood development is so important to businesses and
economic growth that the US Chamber of Commerce launched,
in conjunction with ReadyNation, its Early Childhood
Education Initiative (ICW) in 2010 to leverage the power of
national, state, and local businesses to improve childhood
education and programs, thus improving the future workforce.8
A ReadyNation survey showed that state Chamber of Commerce
or Business Roundtables in, 49 of the 50 states have endorsed
early childhood as an important public policy issue.9
The Virginia Chamber of Commerce has also made early
childhood education a priority, including implementing private
sector models such as pay for performance in publicly funded
child care and early learning.10 Pay-for-performance programs,
also called Pay for Success (PFS), involve partnerships
between philanthropic and business entities (investors) and
governments to provide performance-based investment in
social programs with payments made to the investors after the
program meets certain prespecified outcomes.11
Why would chambers of commerce become involved with
early childhood outcomes? Because of the need for a stronger
workforce, particularly in Virginia.
Virginia’s Workforce Challenge
There were about 4.7 million job openings in the US in late
2014, more than 100,000 in Virginia, yet many employers
say they cannot fill many of them because of a “skills gap,”
particularly in the science, technology, engineering, and math
(STEM) arenas.12-14 In addition, recent data from the Defense
Department indicates that an estimated 71% of U.S young
adults ages 18 to 24 cannot join the military because they lack
high school degrees, clean police records, or adequate physical
fitness.15 This shortage of employable people, especially people
with the skills modern businesses and governments require, is
a drag on growth.
“You can’t work with a basic high school diploma today,” said
Brett Vassey, president and CEO of the Virginia Manufacturers
Association. “We need middle-level skills. Sixty-five percent of
our occupational demand over the next five years are positions
that require middle-level skills.”16
Other states are deeply concerned about workforce deficits.
New York, for example, has a population of about 19.7 million
and estimates that if current education and labor market trends
continue, the state will face a deficit of 350,000 workers for
skilled jobs by 2020 – about 1.8% of the state’s population.
These are the jobs requiring more than a high school diploma
but less than a 4-year degree.17
Virginia is no different. Declining birth rates, weakening
migration, and the possible unemployability of more than half
of Virginia’s young adults means that the state will not have
enough productive working age people to replace retiring
employees and support economic growth. Virginia’s population
is about 8.3 million, and over the next 10 years about 500,000
seasoned older workers will retire, but only about 340,000
employable young adults will enter the labor force. This is
a deficit of about 140,000, approximately 1.7% of the state’s
population.16 (See Appendix A for a discussion of Virginia’s
workforce demographics.)
Building a Workforce: Do it Right, From the
Beginning
The science of human brain development clearly demonstrates
that the foundation for STEM skills and the teamwork
capabilities needed for job success today are established in the
first five years of life.18 Unless Virginia can build the human
capital it needs to compete nationally and globally, current
demographic and economic trends will continue and perhaps
intensify.
As every businessperson knows, trying to fix a product at the
end of producing it, or even midway, is far more expensive
than making it correctly from the beginning. Applied to
human capital, producing the young adults Virginia needs
requires focusing on the earliest months of life and staying
focused through toddlerhood, pre-kindergarten, the next 12
years of school, and job training.17
For these reasons, the Virginia Chamber of Commerce put
early childhood at the top of its priorities in 2014 Blueprint
Virginia, its strategic plan for the state.10 The plan represents
the combined work of local and regional chambers and more
than 600 organizations across the state. The highest priority:
start now to build a globally competitive workforce and do it
from the earliest moments of a child’s life.
The Virginia Chamber developed this plan because top
executives of some of the state’s most far-sighted businesses,
especially companies that cannot or do not want to relocate,
are beginning to worry that the Commonwealth could
experience a longer-term, self-amplifying negative cycle of
declining economic competitiveness if it does not act now.
The reason is simple. As recent events show, Virginia’s “golden
8 www.ReadyNation.org
age” is over. The state’s economy has, for the past 2 decades,
depended heavily on three primary drivers: the military,
federal contracts, and federal employment. Since 2011,
however, the value of federal contracts coming into the state’s
northern counties has plummeted 14%, or $11 billion, while
federal employment has dropped 5%, or by 22,000 jobs. In
addition, the state is still barely recovered from the recession,
down 8,000 jobs overall from 2008.19
As Stephen Fuller, director of the Center for Regional Analysis
at George Mason University, said about the northern Virginia
region: “The region has stopped growing. High wage jobs and
most new jobs are paying below the average for all jobs.”20
Getting Virginia back on track will require a strong, healthy
workforce capable of taking on the high-tech jobs of the future.
Impact of Birth Outcomes on Workforce
The rate of preterm and LBW births can significantly impact
the workforce through lost labor market and household
productivity. An Institute of Medicine analysis put the cost of
lost productivity related to preterm birth at $11,214 per case,
or $5.7 billion annually (in 2005 dollars).1
Such long-term effects primarily stem from the cognitive and
behavioral deficits that often accompany preterm birth, as
well as heightened health problems related to early delivery,
including cerebral palsy, vision and auditory deficits, and
intellectual disabilites.1
One study found that children born
prematurely had reduced memory and attention span in early
adulthood, scoring an average of 8.4 points lower on IQ tests
than those born full term.21 Others find that children born
prematurely are more likely to be manual workers, less likely to
have a college education, rank in the lower third of the country
in terms of income, and less likely to be upwardly mobile.22,23
Clearly, these deficits, and others discussed below, are
detrimental to the development of the kind of workforce
Virginia needs to ensure economic and social success.
Prenatal and Infant Health and
Development
Research clearly demonstrates that the prenatal period
followed by the first 5 years of life are, by far, the most
important to future development and success.24 Yet infants
born prematurely or at a LBW have significant risks of
physical, cognitive, social, and other developmental delays, as
well as higher risks of later-life diseases and obesity.23-30
In 2012 (the latest year for which figures are available), 12% of
live births in the US were preterm; 8% of infants were of LBW;
and 1.4% were of very LBW (less than 1,500 grams).31,32
These rates vary significantly by socioeconomic status, race
and ethnicity, with the rate of LBW among children from lowincome families about 10% compared to the 6% rate seen in
more economically advantaged families.
Low Birthweight and Preterm Births in
Virginia
Virginia is a rich state, ranked 10th in the country in per capita
income. Yet in 2012, 11% of the Commonwealth’s 100,000
live births were preterm, while 9.7% were born at either a
low birth weight, or very low birth weight (Table 1). Among
African Americans, those rates were considerably higher,
reflecting one of many racial and ethnic disparities in the US
healthcare system.31 Rates were also higher for women of low
socioeconomic standing.33 As such, Virginia ranks 23rd in the
country in its rate of preterm births and LBW infants.34
In addition, 17% of pregnant women in Virginia do not
receive prenatal care beginning in the first trimester, a figure
that varies widely depending on location. In rural counties
like Alleghany and Bristol, for instance, only about a third of
women receive early prenatal care.35 In Scott and Accomack
counties, approximately half of all pregnant women did not
receive first trimester care. Overall, Virginia ranks 18th out of
the 50 states in terms of adequacy of prenatal care.36
Yet prenatal care is essential in ensuring a healthy pregnancy
and birth. Indeed, it is a Healthcare Effectiveness Data and
Information Set (HEDIS) measure that many state Medicaid
agencies use to evaluate quality.37
Lack of prenatal care is just one reason why half or more of
all births in 2008 in 73 out of 134 localities in the state were
deemed “high risk.” Other factors include LBW, Medicaid or
self-pay status, educational status, and age.38 Each year, 650
infants in Virginia under age 1 die, an infant mortality rate of
6.3%, which is higher than the national rate of 6.1%.39
However, early intervention through home visiting programs
like those described below can improve birth outcomes. Such
programs offer a promising possibility for applying pay-forsuccess financing, as explored later in this paper.
9
Consequences of Preterm/LBW Births
Although NICUs are miracles of modern medicine capable
of keeping barely viable infants alive, “the need for so much
intensive are for so many babies is a sign of political, medical,
and moral failure in developing ways to address the problems
that sustain an epidemic of prematurity.”
(Lantos JD. Hooked on neonatology. Health Aff (Millwood).
2001;20(5):240)
Preterm birth is the leading cause of infant deaths, accounting
for 35% of neonatal mortality. It is also a major cause of longterm neurological disabilities in children, as well as a major
risk factor for other medical complications.1
Being born too
early damages nearly every body organ, leading to chronic
lung injury, blindness, destruction of the intestines, and brain
injury.1
Among the outcomes:
Lung injuries. Without adequate time for lung development
in utero, preterm infants face a plethora of lung-related
conditions. Particularly damaging is respiratory distress
syndrome, an acute condition requiring mechanical
ventilation, which is often followed by long-term lung damage
called bronchopulmonary dysplasia. These infants are also at
greater risk of respiratory infections and asthma throughout
infancy and childhood, and more likely to be hospitalized with
either than full-term infants.1
Gastrointestinal complications. The immature gut of a
preterm baby can result in an acute injury called necrotizing
enterocolitis, when the lining of the intestinal wall dies and the
tissue falls off. It typically requires surgery to remove the dead
tissue and is often fatal.1
Cardiovascular complications. Premature infants have a
higher risk of patent ductus arteriosis, a congenital condition
in which a heart valve doesn’t close before birth, leading
to heart failure and reduced blood flow throughout the
body. Other cardiovascular complications include rhythm
disturbances and apnea (sporadic breathing). 1
Central nervous system dysfunction. Preterm infants are
extremely vulnerable to bleeding in the brain, which can
cause long-term neurological dysfunction. Brain injury also
contributes to their higher risk of cerebral palsy, cognitive
impairment, intellectual disabilities, language disorders,
attention deficit disorders, and visual problems.
Preterm infants are also more vulnerable to infections,
TABLE 1: Prenatal and Birth Statistics—Virginia and the United States, 2012
Indicator Virginia US
Total births 40 103,013 3.9 million
Children ages 0-17 living in poverty*41 15.5% 23%
Children ages 0-17 living in extreme poverty**41 7.2% 10%
Percent of women who do not receive prenatal care in the first trimester35 17% 16.3%24
Percent of live births of women who receive late or no prenatal care (2010) 4%42 6%43
Preterm births^ 11%34 12%32
Low birth weight 8.1%44 8%31
Very low birth weight 1.6%44 1.4%31
Infant mortality rate#39 6.3% 6.1%
*At or below 100% of federal poverty level (FPL)
**50% or less than the FPL
^Birth < 37 weeks
#Deaths < 1 year of age
10 www.ReadyNation.org
including sepsis, given their immature immune system. This,
in turn, may lead to long lasting problems like cerebral palsy
and cognitive impairment. Other conditions affecting preterm
infants include anemia, a 10- to 50-fold increased risk of
hearing problems, and retinopathy of prematurity (blindness).1
Long-Term Effects of Preterm and LBW Births
The deleterious effects of a compromised fetal environment
and preterm birth continue throughout a child’s life. These
include increased risks of obesity, cardiovascular disease,
diabetes, and hypertension, and asthma, among others.30,45-47
They are also more likely to be hospitalized during adolescence
and adulthood for psychiatric reasons, including drug and
alcohol dependency.27
However, non-medical consequences are just as prevalent. As
described above, children born between 34 and 36 weeks were
more likely to be manual workers, less likely to have a college
education, rank in the lower third of the country in terms of
income, and less likely to be upwardly mobile.22,23
Other research finds similar deficits in children and adults
born with LBW, including poor academic performance,
greater need for special education, and lower likelihood of
having a professional or managerial job by age 26. They also
had significantly lower incomes than those born at a healthy
weight, leave home later than those born at a healthy weight,
and develop intimate relationships later.48,49 Studies also find
that LBW infants are more likely to be placed in foster care
and to endure abuse, both of which are likely due to the
socioeconomic environment into which they are born (recall
that women of low socioeconomic status are more likely to
have a LBW baby).50,51
These children often experience significant problems in school,
with one study of 153 children born before 28 weeks finding that
just half were ready for kindergarten at age five. Studies of children
born below 800 or 1000 grams (1.7 or 2.2 pounds) find that up
to a third repeat a grade; 15% to 47% require special education
support; and up to a fifth were in special education classes. In
addition, children born prematurely or with a LBW have up to a
10-fold increased risk of learning disabilities, and higher rates of
ADHD and behavioral problems.1
Cost of Preterm/LBW Births
Given the numerous complications related to preterm and
LBW births, the economic costs are astounding, responsible
for more than $26 billion in direct medical and other costs,
or $51,600 per preterm infant, in 2005 alone.1,32 This includes
$16.9 billion in medical services, as well as $611 million for
early intervention services, $1.1 billion for special education
services, and $5.7 billion in lost household and labor market
productivity associated with the disabilities prevalent in
preterm infants (all 2005 dollars). None of these figures
include medical costs beyond early childhood, which are also
significant.1
If Virginia’s 2005 costs are proportional to its share
of national GDP (2.4%) or non-farm job holders (2.7%), the
cost of preterm and LBW births in Virginia in 2005 was about
$676 million.
In just the first year of life, late preterm infants (those born
at 33 to 36 weeks gestation) cost 3 times as much as full-term
infants ($12,247 vs $4,069, 2005 dollars).1
In addition, VLBW infants, which make up just 6% of all
births nationally, are responsible for about 30% of all pediatric
medical costs through age 7.1
However, just a 250 gram increase in an infant’s weight (about
8 ounces) saves an average of $12,000 to $16,000 in the first
year of life; while an increase of about a pound saves $28,000.52
Risk Factors for Preterm and Low
Birthweight Births
Numerous medical and social factors increase the risk of
delivering a preterm or LBW infant. Most, with the exception
of certain preexisting medical conditions, are modifiable, with
research finding that improving these factors can significantly
improve birth outcomes.1
These include:
Alcohol consumption. Even just one drink a day throughout
pregnancy increases a woman’s risk of preterm birth and
LBW births.53-55 By far the most serious consequence of
heavy drinking during pregnancy is fetal alcohol syndrome
disorder (FASD)–the leading known preventable cause of
mental retardation in the country.56 The condition exists on a
continuum, with some children diagnosed with fetal alcohol
effects (FAE) exhibiting some of the FASD characteristics but
not all. Other diagnoses include alcohol-related birth defects,
diagnosed in children with congenital abnormalities; and
alcohol-related neurodevelopmental disorder, diagnosed in
children with measurable but less intense neurobehavioral
deficits than those seen in children with FAE.57
11
Fetal alcohol syndrome disorder is marked by physical as
well as cognitive and emotional effects. These include short
eyelid openings, flat midface, thin upper lip, and a groove
between the nose and upper lip. These children also have
poor growth and exhibit significant cognitive and behavior
problems including hyperactivity and attention problems,
learning and memory deficits, and problems with social and
emotional development.57
Preventing FASD should be an economic priority given that
the cost of raising a child with FASD is estimated to be 30
times higher than the cost of preventing the condition.58
In Virginia, 7.8% of mothers consumed alcohol during
pregnancy.38
Drug use. Between 5% and 20% of pregnant women use illicit
drugs during pregnancy, or misuse legal medications such as
opioids and benzodiazepines.59 The implications of drug use
during pregnancy on the child are significant, with one study
of 304 first-time mothers admitted to the hospital for mental
and behavioral disorders linked to opioid or marijuana use
found that they were nearly three times as likely to deliver a
preterm baby, while the babies of mothers admitted for opioid
use were 6 times more likely to be admitted to the special
care nursery or NICU.60 Another study evaluating the impact
of methamphetamine use in pregnant women found their
children exhibited delays in motor development during their
first 3 years.61
Meanwhile, women who use cocaine during pregnancy are
twice as likely to deliver prematurely as those who don’t.1
A
follow-up study of children born to cocaine-using women
found adverse effects on language development even at 12
years of age.62
The growing epidemic of prescription drug abuse in the
United States is present in pregnant women, with the number
of pregnant mothers using legal opioids increasing fivefold
from 2000 to 2009. Maternal and fetal withdrawal from the
drugs can cause arrhythmias and hypertension in mothers and
infant, fetal hypoxia, intrauterine growth retardation, preterm
delivery, and fetal death. In addition, misuse of stimulants such
as the ADHD amphetamine drugs significantly increase the
risk of preterm and LBW births.59
Cigarette smoking. Cigarette smoking is a leading cause of
adverse birth-related outcomes, including infant mortality,
preterm birth, and LBW.1,63 One study found that the use
of cigarettes and alcohol during pregnancy had a more
deleterious effect on fetal growth than cocaine use, while
another found a threefold increased risk of a LBW infants born
to women who smoked during pregnancy.54,64 In addition,
smoking during pregnancy is associated with reduced
academic performance.65
Interestingly, despite years of effort aimed at reducing smoking
during pregnancy, smoking prevalence before, during, and
after pregnancy has remained consistent since 2000.66
In Virginia, 10.8% of pregnant women smoked during
pregnancy in 2007.38
Stress. Maternal stress due to anxiety, depression, or emotional
distress is strongly linked to preterm delivery and LBW. It
also impacts developmental outcomes throughout the child’s
lifespan.1
In addition, major life event stressors such as divorce,
death in the family, illness, injury, or unemployment, increases
the risk of preterm delivery. A case control study of life
stressors in African-American women found that 3 or more
adverse life events experienced during pregnancy tripled the
risk of a preterm birth and LBW infant.67
In Virginia, 74% of women who had a live birth experienced
one or more stressful life events in the 12 months before giving
birth.38
Maternal obesity. An analysis of a Swedish database
containing information on more than 1.5 million pregnancies
and deliveries found that overweight women (body mass
index [BMI] 25 to less than 30) had a 26% increased risk of
delivering prematurely. Women with a BMI of 30 to less than
35 had a 58% increased risk; those with a BMI of 35 to less
than 40 a twofold increased risk of a preterm birth; and those
with a BMI of 40 or more a threefold increased risk.68
Women who are underweight when they conceive as well as
those who do not gain enough weight during pregnancy also
have a higher risk of preterm birth.1
In Virginia, 22.9% of women who died from pregnancy-related
causes were overweight, 43.7% of them obese. That compares
to national figures of 14.5% and 28.5% respectively. The
maternal mortality ratio for overweight or obese Black women
was 2.2 times higher than for overweight or obese white
women.38
Teen births. Teen mothers are more likely to have preterm and
LBW babies than older women. They are also more likely to
enter prenatal care late and live in poverty, while their children
12 www.ReadyNation.org
are more likely to experience abuse and neglect, and end up in
foster care or with multiple caretakers.
In Virginia, 8,652 births in 2012 were to teenaged mothers (a
rate of 16.7 per 1,000 women), with a live birth rate of 11.8.69
As these numbers depict, there are numerous opportunities
to improve social and behavioral risk factors for preterm and
LBW infants in Virginia.
Addressing Preterm and Low Birth
Weight Births
There are dozens of programs available at the state and national
level designed to improve prenatal health and outcomes. The
focus of this paper is home visiting programs for pregnant
and new mothers, but it is worth discussing a few other,
more comprehensive approaches. Most of these and other
approaches center around the concept of a patient-centered
medical home, which provides a comprehensive suite of
medical and mental health services delivered in a coordinated
fashion among providers.
Strong Start for Mothers and Newborns Initiative. The
Centers for Medicare and Medicaid began Strong Start in 2012.
The program provides grants to states and other localities to
test ways to encourage best practices for reducing the rate of
early elective deliveries (those that lack medical indications)
for all payers, and, of interest to this paper, to test 3 models
of enhanced prenatal care for reducing preterm births among
women covered by Medicaid and/or CHIP.70 They include:
• Enhanced Prenatal Care through Centering/Group
Visits – group prenatal care that incorporates peerto-peer interaction in a facilitated setting for health
assessment, education and psycho-social support.
• Enhanced Prenatal Care at Birth Centers
– comprehensive prenatal care facilitated by
teams of health professionals including peer
counselors. Services include collaborative practice,
intensive case management, counseling and psychosocial support.
• Enhanced Prenatal Care at Maternity Care Homes
– enhanced prenatal care including psychosocial
support, education and health promotion in addition
to traditional prenatal care. Services provided will
expand access to care, improve care coordination and
provide a broader array of health services.
First Steps. The First Steps program provides comprehensive
services to Medicaid-eligible pregnant women and infants up
to a year. The goal is to increase access to early prenatal care,
promote healthy birth outcomes, and reduce infant morbidity
and mortality. It is a comprehensive suite of services, including
medical support, family planning, expedited access to alcohol
and drug assessment/treatment services, counseling, case
management, and care coordination.71
Changing reimbursement models. States are also
experimenting with performance-based reimbursement
models for physician groups that demonstrate improved entry
and retention in prenatal care and improved birth outcomes.
For instance, Arkansas is paying obstetricians a flat fee for
all pregnancy-related care. If they meet performance targets,
including low caesarian rates, they receive incentive payments
or a share of cost avoidance savings.72
Home Visiting Programs for Pregnant and
New Mothers
Home visiting programs are designed to address the multitude
of social and economic factors that contribute to poor birth
outcomes. The ultimate goal is to improve medical, social, and
educational outcomes. The two most prevalent models are the
Nurse Family Partnership (NFP) and Healthy Families.
Table 2 depicts key differences between the two.
Nurse Family Partnership
The most well-known and replicated home visiting
intervention is the Nurse-Family Partnership (NFP). The
program uses specially trained, registered nurses to provide
support and education to low-income, first-time mothers from
the prenatal period through the child’s second birthday.
David L Olds, PhD, and colleagues brought the NFP model
onto the national scene in 1986 when they published the
results of a randomized, controlled trial of a nurse home
visiting program in Elmira, NY. They went on to conduct
similar studies in Memphis and Denver, publishing dozens
of evidence-based papers on outcomes as the infants of the
participants grew.
Nurse family partnership programs provide nurse home visits
to pregnant women with no previous live births, most of whom
are low-income, unmarried, and teenagers. The nurses visit
the women weekly or biweekly during their pregnancy and
approximately monthly in the first two years of their children’s
13
lives. They teach positive health-related behaviors, competent
care of children, and maternal personal development (family
planning, educational achievement, and participation in the
workforce).75
Healthy Families America
The NFP spawned several other models, some of which do
not use nurses. One of the most widely used is the Healthy
Families America (HFA). As described by the Coalition
for Evidenced Based Policy, Healthy Families America is
a flexible program model whose elements vary somewhat
across state or local HFA programs. The program offers
weekly home visits from trained paraprofessionals to
families with a high risk of child abuse. The goal is to help
families manage life’s challenges and, in addition to home
visits, may include parent support groups, job training, and
other services.75
Unlike the NFP model, HFA programs enroll most of their
clients after they have had at least one child, while NFP only
enrolls first-time pregnant women. Participants in the HFA
program receive weekly or monthly visits through the child’s
third birthday (weekly during pregnancy) and as needed
TABLE 2: Healthy Families America and Nurse Family Partnership
Healthy Families America Nurse Family Partnership
Goals • Build and sustain community partnerships
to systematically engage overburdened
families in home visiting services prenatally
or at birth.
• Cultivate and strengthen nurturing
parent-child relationships
• Promote healthy childhood growth and
development.
• Enhance family functioning by reducing
risk and building protective factors73
• Improve pregnancy outcomes by improving prenatal health
• Improve child health and development
by helping parents provide more sensitive
and competent care
• Improve parental life-course by helping
parents develop a vision for their future
and fulfill that vision by planning future
pregnancies, completing their educations,
and finding work 73
Recipients Families with at least one child and a risk
of child abuse or other negative childhood
outcomes.
First-time, low-income pregnant women,
with first visit provided before the 28th
week of pregnancy.
Services Weekly during pregnancy. Weekly or
monthly visits through the first 36 months
(but may continue through the child’s fifth
birthday).
Weekly or biweekly during pregnancy.
Weekly or monthly visits through the first
24 months of infancy.
Staffing
May be lay staff based on their knowledge
of childhood development and ability to
interact with the recipients
Must be a registered nurse with a four-year
degree.
Flexibility Greater flexibility in implementation at the
local level
Highly structured approach designed to
mimic the national model
Average duration of participation 33 weeks 55 weeks
Low Average cost per existing family $5,615 74 $8,003 per family served 74
14 www.ReadyNation.org
through age five, while those in NFP receive visits through
the child’s second birthday, with weekly or biweekly visits
during pregnancy.73
Impact of Home Visiting on Preterm and
Low Birth Weight Deliveries
One of the first studies on the potential of home visiting
programs to prevent LBW deliveries was published in 1996.
An intervention group of 114 high-risk African-American
pregnant women receiving Medicaid was randomly selected
to receive in-person visits and telephone calls from registered
nurses and peer counselors. A comparable-size control group
of pregnant women was also randomly selected. The rate of
LBW in the intervention group was 9.1% compared to 22.4%
in the control group.76
Only one of the Olds et al studies, however, demonstrated a
reduction in LBW infants. The reduction was only in women
who smoked and in adolescent mothers, both of which are
risk factors for preterm and LBW infants. The nurse-visited
adolescents gave birth to infants that were, on average, 395
g heavier than those in the age-matched comparison group,
while just 2% of infants born to the nurse-visited smokers were
preterm compared to 10% of those born to smokers in the
control group.77
Other studies, however, attest to the benefits of home visiting
programs on births. One program that randomized 501
women to either bi-weekly home visitation services from
specially trained neighborhood women or a control group
found that the intervention group was nearly half as likely to
deliver a LBW infant than the control group; 32% less likely if
the intervention began at week 24 or less of pregnancy. There
was, however, no significant difference in preterm births.50
In Oklahoma, an analysis of birth records comparing outcomes
in women who participated in the Children First nurse home
visiting program and those who did not found that unmarried
participants experienced preterm delivery rates 21% lower
than the control group; LBW rates 23% lower; and infant
mortality rates 64% lower, all statistically significant.78
A comparison of Arizona’s Healthy Start program with a
control group also demonstrated significantly lower rates of
LBW infants, particularly in Hispanic women. The authors
suggest that one reason for the improvement was less cigarette
smoking in the intervention group, again highlighting the
importance of smoking cessation on birth outcomes.79
TABLE 3: Outcomes from Nurse Family
Partnership Programs
A 2013 report that analyzed data from 30 NFP
evaluation reports identified the following expected
outcomes when first-time, low-income mothers
received services:80
24% reduction in tobacco smoked
27% reduction in pregnancy-induced
hypertension
28% reduction in preterm births
60% reduction in risk of infant death
31% reduction in births within 2 years postpartum
31% reduction in second teen births
14% increase in attempted breastfeeding
38% reduction in injuries treated in the emergency
room (birth to 2 years)
38% reduction in child maltreatment through age 15
38% reduction in language delay
46% reduction in crimes and arrests, ages 11-17
53% reduction in alcohol, tobacco, and marijuana
use, ages 12-15
23% increase in full immunization, ages 0-2
7% reduction in TANF payments through year 9
post-partum
9% reduction in food stamps through at least year
10 post-partum
7% reduction in use of Medicaid coverage through
at least year 15 post-partum due to reduced
births and increased program graduation
The authors concluded that: “On average, enrolling
1,000 low-income families in NFP will prevent
78 preterm births, 73 second births to young
mothers, 1,080 child maltreatment incidents, 2,660
crimes by youth, 180 youth arrests, 230 personyears of youth substance abuse, and 3.4 infant
deaths.”80
15
Meanwhile, an analysis of evaluation reports from 30 NFP
programs found a 28% reduction in preterm births and a 60%
reduction in risk of infant death (Table 3).80 Other outcomes
from the Olds’ studies are shown in Table 4, while long-term
outcomes in the children born to mothers in the program are
shown in Table 5.
Studies also find significant reductions in admissions to the
neonatal intensive care unit (NICU) or other inpatient settings
as well as shorter lengths of stays for infants born to mothers
participating in home visiting programs. One study found
a home visiting program reduced NICU admissions 47%,
while another for women pregnant with twins reported NICU
lengths of stay 54% shorter and mean hospital charges 65%
lower than a similar group that did not receive home visiting
services.87,88
Return on Investment from Home Visiting
Programs
Estimates of the return on investment for home-visiting
programs vary. Most of the HFA evaluations focus on
reducing neglect and maltreatment rather than improving
birth outcomes. One study that did measure the effect of the
TABLE 4: Selected Outcomes from the Elmira, Memphis,
and Denver Nurse Family Partnership Interventions
Women in the NFP Program:
• Experienced fewer instances of pregnancy-induced
hypertension (PIH) than a control group, and those
that did develop PIH had less severe forms81
• Were half as likely as those who in the control group
to be involved in any child abuse and neglect by the
time their child turned 1582
• Were significantly less likely receive welfare
and food stamps, to be arrested, to experience
behavioral impairments due to substance abuse,
and to have another child81
• Waited an average of 65 months after the birth of
their first compared to 37 months in the control
group. (Research shows that an interval of 24
months between births is ideal for the health of the
mother and also for the development of the child)82
• Followed improved diets during pregnancy,
smoked 25% fewer cigarettes by the 34th week of
pregnancy, and experienced greater social support
and used more formal community services than
those in the control groups83
• Experienced reduced rates of preterm infants (in
smokers)77
TABLE 5: Long-term Outcomes of Children Born to
Mothers in the NFP Program
Children born to mothers in the NFP program:
• Had 23% fewer injuries or ingestions through year 2
that required medical intervention than children in
the control group, and were hospitalized less often
and for fewer days84
• Had higher IQs and fewer behavior problems by age
7 than the control group85
• Were less likely to run away or be arrested or
convicted of a crime by age 15 than those in the
control group83
• Had fewer sex partners by age 15 and fewer days of
alcohol use83
• Were significantly less likely to have been arrested
or convicted of a crime by age 19 if they were
female. The daughters of nurse-visited, unmarried
and low-income women also had fewer children and
less Medicaid use than the control group. However,
there were no similar outcomes for boys86
Government Cost Savings per Family Served by NFP
Source: Miller TR. Nurse-Family Partnership Home Visitation: Costs, Outcomes,
and Return on Investment. HBSA, Inc. 2013.
Total $20,965
(Present Value at a 3% Discount Rate)
Figure 2:
Government Cost Savings per Family Served by NFP
16 www.ReadyNation.org
28%
32%
18%
69%
36%
28%
14%
44%
36%
45%
53%
61%
10%
8%
8%
Smoking During Pregnancy
Complications of Pregnancy (hypertension)
Preterm First Births
Infant Deaths (risk)
Breastfeeding (attempt)
Childhood injuries (E.D. ages 0-2)
Child Maltreatment (ages 0-15)
Language Development Delay
Youth Criminal O enses (ages 11-17)
Youth Substance Abuse (ages 12-15)
Person-months of Medicaid
TANF (through 9 years post-partum)
Source: Miller, T. R. (May 2014). Life Status and Financial Outcomes of Nurse-Family Partnership in Texas. Paci c Institute for
Research and Evaluation.
Closely Spaced Second Births (within 2 years post-partum)
Food Stamp Payments (through 10 years post-partum)
Very Closely Spaced Second Births (within 15 months post-partum)
Total Texas Costs of Harms Prevented by Cost Category–2,650 NFP Families
Figure 3:
Costs
State Savings
Federal Savings
Cumulative Costs per NFP Family, and O setting Federal and State
Government Savings by Year after NFP Services Begin*
$10,000
$12,000
$8,000
$6,000
$4,000
$2,000
$0
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Age of Child
-1 = Start of Prenatal Visits
Figure 4:
Cumulative Costs per NFP Family, and Offsetting Federal and State Government
Savings by Year after NFP Services Begin*
*Present value computed at 3% discount rate
Source: Miller, T.R. (September 2012). Nurse-Family Partnership Home Visitation: Costs, Outcomes,
and Return on Investment. Executive Summary. H.B.S.A., Inc., PIRE
Age of Child
-1 = Start of Prenatal Visits
17
program on LBW found a statistically significant reduction
in the incidence of LBW (from 10% to 5%), but no significant
effect on the rate of preterm or LBW births.75
For NFP, an analysis of several randomized, controlled trials
conducted by Washington State Institute for Public Policy
estimated a return on investment of $17,180 (at a cost of
$9,118) for every child served by an NFP program (in 2003
dollars).89
The analysis of 30 NFP evaluation reports referenced earlier80
also found a substantial return on investment, with federal
savings exceeding the cost of the program by the time the child
turned 7, and state savings exceeding costs by age 10. Medicaid
accounted for more than half of the overall savings (Figure 2).
A report on outcomes through year 12 in the Memphis NFP
study found less spending on food stamps, Medicaid, welfare,
and Temporary Assistance for Needy Families (TANF) for the
nurse-visited families compared to the control families ($8,772
vs $9,797).90 The analysis estimated a benefit to society per
NFP family served of $81,656, yielding a benefit-to-cost ratio
of 9.5:1
Meanwhile, a 2014 evaluation of a statewide Texas NFP
program found savings of $1.78 million in tangible and
intangible prevented costs of harm (Figure 3), including
$1.89 million in premature births and $1.9 million in reduced
preeclampsia (a dangerous condition that requires immediate
delivery of the baby). Cumulative state and federal costs and
savings through age 18 are shown in Figure 4.91
A major financial impact from such programs comes from
their ability to prevent child abuse and maltreatment, which
carries an average lifetime cost per child of $210,012 (in 2010
dollars).74
Home Visiting Programs and the Affordable
Care Act
The success of programs like the NFP and HFA led to the
inclusion of $1.5 billion in the Affordable Care Act (ACA) to
create the Maternal, Infant, and Early Childhood Home Visiting
(MIECHV) program. The program provides grants to states
to deliver evidence-based interventions to high-risk pregnant
women, new mothers, infants, and young children in home and
community settings. The ACA requires that 75% of grantee funds
be used for home visiting program models with evidence of
effectiveness based on rigorous evaluation research. The rest of the
grant may be used for demonstration projects.93
Challenges with Home Visiting Programs
Evaluations of various home visiting programs, including the
NFP, highlight several challenges that, as one reviewer noted,
“must be improved if these programs are to become truly
responsive to the needs of a broad array of disadvantage families with young children and, in turn, produce stronger, more
consistent, and sustainable outcomes.”92 These include:
• Evaluations of various home visiting programs, including
the NFP, highlight several challenges that, as one reviewer
noted, “must be improved if these programs are to
become truly responsive to the needs of a broad array
of disadvantage families with young children and, in
turn, produce stronger, more consistent, and sustainable
outcomes.”92 These include:
• Developing and delivering the services in the context of
the environment in which the families live
• Integrating the changing economic environment
(particularly the demise of traditional welfare and the
pressure for new mothers to return to the workforce) into
program development
• Developing strong relationships and collaboration with
other service providers in the community
• Providing sensitivity and respect for each family’s cultural
traditions and values
• Recognizing the need for flexibility in terms of the
number, frequency, duration, and focus of visits to
correspond to the individual family needs
• Engaging other family members, including fathers and
other children
As of 2013, the Department of Health and Human Services (HHS)
recognized 14 home-visiting program models that met criteria for being
an “evidence-based model” for families with young children, including the
NFP and HFA models.94
That year, the Advisory Committee on Infant Mortality for HHS
recommended enhancing the role of home visiting programs in
supporting prenatal health, calling it as an “important part of any
national strategy to reduce infant mortality.”95
Since the MIECHV began in 2010, it has been implemented in 544
communities in 50 states, the District of Columbia, and 5 US territories
to serve about 15,000 families.96 In 2014, Congress extended funding
through March 2015.
Eighteen home-visiting programs serving 25 localities in Virginia have
received more than $5.7 million in MIECHV funding.97
18 www.ReadyNation.org
Using Pay-for-Success to Scale Up
Home Visiting Programs
Pay for Success (PFS) financing involves a partnership
between philanthropic and business entities (investors) and
governments to provide performance-based investments in
social programs, with payments made to the investors from
cost avoidance savings that governments enjoy as a result of the
PFS project, or because the project meets certain prespecified
outcome improvements.11
PFS encourages investments in cost-saving preventive
services to reduce the need for more costly remediation;
establish a framework for sustained multi-year collaboration
between public, non-profit and for-profit actors to help
solve complex social problems; and bring market discipline
to government decisions about which programs to expand
while using rigorous evaluation to advance our knowledge
of which interventions are most effective.
Figure 5 describes a PFS structure.
For a brief review of PFS social impact finance, see
Appendix B: Pay for Success Social Impact Finance Basics:
Organization, Funds Flows and Examples.
“Success” within the PFS model is based on two ideas: cost
avoidance and outcome improvement.
“Cost avoidance” refers to actual reductions in government
operating costs resulting from an intervention. One example
is a reduction in hospital NICU costs associated with fewer
preterm and LBW infants, which frees up funds for “success
payments” to investors. Cost avoidance savings not paid to
investors can be retained by the government entity.
“Outcome improvement” refers to measured improvements
in pre-identified outcomes resulting from the intervention.
These outcomes are usually not immediately monetizable.
For example, this could be a reduction in child abuse
cases, or simply a reduction in the number of preterm and
LBW infants. Outcome improvements justify participation
by philanthropies and governments and include a wider
range of short-term and long-term economic and social
benefits.11,98 Because outcome improvements can generally
be accurately measured, they provide a concrete basis for
determining success payments.
The two measures of success are not mutually exclusive. In fact,
the most effective PFS projects combine elements of both.
New York City’s Rikers Island
The first PFS project in the United States involved nearly $18
million in loans from Goldman Sachs and the Bloomberg
Foundation to scale up an intervention program designed
to reduce recidivism among teenagers incarcerated at New
York City’s Rikers Island. The intervention focuses on
personal responsibility education, training, and counseling.
The investment bank will recoup the full amount if
recidivism drops 10%; more if the drop is larger.99
Riker’s Island Project: Addressing NYC Adolescent
Incarceration
• Goldman Sachs funds the project’s delivery and
operations through a $9.6 million loan to MDRC;
• Bloomberg Philanthropies provides a $7.2 million
grant to MCRD to guarantee a portion of the
investment;
• MDRC oversees the day-to-day implementation of
the project and manages the Osborne Association
and Friends of Island Academy, the two non-profit
service providers that deliver the intervention;
• The Vera Institute of Justice, an independent
evaluator, determines whether the project achieves
the targeted reduction in re-incarceration;
• The Department of Correction pays MDRC based
on reduced re-admissions and the associated cost
savings and MDRC then pays the private investor.
Scaling Pre-K for Low-Income Kids in Salt Lake City—1
• Goldman Sachs makes a $4.6 million, 5% loan to
United Way of Salt Lake.
• J.B. Pritzker makes a $2.4mm 5% subordinated loan
to United Way of Salt Lake, reducing risk to the senior
lender if the preschool program proves to be ineffective.
• United Way of Salt Lake is the “intermediary” and
oversees the implementation of the project and is
also responsible for managing repayments to the
private investors.
• Imprint Capital serves as social investment banker.
19
Salt Lake City, Utah, Granite City Preschool
Project
The first early childhood PFS project was initiated in Salt
Lake City, Utah in 2013 by the Salt Lake United Way,
Goldman Sachs, J.B. Pritzker, and the Granite School District
Preschool, based on feasibility research that Voices for Utah
Children conducted.
The investors loaned $7 million to the United Way of Salt Lake
to implement the Utah High Quality Preschool Program in
two school districts. Success payments depend on meeting
targets related to decreased use of special education. The
payments will be made only through the 6th grade for each
student, with government entities capturing any additional
savings afterwards.100
Scaling Pre-K for Low-Income Kids
in Salt Lake City—2
• Voices for Utah Children provides financial
structuring, research and analytic support
• Granite School District and others provide the
preschool program to low-income 3 and 4 year olds
• Early Intervention Research Institute, Utah State
University, is the “third-party evaluator”
• Park City Community Foundation acts as the
Performance Account Manager, providing an
independent “performance account” to hold
repayment funds
Flow of Funds in a PFS Project (arrows)
Private, Philanthropic and
Government PFS Investors
Pay for Success
Investment
Intermediary
Intermediary Issuer
repays investors
6
Success Payment for
Outcome Improvement
or Cost Avoidance
5
Cost Avoidance or
Outcome Improvement
Achieved
3
Evaluator certi es
performance
4
Investors acquire PFS
assets and provide
working capital
1
Operating funds paid
to Service Providers
2
Third Party
Feasibility
Study
Third Party
PFS Project
Evaluation and
Certi cation
Early Health or
Education
Service Providers
Government
Health or
Education Agency
Figure 5: Pay for Success Structure
Scaling Pre-K for Low-Income Kids
in Salt Lake City—3
After initial funding, subsequent investments will be made
based on the availability of repayment funds from public entities that are realizing cost savings as a result of the program.
Through 6th grade
• Success payments, equal to 95% of special-ed cost avoidance, will be used to pay 5% annual interest and repay
senior and subordinate debt principle.
• Success fees, equal to 40% of special-ed cost avoidance,
will be paid to investors after debt principle has been
repaid.
After 6th grade, 100% of all special-ed cost avoidance will be
retained by Utah
20 www.ReadyNation.org
Several other localities are exploring their own PFS early
childhood programs, including the states of Ohio and
South Carolina.
Case Study: South Carolina Pay-forSuccess Nurse Family Partnership
South Carolina ranks 45th in the nation in terms of child
wellbeing. The state has several successful several home
visiting programs, but they serve less than 600 of the 11,200
eligible, high-risk mothers a year.
To get the benefits of home visiting, the state is considering
the using a PFS model to increase the availability of these
programs. A 2013 study determined that it was feasible to
use PFS financing to scale up programs such as the NFP.101
However, the authors also noted: “No single outcome would
produce enough savings to cover the cost of the entire
program.” In other words, the short-term costs savings
from a reduction in preterm births and the associated
medical costs would not be enough to provide a positive
return on investment to private investors. Yet because
such outcomes are, in turn, good predictors of long-term
results that can provide significant cost avoidance savings
to governments (as shown in the NFP studies described
above), the program can, over time, provide appropriate
returns on investment provided.
Study authors suggested that South Carolina set percentage
reductions in 1 or 2 outcomes as measured against a control
group over a 4- to 6-year contract term to obtain the
necessary funding required to scale up the program. State
and local governments, then, would retain the additional
savings over the years through reductions in disability, need
for special education, child abuse, substance abuse, and
crime, among other indicators.
Challenges to Implementing PFS Projects
The potential for private investment in early childhood
programs comes from mediating expensive social and
educational issues like child abuse, special education, and
crime. Yet government budgets operate on a short-term
basis, making it difficult, particularly in these days of
budget cuts, to scale up early childhood programs to meet
the ever-growing demand.100
There are several challenges to implementing a PFS project
successfully, especially with respect to early childhood
intervention programs. They include:
• Disjointed or insufficient acquisition and sharing
of data in individual child outcomes
• Unclear returns on the PFS investment project or
intervention
• Delays between the PFS intervention investment
and the return
• Difficulty in linking government cost reductions
or revenue gains solely to the PFS investment
intervention
• Multiple government jurisdictions with conflicting
priorities
• Child migration among jurisdictions
• Resistance to paying PFS investors from public
cost savings or revenue gains
• Shortage of high-quality intervention providers
who are also familiar and comfortable with
providing service under PFS models
• Insufficient personnel or data to administer and
evaluate PFS program performance
• Incentive inconsistencies among the parties to the
PFS financing
• Carefully selecting outcomes that indicate success,
so as not to inadvertently provide incentives to
deny children services
In addition, investors require:
• Strong state and local business, philanthropic and
government support
• Government commitments that extend beyond
election cycles
• Rigorous statistical demonstrations of historical
and projected intervention benefits
• Sound legal foundations for PFS funding
organizations
21
• Clear enforceable contracts among PFS
participating entities
• Loans, bonds or other PFS assets with terms
familiar to investors
• Good working relationships with the investment
underwriting, institutional and foundation sectors
Implementing a Pay-for-Success Home
Visiting Program in Virginia
The Virginia government conducted an analysis in 2010
of unmet needs in Virginia’s home visiting programs
and concluded that increasing the availability of these
interventions would help the state meet national and state
measures around prenatal care, LBW and prematurity,
breastfeeding, immunizations, teen births, and childhood
injury and hospitalization.”38
However, the analysis also found that there is a significant
unmet need for additional home visiting services in Virginia.
An estimated 82.6% of high-risk women (73,439) with children
under age 5 need these services, yet do not receive them.38
The report also identified several needs and gaps in home
visiting programs in the state, including:38
• The absence of intensive home visiting services
or limited services for teenage parents; fathers of
all ages, but particularly young men; families with
children over 3 years of age; Spanish-speaking
families; parents with more than one child;
grandparents raising grandchildren; women
experiencing perinatal depression; parents
struggling with substance abuse; diverse cultural
groups; families just above the poverty level
who are not eligible for the Women’s, Infants’,
and Children’s’ feeding program, Medicaid,
food stamps, child care scholarships, and job
training programs; homeless families or those
with very unstable housing and multiple moves
within a year; and families with a child who has
developmental delays or chronic illness.
• Regional differences in the availability of home
visiting programs.
• Lack of resource optimization. For instance, only a
few communities have common intake procedures
and referral agreements so that a family is assessed
for their particular needs and then referred to the
appropriate home visiting program.
Implementing Home Visiting Programs
through Medicaid
Any PFS home visiting program in Virginia will likely be
implemented through the state’s Medicaid program, with
grants going to existing, evidence-based home-visiting
programs throughout the state.
Medicaid finances a third of all births in Virginia, 45%
nationally. Like most state Medicaid systems, Virginia’s
is under considerable financial stress as a result of the
recession, an aging population, and an influx of new
enrollees who learned they were eligible after applying for
health insurance through the ACA.
Thus, states are searching for “hot spots” of spending to
address. One such area is NICU stays for LBW, preterm,
and other infants.102,103 Estimates put the average cost for a
NICU baby at $15,100 with an average length of stay of 12.9
days versus $600 and a 1.9 day length of stay for full-term
infants with no complications.104
Medicaid programs also bear the brunt of the additional
costs from adverse birth outcomes, since socioeconomically
disadvantaged women (those most likely to be on Medicaid)
are more likely to give birth to preterm and LBW infants
and to have higher-risk pregnancies themselves.105
Virginia’s Medicaid program operates under a risk-based,
capitated managed care model, which provides clear
incentives for the state’s Medicaid managed care plans to
implement home visiting programs, at least in the short term.
Seven managed care plans now contract with the state (Table
6), and managed care is available in nearly all regions.
The managed care model encompasses two programs:
Medallion II, for those with incomes up to 133% of the
federal poverty level (FPL), and Family Access to Medical
Security Insurance (FAMIS), the state’s version of the
Children’s Health Insurance Program, which covers
pregnant women and children with incomes between 133%
and 200% of the FPL. Benefits to pregnant women are
provided through pregnancy and for 60 days post-partum.
Nearly 9% of infants born to women in the Medicaid
program in 2012 were preterm, a slight increase over the
22 www.ReadyNation.org
8.7% in 2011. In 2012, 8.7% of infants were LBW, also an
increase over the previous year. Meanwhile, rates of preterm
and LBW infants were higher for women who were not
enrolled in FAMIS or Medicaid throughout their pregnancy,
but who were covered by one of the programs when they
delivered. The preterm birth rate in this group, for instance,
was 11.5%.106
These rates vary widely throughout the state, with several
counties reporting LBW rates between 18% and 21%. Data for
preterm births was not available on a county-by-county basis.106
Medicaid Cost Avoidance Savings from
Home Visiting
If successful, a PFS program could return significant
savings for Virginia’s Medicaid managed care organizations
and, eventually, the state’s Medicaid system as well as other
state entities.
Data from 30 NFP evaluation reports estimated that if state
Medicaid programs fully funded the program, they would reap
savings beyond the cost by the time the child turned 5, saving an
estimated $2.30 per dollar invested by age 18.80 When savings for
Child Protective Services, police, special education, food stamps,
and TANF are added, total savings come to $4.40 for every state
dollar invested and $2.90 for every federal dollar invested.80
As the author wrote: “NFP offers a mother lode of Medicaid
savings,” and, he continued, “seems a good candidate for social
impact funds.”80
The state of Minnesota has taken notice of the savings, with
all 12 of its Medicaid managed care plans providing home
visiting as a service even though it is not a required benefit.107
They individually contract with the states 91 local health
departments to provide the services.
Challenges with Medicaid Financing of Early
Childhood Home Visiting Programs
Though complex, Medicaid can be used to pay for home
visiting. A 2012 report from the Pew Center on the States
highlights a variety of strategies to do so.107 Other states have
implemented various approaches, including targeted case
management, administrative case management, enhanced
prenatal benefits, traditional medical assistance services, and
managed care. Other options include:
• Medicaid preventive services
• Early and Periodic Screening, Diagnosis, and
Treatment (EPSDT) services, which requires that
states provide children with any medically necessary
health care services identified through screenings and
diagnosis even if they are not available to adults
• 1915b Freedom of Choice waivers, which enable
states to selectively contract with providers providing
Virginia Medicaid Enrollment 2013
Source: Miller, T. R. (September 2012). Nurse-Family Partnership Home
Visitation: Costs, Outcomes, and Return on Investment. Executive
Summary. H.B.S.A., Inc., PIRE
Figure 6:
Virginia Medicaid Enrollment 2013
Enrollment
1,147,788
Expenditures
$6.7 Billion
Parents,
Pregnant
Women,
Caregivers
and Children
Disabled
and
Elderly
19%
48%
17%
11%
23%
7%
19%
54%
Enrollment vs. Expenditures for SFY 2013
Source: Virginia Department of Medical Assistance Services
Figure 7:
Virginia Medicaid Expenditures 2013
23
TABLE 6: Contracted Managed Care Organizations in
Virginia Medicaid Program
Anthem HealthKeepers Plus
CoventryCares of Virginia
INTotal Health (Inova Health System Plan)
Kaiser Permanente
MajestaCare (Health Plan of Carilion Clinic)
Optima Family Care (Sentara Health System Plan)
Virginia Premier Health Plan (VCU Health System Plan)
they can show a cost savings
• A 1915c Home and Community Based Services
waiver, which provides certain services to a defined
target population in the state
• Benchmark plans, which target special populations by
need, geography, and risk
• Funding in combination with other sources,
including block grants, general revenue funds, and
private funding. For instance, a family home visiting
program in Minnesota provided through local
health departments are funded via TANF, Title V,
state general funds, local taxes, Medicaid, and other
sources, including grants.
Virginia Medicaid managed care providers point to a number
of specific disincentives to participate in early health PFS
projects including:
• The method for initial allocations of Medicaid
patients in a region.
• The disappearance, or “churning”, of Medicaid
patients and reappearance of them when they
need care. A way needs to be found for health care
providers and PFS intermediaries to get “credit” for
the absence of Medicaid charges during periods when
patients are off the Medicaid roll.
• Immediate downward adjustments in Medicaid
service payments by Virginia’s Department of
Medicaid Assistance Services as soon as the
department learns that a service or patient group is
costing less. A process needs to be developed that
enables health care providers and PFS intermediaries
to earn a return on successful PFS projects and
continue operating them. Perhaps phasing-in lower
health costs over five to ten years could be considered.
Scaling Up Virginia Prenatal Counseling
with Pay-for-Success Finance
As this paper reports, decades of research on home visiting
programs shows that prenatal counseling and support can
improve the health and birth outcomes of expectant, lowincome, at-risk women, reduce healthcare costs, and improve
long-term outcomes in the children born to these women,
including reduced child welfare referral, abuse and neglect
prosecution, public school special education and adolescent
crime, drug use, and teenage pregnancy and their attendant
costs.
As the South Carolina feasibility research explains, these
benefits – cost avoidance and outcome improvements -- are
large enough to justify a combination of near-term private and
longer-term public financing.
In this section, we look at a nationally recognized and
financially successful home-visiting, prenatal counseling
program for which there is detailed cost data and
documented near-term results. The program is Partners in
Pregnancy, a joint effort of the Virginia Comprehensive Health
Investment Project (CHIP) and Sentara Healthcare, a large
healthcare system based in southeastern Virginia.
Virginia Comprehensive Health Investment
Project (CHIP)
CHIP is a statewide network of 7 regional programs serving 27
localities. The program offers voluntary parent education and
health-focused home visiting for low-income pregnant women,
young children and their families. CHIP serves families whose
children face serious threats to a healthy future: poverty, chronic
medical conditions, and lack of insurance. The CHIP of Virginia
network includes local programs in 27 Virginia communities
serving 3,100 children and 400 pregnant women.108
As explained in CHIP information, the program operates in
three areas:
• Medical home. CHIP is committed to the philosophy
24 www.ReadyNation.org
that the promotion of wellness and the improvement
of health for expectant women, infants and children,
beginning with care provided in their home and
through a medical home model that is accessible,
continuous, comprehensive, family centered,
coordinated, and compassionate. Traditionally,
children from low-income families do not receive
care in their homes but instead receive fragmented,
limited, and sporadic services from clinics and
hospital emergency rooms. CHIP sites work with
families and communities to ensure that each child
(0-6) and their older siblings are able to receive care
in their home.
• Health supervision. CHIP provides coordinated
health supervision that promotes wellness, prevents
illness and injury, and enhances normal growth and
development. These CHIP services complement the
efforts of the medical home.
• Family support. CHIP is committed to addressing the
complex social needs through partnering with families
and other community programs. CHIP family support
services build on the strengths of caregivers to provide
for the total well-being of their children.
In 2003, CHIP received a grant from the Commonwealth
Fund to partner with Sentara Health System’s Medicaid
managed care organization, OPTIMA Health Plan, on a
quality enhancing initiative to improve outcomes for highrisk pregnant women and their infants enrolled in Virginia’s
Medicaid system. The outcomes of that project, described
below, form the basis for the PFS program described here.
The pilot program, called Partners in Pregnancy (PnP), is a
community-based pregnancy care partnership that combines
the strengths of NFP and Healthy Families. Nurses and parent
educators provide home visitations, coordinate medical care,
link families to community resources, offer education around
prenatal and infant care, and encourage self-care and advocacy
for this vulnerable population.
The project enrolled 84 mothers into the intervention group
and compared them to a similar, albeit non-randomized cohort
of 59 mothers. The initial investment was $244,808. A financial
analysis of the program by researchers at the University of
North Carolina (UNC) estimated that the program saved
$6.3 million in hospital costs and avoided 5,800 days in the
NICU during the 21-month survey period.109 As the program’s
medical director and founder, David Levin, MD, noted at the
time, “This kind of program can greatly reduce taxpayer costs
Social/Cultural
SES Coping • Social Support
Marital Status • Acculturation
Domestic Violence
Biological Factors
Sex • Age • Race/Ethnicity
Medical Treatment
Exposure to virus/infection
Health/ Lifestyle Behaviors
Diet • Exercise • Alcohol • BMI
Tobacco Use • Sleep • Sexual
Behaviors • Adherence • Drugs
Psychological
(Emotional Distress)
Stress • Depression • Anxiety
Early Life Experiences
Neuroendocrine
CRH • Cortisol
Estrogen • Progesterone
Vulnerability/
Resistance
Symptom Onset
Cervical Length
Recovery
Progression
Immune Mechanisms
Cytokines (TNF-α, IL-1,
IL-6, IL-10)
Source: Ruiz RJ, Fullerton J, Dudley DJ. The interrelationship of maternal stress, endocrine factors and in ammation on
gestational length. Obstetrical and Gyn Survey. 2003;586:415-428; Lutgendorf SK, Costanzo ES. Psychoneuroimmunology and health psychology: an integrative model. Brain, Behavior, and Immunity, 2003;17:225-232.
PnP Program Framework
Figure 8: Partners in Pregnancy Framework
Source: Ruiz RJ, Fullerton J, Dudley DJ. The interrelationship of maternal stress, endocrine factors and inflammation on
gestational length. Obstetrical and Gyn Survey. 2003;586:415-428; Lutgendorf SK, Costanzo ES. Psychoneuroimmunology
and health psychology: an integrative model. Brain, Behavior, and Immunity, 2003;17:225-232.
25
for Medicaid, while improving the health of the newborns.”110
The statistical foundation of the PnP project is subject to
almost every criticism of non-randomized trials, and before it
could be replicated as a PFS project, longitudinal analyses with
larger and independently selected samples would be needed.
The one criticism it is not subject to is judgment based use of
the data.
Despite the fact that neither the intervention group nor the
control group were randomly selected, Sentara continues to
provide PnP services because doing so improves infant health
outcomes. In doing this, Sentara is relying on the data from the
project combined with its business judgment based on long
experience with low-income patients. Favorable results from a
randomized control trial (RTC) analysis would no doubt have
been sufficient to persuade Sentara to offer PnP services, but
were not absolutely necessary. The fact that CHIP is similar
to an NFP-based intervention, and there are RTC analyses
showing NFP’s effectiveness spanning decades, no doubt
figured in Sentara’s decision. However, all that was necessary
were results from a comparative analysis that, together with
Sentara’s long healthcare experience, indicated that continuing
to offer PnP services would improve infant health and makes
good business sense in whatever context Sentara uses.
Sentara’s decision reveals something very important about
the evidence standards necessary to undertake PFS social
impact finance projects. The only thing actually necessary is
evidence sufficient to persuade investors to write a check. If, in
their business or philanthropic judgment the evidence is good
enough to put their money at risk to provide an intervention
that could reduce government health and education costs, and
the other aspects of the project look good, they can and should
go forward.
The PnP project generated a series of important findings:109
• CHIP babies spent 44% fewer days in the hospital
than the control group, with the average number
of NICU days for preterm deliveries in the CHIP
group 3,085 NICU days per 1,000 compared to 6,416
per 1,000 in the control group. This represented an
average savings of $5,000 per day, or a net savings of
$1.5 million for the PnP cohort.
• Overall per-m ember-per-month (PMPM) costs for
the CHIP group were $671 ($432 for the mother and
$239 for the infant) compared to $952 for the control
group ($413 for the mother and $539 for the infant),
for an average savings of $23,604 per participant.
• Twenty-seven percent of mothers reduced or stopped
smoking during their pregnancy. In addition,
TABLE 7: Virginia Utilization Measures: Intervention and Optima Control Results
Utilization
Intervention
Mom
N = 83
Intervention
Baby
N=80
Opt
Control
Mom
N=80
Opt
Control
Baby
N=59
Admissions/1000 1,582.7 821.6 1,429.2 823.4
Days/1000 4,302.2 4,382.0 4,476.7 7,808.1
NICU Days/1000 NA 3,085.6 NA 6,416.8
Office visits per person 3.7 9.7 3.7 9.2
ER visits per month 2.0 1.5 1.5 1.5
Home Visits per person 0.3 0.3 0.1 0.8
Prescriptions per person 1.2 1.5 1.2 1.7
Source: Greene SB, Kilpatrick K, Reiter K, et al. Better Payment Policies for Quality of Care: Fostering the Business Case for Quality Phase I – Medicaid Demonstrations. Final Report – Site
Summaries. The Cecil G. Sheps Center for Health Services Research & the Department of Health Policy and Administration at the University of North Carolina at Chapel Hill. 2007.
26 www.ReadyNation.org
participants attended 88.5% of scheduled prenatal
visits, and 81% used stress management techniques.
• The program generated a return on investment of 1.26.
Tables 8.1, 8.2 and 8.3 provide detailed cost data from the UNC
analysis.109
It’s important to realize that the net savings did not consider
long-term costs avoided such as the reduced need for early
intervention, special education, and life-long medical care
associated with preterm and/or LBW babies, which would
primarily accrue to the state and local government.
In 2004, PnP received a national award from the Disease
Management Association of America (DMAA), as well
as a national study grant from the Center for Health Care
Strategies to develop it as business case for quality in Medicaid
management programs.110
The program has been scaled up and continues to operate as part
of Optima, with participants who complete the participation
criteria earning a healthcare debit card up to $200.
Assessing PFS Feasibility of a Partners in
Pregnancy Program
Assessing feasibility of a PFS program, however, involves a
more complex assessment than the simple benefit cost ratio
calculation provided in the UNC analysis. It requires at a
minimum that the present value of the success payments,
(that is, the percent of cost avoidance savings actually paid
to the intermediary) expressed as a return on investment,
be competitive with returns available in the market for
investments of comparable risk. Based on the PnP project’s
total cost avoidance, what might the success payment be? This
depends on the success payment percentage.111
The main determinants of the success payment percentage
are the uncertainty about the accuracy of the analyses of past
performance and evaluations of current performance, and
uncertainty about compliance with the contracts among the
parties to the PFS project. Clearly, entities such as government
agencies, school districts, and healthcare providers will not
want to pay more than the actual amount of achieved cost
avoidance to “investors” who provide the capital to fund an
intervention. In fact, they will likely demand some margin to
accommodate measurement and compliance uncertainties.
Given the uncertainties, a margin of 10% to 20% of cost
avoidance is generally thought to be needed. Accordingly,
expecting success payments to range from 90% to 80% of
evaluator-confirmed cost avoidance is reasonable. For Optima’s
PnP program, an 80% success payment would result in an
annualized return on investment of about 11% -- less than
the 26% calculated by the UNC researchers, but still a very
attractive return. The main reason for the difference is that the
TABLE 8.1:
Intervention Optima
Control
Intervention Optima
Control
Virginia Medicaid Enrollment 2013
Mothers Babies
$0
$100
$200
$300
$400
$500
$600
Virginia Medicaid Enrollment 2013
TABLE 8.2: Virginia Operating Costs
Costs Baseline Year 1 Year 2
Personnel $22,213 $161,475 $52,799
Office $180 $9,264 $7,300
Equipment $0 $0 $0
Other Direct $0 $0 $0
Indirect $0 $0 $0
Total $22,393 $170,739 $60,099
Source: Greene SB, Kilpatrick K, Reiter K, et al. Better Payment Policies for Quality of Care:
Fostering the Business Case for Quality Phase I – Medicaid Demonstrations. Final Report – Site
Summaries. The Cecil G. Sheps Center for Health Services Research & the Department of Health
Policy and Administration at the University of North Carolina at Chapel Hill. 2007.
27
TABLE 8.3: Detailed Cost Data for Partners in Pregnancy Program, Data from Appendix 1
VA - Sentara Health Management
QEI - High Risk Pregnancy and Child’s First Year of Life
Utilization and Membership Age Statistics Members in Claims Average Member
Min Max
Intervention MOM: 10/2003 - 07/2005 11 43 84 70
Intervention BABY: 06/2004 - 03/2006
Control MOM: 10/2003 - 07/2005 14 40 83 55
Control BABY: 06/2004 - 04/2006
Utilization Measures Intervention Control
MOM BABY MOM BABY
Admissions/1000 1582.7 821.6 1429.2 823.4
Days/1000 4302.2 4382 4476.7 7808.1
NICU Days/1000 3085.6 6416.8
Office Visits/person 3.7 9.7 3.7 9.2
ER visits/person 2 1.5 1.5 1.5
Home visits/person 0.3 0.3 0.1 0.8
Prescription/person 1.2 1.5 1.2 1.7
PMPM Payments Intervention
MOM % Total BABY % Total
Inpatient $175.78 40.7 $144.51 60.6
Outpatient $52.19 12.1 $9.48 4
Office $131.13 30.3 $58.09 24.3
ER $32.87 7.6 $14.34 6
Home $11.06 2.6 $1.21 0.5
Pharmacy $25.67 5.9 $6.56 2.8
Other $3.58 0.8 $4.44 1.9
Total $432.28 100% $238.63 100%
Source: Greene SB, Kilpatrick K, Reiter K, et al. Better Payment Policies for Quality of Care: Fostering the Business Case for Quality Phase I – Medicaid Demonstrations. Final
Report – Site Summaries. The Cecil G. Sheps Center for Health Services Research & the Department of Health Policy and Administration at the University of North Carolina
at Chapel Hill. 2007.
PMPM Payments Intervention
28 www.ReadyNation.org
26% return reflects the provision of project funds from noninvestor sources, so that the monies do not need to be repaid.
Essentially, this means that 100% of cost avoidance savings can
be considered to benefit society.
As mentioned above, in the PnP program, the success payment
percentage is effectively 100%. Sentara funded the program
with Optima serving as the intermediary and Sentara’s internal
accounting and audit staff serving as the evaluator. Figure 9
provides a flow chart of the project organization.
Excel Spreadsheet Model of PFS Feasibility
To make it easier to understand and assess the potential feasibility
of an early health intervention, we developed a spreadsheet model
that can accommodate a variety of health intervention features
and data and is able to handle funding from a variety of private
and public sources via an intermediary such as a regional United
Way. The spreadsheet is available on the ReadyNation website at
www.ReadyNation.org/PFS
The spreadsheet presents project assumptions and results,
intervention analysis, and cash flow analysis under individual
tabs. Assumption parameters can be adjusted to examine
different operating and funding possibilities. The spreadsheet
contains the data from the PnP project. To examine the
feasibility of a different program, the user will need to
remove the Optima data and input month-by-month medical
treatment expense data. Space is provided for inputting project
specific expense details.
Spreadsheet Assessment of PnP Feasibility
Assumptions and parameters of the Optima PnP program
shown in Table 8. The model incorporates all the data in the
UNC study associated with the Sentara Optima Intervention
and Control samples. Though we attempted to process the
UNC study data as precisely as possible, we were not able
to replicate the UNC estimated cost avoidance and social
benefit cost ratio. The UNC and spreadsheets are close but not
equal. The spreadsheet estimate and the UNC study reported
amounts are highlighted in the spreadsheet results tables.
Funding: 100% from a Senior Lender or an
MCO
The difference in estimated cost avoidance, not surprisingly,
has a large effect on feasibility. As shown in Table 10, the
Optima project, according to UNC, is a true winner from a
societal standpoint with a benefit cost ratio of 1.26. However,
the spreadsheet’s calculations show the PnP project has a
benefit cost ratio of 1.12.
From a PFS standpoint, assuming that Sentara has a 5% cost of
Sentara Optima PnP: Improving Birth and Infant Health
Investor:
Sentara Health System (MCO)
MCO records the Cost
Avoidance on its books as
return on investment
6
5
Cost Avoidance
is Achieved
3
Evaluators certify
performance
4 1
Operating funds paid
to Service Provider
2
MCO and
DMAS
Evaluators
Comprehensive
Health
Investment
Program of
Virginia (CHIP)
Intermediary:
Optima QEI
Program (HMO)
Department of
Medical Assistance
Services
Feasibility Study:
Numerous Third
Party Studies of
Home Visiting
Prenatal
Counseling
MCO commits its
capital to fund health
improvement intervention
Success Payment for Cost
Avoidance: Di erence
between Medicaid
Capitated Payments and
Actual Costs
Figure 9:
29
capital, provides all the capital to fund the project, and receives
100% of the cost avoidance as a success payment , the return
on Sentara’s investment is 21.5% per UNC’s analysis and 11.7%
per the spreadsheet’s calculations.
Funding: 80% from a Senior Lender or
MCO, and 20% from Government
The South Carolina feasibility study concludes that scaling-up
NFP requires participation by state government. If we adjust
the funding to include a mix of private Sentara capital and state
government investment, the results change in ways consistent
with the South Carolina findings.
Assuming Sentara provides 80% of the needed capital, or
$202,918, the spreadsheet calculated return on investment for
Sentara is 11.2%. (Tables 11 and 12)
If the state puts up 20% of the needed capital, or $50,730 to
fund the project, and keeps 20% of the cost avoidance savings,
an amount equal to $57,154, the state’s return on investment is
also 11.2%. Note that this is the financial return and does not
include the well-documented follow-on benefits to the state
and taxpayers that accrue from quality prenatal care.
Funding: 75% from Senior Lender or MCO,
5% from Philanthropic PRIs, & 20% from
Government
Including funding from a philanthropy in the form of an
interest bearing Program Related Investments (PRI), does not
change the fundamental social benefit cost relationship. But it
does change the investment returns of the investors who are
repaid from success payments. (Tables 13 and 14)
Reducing the amount of funding from senior lenders or
MCO to 75% and adding a 5% PRI investor, while keeping
the government’s contribution at 20%, increases the return to
the senior lender/MCO group, the investors who are repaid
from success payments, to 13.2%. The state’s return is reduced
to 6.1%. The reduction is the result of adding PRI capital on
which interest and principal has to be paid. The repayment
of principal in the last period reduces the amount of cost
avoidance accruing to the state as residual.
The investment return to the PRI investor is their contract
rate of 5%.
30 www.ReadyNation.org
TABLE 9: Optima PnP General Operating Assumptions MCO
Intervention cohort demographics
Number of mothers in one cohort 84
Number of children – prenatal, infant and toddler – in one cohort 83
Expected % of children who will leave MCO membership each year 0%
Number of cohorts (prenatal months, age-1 year) receiving intervention per year 1
Intervention program cost
Program length in months (9 mos pregnancy plus 12 mos infant & toddler) 21
Cost of providing intervention to one cohort over program length (UNC Study) $253,648
Cost of providing intervention to one mother and child (UNC Study) $3,020
Healthcare cost difference between intervention and non-intervention population
Average healthcare cost of a non-intervention recipient mother or child (Intervention Analysis) $793,555
Average healthcare cost of an intervention recipient mother or child (Intervention Analysis) $506,381
Per individual intervention and non-intervention healthcare costs difference = Cost Avoidance $287,174
Total cost avoidance over program length (Cash Flow Analysis) $287,174
Total cost avoidance over program length (UNC Study) $317,504
Success Payment paid from Cost Avoidance
Success payment percent of cost avoidance payable to intermediary and/or MCO 100%
Project Establishment Cost
Feasibility research (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Intermediary/MCO set-up (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Project Operating Expenses (on-going cost paid for by intermediary or MCO)
Total operating costs not including intervention costs over program length (per UNC Study) $0
Total operating costs including intervention costs over program length $253,648
Interest cost over program length (Cash Flow Analysis) $0
Total operating, intervention, and interest costs over program length $253,648
Funding Needs
Total intermediary and/or MCO operating costs not including interest expense $253,648
Interest Rate and Target Return on Investment Assumptions
Discount rate Per year 3% Per program month 0.25%
Interest rate payable on senior loans or MCO cost of capital Per year 0%
Interest rate payable on subordinate loans Per year 6.0%
Interest rate payable on philanthropic PRI assets Per year 5.0%
Interest rate payable on local and state government loans Per year 3.0%
Interest rate payable on federal loans Per year 0.0%
Target return on investment of success payment recipients Per year 10.0%
31
TABLE 10: PnP Funding – 100% Funding from Success Payment Recipients (Senior and subordinate lenders or MCO)
Funding Source Assumptions
Share of capital provided by success payment recipients (lenders or MCO) $253,648 100.0%
Share of capital provided by subordinated lenders $0 0.0%
Share of capital provided as philanthropic PRIs $0 0.0%
Share of capital provided as philanthropic grants $0 0.0%
Share of capital provided by state government $0 0.0%
Share of capital provided by federal government $0 0.0%
TABLE 11: PnP Results – 100% Funding from Success Payment Recipients
Project Results (from Cash Flow Analysis and UNC Study)
Number of additional prenatal, infant and toddler children served by scaling up intervention 83
Amount of cost avoidance as reflected in lower healthcare costs (Cash Flow Analysis) $287,174
Amount of cost avoidance as reflected in lower healthcare costs (UNC Study) $317,504
Total payments made to provide intervention $253,648
Capital required to scale-up intervention $253,648
Capital provided by MCO or senior lenders $253,648
Capital provided by subordinated lenders $0
Capital provided by philanthropic PRI $0
Capital provided by philanthropic grant $0
Capital provided by state government $0
Capital provided by federal government $0
Capital contributed without repayment (philanthropic grants and state & federal government) $0
Capital advanced with required repayment (lenders and philanthropic PRIs) $253,648
Financial Feasibility
Cash flow feasibility: Are total success payments greater than total capital calls? Yes
Margin of cash flow feasibility $33,526
Target return feasibility: Is the return to success payment recipients greater than their target return? Yes
Target return on investment of success payment recipients 10.0%
Return on investment of success payment recipients 11.7%
Margin of target return feasibility 1.7%
Net Present Value and Benefit Cost Ratio Spreadsheet UNC Study
NPV of total cost avoidance $275,997 $308,256
NPV of total program costs $247,447 $244,808
Societal benefit to cost ratio 1.12 1.26
NPV of success payments and interest payable to success payment recipients $276,438 $308,256
NVP of senior capital call $247,447
Cash return on senior/MCO invested capital 11.7% 21.5%
NPV of invested capital and interest payable to PRI investors
Cash return on PRI invested capital (No PRI investment)
NPV of cost avoidance kept by government
Cash return on govt invested capital (No govt investment)
32 www.ReadyNation.org
TABLE 12: Optima PnP General Operating Assumptions MCO–
Intervention cohort demographics
Number of mothers in one cohort 84
Number of children – prenatal, infant and toddler – in one cohort 83
Expected % of children who will leave MCO membership each year 0%
Number of cohorts (prenatal months, age-1 year) receiving intervention per year 1
Intervention program cost
Program length in months (9 mos pregnancy plus 12 mos infant & toddler) 21
Cost of providing intervention to one cohort over program length (UNC Study) $253,648
Cost of providing intervention to one mother and child (UNC Study) $3,020
Healthcare cost difference between intervention and non-intervention population
Average healthcare cost of a non-intervention recipient mother or child (Intervention Analysis) $793,555
Average healthcare cost of an intervention recipient mother or child (Intervention Analysis) $506,381
Per individual intervention and non-intervention healthcare costs difference = Cost Avoidance $287,174
Total cost avoidance over program length (Cash Flow Analysis) $287,174
Total cost avoidance over program length (UNC Study) $317,504
Success Payment paid from Cost Avoidance
Success payment percent of cost avoidance payable to intermediary and/or MCO 80%
Project Establishment Cost
Feasibility research (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Intermediary/MCO set-up (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Project Operating Expenses (on-going cost paid for by intermediary or MCO)
Total operating costs not including intervention costs over program length (per UNC Study) $0
Total operating costs including intervention costs over program length $253,648
Interest cost over program length (Cash Flow Analysis) $1,403
Total operating, intervention, and interest costs over program length $255,051
Funding Needs
Total intermediary and/or MCO operating costs not including interest expense $253,648
Interest Rate and Target Return on Investment Assumptions
Discount rate Per year 3% Per program month 0.25%
Interest rate payable on senior loans or MCO cost of capital Per year 0%
Interest rate payable on subordinate loans Per year 6.0%
Interest rate payable on philanthropic PRI assets Per year 5.0%
Interest rate payable on local and state government loans Per year 3.0%
Interest rate payable on federal loans Per year 0.0%
Target return on investment of success payment recipients Per year 10.0%
Mix of 80% Senior Lender or MCO and 20% Government Funding
33
TABLE 14: PnP Results – Mix of 80% Senior Lender or MCO and 20% Government Funding
Project Results (from Cash Flow Analysis and UNC Study)
Number of additional prenatal, infant and toddler children served by scaling up intervention 83
Amount of cost avoidance as reflected in lower healthcare costs (Cash Flow Analysis) $287,174
Amount of cost avoidance as reflected in lower healthcare costs (UNC Study) $317,504
Total payments made to provide intervention $253,648
Capital required to scale-up intervention $253,648
Capital provided by MCO or senior lenders $213,205
Capital provided by subordinated lenders $0
Capital provided by philanthropic PRI $0
Capital provided by philanthropic grant $0
Capital provided by state government $50,730
Capital provided by federal government $0
Capital contributed without repayment (philanthropic grants and state & federal government) $50,730
Capital advanced with required repayment (lenders and philanthropic PRIs) $202,918
Financial Feasibility
Cash flow feasibility: Are total success payments greater than total capital calls? Yes
Margin of cash flow feasibility $26,003
Target return feasibility: Is the return to success payment recipients greater than their target return? Yes
Target return on investment of success payment recipients 10.0%
Return on investment of success payment recipients 11.2%
Margin of target return feasibility 1.2%
Net Present Value and Benefit Cost Ratio Spreadsheet UNC Study
NPV of total cost avoidance $275,997 $308,256
NPV of total program costs $248,787 $244,808
Societal benefit to cost ratio 1.11 1.26
NPV of success payments and interest payable to success payment recipients $220,079 $246,605
NPV of senior capital call $197,957
Cash return on senior/MCO invested capital 11.2% 21.5%
NPV of invested capital and interest payable to PRI investors
Cash return on PRI invested capital (No PRI investment)
NPV of cost avoidance kept by government $55,020 $0
NPV of state capital call $49,489
Cash return on govt invested capital 11.2% 0.0%
TABLE 13: PnP Funding – Mix of 80% Senior Lender or MCO and 20% Government Funding
Funding Source Assumptions
Share of capital provided by success payment recipients (lenders or MCO) $202,918 80.0%
Share of capital provided by subordinated lenders $0 0.0%
Share of capital provided as philanthropic PRIs $0 0.0%
Share of capital provided as philanthropic grants $0 0.0%
Share of capital provided by state government $50,730 20.0%
Share of capital provided by federal government $0 0.0%
Mix of 80% Senior Lender or MCO and 20% Government Funding
34 www.ReadyNation.org
TABLE 15: Optima PnP General Operating Assumptions MCO–
Intervention cohort demographics
Number of mothers in one cohort 84
Number of children – prenatal, infant and toddler – in one cohort 83
Expected % of children who will leave MCO membership each year 0%
Number of cohorts (prenatal months, age-1 year) receiving intervention per year 1
Intervention program cost
Program length in months (9 mos pregnancy plus 12 mos infant & toddler) 21
Cost of providing intervention to one cohort over program length (UNC Study) $253,648
Cost of providing intervention to one mother and child (UNC Study) $3,020
Healthcare cost difference between intervention and non-intervention population
Average healthcare cost of a non-intervention recipient mother or child (Intervention Analysis) $793,555
Average healthcare cost of an intervention recipient mother or child (Intervention Analysis) $506,381
Per individual intervention and non-intervention healthcare costs difference = Cost Avoidance $287,174
Total cost avoidance over program length (Cash Flow Analysis) $287,174
Total cost avoidance over program length (UNC Study) $317,504
Success Payment paid from Cost Avoidance
Success payment percent of cost avoidance payable to intermediary and/or MCO 80%
Project Establishment Cost
Feasibility research (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Intermediary/MCO set-up (one-time cost paid for by MCO, local sponsors and/or philanthropy)
Project Operating Expenses (on-going cost paid for by intermediary or MCO)
Total operating costs not including intervention costs over program length (per UNC Study) $0
Total operating costs including intervention costs over program length $253,648
Interest cost over program length (Cash Flow Analysis) $1,987
Total operating, intervention, and interest costs over program length $255,635
Funding Needs
Total intermediary and/or MCO operating costs not including interest expense $253,648
Interest Rate and Target Return on Investment Assumptions
Discount rate Per year 3% Per program month 0.25%
Interest rate payable on senior loans or MCO cost of capital Per year 0%
Interest rate payable on subordinate loans Per year 6.0%
Interest rate payable on philanthropic PRI assets Per year 5.0%
Interest rate payable on local and state government loans Per year 3.0%
Interest rate payable on federal loans Per year 0.0%
Target return on investment of success payment recipients Per year 10.0%
Mix of 75% Senior Lender or MCO, 5% PRI, & 20% Govt Funding
35
TABLE 16: PnP Funding – Mix of 75% Senior Lender or MCO, 5% PRI, & 20% Govt Funding
Funding Source Assumptions
Share of capital provided by success payment recipients (lenders or MCO) $190,236 75.0%
Share of capital provided by subordinated lenders $0 0.0%
Share of capital provided as philanthropic PRIs $12,682 5.0%
Share of capital provided as philanthropic grants $0 0.0%
Share of capital provided by state government $50,730 20.0%
Share of capital provided by federal government $0 0.0%
TABLE 17: PnP Results – Mix of 75% Senior Lender or MCO, 5% PRI, & 20% Govt Funding
Project Results (from Cash Flow Analysis and UNC Study)
Number of additional prenatal, infant and toddler children served by scaling up intervention 83
Amount of cost avoidance as reflected in lower healthcare costs (Cash Flow Analysis) $287,174
Amount of cost avoidance as reflected in lower healthcare costs (UNC Study) $317,504
Total payments made to provide intervention $253,648
Capital required to scale-up intervention $253,648
Capital provided by MCO or senior lenders $190,236
Capital provided by subordinated lenders $0
Capital provided by philanthropic PRI $12,682
Capital provided by philanthropic grant $0
Capital provided by state government $50,730
Capital provided by federal government $0
Capital contributed without repayment (philanthropic grants and state & federal government) $50,730
Capital advanced with required repayment (lenders and philanthropic PRIs) $202,918
Financial Feasibility
Cash flow feasibility: Are total success payments greater than total capital calls? Yes
Margin of cash flow feasibility $15,085
Target return feasibility: Is the return to success payment recipients greater than their target return? Yes
Target return on investment of success payment recipients 10.0%
Return on investment of success payment recipients 13.2%
Margin of target return feasibility 3.2%
Net Present Value and Benefit Cost Ratio Spreadsheet UNC Study
NPV of total cost avoidance $275,997 $308,256
NPV of total program costs $249,345 $244,808
Societal benefit to cost ratio 1.11 1.26
NPV of success payments and interest payable to success payment recipients $210,004 $246,605
NPV of senior capital call $185,585
Cash return on senior/MCO invested capital including interest 13.2% 29.6%
NPV of invested capital and interest payable to PRI investors $12,937 $0
Cash return on PRI invested capital 5.0% 5.0%
NPV of cost avoidance kept by government $52,501 $0
NPV of state capital call $49,489
Cash return on govt invested capital 6.1% 0.0%
Mix of 75% Senior Lender or MCO, 5% PRI, & 20% Govt Funding
36 www.ReadyNation.org
A PFS Action Plan for Virginia
This paper explains why Virginia must invest in youth human
capital if it is to restore past growth. To be effective such an
investment initiative needs to start prenatally, especially in
light of the profound impact early health has on later adult
productivity and the staggering costs of preterm and low birth
weight infants on Virginia taxpayers.
Despite the fact that nurse home visiting programs have
conclusively shown that they can reduce the short- and longterm effects of poor birth outcomes, a lack of commitment to
early child development in Virginia has resulted in insufficient
funding to provide adequate prenatal and infant home visiting
services, with the result that taxpayers bear needlessly high
costs and inadequate human capital development.
The evidence indicates that Pay for Success privatepublic financing arrangements could be used to increase
Virginia’s human capital development. Prenatal counseling,
in particular, with appropriate combinations of business,
philanthropic and government funding, could be scaledup with a goal of reaching every high-risk woman in the
state. Infant health, school readiness, and long-term adult
productivity would be improved.
There are several barriers to successfully implementing PFS
finance, and numerous unknowns. The barriers include:
1. Limited data on the effectiveness of early health
interventions operating in Virginia. Sound
comparison studies are needed of treated and
untreated mothers and infants.
2. Limited funding to acquire and analyze intervention
data. Intervention providers need funding to pay for
data acquisition and analysis.
3. Absence of a legislative or regulatory framework for
state involvement in PFS projects.
4. Disincentives for healthcare providers to participate
in early health PFS projects including:
a. The method for initial allocations of Medicaid
patients in a region.
b. The disappearance, or “churning”, of
Medicaid patients and reappearance of
them when they need care. A way needs to
be found for health care providers and PFS
intermediaries to get “credit” for the absence
of Medicaid charges during periods when
patients are off the Medicaid roll.
c. Immediate downward adjustments in Medicaid
service payments by Virginia’s Department of
Medicaid Assistance Services as soon as the
department learns that a service or patient
group is costing less. A process needs to be
developed that enables health care providers
and PFS intermediaries to earn a return on
successful PFS projects and continue operating
them. Perhaps phasing-in lower health costs
over five to ten years could be considered.
To move forward, we suggest that Virginia business and policy
leaders systematically address the barriers and unknowns in
the following ways:
1. Convene a working group of about 20 early childhood
PFS advocates to meet regularly to identify challenges
and anticipate and overcome obstacles. This group
should come under the auspices of the governor or
lieutenant governor’s office or a major state-wide nonprofit such as the Virginia Chamber of Commerce,
the Virginia Early Childhood Foundation, or
the United Way of Virginia. One model for this
committee is the Early Learning Council appointed
by former Governor Mark Warner in 2005. Regardless
of how the group is convened, members should
include a broad spectrum of business, finance,
philanthropic, early health, early education, daycare,
and government representatives.
2. If the working group determines that PFS approaches
can be successfully used in Virginia, educate and
build understanding and support for PFS finance of
a large, broadly diversified group of PFS advocates,
including business leaders, investors, philanthropists
and foundations, early child service providers (from
prenatal health through prekindergarten), state
officials, researchers, and media.
3. Determine whether there are state and federal
laws, regulations, or practices that prevent effective
utilization of PFS financing in Virginia. For example,
the following questions arise:
a. Can prenatal home visiting PFS projects be
established under current Virginia DMAS
arrangements?
37
b. What regulatory or statutory authority is
necessary to ensure that there is no “clawback”
of potential payments to support projects when
Medicaid costs are reduced?
c. Are governance or licensure changes necessary
for managed care organizations to operate
prenatal home visiting PFS projects?
4. Enact legislation and change policies to modernize
current practices to align with successful PFS
implementation. This includes removing any
disincentives in the current fee-for-service model
and alleviating concerns about immediate reduced
capitation payments as medical costs fall.
5. Issue requests for proposals (RFP) to educate
and obtain applications from private and public
stakeholders managing early childhood programs that
could use PFS financing to scale-up their operations.
The information required should include data and
longitudinal demonstrations of performance about
activities that, if scaled up, could
a. Reduce the burden on taxpayers
b. Enhance opportunities for high quality early
childhood education and home visiting providers
to improve and expand their business models, as
well as provide market growth opportunities for
other providers to become high quality providers
c. Improve the life success prospects of Virginia
children, and
d. Make the state more attractive to talented young
adults and new businesses while strengthening its
workforce.
6. Obtain funding to carry out feasibility evaluations of
promising respondents to the RFP.
7. Arrange business, philanthropic, and public funding
for interventions with strong feasibility results and
high likelihoods of success.
*****
38 www.ReadyNation.org
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Identification of high-risk birth mothers through the diagnosis
of their children. Alcohol Alcohol. 2000;35(5):499-508.
59. Worley J. Identification and management of prescription
drug abuse in pregnancy. J Perinat Neonatal Nurs.
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60. Bonello MR, Xu F, Li Z, et al. Mental and behavioral
disorders due to substance abuse and perinatal outcomes: a
study based on linked population data in New South Wales,
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5005.
61. Wouldes TA, Lagasse LL, Huestis MA, et al. Prenatal
methamphetamine exposure and neurodevelopmental
outcomes in children from 1 to 3 years. Neurotoxicol Teratol.
2014;42(77-84.
62. Lewis BA, Minnes S, Short EJ, et al. Language outcomes at
12 years for children exposed prenatally to cocaine. J Speech
Lang Hear Res. 2013;56(5):1662-1676.
63. Ko TJ, Tsai LY, Chu LC, et al. Parental smoking during
pregnancy and its association with low birth weight, small for
gestational age, and preterm birth offspring: a birth cohort
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64. Mutsaerts MA, Groen H, Buiter-Van der Meer A, et al.
Effects of paternal and maternal lifestyle factors on pregnancy
complications and perinatal outcome. A population-based
birth-cohort study: the GECKO Drenthe cohort. Hum Reprod.
2014;29(4):824-834.
65. Anthopolos R, Edwards SE, Miranda ML. Effects of
maternal prenatal smoking and birth outcomes extending
into the normal range on academic performance in fourth
grade in North Carolina, USA. Paediatr Perinat Epidemiol.
2013;27(6):564-574.
66. Tong VT, Dietz PM, Morrow B, et al. Trends in smoking
before, during, and after pregnancy--Pregnancy Risk
Assessment Monitoring System, United States, 40 sites, 2000-
2010. MMWR Surveill Summ. 2013;62(6):1-19.
67. Collins JW, Jr., David RJ, Symons R, et al. AfricanAmerican mothers’ perception of their residential
environment, stressful life events, and very low birthweight.
Epidemiology. 1998;9(3):286-289.
68. Cnattingius S, Villamor E, Johansson S, et al.
Maternal obesity and risk of preterm delivery. JAMA.
2013;309(22):2362-2370.
69. Virginia Department of Health. Resident Teenage
Pregnancies, Live Births, Induced Terminations Of Pregnancy,
And Natural Fetal Deaths By Age Of Mother By Planning
District And City Or County, Virginia, 2012. 2013
70. Centers for Medicaid and CHIP Services. Improving
Maternal and Infant Health Outcomes in Medicaid and CHIP.
2013
71. Yalowich R. Supporting High Performance in Early Entry
into Prenatal Care: Spotlight on Washington’s First Steps
Program. National Academy for State Health Policy,. 2013.
72. Hanlon C. State Strategies for Improving Maternal and
Infant Care. State Health Policy Blog. August 2014. http://
www.nashp.org/blog/state-strategies-improving-maternal-andinfant-care.
73. Filene JH, Snell EK, Lee K. The Mother and Infant Home
Visiting Program Evaluation-Strong Start: First Annual Report.
Office of Planning, Research and Evaluation, Administration
for Children and Families, U.S. Department of Health and
Human Services. December 2013.
74. Zaveri H, Burwick A, Maher E. The Potential for Cost
Savings from Home Visiting due to Reductions in Child
Maltreatment. March 2014.
75. Coalition for Evidence Based Policy. HHS’s Maternal,
Infant, and Early Childhood Home Visiting Program: Which
Program Models Identified by HHS As ‘Evidence-Based’ Are
Most Likely To Produce Important Improvements in the Lives of
Children and Parents? 2011. http://coalition4evidence.org/wpcontent/uploads/2011/08/Review-of-8-hv-models-Aug-2011-
FINAL.pdf.
76. Norbeck JS, DeJoseph JF, Smith RT. A randomized trial of
an empirically-derived social support intervention to prevent
low birthweight among African American women. Soc Sci
Med. 1996;43(6):947-954.
77. Olds DL, Henderson CR, Jr., Tatelbaum R, et al. Improving
the delivery of prenatal care and outcomes of pregnancy:
a randomized trial of nurse home visitation. Pediatrics.
1986;77(1):16-28.
78. Carabin H, Cowan LD, Beebe LA, et al. Does participation
in a nurse visitation programme reduce the frequency of
adverse perinatal outcomes in first-time mothers? Paediatr
Perinat Epidemiol. 2005;19(3):194-205.
79. Hussaini SK, Holley P, Ritenour D. Reducing low birth
weight infancy: assessing the effectiveness of the Health Start
program in Arizona. Matern Child Health J. 2011;15(2):225-
233.
80. Miller TR. Nurse-Family Partnership Home Visitation:
Costs, Outcomes, and Return on Investment. HBSA, Inc. 2013.
81. Olds DL, Henderson CR, Jr., Kitzman HJ, et al. Prenatal
and infancy home visitation by nurses: recent findings. Future
Child. 1999;9(1):44-65, 190-191.
82. Olds DL, Eckenrode J, Henderson CR, Jr., et al. Long-term
effects of home visitation on maternal life course and child
abuse and neglect. Fifteen-year follow-up of a randomized
trial. JAMA. 1997;278(8):637-643.
83. Olds DL. Prenatal and infancy home visiting by nurses:
from randomized trials to community replication. Prev Sci.
2002;3(3):153-172.
84. Kitzman H, Olds DL, Henderson CR, Jr., et al. Effect of
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prenatal and infancy home visitation by nurses on pregnancy
outcomes, childhood injuries, and repeated childbearing. A
randomized controlled trial. JAMA. 1997;278(8):644-652.
85. Olds DL, Kitzman H, Cole R, et al. Effects of nurse homevisiting on maternal life course and child development:
age 6 follow-up results of a randomized trial. Pediatrics.
2004;114(6):1550-1559.
86. Eckenrode J, Campa M, Luckey DW, et al. Long-term
effects of prenatal and infancy nurse home visitation on the life
course of youths: 19-year follow-up of a randomized trial. Arch
Pediatr Adolesc Med. 2010;164(1):9-15.
87. Stankaitis JA, Brill HR, Walker DM. Reduction in neonatal
intensive care unit admission rates in a Medicaid managed care
program. Am J Manag Care. 2005;11(3):166-172.
88. Ruiz RJ, Brown CE, Peters MT, et al. Specialized care for
twin gestations: improving newborn outcomes and reducing
costs. J Obstet Gynecol Neonatal Nurs. 2001;30(1):52-60.
89. Aos S. Benefits and costs of prevention and early intervention
programs for youth.: Washington State Institute for Public
Policy. 2004.
90. Olds DL, Kitzman HJ, Cole RE, et al. Enduring effects of
prenatal and infancy home visiting by nurses on maternal life
course and government spending: follow-up of a randomized
trial among children at age 12 years. Arch Pediatr Adolesc Med.
2010;164(5):419-424.
91. Miller TR. Societal Return on Investment in Nurse-Family
Partnership Services in Texas. Pacific Institute for Research and
Evaluation. May 2014.
92. Azzi-Lessing L. Home visitation programs: Critical Issues
and Future Directions. Early Childhood Research Quarterly.
2011387-398.
93. Home Visiting Virginia. Background on the Affordable
Care Act’s Maternal, Infant and Early Childhood Home Visiting
Project (MIECHV). 2010. http://homevisitingva.com.
94. Avellar S, Paulsell D, Sama-Miller E, et al. Home Visiting
Evidence of Effectiveness Review: Executive Summary.
Washington, DC: Office of Planning, Research and Evaluation,
Administration for Children and Families, U.S. Department of
Health and Human Services. 2013.
95. Secretary’s Advisory Committee on Infant Mortality.
Recommendations for Department of Health and Human
Services (HHS) Action and Framework for a National Strategy.
January 2013.
96. US Department of Health and Human Services. Maternal,
Infant, and Early Childhood Home Visiting. http://mchb.hrsa.
gov/programs/homevisiting/. Accessed June 23, 2014.
97. Virginia Home Visiting Consortium. MIECHV Project.
2013; http://homevisitingva.com/miechv.php. Accessed July 1,
2014.
98. Dubno JA, Dugger RH, Smith MR. Financing Human
Capital Development for Economically Disadvantaged Children:
Applying Pay for Success Social Impact Finance to Early Child
Development. ReadyNation. 2013.
99. Chen D. Goldman to Invest in City Jail Program, Profiting
if Recidivism Falls Sharply. The New York Times. Date, August
2, 2012.
100. Nonprofit Finance Fund. Goldman, Pritzker & United
Way Team up for Latest SIB Pilot. July 16, 2013.
101. Golden M, Waters J, Mun KSH. Using Pay for Success
Financing to Improve Outcomes for South Carolina’s Children:
Results of a Feasibility Study. Institute for Child Success.
September 2013.
102. Ohio Governor’s Office of Health Transformation.
Medicaid Hot Spots. 2011.
103. Ramshaw E. Maternity Wards, NICUs Face Budget
Scrutiny. The Texas Tribune. Date, March 20, 2011.
104. Russell RB, Green NS, Steiner CA, et al. Cost of
hospitalization for preterm and low birth weight infants in the
United States. Pediatrics. 2007;120(1):e1-9.
105. Blumenshine P, Egerter S, Barclay CJ, et al. Socioeconomic
disparities in adverse birth outcomes: a systematic review. Am J
Prev Med. 2010;39(3):263-272.
106. Commonwealth of Virginia, Department of Medical
Assistance Services. Improving Birth Outcomes Through
Adequate Prenatal Care Study, Calendar Year 2012. 2014.
107. Pew Center on the States. Medicaid Financing of Early
Childhood Home Visiting Programs: Options, Opportunities,
and Challenges. 2012
108. CHIP of Virginia. Comprehensive Health Investment
Project. 2014; http://www.chipofvirginia.org/aboutus.asp
Accessed August 26, 2014.
109. Greene SB, Kilpatrick K, Reiter K, et al. Better Payment
Policies for Quality of Care: Fostering the Business Case for
Quality Phase I – Medicaid Demonstrations. Final Report
– Site Summaries. The Cecil G. Sheps Center for Health
Services Research & the Department of Health Policy and
Administration at the University of North Carolina at Chapel
Hill. 2007.
110. Sentara Healthcare. Optima ‘Partners in Pregnancy’
Program Wins National Award for Disease Management 2004.
111. ReadyNation Working Group on Contracts in Early
Childhood Social Impact Finance. Early Childhood Pay
for Success Social Impact Finance: Organizational Steps,
Memorandum of Understanding and Contract Outlines
ReadyNation Working Paper. June 10, 2013.
112. Weldon Cooper Center for Public Service. School-Age
42 www.ReadyNation.org
Population Estimates. University of Virginia. 2012. http://
www.coopercenter.org/demographics/school-age-populationestimates
113. George Mason University Center for Regional Analysis.
Update from the U.S. Census: Population Growth in the
Washington DC Metropolitan Area, 2012-2013. April 2014.
ttp://cra.gmu.edu/pdfs/studies_reports_presentations/
Population_2013_Apr14.pdf.
114. Fuller SS. The Economic Impact of Sequestration Budget
Cuts to DOD and Non-DOD Agencies as Modified by the
American Taxpayer Relief Act of 2012 Center of Regional
Analysis, George Washington University March 2014. http://
cra.gmu.edu/pdfs/Sequestration_Update.pdf
115. Martin J, Tolson D. Virginia’s Population: Changing
Patterns of Growth”. University of Virginia Newsletter. June
1996(September 5, 2014). http://www.coopercenter.org/sites/
default/files/autoVANLPubs/Virginia News Letter 1996 Vol. 72
No. 3.pdf.
43
Appendices
Appendix A: Notes on Virginia’s Workforce
Challenge: Demographic and Income Trends
Major factors that contributed to Virginia’s 50-year “golden
age” have slowed, and some, like Virginia’s dependency on
federal spending, are now working in reverse. The result is a
sharp drop in state government revenues, marking the first
time in memory that Virginia annual tax collections declined
when the US was not in an economic recession. At deeper
levels the challenges are demographic, and addressing them
requires focusing on workforce development, which in turn
means starting at the beginning – infant and family wellbeing
and early education – to raise the most team-ready productive
young adults in the world and to strengthen Virginia’s
attractiveness to good businesses and talented young adults
from around the world.
Recognizing this and the demographic and employability
challenges Virginia faces, the Virginia Chamber of Commerce
put early childhood at the top of its strategic plan for the state
– 2014 Blueprint Virginia.10 The plan represents the combined
work of local and regional chambers and more than 600
organizations across the state. The goal – start now to build
a globally competitive workforce, and do it from the earliest
moments of a Virginia child’s life.
The Chamber focused Blueprint Virginia on early childhood
because in the past decade, the science of human brain
development has shown that the foundations for STEM skills
and the teamwork capabilities needed for job success are
established in the first five years of life.18
Virginia’s workforce challenge: Job openings
but not enough job-ready applicants
There are about 4.7 million job openings in the U.S.12 but
employers say they cannot fill many of them because of a “skills
gap.”13 This shortage of employable people, and especially
people with the skills modern businesses and governments
require, is a drag on growth.
According to Indeed.com, the job search website, there are
currently more than 100 thousand job openings in Virginia.14
Again the obstacle to filling many of them is a shortage of
qualified, particularly STEM skilled, applicants. “You can’t
work with a basic high school diploma today,” said Brett
Vassey, president and CEO of the Virginia Manufacturers
Association.” Sixty-five% of our occupational demand over the
next five years are positions that require middle-level skills.”16
Several major U.S. states are deeply concerned. New York has a
population of about 19.7 million and estimates that if current
education and labor market trends continue, the state will face a
deficit of 350,000 workers for skilled jobs by 2020 – about 1.8%
of the state’s population. These are the jobs requiring more than
a high school diploma but less than a 4-year degree.17
Virginia is no different. Virginia’s population is about 8.3
million, and over the next ten years about 500 thousand
seasoned older workers will retire, but only about 340,000
employable young adults will enter the labor force. This is
a deficit of about 140,000, approximately 1.7% of the state’s
population.
Demographics and Employability
For Virginia the problem is a combination of demographics
and employability. According to CareerBuilder in 2012 over
50% of Virginians employed in skilled trades were 45 or
older. Currently a 21% of Virginia’s workforce is qualified for
retirement.16 As we will discuss in greater detail below, a 2009
Defense Department survey indicated that far more than half
of U.S young adults age 18 to 24 cannot be employed by most
businesses because they lack high school degrees, clean police
records or adequate physical fitness.15
The situation will get worse in the years to come if strong
actions are not taken. Declining birth rates, weakening inmigration, and the possible un-employability of more than half
of Virginia’s young adults, means Virginia will not have enough
productive working age people to replace retiring employees
and support economic growth.
Virginia’s Job-Ready Gap
The math is simple. Virginia’s total population is about 8.3
million. Of these, about 1.1 million will reach working age
over the next ten years.112 Even if we assume Virginia’s young
adults are healthier, more lawful and better educated than the
other young adults in the 2009 Defense Department study, and
have the high school degrees, clean police records and physical
fitness private and public employers need, over the next ten
years new young adult job entrants will total only about 340
thousand.15
At the other end of the age spectrum, about 1 million of
Virginia’s total population are 54 to 65 years old.113 This is the
44 www.ReadyNation.org
bulk of the Baby Boom generation. About half of Virginia’s
total population, 4 million, is employed. This is Virginia’s
workforce and the foundation of Virginia’s nearly $470 billion
GDP. Almost 500 thousand, however, are 54 to 65 years old,
and we can safely assume that all but a handful will leave the
workforce over the next ten years.
The Urgency of Workforce Development
Regarding near-term economic conditions, Secretary of
Finance Richard Brown, a Virginia budget official for nearly
40 years, said, “You’ve got something different happening
here…”1
Stephen Fuller, director of the Center for Regional
Analysis at George Mason University, commented regarding
the usual powerhouse Northern Virginia counties, “The region
has stopped growing. High wage jobs and most new jobs are
paying below the average for all jobs.”20
The reasons for this have been building for several decades.
Virginia is experiencing weaker young adult employability and
federal spending cuts. These factors together with demographic
aging, and declining birth-rates and in-migration, are leading
to a situation in which almost certainly there will not enough
ready-for-work young people to meet the state’s human resource
needs. Virginia Chamber of Commerce business leaders know
that unless Virginia can build the human capital it needs to
compete nationally and globally, current demographic and
economic trends will continue and perhaps intensify.
Historically the counties that contributed most to Virginia
growth were in Northern Virginia. Fairfax County, Arlington,
and Alexandria have for decades been consistently in among the
ten wealthiest and fastest growing counties in the nation. But
that strength depended heavily on federal procurement. In the
past three years, federal contracting has declined $11 billion in
Northern Virginia. David Versel of the George Mason Center
for Regional Analysis stressed, “14% of our federal procurement
economy has evaporated in the last 3 years.”19
Versel added that since its peak in 2010, federal employment
has dropped 5%, or 22,000 jobs. The area is now facing
22,000 fewer federal jobs than existed three and a half years
ago. Versel also stressed that the private economy has not
rebounded from the recession, “As of February of this year,
we’ve actually only added back 170,000 jobs from the end of
the recession. We lost 178,000 jobs during the recession. On a
1 Michael Martz, “Larger state shortfall means more budget cuts” Richmond
Times-Dispatch, Thursday, July 10, 2014 6:45 pm. http://www.timesdispatch.
com/news/state-regional/larger-state-shortfall-means-more-budget-cuts/
article_9425218a-0870-11e4-8094-001a4bcf6878.html
net basis, we are down 8,000 jobs from where we were six years
ago in 2008 when the recession began.”19
Statewide, federal spending has been hugely important for
Virginia. The cutbacks that began in 2011 will continue far
into the future. The impact of federal “sequestration” provides
full insight into the scale of Virginia’s dependence on federal
spending. Job losses from sequestration were largest in the
largest US state – California. However, though Virginia’s
population is far smaller than California’s – 8.2 million people
versus 38 million – Virginia’s dependence on government
non-defense and defense spending, resulted in job losses
from federal sequestration and other budget cutting that were
almost as large as California’s despite having 1/4th the number
of people. Virginia’s total job losses amounted to 154,118, and
California’s 167,022. The next highest state was Texas with
118,287.114
Statewide Personal Income is Weakening
Virginia’s current conditions are not solely the result of federal
budget trends, nor are they recent.
The rate of growth of personal income rose strongly in the 1970s
and 1980s as the Baby Boomers entered the labor force. Since
the 1970s, however, personal income growth has been trending
down, and in each major recession the falloff has been deeper.
Young adult employability is at risk
Of all the dimensions that matter for economic and personal
income growth, the most important is the employability
of young adults. As noted earlier, the 2009 Department of
Defense study showed that during the Great Recession, when
millions of young adults sought jobs in the armed services,
about 75% of them could not qualify to be a US Army Private.
They could not qualify because they had criminal records,
health problems such as obesity, and no high school degree.15
Virginia has about 830,000 young adults between the ages of 18
and 24. If they are like the young adults studied by the Defense
Department, more than 600,000 of them lack the education,
fitness or police records needed to qualify for Armed Service
employment. This means these people cannot qualify for
most private or public sector jobs either. The competitiveness
implications for Virginia, together with declining Federal
spending and softening population growth rates, are enormous.
Very importantly, the Generals and Admirals who prepared
that DOD report point out that the capabilities that lead to
45
-.4% -.5%
-1.0%
-1.6%
-2.3% -3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1953Q1 1958Q1 1963Q1 1968Q1 1973Q1 1978Q1 1983Q1 1988Q1 1993Q1 1998Q1 2003Q1 2008Q1 2013Q1
Virginia Personal Income: Quarterly Percent Changes 1953-2013
Source: U.S. Bureau of Economic Analysis
Percentage income (Percent change from preceeding period)
SQ1 Quarterly personal income
Armed Service fitness are established before the age of five.
Within these years, the most important months are the earliest
when a child’s brain, social interaction capacities and key
personality traits such as trust and persistence are occurring
fastest.
Virginia labor force growth is slowing and
workers are aging
Payroll job growth reached its peak in the twenty-five years
from the late 1960s through the early 1980s. There were
surges in growth following recessions, but the peaks were
generally not as high as earlier ones, and dips in growth
during recessions were generally deeper, indicating weakening
conditions.
Similarly, the number of employed Virginians as a percent of
total residents has been declining since the 1970s, and in each
recession the percent employed probed new depths.
The decline in the percent of employed residents is partly
explained by population aging. As shown on the next page, the
portion of the population that represents new job entrants and
core employees – the all-important age 25 through 54 share –
is declining and the portion consisting of age 65+ is growing.
46 www.ReadyNation.org
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: U.S. Census Bureau (Population Estimates) and GMU Center for Regional Analysis
Virginia Residents: Percent Employed 1977 - 2013
-0.6%
-2.0%
-3.3%
1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Virginia Payroll Job Growth: Annual Percent Change 1944 - 2013
Source: U.S. Census Bureau (Population Estimates) and GMU Center for Regional Analysis
-1.4%
-2.2%
-3.2%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
47
Population growth is slowing
Natural increase (births less deaths) and net migration account for
100% of population growth, but the proportion that each accounts
for varies from year to year. In the 1970s Boomer generation
family formation caused natural increase to dominate.
During Virginia’s early 1980s “Golden Years”, net in-migration
by businesses and talented people attracted to the state,
dominated and contributed to more than half of state’s growth.
As new-comers became settled and Boomers moved
into full maturity in the 1990s, and family formation got
underway, the trend changed with natural increase once
more on the ascendance.115
While net migration into the state increased somewhat in
2012, the trend is down, and the amounts were swamped by
the natural decline in total population resulting from more
deaths than births.
Percent Change in Age Group Share of Total Virginia Population
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: U.S. Census Bureau (Population Estimates) and GMU Center for Regional Analysis
0%
20%
40%
60%
80%
100%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Components of Virginia's Population Change 1980-1995
Natural Increase
Net Migration
Source: Martin & Tolson (1996), Virginia's Population: Changing Patters of Growth, University of Virginia Newsletter.
Age Group Share of Total Virginia Population
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: U.S. Census Bureau (Population Estimates) and
GMU Center for Regional Analysis Source: U.S. Census Bureau (Population Estimates) and GMU
Center for Regional Analysis
48 www.ReadyNation.org
But Virginia is not unique. Slowing population growth and
more rapid aging is occurring across the U.S. and worldwide.
In 2013 the first wave of “Baby Boomers” was somewhere
around the age of 68. Then come Gen X (1960s to the early
1980s).
Following them is Gen Y (1980s to the early 2000s), the
“Millennials” or “Echo Boomer” children of the Boomers.
The first wave of the generation after the Millennials, so-called
Generation Z, is much smaller.
Complicating all of this is the low birthrate for women who are
in what are traditionally considered prime childbearing years.
The expected surge of births from the large “Echo Boom”
cohort of women in their late 20’s and 30’s, has simply failed to
materialize.
The U.S. is not alone. The growth rate of the world population
is slowing. This is critically important. The worldwide growth
surge that took place in the second half of the last century was
unprecedented and accounts for a major part of the prosperity
experienced during that time. To a significant degree, a world
economy that organized itself to sell to and accommodate the
needs of a population growing as fast as the one following
WW2, would be disappointed by the growth rates seen in the
last decade or so and which will most likely continue long into
the future.
Net Migration into Virginia
Source: U.S. Census Bureau (Population Estimates) and
GMU Center for Regional Analysis
39,000
38,000
37,000
36,000
35,000
34,000
33,000
32,000
31,000
30,000
2011 2012 2013
Virginia Natural Population
Increase: Birth-Deaths
42,200
42,300
42,400
42,500
42,600
42,700
2011 2012 2013
Source: U.S. Census Bureau (Population Estimates) and
GMU Center for Regional Analysis
Virginia Population Growth: Annual Amounts
84,000
82,000
80,000
78,000
76,000
74,000
72,000
70,000
68,000
2011 2012 2013
Source: U.S. Census Bureau (Population Estimates) and
GMU Center for Regional Analysis
49
Virginia’s Estimated Population, 2013
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
0 20 40 60 80 100 120 140
85+
Age
Source: The Census Bureau
Virginia’s Estimated Population (in thousands)
Echo Baby Boom
Generation Z
First Baby Boom
U.S. Total Fertility Rate 1935-2011
50 www.ReadyNation.org
0.5%
1.0%
1.5%
2.0%
2.5%
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Wikipedia: "World Population Estimates". http://en.wikipedia.org/wiki/World_population_estimates
World Population Growth Rates 1900 - 2013
2014
1.11%
Post WW2 Baby
Booms in Japan, US,
and Europe
“Echo Booms” and
Emerging Nation
Baby Booms
U.S. Population Annual Percent Change 1936-2010
51
PFS Statute and Contract Agreements (ovals)
Private, Philanthropic and
Government PFS Investors
Pay for Success
Investment
Intermediary
Intermediary Government
Agency Contract
Intermediary and Service
Provider Contract
Evaluator Contract
with Government,
Intermediary & Provider
Investors
State PFS Social
Impact Finance Law
and Regulations
Third Party
PFS Project
Evaluation and
Certi cation
Government
Health or
Education
Agency
Early Health
or Education
Service
Providers
PFS Asset
Investor
Terms &
Conditions
Main Participants in a Pay for Success Project
Private, Philanthropic, Government &
Provider PFS Organizers
Step 1: Organizers study
Feasibility Research and
decide whether to
move forward
1
Third Party
Feasibility
Research
Government
Health or
Education Agency
Third Party
PFS Project
Evaluation and
Certi cation
Early Health or
Education
Service Providers
Pay for Success
Investment
Intermediary
Appendix B. Pay for Success Social Impact Finance Basics: Organization,
Funds Flows and Examples
52 www.ReadyNation.org
Flow of Funds in a PFS Project (arrows)
Private, Philanthropic and
Government PFS Investors
Pay for Success
Investment
Intermediary
Intermediary Issuer
repays investors
6
Success Payment for
Outcome Improvement
or Cost Avoidance
5
Cost Avoidance or
Outcome Improvement
Achieved
3
Evaluator certi es
performance
4
Investors acquire PFS
assets and provide
working capital
1
Operating funds paid
to Service Providers
2
Third Party
Feasibility
Study
Third Party
PFS Project
Evaluation and
Certi cation
Early Health or
Education
Service Providers
Government
Health or
Education Agency
Putting it all together—A PFS Project
Private, Philanthropic and
Government PFS Investors
Pay for Success
Investment
Intermediary
Intermediary Issuer
repays investors
6
Part of Government
savings paid to
Intermediary
Intermediary Government
Agency Contract
Intermediary and Service
Provider Contract
Evaluator Contract
with Government,
Intermediary & Provider
5
Cost Avoidance or
Outcome Improvement
Achieved
3
Evaluator certi e
performance
4
Investors acquire PFS
assets and provide
working capital
State PFS Social
Impact Finance Law
and Regulations
1
Operating funds paid to
to Service Providers
2
Third Party
Feasibility
Study
Third Party
PFS Project
Evaluation and
Certi cation
Government
Health or
Education
Agency
Early Health
or Education
Service
Providers
PFS Asset
Investor
Terms &
Conditions
53
Rikers Island Recidivism Cognitive
Behavioral Therapy Project
The nation’s first social impact finance project was initiated in
the summer of 2012 by the Bloomberg Foundation, Goldman
Sachs, and MDRC. The project implements a cognitive
behavioral therapy program for 16- to 18-year-olds detained
at New York City’s Rikers Island with the goal of reducing
the high recidivism rate for this population by focusing on
personal responsibility education, training, and counseling.
Rikers Island: Addressing NYC Adolescent Incarceration
Goldman Sachs Loan
Bloomberg Philanthropies
Guarantee
MDRC
Intermediary Issuer
repays investors
6
Success Payment for
Outcome Improvement
or Cost Avoidance
5
Cost Avoidance or
Outcome Improvement
Achieved
3
Evaluator certi es
performance
4
Investors acquire PFS
assets and provide
working capital
1
Operating funds paid
to Service Providers
2
Third Party
Feasibility
Study
MCO and
Department
of Correction
Osborne Association and
Friends
of Island Academy
Riker’s Island Project: Addressing NYC Adolescent
Incarceration
1. Goldman Sachs funds the project’s delivery and
operations through a $9.6 million loan to MDRC;
2. Bloomberg Philanthropies provides a $7.2 million
grant to MCRD to guarantee a portion of the
investment;
3. MDRC oversees the day-to-day implementation of
the project and manages the Osborne Association
and Friends of Island Academy, the two non-profit
service providers that deliver the intervention;
4. The Vera Institute of Justice, an independent
evaluator, determines whether the project achieves
the targeted reduction in re-incarceration;
5. The Department of Correction pays MDRC based
on reduced re-admissions and the associated cost
savings and MDRC then pays the private investor.
54 www.ReadyNation.org
Salt Lake City, Utah, Granite City Preschool Project
The first early childhood PFS social impact finance project in the U.S. was initiated in Salt Lake City, Utah by the Salt Lake United
Way, Goldman Sachs, J.B. Pritzker and the Granite School District Preschool, based on feasibility research done by Voices for
Utah Children.
Scaling Pre-K for Low-Income
Kids in Salt Lake City—3
• After initial funding, subsequent
investments will be made based on the
availability of repayment funds from
public entities that are realizing cost
savings as a result of the program.
• Through 6th grade
• Success payments, equal to 95% of
special-ed cost avoidance, will be
used to pay 5% annual interest and
repay senior and subordinate debt
principle.
• Success fees, equal to 40% of specialed cost avoidance, will be paid to
investors after debt principle has been
repaid.
• After 6th grade, 100% of all special-ed
cost avoidance will be retained by Utah
Scaling Pre-K for Low-Income Kids in Salt Lake City–4
Goldman Sachs Loan
Pritzker Foundation PRI Loan
Success Payment for
Outcome Improvement
or Cost Avoidance
5
Cost Avoidance or
Outcome Improvement
Achieved
3
Evaluator certi es
performance
4
Investors acquire PFS
assets and provide
working capital
1
Operating funds paid
to Service Providers
2
Voices for
Utah Children
Granite School
District, Park City
School District,
Guadalupe School,
YMCA of Northern
Utah, Children’s
Express, and Lit’L
Scholars
Park City Community
Foundation
Dr. Mark
Innocenti, Early
Intervention
Research
Institute, Utah
State University
Granite School
District and Park
City School
District
United Way of
Salt Lake
Scaling Pre-K for Low-Income
Kids in Salt Lake City—2
• Voices for Utah Children provides
research and analytic support
• Granite School District and others
provides the preschool program to
low-income 3 and 4 year olds
• Early Intervention Research Institute,
Utah State University, is the “thirdparty evaluator”
• Park City Community Foundation
acts as the Performance Account
Manager, providing an independent
“performance account” to hold
repayment funds
Scaling Pre-K for Low-Income
Kids in Salt Lake City—1
• Goldman Sachs makes $4.6 million,
5% loan to United Way of Salt Lake
• J.B. Pritzker makes $2.4 mm 5%
subordinated loan to United Way of
Salt Lake, reducing risk to the senior
lender if the preschool program
proves to be ineffective
• United Way of Salt Lake is the
“intermediary” and oversees the
implementation of the project and
is also responsible for managing
repayments to the private investors.
• Imprint Capital serves as social
investment banker.
55
Establishing Feasibility
The ten items feasibility studies must analyze...
1. The intervention and its recipients and nonrecipients
2. Other interventions recipients may have been
exposed to earlier
3. Data about recipients and non-recipients
4. Longitudinal analyses of recipient and nonrecipient, post-intervention performance
5. Cost avoidance by specific government or other
entities
6. Outcome improvements sought by county, state,
federal & other entities
7. Workability of contracts with agencies, providers &
evaluators
8. Ability of third-party evaluators to confirm cost
avoidance and outcome improvements
9. Likely funding sources and capital structures
10. Likely time path of success payments and return of
capital
Are randomized control trial (RCT) results needed to
support a PFS project?
The short answer is no.
However, careful longitudinal outcome comparisons of
the performance of actual local intervention recipients
and non-recipients, are absolutely necessary
Feasibility study statistical findings regarding familiar
RCT-backed interventions, need only be strong enough
to provide funders wtih reasonable assurance that they
will get their money back.
The statistical standard for PFS is not what’s necessary for
scientific proof, only what is needed to satisfy business
judgment
Feasibility analysis is the first step in PFS Finance
• What must feasibility analysis cover? Ten essential
items...
• Are randomized control trials needed? Short answer
is no...
• How do you find interventions worthy or feasibility
studies? RFIs, surveys and assessments...
The feasibility study that justifies investing in a PFS
project, is like a home mortgage appraisal...
• Mortgage lenders don’t make a loan based on
the average value of homes in a city; they make a
mortgage on a home based on a careful appraisal of
the value of that specific home.
• PFS feasibility analysis provides information to
investors on a specific intervention and its effects on
the performance of a specific category of children in
a specific region.
The most critical part of developing a PFS project is the
feasibility research that establishes financial viability.
Discussions to date have identified 10 essential elements
feasibility research must document.
56 www.ReadyNation.org
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