ReadyNation is a membership organization of business leaders under the umbrella non-profit Council for a Strong America Early Health ‘Pay for Success’ Social Impact Finance: Scaling Up Prenatal Care Speakers: Robert H. Dugger, PhD, Managing Partner, Hanover Provident Capital, and Advisory Board Chair, ReadyNation Philip A. Peterson, FSA, Deputy Director, ReadyNation December 11, 2014 webinar

The Problem Pre-term and low birth-weight (LBW) infants face significant risks for medical and developmental disabilities This saddles government and private entities with billions in additional spending from birth and infancy and throughout a child’s life. Becomes harder for these infants become to become productive young adults, increases tax burdens on citizens, and worsens emerging workforce deficits 2

The Solution Home nurse visiting - nurses and peer counselors provide support and education to high-risk pregnant women in their homes. – 30 year track record of success Shown to improve birth outcomes and long-range health and life outcomes Reduces state expenditures, freeing up capital for economic, educational, and infrastructure programs. 3

The Challenge However, only about 15% of high-risk mothers in Virginia with children under age 5 receive such services Government expenses and tax burdens are higher than they need be An innovative approach is needed to expand nurse visiting programs to the 30,900 high-risk pregnant women in Virginia who need these services but are not receiving them 4

The Potential for PFS 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 - Partnership between philanthropic and business entities and governments to provide performance-based investments in social programs 5

The Potential for PFS PFS finance encourages investments in cost-saving preventive services to: – Reduce need for more costly remediation – Establish framework for sustained multi-year collaboration between public, private and non-profit actors to help solve complex social problems – Bring market discipline to government decisions about which programs to expand 6

PFS and Home Visiting in Virginia Pilot program was conducted by Sentara Healthcare’s OPTIMA Medicaid managed care plan and Virginia Comprehensive Health Investment Project (CHIP), a nurse visiting program 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. 7

PFS and Home Visiting in Virginia Analysis from the University of North Carolina found: – Significant improvements in birth outcomes between the CHIP mothers and a control group – Significantly lower short-term costs Analysis estimated a benefit cost ratio of 1.26 from Medicaid cost avoidance savings only. Importantly, this return does not include savings from: – Fewer subsequent health problems, – Fewer child abuse and neglect prosecutions, and – Lower special education assignments 8

Business Case for Home Visiting using PFS PFS has many advantages: – Draws on judgment and initiative of private sector investors in combination with philanthropic institutions and local and state governments – Based on statistical evidence of sufficient quality to persuade private investors to put their own money at risk – Uses evaluation arrangements that provide for clear performance assessment 9

Business Case for Home Visiting using PFS PFS has many advantages: – Provides way to pay for needed interventions using near- term monetizable cost avoidance – Provides framework for states to capture the longer-term benefits of outcome improvements Fewer neglect and child abuse prosecutions Improved school-readiness Higher 3 rd /4 th grade reading and math scores Higher graduation rates Improved job-readiness 10

Business Case for Home Visiting using PFS 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 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. 11

Business Case for Home Visiting using PFS – The Heckman Equation 12

Business Case for Home Visiting using PFS 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 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 13

Business Case for Home Visiting using PFS 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) 14

Return on Investment from Home Visiting Healthy Families America (HFA) has shown statistically significant reductions in incidence of LBW - 10% to 5% in one study Analysis of several randomized, controlled trials of NFP programs estimated a return on investment of $17,180 (at a cost of $9,118) or, a 288% ROI Other studies show similar positive results 15

Business Case for Home Visiting using PFS 16

PFS Mechanics PFS using social impact financing involves a partnership between philanthropic and business entities (investors) and governments to provide performance-based investments in social programs, Payments to investors come from cost avoidance savings that governments enjoy as a result of the PFS project, after meeting certain pre-specified outcome improvements 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. 17

PFS Mechanics 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 – Bring market discipline to government decisions about which programs to expand while using rigorous evaluation to advance knowledge of which interventions are most effective 18

PFS Mechanics 19

Case Study: South Carolina Nurse-Family Partnership (NFP) South Carolina ranks 45th in the nation in terms of child wellbeing State has several successful several home visiting programs serving less than 600 of the 11,200 eligible, high-risk mothers each year 2013 study determined that it was feasible to use PFS financing to scale up programs such as the NFP Study 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 20

Case Study: South Carolina NFP Yet, such outcomes are good predictors of long-term results that can provide significant cost avoidance savings to governments 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. 21

Scaling Home Visiting in Virginia Programs delivered through Partners in Pregnancy (PnP) – Collaboration between Comprehensive Health Investment Project (CHIP) and Sentara Health CHIP 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. CHIP of Virginia network includes local programs in 27 Virginia communities serving 3,100 children and 400 pregnant women 22

Scaling Home Visiting in Virginia Sentara Healthcare is a large healthcare system based in southeastern Virginia In 2003, CHIP received a grant from the Commonwealth Fund to partner with Sentara’s Medicaid managed care organization, OPTIMA Health Plan – Quality enhancing initiative to improve outcomes for high- risk pregnant women and their infants enrolled in Virginia’s Medicaid system – Outcomes of that project form the basis for the PFS program described here 23

Home Visiting PFS Model in Virginia 24

Making Home Visiting PFS Work in Virginia Financial model used to create PFS success is critical Depends on – Sources of financing – Repayment model – Percent of cost avoidance paid – “success payment” percentage In UNC study, success payment was 100% and all funding came from Sentara Three financing scenarios are cited in our paper – Combine features of “pass-through” and fixed debt investor returns 25

Making Home Visiting PFS Work in Virginia ScenarioFinancing Payment Terms Return on Investment 1100% senior investor 100% SP 11.7% 280% senior investor 20% government 80% SP 20% SP 11.2% 375% senior investor 5% foundation PRI 20% government 80% SP 5% interest Residual SP 13.2% 5.0% 6.1% 26

Barriers to Home Visiting PFS in Virginia Limited data/studies on home visiting efficacy – Need sound studies using experimental methods Limited funding to acquire and analyze data Absence of legislative or regulatory framework Certain disincentives for providers/investors Possibility of downward adjustments in Medicaid payments once savings are seen 27

Making Early Childhood PFS Work in Your State or Locality Convene community leaders that have stake in catalyzing improvements in education and health for young children – Develop case statement for EC PFS intervention Educate and build consensus among larger stakeholder/advocate community – Address community-related challenges to PFS 28

Making Early Childhood PFS Work in Your State or Locality Determine whether there are laws/regulations that prevent/hinder or, alternatively, facilitate PFS Enact policies/legislation that can advance PFS Create environmental scan/SWOT analysis to identify: – Specifics of proposed intervention – Reasons for acting – Requirements for pursuing – Outcomes necessary for success – Possible transaction players 29

Making Early Childhood PFS Work in Your State or Locality Engage in feasibility study if scan/analysis indicates moving forward – Procure funding for feasibility Proceed with construction phase if feasibility indicates success factors are highly probable and outcomes are substantial in terms of both cost avoidance and outcome improvement 30

Questions? For more information on our Pay for Success work, visit Phil Peterson at 31