Using PFS to Scale Supportive Housing: Lessons Learned and New Directions

^{Kelly Eisentraut, resident services coordinator for the Renaissance Downtown Lofts, meets with the president of the resident council. Colorado Coalition for the Homeless created the resident council to give residents a stronger voice in their living situation. At this meeting, Kelly and the resident discussed when maintenance staff would clean air filters and carpets in the apartments.}

Homelessness is a serious problem in the U.S. A 2018 report (PDF) by the U.S. Department of Housing and Urban Development (HUD) estimated that on any given night, over 500,000 people are homeless. Of these, approximately 89,000 are experiencing chronic homelessness.

People experiencing chronic homelessness have high rates of chronic health conditions, including cancer, heart disease, mental health problems, and substance use disorders. As such, people experiencing homelessness are frequent users of paramedic, health care, criminal justice, and other costly public services.

Permanent supportive housing is part of the solution to our country’s homelessness crisis. It is an evidence-based intervention that improves housing stability and reduces the use of public services by providing mental and behavioral health interventions, legal aid, and assistance obtaining social welfare benefits. Housing First is one such model, providing housing without preconditions for sobriety, employment, or other requirements that may hinder a person’s ability to stay in traditional supportive housing environments.

Pay for success and permanent supportive housing

Pay for success (PFS) is an innovative public-private partnership financing model through which third-party private investors provide up-front capital for evidence-based public health and social programs. If the program or intervention achieves its predetermined outcomes, the government repays the investors. This model has the dual advantage of sparking innovation in the public sector while limiting risk to taxpayers by ensuring the government only pays for services that are effective.

Importantly, PFS can bring financing to interventions for populations that are often forgotten, neglected, or deemed less worthy of taxpayer support, including people experiencing chronic homelessness.

To date, Policies for Action research has uncovered seven PFS projects delivering supportive housing interventions in the U.S., six of which focus specifically on people experiencing chronic homelessness.  

Ensuring a successful intervention

Although there is growing interest in supportive housing programs using PFS financing, it is actually quite difficult to get PFS projects off the ground, and many crumble in the initial feasibility stages.

Many preconditions must be met before a project can launch, including the following:

• a government, stakeholder, and investor buy-in
• strong evidence of the intervention’s effectiveness
• the service provider capacity to implement the intervention
• the evaluation capacity to measure clearly defined and quantifiable outcome metrics
• the government capacity regarding data, performance-based contracting, payments to private investors, and other administrative issues

The Denver example

The Denver Supportive Housing Social Impact Bond Initiative (Denver SIB) is one success story. Like many communities, Denver struggled to provide permanent housing and wraparound services at a scale that could break the city’s homelessness-jail cycle.

With limited federal dollars to fund permanent supportive housing, the City and County of Denver turned to PFS, tackling the homelessness crisis by shifting the risk to eight private investors, and partnering with the Colorado Coalition for the Homeless and the Mental Health Center of Denver to provide supportive housing services.

As of fall 2018, the project has provided 285 people with supportive housing, and the results are promising: 85 percent of participants remain housed without having ever exited the program, and participants are going to jail less than they did previously. Project evaluators at the Urban Institute are also collecting data on the use of health services both in jail and in the community to build an evidence base of supportive housing’s impact on health care outcomes and costs.

Why is it working?

Several of these outlined preconditions already existed in Denver, paving the way to a successful launch of the project:

• The City had a committed champion for the project in the Office of the Chief Financial Officer, who brought to the table the full authority and resources of the City.
• Denver invested in early data collection and analysis, identifying the target population and its cost drivers across various systems.
• Service providers had decades of experience implementing the chosen evidence-based intervention.
• Partners brought in the evaluator early for a collaborative evaluation design process.

These factors established a solid foundation for implementation and evaluation. With them, the project could successfully scale supportive housing for a high-need population. 

Opening the door for future innovation

Although PFS is an exciting example of a public-private partnership, it has been difficult to get projects off the ground, especially in the public health and health care sectors. Federal Medicaid and Medicare dollars cannot be used to pay private investors, which has restricted the availability of public funds for investor success payments.

Fortunately, the Social Impact Partnership to Pay for Results Act (SIPPRA) has created a $100 million fund in the U.S. Treasury to support local governments making outcome payments for PFS projects. The fund can also be used to implement PFS feasibility projects, which should help launch successful, evidence-based interventions in high-need areas, including supportive housing. The Treasury released (PDF) the first Notice of Funding Availability in February.

In addition, the Medicaid Final Rule for managed-care organizations (MCOs) encourages them to address social determinants of health via nonmedical interventions, opening a door for value-based purchasing arrangements that include PFS, although MCOs have yet to experiment with this model.

Although there are challenges associated with the development and implementation of PFS projects, there is great potential for outcomes-based financing to help governments deliver evidence-based, effective interventions to high-need populations, including those at risk for chronic homelessness. The introduction of federal dollars through SIPPRA and the ability of MCOs to invest in nonmedical interventions should accelerate PFS growth in the U.S.

Learn more:

• The Role of Pay for Success in Building a Culture of Health
• Starting with Stability: How Denver Is Breaking the Homelessness-Jail Cycle

^{Photo by Maura Friedman/Urban Institute}