Results-based Financing — Inspiration from Instiglio’s work on Diabetes in Mexico
Pay-for-results, or results based financing models, can help ensure that procurement delivers citizen value, inspires innovation and focuses on the desired impact. Some examples of these models include results-based contracting and social or development impact bonds. Instiglio, a USA and Colombia based organization that helps government administrations research, design and implement results-based financing (RBF), recently helped the Mexican Social Security Institute (IMSS) launch open, results-based contracts for diabetes management.
Placing results at the heart of financing means shifting from “measuring and accounting for receipts, to measuring and accounting for results”
Michael Eddy, Co-Founder and Partner, Instiglio
Results-based financing
In RBF, the emphasis is on achieving impact rather than compliance. In other words, governments only pay service providers when they achieve the desired outcome.
For governments, this reduces the risk of funding projects that do not work, while for providers it means they are not tied down to fixed processes, but can be flexible and adaptive in how they deliver results. Providers are rewarded for better results, incentivizing continuous improvement. Additionally, this approach also opens the door to smaller service providers who in turn are able to grow with success.
Governments can finance results through social or development impact bonds. With social impact bonds, the private sector provides the up-front financing (working capital) to service providers. Private investors are paid a return on investment (ROI) by the government, determined by the results achieved by the service providers. In development impact bonds, the ROI is paid by donor organizations rather than government.
Reported results from results-based financing (RBF)
- Neonatal mortality was reduced by 74% and low birth weight by 19% in prenatal RBF program in Argentina.
- Preventive health center visits for children 0–23 months and 24–59 months was increased by 64% and 133% respectively during a RBF program for early childhood care in Rwanda.
- In Indonesia, a health and education RBD program incentivized villages to improve 12 health and education metrics, resulting in 15% reduction in malnutrition rates.
Procuring Diabetes Prevention in Mexico
Diabetes is one of the leading causes of death in Mexico. Affecting over 14% of adults, it not only reduces quality of life, but also increases the chance of developing other health risks. As a result, diabetes is one of the main drivers of increasing health costs, both for the health care system as well as individuals and their families.
In order to ensure better healthcare for citizens and to prevent costly complications associated with diabetes, the IMSS wanted to move to a results-based, preventative strategy for managing diabetes. Developed in partnership with Instiglio, IMSS launched a public competitive bidding process in 2015 to contract diabetes management services paid in part based on the results that they produce. These contracts will cover an 18-month pilot project to manage diabetes prevention for 12,000 patients aged 18–70 with Type 2 diabetes without additional medical complications.
For this particular case, IMSS was interested in issuing larger contracts but was unsure about conditioning the contracts entirely on results. The contracts therefore combine payments for the quantity of care (outputs) and the quality of care (outcome). The contract also comes with a cap on the maximum financial obligation for IMSS.
Payment will be structured according to three criteria:
- Basic fee per patient treated: to cover working capital and minimum service provision such as check-ups and testing. Established during competitive bidding process.
- Pay for progress: directly correlated to improvements in each of the three health indicators mentioned below.
- Pay for results: MXN 9,000 bonus per patient who improved beyond the pre-determined targets for all three indicators.
This contract differs from typical results-based contracts in two respects. Firstly, payments for results are paired with a set of financial penalties which may be issued if the provider fails to carry out their medical responsibilities. Secondly, results will be verified by an internal team of experts through regular lab tests. Metric supervision is typically carried out by an independent party.
Investment in expanding access to high quality care to successfully manage diabetes has a far greater ROI than treating the costly complications associated with uncontrolled diabetes. This means that if the project is successful it can save the public money in the long term. The structure allows IMSS to trial the new procurement method, leveraging the opportunity without excessive risk. If successful, this precedent can help inform future RBF initiatives.
This approach is not only advantageous to IMSS, but also to service providers. Service providers are able to learn while doing and change their services according to what works best, without overly burdensome processes. Payment on results also rewards them for performing better.
“Investing in high quality prevention is extremely cost effective — it actually saves money in the long term. For every dollar you put in you get money back as you save in the long term”
Michael Eddy, Co-Founder and Partner, Instiglio
Insights from Instiglio’s expertise with RBF
Instiglio has partnered with other government administrations besides Mexico, such as Colombia and Ghana, and has developed RBF projects in education, health, employment and crime.
While RBFs can achieve tremendous results, it can be challenging to get started. This is because RBF does not fit neatly into existing procurement processes. Results-based contracting means governments only pay for what works. This means that if projects don’t deliver, there will be unspent budget. Moreover, it requires the issuing of contracts which will be paid for in the future.
Metrics underpin overall service quality, so it is important that RBF schemes establish the right ones, and do not introduce perverse incentives to work towards narrow targets. Payment metrics need to be accompanied by a solid, and preferably independent, verification system.
“Work with partners to choose your metrics.”
Michael Eddy, Co-Founder and Partner, Instiglio
For these reasons, setting up RBF contracts can come with high upfront costs of time, energy and money. Starting small and expanding slowly after initial success is crucial to managing risk, expectations, and familiarizing government officials with the new approach. It is also important to ensure the RBF approach is used for projects that are of absolute priority, warranting the required attention and energy. Finally, cooperating with other administrations can help share learnings, replicate models, and reduce costs. Governments that overcome the challenges of using RBF for the first time set a precedent.
“The first thing we do is a participatory exercise to map out pain points, prioritize them, and then filter for problems which have measureable outcomes and a high return on social investment“
Michael Eddy, Co-Founder and Partner, Instiglio
Takeaways
Results-based contracting is a powerful tool to deliver citizen value. It can help ensure government only pays for what works, while giving providers the freedom to do what they know how to do. In Mexico, results-based procurement of diabetes management services may help IMSS deliver great results, save money in the long run, and help inspire more results-based procurement worldwide.
