What’s distinctive about impact bonds compared to traditional commissioning?

MHEP was established in 2015 to drive the expansion of high-quality employment support programmes, based on Individual Placement and Support (IPS) intervention, for people with mental health issues. MHEP houses 5 social impact bonds (SIBs), backed by social investment from Big Issue Invest and outcome funding from Life Chances Fund. Social Finance leads the contract and performance management as an intermediary and co-commissioner to the providers and corresponding local authorities:

MHEP provides an unprecedented opportunity to better understand social impact bonds through academically rigorous evaluation. It represents the first time IPS has ever been delivered and funded through a SIB arrangement. Unlike many other SIB projects, MHEP is unique, since it delivers an internationally-established evidence-based intervention (rather than testing a newer intervention), serves a large number of intended participants (relative to other LCF projects and smaller scale SIB pilots internationally), and has a defined counterfactual of IPS delivered in the NHS through non-SIB arrangements (compared to many SIBs which lack a robust comparator site). Due to these features, this presents an exciting evaluation opportunity for rich comparative analysis to answer a key question that has been at the heart of SIB debates…Do SIBs perform better compared to other contracting arrangements in terms of social outcomes achieved?

The recent report investigates a range of features of MHEP projects, but this blog highlights three key insights in particular:

1. Is MHEP distinctive when compared with traditional commissioning?
2. How should outcome-based and block payments be balanced?
3. How did different parties of impact bonds perceive facilitators and barriers differently?

To answer these questions, we have spoken to 22 interviewees (covering all main stakeholders including local authority commissioners, service providers, Social Finance, the investment fund manager and the LCF management team), of which results were validated by three subsequent workshops.

There were varying views amongst stakeholders on the difference between MHEP and traditional commissioning. Most providers found great value in the data analysis and intelligence MHEP provided and the working culture within the partnership. MHEP’s performance management function was seen to drive additional focus on achieving outcomes. Most importantly, MHEP’s role in identifying and successfully unlocking the LCF funding was perceived as key in adding financial and human resources to projects, which was seen as hard to access otherwise.

However, some were more cautious in describing a distinction. While they acknowledged that MHEP’s assistance in unlocking LCF funding had been key, they did not perceive its other functions to be markedly different to alternative practices and performance management procedures. Some providers found MHEP’s approach too theoretical and removed from the practicalities of local IPS delivery, while the language used by MHEP was sometimes very different from that of traditional commissioning, causing confusion.

A key feature of MHEP SIBs is payment based on outcomes, however unlike extreme payment-by-results contracts, where providers are only paid following the achievement of successful (job) outcomes, the MHEP payment arrangements blend ‘block’ and ‘outcome’ payments. This means that there is not full exposure to non-payment in situations of poor performance. The exact split of payment arrangements varies across the MHEP projects (ranging from 70:30 to 95:5 in terms of block:outcome payments).

This is a significant departure from the standard SIB model, according to a 2022 study of UK and US SIBs where there’s typically at least 50% payment for outcomes. However, there are concerns that if performance-based payments increase or become more mainstream, small third-sector providers in the longer term may struggle, even if they may be suited to deliver the best outcomes for that area.

A “healthy amount of pressure” was described as ideal so third sector providers could manage the financial risk easier and thus potentially take on more contracts. Several MHEP team members and providers stated that their ideal was 95% block and 5% outcomes payments.

Interviewees were also asked to identify the barriers or facilitators which hindered or supported the delivery of MHEP. Across providers, commissioners, and the MHEP team there were several commonly perceived barriers. These were:

1. Payment flow requirements and funding structure were complex,
2. The impact of cohort differences, namely that learning disabilities service required different expertise and intensiveness of support compared to severe mental illness services.
3. COVID-19 had significantly affected performance.

However, while interviewees identified a variety of facilitators, service providers could only identify two, despite being able to identify a long list of barriers. This may not be surprising given they are largely shielded from the inner workings of the SIB. Nevertheless, it could also mean that they were the one who bore the brunt of the initial complexity of implementing a service funded through a ‘new way of working’ with a SIB mechanism. This may suggest they were not adequately supported through the initial learning curve of using a SIB mechanism and this may need to be rectified in the future.

In order to accurately answer the ultimate question of “are SIBs distinctive compared to traditional commissioning”, GO Lab is set to undertake a multi-streamed impact evaluation. Using quasi-experimental methodology, we will assess the achievement of IPS employment outcomes from MHEP supported services (IPS with SIBs) compared to traditionally commissioned services (IPS without SIB). We hope that this will inform interested academics, practitioners, and policymakers on whether SIBs can be an effective contracting tool for evidence-based interventions such as IPS.