In June, the University of Michigan P4A research hub published new findings in Milbank Quarterly as part of its ongoing study of Pay for Success (PFS) financing models for evidence-based interventions aimed at the social determinants of health. PFS is an innovative but still emerging approach to funding large-scale public sector programs such as Medicaid. It relies on private investors who receive a return from the public sector only if certain performance-based metrics are achieved. PFS has the potential for scaling implementation of preventive health interventions among low-income populations and addressing health disparities. Yet little research has been done thus far on the challenges of implementing PFS projects in Medicaid populations.
Paula Lantz and co-authors from the University of Michigan Gerald R. Ford School of Public Policy, the Altarum Institute, and the Milken Institute School of Public Health at the George Washington University sought to estimate what cost savings could be achieved if PFS funded a home-based multicomponent intervention among low-income children on Medicaid in Detroit. The team performed a comparative benefit-cost analysis and simulated outcomes over a seven-year period of the intervention, which combines home environment structural mediation with medical case management. Their paper analyzed outcomes across three district groups: 1) all children with an asthma diagnosis 2) children with an asthma-related emergency department visit in the past year and 3) children with an asthma-related hospitalization in the past year.
In addition to Lantz, the research team included George Miller, Corwin N. Rhyan, Sara Rosenbaum, Leighton Ku, and Samantha Iovan.
The research yielded the following conclusions:
- The PFS economics of a home-based asthma intervention are most viable if it targets children who have already experienced an expensive episode of asthma-related care. Cost savings modeled for Groups 2 and 3 were most significant. A broad targeting of patients such as those in Group 1 did not generate sufficient savings to fully repay an investor at the end of the seven-year period.
- Legal and regulatory barriers remain for capturing federal Medicaid savings and using these dollars to repay private investors in a PFS initiative.
Implications for Policy and Practice
PFS holds promise for scaling evidence-based social welfare interventions, particularly those for low-income populations, yet the economics still need to be fully understood. There still exist legal and regulatory barriers to capturing federal Medicaid savings to repay private investors in a PFS initiative. In addition, policy changes and guidance are needed to support PFS financing of evidence-based interventions that would reduce Medicaid expenditures. Without policy reform and federal guidance, state Medicaid programs would have to finance the PFS outcome payments with federal financial participation.