Australia: Social impact investing/outcome-based contracts in health – opportunities and challenges

With an increasing aging population and decreasing financial resources, innovation is essential in improving health care delivery and patient outcomes.

Better Outcomes for People with Chronic and Complex Health Conditions

In December 2015, the Commonwealth Department of Health published the report of the Primary Health Care Advisory Group (Advisory Group) titled "Better Outcomes for People with Chronic and Complex Health Conditions".3

The report states that our current primary health care system works well for the majority of Australians. However, for the growing number of people with chronic and complex conditions, care can be fragmented and the system can be difficult to navigate.

Through consultations with patients, carers, doctors, allied health professionals and health system organisations the Advisory Group identified a model of care supported by a new way of funding that can transform the way we provide primary health care for Australians with chronic and complex conditions.

Central to the reform is the establishment of Health Care Homes, which provide continuity of care, coordinated services and a team based approach according to the needs and wishes of the patient.

This new approach is supported by new payment mechanisms to better target available resources to improve patient outcomes.

The new approach offers an opportunity to improve and modernise primary health care and maximise the role of patients as partners in their care. It represents innovative, evidence-based best practice that harnesses the opportunity of digital health care. Importantly, it has strong support from consumers and health care professionals alike.

Central to the proposed reform is the formalisation of the relationship between the patient with chronic and complex conditions and their Health Care Home: a setting where they can receive enhanced access to holistic coordinated care, and wrap around support for multiple health needs.

Health Care Home

Key features of the Health Care Home are:

  • Voluntary patient enrolment with a practice or health care provider to provide a clinical 'home-base' for the coordination, management and ongoing support for their care.
  • Patients, families and their carers as partners in their care where patients are activated to maximise their knowledge, skills and confidence to manage their health, aided by technology and with the support of a health care team.
  • Patients have enhanced access to care provided by their Health Care Home in-hours, which may include support by telephone, email or videoconferencing and effective access to after-hours advice or care.
  • Patients nominate a preferred clinician who is aware of their problems, priorities and wishes, and is responsible for their care coordination.
  • Flexible service delivery and team based care that supports integrated patient care across the continuum of the health system through shared information and care planning.
  • A commitment to care which is of high quality and is safe. Care planning and clinical decisions are guided by evidence-based patient health care pathways, appropriate to the patient's needs.
  • Data collection and sharing by patients and their health care teams to measure patient health outcomes and improve performance.

One of the recommendations was in relation to restructuring the payment system to support the new approach, including testing new payment methods to Australian Primary Health Networks (PHNs) to enable them to commission appropriate non-general practice clinical care and coordination services for enrolled patients in their region based on the patient's allocated risk stratification level, prior to wider rollout.

Australian Primary Health Networks Commissioning Projects

Since the release of the report, the PHNs have been tasked to adopt a commissioning approach to procuring medical and health care services. The PHN Commissioning - Needs Assessment Guide4 has been developed by the Department of Health to support PHNs in planning and undertaking a needs assessment process that will identify and analyse health and service needs within their regions and prioritise activity to address those needs.

The guide provides an overview of the PHN commissioning framework and discusses the key elements of needs assessment, including the steps involved in conducting health needs analysis and service needs analysis, synthesising the evidence and determining priorities and options.

Social Impact Investment in New South Wales

The NSW Government is backing two social benefit bonds, also known as social impact bonds.

The first bond is funding UnitingCare Burnside's New Parent and Infant Network (Newpin) program5, which is working to restore children in foster care with their families and preventing at-risk children from entering care by educating parents about family environments.

The second bond, which was launched by the Benevolent Society, also relates to foster care.6

NSW Government has commissioned the Office of Social Impact Investment: and has published a Social Impact Investment Policy and various materials.

Types of outcomes based contracting

Outcomes based contracting is contracting on a basis where Governments financially reward service providers or private investors for having a positive and sustained impact on the lives of service users.7 There are four main categories of outcome funding models namely:

  1. Payment for performance, which sees a portion or sometimes all of the contractual payments conditional on achieving outcomes based targets;
  2. Social impact bonds, whereby private capital is used to fund interventions aimed at solving complex social problems. Dividends are paid if sponsored interventions deliver measured improvements;
  3. Performance based contracting, which sees a change to procurement processes of Government based upon the track record of service for the organisations achieving specified outcomes; and
  4. Performance incentive funding, whereby service providers are awarded bonus payments for achieving improvements in client outcomes.8


Some of the first outcomes based models came from prisoner parole reoffending programs (the UK Peterborough Prison program is considered the model of a successful program based upon payment for performance). The success of these programs on a contractual basis maybe linked to the fact that the target populations were easily identified, namely offenders released on parole. In these programs there is also quality data available to measure performance.

The benefit for Government is that government doesn't need to determine how the services will be delivered and sets such out in a contract, but rather leaves it open to the service providers to innovate utilising their knowledge of service delivery to the target population, and are doing so pursuant to a contract which incentivises them to achieve special outcomes.

There are many areas in which quite clear outcomes may be achieved and measured against cash savings. For example, a program could be measured of savings in the pharmaceutical benefits scheme funding for the reduction in unnecessary prescriptions of a specified therapeutic good. Any such program could be funded by a percentage of savings and if successful the service provider should be able to profit from the results.

In fact, in the delivery of human and social services there must be a place in all contracting arrangements whereby an outcome connected with a service recipient's experience could become a contractual measure.

Of course, these areas should see a driving focus on outcomes as justification for the funding restraints currently experienced by all such Government organisations. The model addresses issues such as being able to justify spending in a complex area where the costs saving may only have a distant connection with the costs of funding the project. What immediately springs to mind, of course, is mental health whereby a project aimed at early intervention could be measured from (by way of example) a reduction in homelessness or welfare benefits measures.


There are a number of challenges with outcomes based contracting in health care, these include:

  • establishing the health needs requirements;
  • defining the target population and stakeholders – it is easier to define and measure outcomes with respect to a smaller and more clearly defined population, such as the clients of one particular service of one provider, as compared to State/Territory or National based populations;
  • establishing a contracting framework in which there will be a "win – win" for the parties;
  • because health care is provided by a multi-disciplinary team, we need to be able to break down the silos in terms of contractual responsibility. Traditionally lawyers seek to clearly define each party's responsibilities and liabilities based upon the fact that a breach will cause a right of damages or termination. In outcomes based contracting, this will continue for certain obligations. However, the distinction is that a return will be paid for an outcomes based result or saving (the "win-win"). Therefore, the model is not to punish for non-performance, but to reward for performance;
  • patient safety and outcomes is paramount, so the model must have checks and balances to ensure that patient safety is not compromised. Therefore, in health care, there will ultimately be a "blend" of minimum key performance indicators and outcomes based contracting overlayed; and
  • being able to define and measure the benchmark and the outcomes based result – to an extent this is limited by the availability of "clean", reliable and "objective" (rather than "subjective") and continually collected health data so that the outcome can be appropriately measured.

The collection of health data is relevant to the recent debate concerning the benefit of collecting population statistics by the census versus privacy rights.



4 The Needs Assessment Guide is available at:



7 Gold and Mendelsohn, Better Outcomes for Public Services, Achieving Social Impact Through Outcomes Based Funding, Mowat Centre, August 2014

8 Ibid, page 15.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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