Results-Based Funding in Ugandan Health Cooperatives

This is the twelfth post in the Cooperative Development Learning Series, which highlights learning from USAID’s Cooperative Development Program, and was authored by Britt Cruz.

Click the links to read the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, and eleventh posts. 

HealthPartners has been helping Ugandans start sustainable health cooperatives since 1997. Three years ago, we shifted from input funding to results-based funding. Cooperatives were incentivized to get as much funding as possible by holding as many activities as possible. The increased cost had no added value in terms of output or outcomes. The 2015 shift to results-based funding was a game changer in terms of project cost-effectiveness and cooperative autonomy.

For all cooperatives, a financial surplus is the most critical indicator of success. We began working with cooperatives to define their objectives and outcome indicators in what we called milestone (MS) agreements. When a cooperative achieved its indicator, it would be matched with further investments. Cooperatives signed MS agreements with HealthPartners at the beginning of the year, assigning investments that HealthPartners would make for each measurable outcome achieved. When activities needed upfront financial investment, HealthPartners would provide a set advance, usually in return for planning-related outputs, and the cooperative was required to provide a match either directly or in-kind.

The first and most notable improvement we saw was in cost-effectiveness. Prior to results-based financing, surplus per investment dollar averaged $0.39, meaning, on average, for every dollar HealthPartners invested, a cooperative made approximately $0.39 in surplus. Following the switch to results-based funding, surplus per investment dollar increased to $1.64, driving the 2015-18 average surplus per investment dollar to $1.45.

Cost-effectiveness is an important indicator for donors and implementing partners, but stakeholders are understandably more concerned with whether they are able to meet their objectives. The average surplus under results-based funding was almost $800 more annually than the surplus under input funding. That is a stunning outcome in light of a fourfold reduction in the average investment during this time.

While the surplus gains may not be striking, evidence from 2018 shows surpluses are rising, suggesting that we have become more adept at using the mechanism, and stakeholders have become better at leveraging it to their advantage. An additional advantage that cannot be seen in the surplus indicator is that cooperatives have significantly more autonomy now than they did four years ago. They now choose what their objectives are, plan how to reach them, budget accordingly, and carry out their own activities. HealthPartners continues to provide support, but we have effectively transitioned decision-making power to cooperatives, where it should be.

Results-based funding is complex, and we have learned the following important lessons:

1. Stakeholders must set their own objectives and indicators. If an implementing partner is too prescriptive, a stakeholder may fail to understand why the objective(s) and indicator(s) are necessary. The practice of creating objectives and indicators enables stakeholders to identify their needs, the activities that will allow them to meet their needs, and how to measure success. The process builds institutional capacity and motivation. One of the greatest strengths of results-based funding is the flexibility it gives stakeholders to achieve their objectives in the manner they see fit.
2. Build capacity first. Results-based funding needs to be part of a larger foundation of support. A prerequisite to using results-based funding is that stakeholders have the institutional capacity to meet their objectives. Providing technical assistance where needed well in advance of deadlines saves time and money and builds trust in the partnership.
3. Measurement and verification of indicators requires significant monitoring, evaluation, and learning (MEL) capacity. Results-based funding requires the ability to measure and verify indicators, and the need for a robust MEL system cannot be overstated for both stakeholders and implementing partners alike. Monitoring and verifying indicators is time-consuming. Partners need to be precise about how indicators will be measured and how they will be verified to avoid friction about payments.
4. Start small. Start with short timelines and manageable indicators to reduce risk and build trust. For stakeholders, manageable indicators reduce risk, since they need to invest less time and money to reach their objective. They also have a chance to get to know what the implementing partner expects in terms of results. Similarly, implementing partners gain the opportunity to assess the capacity of the stakeholder before embarking on larger projects. In 2017, we made the mistake of creating MS agreements that were too lengthy and too complex, resulting in poor performance. We learned that we were better off relying on small steps, which allowed us to identify gaps and build capacity accordingly, reduce time reviewing late or partial deliverables, and mitigate demotivation when stakeholders spent time and money on activities that did not meet their objectives.
5. Beware of perverse incentives. How success is measured influences stakeholder incentives and behavior. Good indicators incentivize stakeholders to achieve predetermined results. Flawed indicators can incentivize stakeholders to act in ways that undermine project goals, game the system, ignore unrewarded activities, or over-perform rewarded activities. Results-based funding may also detract from long-term sustainability if indicators are met only for financial or personal gain.

To some, results-based funding might appear rigid, but the way we have learned to implement it—with stakeholders defining objectives, substantial upfront and ongoing capacity building, short time frames and attainable objectives that allow for learning and adaptation, and financial support for large investments—it is actually very flexible. Cooperatives are not only supported to achieve their objectives; they are the definers and drivers of their own results.

Britt Cruz is a Program Manager in International Development with HealthPartners, the largest consumer-governed non-profit healthcare organization in the United States. Britt has spent the last five years working on HealthPartners’ USAID-funded Cooperative Development Program (CDP) in Uganda. The program leverages HealthPartners’ cooperative expertise to facilitate the development of member-owned health cooperatives that meet members’ health care needs. She has been a practicing development professional for more than a decade, half of which was spent in Asia and Latin America, most recently with the Centers for Disease Control and Prevention Global AIDS Program / Universidad del Valle de Guatemala. Britt has a Bachelor degree in political science and economics from the College of St. Benedict and a Master of Development Practice degree with public health concentration from the Humphrey School of Public Affairs. Her interest is in creating sustainable health care systems that build on existing infrastructure and are driven by local actors. Britt has been published in The Review of Black Political Economy and was a contributing author to the book, The Journey to Universal Health Insurance Coverage: Where is Uganda and What are the Lessons for Other LMICs.