Tomas Bokström
Project Manager
RISE Research Institutes of Sweden
RISE Research Institutes of Sweden

Social outcomes contract for a preventive and healthy workplace in Sweden

Below is an example of social outcome contracting for a preventive and healthy workplace from Sweden. For more information about this approach, read our chapter about social outcomes contracting.

 

The objective of social outcome contracting for a preventive and healthy workplace is to reduce short-term sick leave and improve health outcomes, while at the same time reducing overall societal costs. The results of the pre-study indicated that a great number of local authorities have similar trends of short-term sick leave – with a small group of employees accounting for a large proportion of the short-term sick leave. This imposes a high burden for local authorities in terms of costs and ill health of employees.

The proportion of employees on sick leave has been increasing in Sweden and the costs for sick leave benefits have risen from 26.2 BSEK in 2013 to 39.8 BSEK in 2016. This trend is particularly noticeable in regional and municipal authorities, compared to private employers – thus posing a high burden on public employers as they are covering the expenses of short-term sickness (day 1-14). In addition, a rise of indirect costs and negative effects such as ill health, productivity loss and lower quality in public services is also observed. A pre-study conducted in Swedish municipalities, in collaboration between Swedish Association of Local Authorities and Regions (SALAR), Research Institutes of Sweden (RISE), the European Investment Bank and Kommuninvest, found that 20% of employees account for 75% of the costs of short-term sick leave. The identified risk group of employees were found to be absent 3+ occasions during a 12-month period.

The pre-study further indicated that, as employers, regions and municipalities do not put enough efforts into early identification and intervention in terms of reducing sick leave and improving employee health. Spending on occupational healthcare in municipalities is primarily (80%) targeting rehabilitation. As the results of early interventions tend to be observable years after the investments are made, there is a challenge in finding long-term financing for such interventions due to annual budget cycles. In addition, the pre-study indicated a lack of systematic processes for early intervention and monitoring of outcomes. A social outcomes contract (SOC) was identified as a valuable tool in terms of providing financing for early interventions and health promoting in workplaces as well as for capacity-building for implementation support and outcomes monitoring.

The Swedish project employs a multi-level approach to target both individual and organisational factors impacting occupational health. The health support enables early identification of ill-health and sick leave absence which, in combination with structural interventions (manager support), enables preventive and health promoting actions. Additionally, the interventions aim to generate long-term competence at the human relations department in terms of identification and implementation of preventive actions – thus establishing capacity for prevention in a broader perspective.

The structure of the SOC enables performance management and program improvement as well as collaboration between private and public sector organisations. The service provider is procured and contracted by the local authorities to perform services (health support and identification of risk groups). The public sector has played a big part in implementing the SOC, compared to other countries where SIBs have been adopted. Although the actors involved in a SOC or SIB may vary, the investors often include private actors. In the occupational health SOC in Botkyrka and Örnsköldsvik, the project is solely financed by the local authorities themselves, making it a unique example of a publicly financed SOC. The project organisation, consisting of a new entity formed by state-owned RISE and SALAR, assists with project monitoring, evaluation and support during the implementation process.

The contractual partners in the SOC are the finance and HR departments in the local authorities, as well as the intermediary organisation (RISE and SALAR). The total investments in the SOCs of two municipalities are 17,4 MSEK and 22,870 MSEK respectively (€4 million in total) over a three-year period.

A financial instrument referred to as Sustainability Bond with Impact-Linked Return (SBIR) was designed to allow for institutional investors and a large investment volume (€100 million). The SBIR combines a loan (approx. 90%) with a social outcomes contract (approx. 10%) in order to achieve enough investment volume and a suitable risk profile. However, the Swedish local authorities decided to finance the SOC on their own.

During the procurement process of external service providers, various parameters were considered, including proposed risk-share agreements. The service providers were offered to bid on risk appetite – between 25% and 75% of reimbursement to be dependent upon the outcomes of the SOC. The contracted providers bid for 50% and 75% in each municipality. The financial commitments between the investors and service provider is regulated with a pay-for-performance contract based on this financial risk sharing with a potential premium for over-performing which is capped at half the risk level. Thus, there is financial risk sharing between the municipalities and the service providers.

Based on international experience, various case scenarios were outlined, defining the financial outcomes for all parties. All scenarios include a total intervention period of 36 months and a 9-month ramp-up to full intervention effect. Aiming for the low case scenario (12%) average reduction in net sick leave days will result in a break-even point. The expected base case scenario is on average 18% reduction, and the best case is 34% reduction of net short-term sick leave days. The estimated likelihood for achieving at least base case is 80%.

The share of repayment is dependent upon the financial risk of the service providers, but the cash flow also depends on the estimated cost for the service delivery per employee, the number of employees at the baseline measurement and the outcomes achieved. Evaluation is done by calculating the trend adjusted change of net sick leave days compared to the historic baseline. Reductions beyond break-even will result in repayments to the local authorities (66,25% and 81,6%) and to the service providers (33,75% and 18,4%). The cap on payments to the providers means that reductions above 150% of the investment value will go solely to the local authorities.

Performance management is ensured through regular monitoring by the project organisation. There is a quarterly review of process and outcomes which gathers all stakeholders to assess progress and discuss adjustments. The final evaluation of the project outcomes will be conducted by an external auditor at the end of the project (36 months).

The main outcome measurement used for financial evaluation is the direct costs for reduction in net short-term sick leave days (day 1-14), adjusted for national trends in sick leave. The average reduction during the intervention period will be compared to a baseline of historic data from the municipality. To be able to evaluate the impacts of the interventions on employee health, studied outcomes also include Sustainability Employee Engagement and work capacity. Other outcomes measured and used for comparing with the trends of short-terms sick leave are: long term sick leave (day 15+), purchasing of occupational health care services (in addition to intervention), size of risk group, “healthy workplaces” with low numbers of short-term sick leave and productivity loss due to presenteeism. Additionally, a thorough analysis of the risk group is conducted, monitoring parameters such as age and gender distribution.

The knowledge and capacity attained during the implementation process of the first two cases targeting occupational health can be used to transfer the programme to other municipalities in Sweden. Manuals guiding the implementation process have been developed, which could be applicable in future cases. Several other local authorities have shown interest in the interventions and the project organisation is currently planning an additional pre-study in Stockholm City.