Occupational Health Social Outcomes Contract, Sweden

Prior to this intervention, the proportion of employees on sick leave in Sweden was rising. In 2013, the cost for sick leave benefits in the country stood at SEK 26.2 billion. By 2016, that had risen to SEK 39.8 billion, with the upward trend particularly apparent in regional and municipal authorities. While the cost of long-term sick leave is covered by insurance companies in Sweden, the cost of short-term sick leave (days 1-14) is covered by the employer. Public sector employers were therefore facing high direct costs through the expenses of short-term sick leave. In addition, there were wider costs to the individuals, employers, and society at large: ill health, a loss in productivity, and reduced public service quality.

In 2017, a pre-study was conducted in seven Swedish municipalities by the Swedish Association of Local Authorities and Regions (SALAR), the Research Institutes of Sweden (RISE), the European Investment Bank (EIB) and Kommuninvest. It found that 20% of employees account for 75% of the costs of short-term sick leave. This risk group were identified as being absent on more than three occasions over a 12-month period.

In addition, the study identified that 80% of the spending on occupational healthcare in municipalities targeted rehabilitation. This suggested that there was insufficient pursuit of early identification and intervention strategies on the part of employers, to reduce sick leave and improve employee health. However, as the impact of early interventions can take a number of years to be observed, there were challenges associated with finding long-term financing due to annual budget cycles. A social outcomes contract was therefore identified as a valuable tool to financing early interventions. It also offered a way for the intermediary organisations, RISE and SALAR, to build capacity for implementation support and outcomes monitoring.

The Occupational Health SOC employs a multi-level approach to occupational health, targeting both individual and organisational factors, developed based on an analysis of intervention models.

The direct, individual support – known as Health Support – is provided by external provider organisations contracted by the local authorities involved. As the project was being developed, it was decided that it was not rational for local authorities to build capacity for this part of the service internally, so the decision was made to contract it out. Employees call directly to nurses employed by the external provider organisations, who triage these calls. They identify possible risk factors, including absences that are potentially work- related, and flag these to managers.

At an organisational level, the project aims to build organisational capacity to address employee sickness. This will generate long-term competence in the identification of those at risk of excess sick leave and implementation of preventative actions. This work is carried out by the HR departments themselves.

The primary outcome metric used for payments is the direct cost for reduction in net short- term sick leave days (days 1-14). A range of other outcomes will also be studied, including:

• Sustainable Employee Engagement
• Work capacity
• Long-term sick leave
• Purchasing of additional occupational health services
• Size of risk group
• “Healthy workplaces” with low short-term sick leave

These additional metrics are not tied to payment. However, they offer a more holistic picture of improvements to employee health. This also helps to guard against perverse incentives, as a reduction in sick leave may indicate an increase in employees attending work while sick, rather than an improvement in employee health.

The project was initiated by SALAR, the Swedish Association of Local Authorities and Regions, a body that represents and advocates for local government in Sweden. They approached their members and asked if they were interested in exploring the issues surrounding sick leave, and the evidence base for new interventions to tackle it. There were a number of interested parties, and as a result, a feasibility study was initiated.

In 2017, this study was carried out in seven Swedish municipalities by SALAR, RISE, the European Investment Bank and Kommuninvest. As noted above, it highlighted the focus on rehabilitative rather than preventative approaches to employee sickness and identified a particular risk group responsible for the majority of sick leave costs. A range of interventions were identified that may help to address these issues.

Initially, the SOC was planned to be financed through a novel Sustainability Bond with Impact-linked Return (SBIR). The SBIR would have combined a loan (around 90%), with a SOC (around 10%), in order to achieve an appropriate investment volume and risk profile. This was designed to allow for institutional investors and an investment volume of €100 million.

However, while investors were interested in the SBIR approach, the Swedish local authorities’ appetite was limited. Neither Kommuninvest, nor their local authority members, were ready for the instrument. This perhaps in part reflects Swedish public sector culture, in which traditionally loans are only sought to finance infrastructure projects. There is more scepticism about borrowing for social services.

A number of the initial eight local authorities involved in the project, as well as Kommuninvest, therefore decided to drop out of the project. However, two local authorities (Botkyrka and Örnsköldsvik) decided to stay. While they were not interested in the financing model, they were interested in the proposed interventions. As a result, these two large local authorities – with turnovers of around EUR 500 million per year – decided to invest in the SOC themselves.

The start of service provision varies between the two local authorities: in Botkyrka, implementation began on 26/09/2018, while in Örnsköldsvik implementation started on 01/11/2018. The SOC will run for 36 months in total, with a 9-month ‘ramp-up’ to the full intervention effect.

The investors are the finance departments of the local authorities of Botkyrka and Örnsköldsvik. In addition, external providers were required to bid for 25%-75% of the estimated cost of delivery to be outcomes-based, meaning they would cover the upfront the cost and be repaid (with a premium) if outcomes were achieved. In Botkyrka, the provider bid for 50% of the contract to be outcomes-based, while in Örnsköldsvik they bid for 75%. As a result, the total investment in each location includes the percentage of estimated provider costs that are at risk. The total project investment in Botkyrka was ~ SEK 22.9 million, while ~ SEK 17.4 million was invested in Örnsköldsvik. Across the SOC, this amounted to a total investment of ~ SEK 40 million (~EUR 4 million).

The local authorities are also the outcome payers on the project. There is a maximum outcome payment of SEK 6.30 million (~EUR 620,000) in Botkyrka and SEK 8.66 million (~ EUR 850,000) in Örnsköldsvik.

Service provision is split between internal and external providers. The internal providers are the HR departments, who work with managers to improve longer-term support for employee health. The external providers, who deliver the ‘Health Support’ service, are Aino Health (Botkyrka) and Previa (Örnsköldsvik).

A ‘project organisation’ formed by the intermediary organisations, RISE and SALAR, assists with project monitoring, evaluation and support during implementation.

Although the investment came from the municipal authorities themselves, the contract was structured to maintain alignment with the SOC model. The HR department in each local authority borrows money from the finance department. Part of that loan is used to pay for the internal provision of the service, delivered by the HR department itself.

The remainder of the loan is used to cover the non-outcomes-based portion of the external contract. During the external provider procurement process, one of the main parameters was risk appetite. Providers could bid for between 25% and 75% of reimbursement to be dependent on outcomes.

In practice, Aino Health in Botkyrka bid for 50% of the contract to be outcomes-based, and Previa in Örsköldsvik bid for 75%. The providers would cover this percentage of their estimated costs upfront, and be reimbursed based on the outcomes of the intervention, with a performance bonus of up to 0.5*risk*total value of their service.

The payment structure was designed so that the provider will break even at the same time as the local authority. The cost savings from a reduction in sick leave will result in repayments to local authorities (66.25% of savings in Örsköldsvik and 81.6% in Botkyrka) and to service providers (33.75% in Örsköldsvik and 18.4% in Botkyrka). The cap on payments to providers means that reductions above 150% of the investment value will go solely to the local authorities.

For example, in Botkyrka, the cost of external service provision was estimated at SEK 8.4 million. The provider, Aino Health, bid for 50% of the contract to be outcomes-based. As a result, SEK 4.2 million would be paid to the provider upfront, while a further SEK 4.2 million would depend on achieving outcomes such that the reduction in the cost of sick leave is equivalent to the total investment amount. Beyond this break-even point, the provider will continue to be paid at a rate of 18.4% of savings, up to a cap of 0.5*50%* SEK 8.4 million, or SEK 2.1 million. This cap will be reached when total savings reach 150% of the total investment value. Beyond this point, all subsequent cost savings will go to the local authority.

Measurement of outcomes is made by comparison to a reference period of historic data of short-term sickness absence in the municipality, adjusted for national trends.

Results to March 2020 indicated that in Botkyrka, the project would achieve a 140% cost saving relative to investment, while in Örnsköldvik, the project would reach 90% relative to investment.

However, since March 2020, COVID-19 has had a significant impact on the project. COVID-19-related sick leave was understandably not accounted for in the evaluation model, and so has had a disruptive effect. A methodology for dealing with the impact of COVID-91 is currently under negotiation.

A final evaluation of the project outcomes is expected to be conducted by an external auditor (independent evaluator) at the end of the project.