Relapse Rate: An Overview

A relapse rate is a measure of the success of a rehabilitation program for substance abuse or criminal behavior. If that program is funded by a social impact bond (SIB), the relapse rate may also determine the return to investors in the program.

Relapse rate measures the incidence of re-offense or re-imprisonment in the group of people served by the program. If a program is a success based on its low relapse rate, SIB investors may get their principal investment back and may receive interest payments as well.

  • Relapse rate is a measure of the success or failure of a program that treats substance abuse or rehabilitates offenders.
  • Many programs funded by social impact bonds (SIBs) are evaluated on their relapse rates.
  • The returns to SIB investors are directly related to the relapse rates among those served by the programs.

Understanding Relapse Rate

A social impact bond is not really a bond but a contract with a government agency or private entity to create a program with a specific social benefit, such as rehabilitation of minor offenders. Return of the principal investment as well as any interest payment are dependant on the outcome of the program.

Not all SIB programs aim to treat drug abuse or reduce the prison population. Many do, however, and the relapse rate then becomes a key factor.

A good outcome saves money for the government that sponsors the SIB. For example, a successful program to rehabilitate young offenders will lead to steady jobs rather than a return to incarceration for a number of those in the program.

Part of the savings realized by the government is paid to the investors as profit.

About SIBs

Social impact bonds, as the name implies, are intended for investors who want to make a positive contribution to their communities. Created in 2010, their buyers may be publicly-minded corporations or individuals.

Despite their name, SIBs have few similarities to bonds. There is no guarantee that the principle will be returned and no set interest rate. There is only the potential for sharing the savings achieved by the program if it is a success.

The SIB typically will set a specific relapse rate as a measure of the program's success. For example, it might set a goal of reducing by 9% the number of opioid addicts who have successfully completed treatment and have stayed clean for at least six months.

The Wider Goal of SIBs

Notably, not all SIBs are targeted at rehabilitation programs, so the relapse rate is not always the measure of success. The wider goal of social impact bonds is to finance programs that measurably improve lives.

If the government agency or service provider meets the terms of the contract over time in terms of saving public money, the investor gets paid a return. SIBs are designed to have several benefits: positively affecting social outcomes and saving governments money while investors get recompensed for their capital.

Currently, Connecticut has a SIB to help children whose parents are addicted to opioids. Meanwhile, a group of banks and institutions are funding a healthcare development impact bond in Rajasthan, India that is working to reduce infant mortality.

Example of Relapse Rate and an SIB

Whatever the endeavor, the success or failure of an SIB-funded program can be difficult to quantify. The relapse rate can be best understood through one of the first SIBs to be issued, for a program run by Peterborough Prison in the United Kingdom in 2011.

In this SIB, the relapse or re-conviction rate of prisoners released from Peterborough was compared with the relapse rate of a control group of prisoners over six years. The bond raised five million pounds from 17 investors.

If Peterborough's relapse rate was found to be below the relapse rate of the control group by a certain defined percentage, the SIB investors would receive an increased rate of return directly proportional to the difference in relapse rates between the two groups.

Results of the Program

The higher return to the investors was made possible by Peterborough Prison's willingness to pass on to the SIB investors a considerable portion of the cost savings that would be achieved through a significantly lower relapse rate of its prisoners.

In 2017, the organization Social Finance, the creator of the bond, announced that investors would be repaid in full with a 3% per year rate of return. The organization said that the program had succeeded in reducing re-offending by 9% compared to a target reduction of 7.5%.