Waiting for AMFm’s Evaluation: What Will It Say on Supply-Side Subsidies?

A few weeks ago, the Independent Evaluation of the Affordable Medicines Facility – malaria (AMFm) Phase 1 evaluation was released by the Global Fund on its website. Much to my dismay, however, this “evaluation” was only the ‘Baseline Report’ on AMFm which provides basic information on the pre-intervention data, based on my quick read of the Executive Summary:

“Availability of quality-assured ACTs in all outlets stocking antimalarials was lowest in Niger (9%), similar in Uganda (21%), Madagascar (23%), and Tanzania mainland (24%), and somewhat higher in Nigeria (28%), Ghana (31%), and Kenya (31%)… For all quality-assured ACTs for all sectors combined, the overall median cost per adult-equivalent treatment dose (AETD) was zero in Kenya, Madagascar, Tanzania mainland, Uganda and Zanzibar. In other countries, the median cost ranged from $2.06 in Niger to $3.42 in Ghana and $3.72 in Nigeria.”

It’s not clear why AMFm released only the baseline report and it will presumably release another report with the endline data. Anyway, in the impact evaluation of AMFm expected to released sometime in May, what questions might we expect the evaluation to answer?A new invention of global health donors, the AMFm essentially subsidizes the cost of antimalarial drugs, specifically the artemisinin-based combination therapies (ACTs), at the top of the supply chain. An underlying theory of this subsidy (proposed in a IOM report led by Kenneth Arrow and others, and developed further by Ramanan Laxminarayan and CGD Senior Fellow Mead Over) is to delay the emergence of resistance to ACTs may occur by crowding out other treatments while increasing both affordability and access to ACTs. This is particularly relevant in developing countries where most people seek treatment in the unregulated private sector, not the public sector. The two key approaches of AMFm are “to reduce consumer prices through price negotiations and a buyer co-payment” (p. 3), and scaling-up ACT use by introducing “in-country supporting interventions”.Regarding the first approach, AMFm seems to have negotiated for effectively lowered prices for first-line buyers and distributors. Whether or not this will actually translate to cheaper prices for consumers has yet to be seen; even an AMFm FAQ writes, “First-line buyers are expected to pass on the highest possible proportion of this price benefit.”But how much of the subsidy will in fact be passed on to patients and consumers? Will intermediary suppliers/providers necessarily pass on savings to consumers, or will they attempt to capture those subsidies? Moreover, if concurrent prevention activities of spraying and bed-nets reduce malaria incidence and drive down demand for antimalarial treatment at least in the long run if not the short run, then overall need and demand for drugs will decrease. This decrease in itself may naturally decrease prices, holding all else constant, in which case it will not be clear that reductions in consumer prices are necessarily attributable to AMFm’s supply-side subsidies. Alternatively, if demand drops, savvy suppliers may also be even more convinced to achieve some target level of revenue by keeping consumer prices from decreasing (read: prices may stay constant or increase) if demand decreases.The final impact evaluation to be released soon should attempt to address these questions (and hopefully also compare its results to the numerous other studies out there). If AMFm is serious about decreasing consumer prices in order to improve coverage, as part of their ‘in-country supporting interventions’, AMFm should at least consider (although not necessarily adopt!) demand-side subsidies e.g. household vouchers as used by Cohen et al have, or other kinds of direct transfers (both in kind or in cash), which can complement AMFm's supply-side subsidies. The welfare impacts of a supply-side subsidy vs a demand-side subsidy should be analyzed empirically, even though past theoretical work has predicted that supply-wide subsidies may outperform demand-side supplies.