This week, the Global Fund partnership will meet in Tokyo to plan for its fifth voluntary replenishment, covering the period 2017-2019. The stakes are high: in an austere budget climate, the Global Fund’s ability to raise the needed resources—and then to spend them effectively over the subsequent three years—will have outsize importance in determining the trajectory of the historic fight against AIDS, tuberculosis, and malaria.

Why are the next few years so important? First, the good news: the global community has made great strides in addressing all three diseases and saving lives. For HIV, fewer people are contracting the disease (down 35 percent since 2000), fewer people are dying (down 42 percent since 2004), and far more people are enrolled on antiretroviral treatment (up more than 100 percent since 2010). TB and TB/HIV interventions have saved an estimated 43.5 million lives since 2000. And just last week, the WHO released its most recent estimates, which suggest that malaria deaths have been almost cut it half over the same period. Yet global progress is threatened by growing drug and insecticide resistance; high rates of treatment dropout among ART and TB patients; and the ballooning cost of lifelong HIV treatment.

Creating a Bigger Tool Box: Next Generation Financing Models

To meet these challenges, the global community needs strategic thinking and a bigger tool box. Some of those tools will be new medicines and better technologies, emerging from the world’s best labs and biomedical researchers. But the fight against AIDS, TB, and malaria would also benefit from better ways to allocate and structure funding—the subject of our 2013 report on More Health for the Money. One important component of the More Health for the Money agenda: the introduction of new modalities that can marshal stakeholders, align their incentives, and ensure mutual accountability for achieving shared goals.  

Specifically, many researchers and policymakers have hypothesized that models tying grant payments to achieved and verified results—what we refer to as next generation financing models—offer an opportunity for the Global Fund to push forward its strategic interests and accelerate the impact of its investments. And indeed, since its creation, the Global Fund has aspired to link funding to results achieved, has established routine internal processes toward that end, and is one of the few donors to do so across its entire portfolio.

Still, there is a perception that the Global Fund’s original performance-based financing (PBF) system has not fully succeeded in increasing programmatic performance, incentivizing innovation, or building sustainable country ownership, in part due to its complex and discretionary structure. The PBF process combined too many performance elements; did not include a direct link between results and payments; and relied largely on grantees’ self-reports, with only limited data verification—all of which limited the power of the incentive. And in the broader global health and development ecosystem, just a handful of true PBF projects have made the jump from concept to reality. A 2015 paper from Perakis and Savedoff found that “relatively few [results-based aid] programs are being piloted,” and those that exist “are relatively cautious adaptions of conventional approaches.”

To help bridge this gap from theory to practice, CGD convened a working group on next generation financing models in global health, with the aim of providing global health funders with concrete, practical guidance for applying these new aid modalities to their grant portfolios. Drawing from an extensive literature base on incentives in health financing, coupled with previously underutilized experiences and literature on adaptive contracting and regulation for public sector utilities and other monopolistic industries, the working group adapted economic theory on optimal contract design to the real world context of agencies funding global health programs. The working group’s final report, the culmination of these efforts, offers a practical guide to the design and roll out of Next Generation grants.

We were delighted to collaborate closely with the Global Fund on this effort, and to co-chair the working group with Maria Kirova, a Global Fund Department Head. However, it is important to note that the Global Fund does not necessarily endorse the report’s findings, nor does the Global Fund commit itself to any policy actions through its participation in this working group.

Next Generation Financing Models: Getting to the “How”

The final report addresses the how of next generation financing models—that is, the concrete steps needed to change the basis of payment of its grants from expenses to outputs, outcomes, or impact. For example, when is changing the basis of payment a good idea? What are the right indicators and results to purchase from grantees? How much and how should grantees be remunerated for their achievements? How can the Global Fund verify that the basis of payment is sound and that the reported results are accurate, reliable, and represent real progress against disease control goals? And what is needed to ensure that these new incentives don’t drive unintended consequences?

The report starts with a conceptual framework that explains why traditional grantmaking often gets the incentives wrong, why that matters, and how next generation financing models might offer a way for the Global Fund and other health funders to increase the value for money of their investments. It also describes the growing use of incentives at the Global Fund and elsewhere, including the current incentives embedded within Global Fund grants. It then discusses contexts where a move to next generation grant models could drive faster impact or other benefits and describes the technical elements and design choices required to bring them to life. Illustrating how this would work in practice, the report offers four case studies across the Global Fund’s three disease areas.

To bring these new financing mechanisms from theory to practice, the report offers seven medium-term operational recommendations for the Global Fund Board and Secretariat:

  1. Secure strong Board and Secretariat commitment through inclusion of next generation grants as a key priority within the next Global Fund Strategy (due to be presented to the Board for approval in April 2016).
  2. Leave no room for ambiguity: ensure that next generation grant agreements stick to their agreed disbursement protocols—against progress on independently verified results.
  3. Reflect the needs and requirements of next generation grants in relevant related policies, including the allocation formula, counterpart financing requirements, sustainability framework, and differentiation initiative.
  4. Reflect the needs and requirements of next generation grants in the guidance and terms of reference given to key Global Fund bodies, including the Technical Review Panel, Country Coordinating Mechanisms, and operational divisions within the Secretariat.
  5. Assure Global Fund and Principal Recipient access to needed expertise and resources to design and operationalize next generation grants, with particular attention to performance verification.
  6. Revise Key Performance Indicators to accommodate differences in the management and evaluation of next generation grants.
  7. Evolve financial management policies to accommodate less predictable cash flow and reduce restrictions on the use of funds.