Performance-Based Financing Is a Major Opportunity for PEPFAR

March 06, 2013
This is a joint post with Jenny Ottenhoff.The recent IOM evaluation of PEPFAR made clear that a key challenge for the program moving forward will be to get country governments to effectively assume primary responsibility of AIDS programs in their countries, both in terms of finances and “leadership”.  But seeing that most PEPFAR funds are channeled through US-based contractors – and not country governments – it seems impractical to expect countries to be able to take real leadership and accountability for AIDS spending.Of course, there are obvious reasons why PEPFAR has not given the majority of its funds directly to governments in the past ten years – Congressional requirements for accounting and accountability, justified fears that money to country governments will not be put to good use or worse leak from corruption, and slow performance of country government to move AIDS funds effectively. But as PEPFAR transitions from an emergency response to a more sustainable country-led approach, it should consider making some portion of funds conditional on achieving performance objectives and benchmarks in AIDS treatment and service delivery – that is, employing the explicit use of performance-based financing (PBF) instruments between PEPFAR and country government.The IOM report touches upon this instrument briefly. It notes one example of a PEPFAR-supported partner piloting PBF with sub-partners – an example which might further support a system that is parallel to national processes. And OGAC has already identified performance-based financing as an “innovation for improving efficiencies, health outcomes, and sustainability” (Ch. 9, p. 73).Such instruments have long been identified as a way to better align incentives between two parties, and there is growing work on the benefits of results-based financing in health, as demonstrated by the World Bank’s Health Innovation Trust Fund as well as GAVI. Without a doubt, using performance-based financing helps to get better value for money of its investments.Moving forward, PEPFAR should proceed carefully and swiftly in designing and deploying this instrument. The design of performance-based financing between donors and countries has many variations. In another forthcoming paper on performance-based financing as used by the Global Fund, I document the importance of simple, few performance objectives pertaining to health coverage and outcomes, linked directly to portions of funds to incentivize country governments.A critical requirement as PEPFAR shifts to paying for performance will be to better measure performance in terms of health coverage and health outcomes (see here) – a major area of recommendations and persistent theme throughout the IOM report.In addition to health coverage and outcomes, PEPFAR needs to be more transparent to country governments on where its funds are going: Who are all the recipients of PEPFAR funds, not only prime partners and contractors, but also the universe of sub-contractors? And what are in those contracts in terms of the populations served and reached, the services delivered, the impact achieved? At a minimum, PEPFAR should release such information to governments – if not make it publicly available in order to follow IATI standards.As a corollary, not only does PEPFAR funding need to be made more transparent, national health accounts particularly on AIDS programs need to be bolstered and conducted. The IOM report makes it very clear that most countries have very little knowledge of how much funding is spent on AIDS within a country, outside of aggregate totals from major donors such as PEPFAR and the Global Fund.Admittedly, such information of funding flows is not necessarily a requirement for effective performance-based financing – for which measurement of health coverage and health outcomes are critical. But such information on how money is spent can enable governments to take more “leadership” in the activities within its own country. Country governments receiving PEPFAR funds should explicitly require PEPFAR to do so – especially if their necks are on the line to ensure performance of the investments.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.