Aligning Incentives, Accelerating Impact: Next Generation Financing Models for Global Health

Read the executive summary below or download the full report (PDF).

Founded in 2002, the Global Fund to Fight AIDS, Tuberculosis and Malaria (the Global Fund) is one of the world’s largest multilateral health funders, disbursing $3–$4 billion a year across 100-plus countries. Many of these countries rely on Global Fund monies to finance their respective disease responses—and for their citizens, the efficient and effective use of Global Fund monies can be the difference between life and death.

Many researchers and policymakers have hypothesized that models tying grant payments to achieved and verified results—referred to in this report 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. Free from year-to-year disbursement pressure (like government agencies) and rigid allocation policies (like the World Bank’s International Development Association), the Global Fund is also uniquely equipped to push forward innovative financing models. But despite interest, the how of new grant designs remains a challenge. Realizing their potential requires technical know-how and careful, strategic decisionmaking that responds to specific country and epidemiological contexts—all with little evidence or experience to guide the way.

This report thus addresses the how of next generation financing models—that is, the concrete steps needed to change the basis of payment from expenses to something else: outputs, outcomes, or impact. For example, when and why 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—that the reported results are accurate and reliable and represent real progress against disease control goals? And what is needed to protect communities against coercion or other human rights abuses, ensuring that these new incentives do not drive unintended consequences?

A move toward next generation financing models includes real risks. Yet those risks must be understood compared with the very real risks of maintaining the status quo: the risk of not achieving maximum impact, the risk of not having full visibility on whether Global Fund monies ultimately reach their intended beneficiaries, and the risk that ultimate goals will never be attained if the Global Fund and the recipients of its funds do not fully align around shared objectives. The opportunity cost of the conventional approach may affect whether people in low- and middle-income countries are freed of the terrible costs of AIDS, tuberculosis, and malaria.

This report is divided into four parts. Part I offers 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.

Part II discusses contexts where a move to next generation grant models could drive faster impact or other benefits for the Global Fund and describes the technical elements and design choices required to bring them to life. It focuses on four core questions:

• Where and why might the Global Fund consider the introduction of new financing models?
• What should the Global Fund pay for—that is, what are the characteristics of a contractible indicator, and which indicators for AIDS, tuberculosis, and malaria fit that bill?
• How much and how should the Global Fund pay—that is, what makes for a good payout schedule, accounting for varying local contexts?
• How can the Global Fund ensure that the basis of payment is sound—that is, how can the Global Fund verify the accuracy of reported performance and deter attempts at fraud or manipulation?

Part III “puts it all together,” providing four illustrative examples of how next generation grants could be designed and applied within the Global Fund’s grant portfolio. It provides and applies a multistage framework for their design and implementation. During the preparatory phase, the Global Fund must understand the situation and context; define the policy objectives; and review strategic considerations, risks, and constraints that may influence the choice of financing model. During the design phase the Global Fund must define key details of the grant agreement, including the portion of funding allocated to results payments, and the contractible indicators, payment mechanism, and verification strategy used for results-based payments and define all outstanding issues to be resolved through negotiations with the Principal Recipient. Following the negotiation, the Global Fund must review the entire grant model and ensure that it responds appropriately to the policy objectives, addresses contextual constraints, and mitigates possible risks. Finally, during and after implementation the Global Fund must assess and evaluate the performance of the model in practice.

Part IV concludes with seven recommendations for the way forward—that is, the operational and strategic steps that the Global Fund will need to take in order to realize these designs and maximize their potential benefits:

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.

Download the full report (PDF).