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With shifting disease burdens, growing populations, and rising expectations comes a greater focus on value for money. International health funders and agencies want to know how to make the most of money spent by focusing on the highest impact interventions among the most affected populations. Whether through better procurement systems for health commodities, results-based financing, or more detailed assessments of the effective ness of health technology, CGD’s work aims to make health funding go further to save, prolong and improve more lives.
In a refreshing and necessary change from the last decade’s focus on more money, the 2010 World Health Report —released yesterday by the WHO—focuses part of its attention on the problem of health system inefficiencies, estimating that 20% to 40% of all health spending ($1.5 trillion USD) is currently wasted. The report indicates that this level of waste—a combined result of poorly used inputs and corruption/fraud—is of similar magnitude in both poor and wealthy countries. Although these numbers are merely illustrative (based on specific country studies or systematic reviews and extrapolated to entire groups of countries), the evidence does suggest that the technical efficiency problem is huge. If you add the problems of allocative efficiency to the mix—that countries and their donor partners are not fully financing the set of interventions that would maximize health given the budget constraint—the report makes a convincing case that there is much that governments and donors could do to free up resources for better health.
The report’s recommendations for the international community relate to aid effectiveness (national health plans, predictability, unified reporting requirements), but the international community could be more pro-active. Here are three ideas:
Clearly define measures of inefficiency in health systems, include them as part of the WHO’s core indicators, and track them in future World Health Reports. The 2000 Report proposed one metric of (in)efficiency and the 2010 Report uses others, so it’s difficult to know how things are changing over time. Deciding on a set of easy-to-understand, consistent definitions of technical and allocative efficiency indicators would help policymakers measure progress in their own countries, identify and cost possible solutions in their national health strategies, and orient donor spending accordingly.
Measure the results of health system strengthening using efficiency measures. New money in global health is destined for health systems strengthening (HSS) —both the U.S. Global Health Initiative and the Health Systems Funding Platform (IHP+) boarded this train. But difficulties remain in defining the expected results from these investments, given their indirect connection to service coverage and health outcomes. Efficiency measures are the missing link between inputs and outputs/outcomes. If you care about health systems strengthening to improve maternal health, for example, you will want to know whether the mix of interventions selected for public financing is the one that will maximize maternal health outcomes, whether the inputs purchased or deployed are used efficiently (i.e., the report describes low capacity utilization in hospitals in Ghana, Nigeria, and Pakistan), and finally whether the provision apparatus is efficient at producing coverage of key services.
Use aid to support and monitor efficiency-improving institutions and processes. Institutions such as the UK’s National Institute for Health and Clinical Excellence (NICE) and Thailand’s Health Intervention and Technology Assessment Program (HITAP) are drivers of efficiency improvements in their respective health systems and demonstrate that the difficult political economy of priority-setting is not insurmountable. While not every country will have the resources to set up a HITAP or a NICE, providing technical assistance and financial (and moral) support to establish and expand similar public funding allocation processes in developing countries—that could be tracked by civil society—may represent a global or at least, a regional public good. Civil society monitoring of provision and expenditure is probably a better, more sustainable solution to identifying corruption, waste, and mismanagement than cutting off the public sector from aid anytime an irregularity is detected.
Suggestions for additional or different actions are welcome, or thoughts on what obstacles still need to be overcome in the development of a more effective response.
Current shortcomings in the system of demand forecasting for essential drugs, vaccines and diagnostics are constraining access to these products in developing countries, resulting in poor health and unnecessary deaths from disease like AIDS, TB and malaria. Ruth Levine, Director of Programs and Senior Fellow at CGD and the chair of a new Global Health Forecasting Working Group, explains how the global community can work together to solve this urgent challenge.
To learn more, read and comment on the Working Group’s consultation report (pdf, 1MB).
Q: What is demand forecasting and why is it so important now?
A: Demand forecasting is a bread-and-butter part of virtually every business that supplies goods. It's the ongoing process of projecting which products will be purchased where, when, and in what quantities. To forecast demand, you combine information about need – like incidence and prevalence of disease – with information about funding, health care coverage, losses in the supply chain, consumption patterns and other factors that affect demand. Getting good forecasts certainly is not a new challenge in the pharmaceutical supply chain in developing countries, but has become much more urgent recently. There is more money for global health products, many of them are quite costly to produce, and they need to be supplied steadily. Without the ability to forecast effective demand with a reasonable degree of certainty, increased funding for drugs will not improve health or get to the people who need it. Without good demand forecasts, manufacturers cannot increase production capacity, make commitments to suppliers of raw materials, or see a business case for investment in costly clinical trials and other activities to develop future products. National governments and international funders also need good demand forecasts for budgeting purposes, while health programs and implementing agencies depend on forecasts to plan their supply chain logistics.
Q: If everyone would benefit from better forecasts, why hasn't the situation already been fixed? What is the underlying problem?
A: I think it's a combination of factors. Clearly, it's partly because forecasting in global health hasn’t quite caught up with what's happening in the market. There has been a relatively recent surge in the amount of health funding and products available for the developing world and a rapid increase in the number of donors, suppliers, buyers and intermediaries. But there has not yet been a corresponding improvement in forecasting methods or institutional roles.
There's really no question that the underlying problem is about risk: within the current market, risks are unequally distributed across key actors whose decisions affect supply of and demand for these products. Those who suffer the direct financial and health consequences of the risks – primarily manufactures and patients - are not in a position to reduce them; conversely, the funders and intermediaries who could take specific action to address the underlying budgetary, policy-related and logistics risks only feel the consequences indirectly.
As a result of this, there are systematic problems. Not all stakeholders have incentives to develop better forecasts and greater access to critical medical technologies. And because of the limited market potential in developing countries, the private sector invests relatively little in market research and other sources of information that are common in developed markets. As we see it, the core challenge is to understand and take steps to correct the misaligned incentives by reducing and sharing risk.
Q: Are there any feasible, near-term solutions?
A: There are definitely things that can be done and would make a big difference. First, I think there should be a very clear recognition by a variety of stakeholders in global health that forecasting deserves attention and that it’s a function that needs to be clearly separated from advocacy and other activities. Second, there’s an opportunity to establish an information intermediary (or "infomediary") that would mobilize and share information and baseline forecasts in a coordinated way. This is a function that is quite common in other types of supply chains. Third, funders need to accept more of the risk; they can use creative contracting mechanisms to share risk more efficiently. These constitute a coherent package; we think that implementing these recommendations would enhance the relationship among funders, suppliers, intermediaries and users of health products, and go a significant distance toward aligning incentives towards increased access to quality health technologies. These are the recommendations that we’re hoping to get feedback on during the consultation process we’re undertaking right now. I am really looking forward to hearing views about these ideas.
Q: Where will this get us, and what's left?
A: Taken together, I think the Working Group’s recommendations have the potential to dramatically improve demand forecasting at the global level, and that would contribute to improved access to health products. At the same time, better forecasting can only get us so far when there are so many sources of underlying uncertainty. Dealing with those problems requires a broader and longer-term agenda that many people are working on, in one way or another -- strengthening health systems and building supply chain capacity in-country; increasing the market-orientation of product development activities; enhancing the regulatory regimes and enforcement; and improving the predictability of donor funding. Those are extremely important to work on, while we also do what we can today to make a real difference.
On Wednesday, UNAIDS published "Financial Resources Required to Achieve Universal Access to HIV Prevention, Treatment, Care and Support" to present the world with a bottom line: $50 billion a year. While acknowledging that "some might ask if the goal of universal access is worth the effort that will be required," the report declares "the answer is a resounding yes." But as justification for this echoing affirmative, it just vaguely alludes to the potential benefits of this unprecedented level of spending on a single disease and totally ignores what $50 billion a year means in terms of foregone opportunities.
Because some of those who will influence how much of that $50 billion materializes are economists and budget geeks, perhaps it's worth a moment to take out the green eyeshade, and tote up the benefits and costs. On the benefit side, expanded expenditure on prevention will avert some of the future need for treatment and spending on orphans and vulnerable children will educate some of these kids. These can validly be thought of as investment expenditures, which promise to yield benefits to the future of the country.
Where treatment is concerned, however, the benefit side of the ledger is only very weakly supported by the evidence. The argument goes that AIDS treatment is worthwhile in economic terms because it maintains family units so that children can attend school, permits patients and caregivers to return to work, and in other ways - through its positive effects on the health of adults - yields economic returns. Whether that is the case is a matter where research can shed light, although not yet definitive answers. In one of the most relevant such studies, my former CGD colleague Harsha Thirumurthy and his co-authors Joshua Graff Zivin and Markus Goldstein have found that while treatment can indeed increase labor force participation from 60% to 90% and will generate additional non-market benefits in the form of patient happiness, additional schooling for his children, etc. However, they find that even their low estimate of the annual cost of treatment of $350 per year is enough to offset the incremental wages these workers would earn each year. And since their cost estimate omits the cost of eventual second-line treatment and of expatriate personnel and uses lower-than-usual drug prices, their results do not support the claim that AIDS treatment has a positive rate of social return. (In contrast, upper income Kenyans making US$5,000 a year or more would find it in their self-interest to purchase AIDS treatment out-of-pocket at US$350 per year. But only a small part of the proposed $50 billion a year will facilitate the access of middle income patients, and only as an incidental side effect.)
If AIDS treatment is not an investment, can it still be justified? There is obviously a human rights case to be made - and indeed it often is, sometimes as part of a broader concept of a "right to health." As it happens, the UN Special Rapporteur on the Right of Everyone to the Enjoyment of the Highest Attainable Standard of Physical and Mental Health has helpfully set out the components of such a right, which "includes freedoms (e.g. freedom from non-consensual treatment and non-consensual participation in clinical trials) and entitlements (e.g. to a system of health care and protection). For the most part, freedoms do not have budgetary implications, while entitlements do." As the Special Rapporteur suggests, an entitlement is much like a welfare payment; it is defined by Merriam-Webster as:
1 a : the state or condition of being entitled : RIGHT b : a right to benefits specified especially by law or contract; 2 : a government program providing benefits to members of a specified group; also : funds supporting or distributed by such a program and 3 : the belief that one is deserving of or entitled to certain privileges
Thus, as global AIDS treatment programs are currently being implemented, they look far less like an "investment" - contribution to the eventual sustainability of the recipients and their countries - and more like a transfer payment. We must learn to think about support for antiretroviral treatment in the same way we think about welfare payments at home - e.g. hoping that the recipients can use the support to free themselves from welfare dependency, yet knowing that a proportion of them will not succeed in doing so. Those who receive entitlements typically become dependent on them, and never more starkly than in the case of expensive life-giving drugs. Most of us support such payments anyway from a feeling of compassion and solidarity with the poor and unfortunate.
Those people whose lives currently are sustained by donor funding of their AIDS treatment probably feel that they are entitled to continuation of that treatment, that their donor has entered into an implicit contract to provide life-sustaining drugs in exchange for their adherence. Furthermore, international and domestic opinion will hold donors responsible for maintaining treatment subsidies to individuals who have already started treatment. However, as The Economist points out, "The problem with AIDS is that the more successful you are at treating it, the more you end up paying." As donors foot the bill for an ever-increasing number of patients, the proportion of the remaining discretionary spending in their AIDS budgets left for prevention and other activities will likely shrink accordingly - or will come out of other health and development pots.
With this in mind, then, what is the real meaning of US$50 billion a year, and what is its opportunity cost? One way of thinking about the cost is to compare it with other things the same money could buy. A 2002 World Bank study (.pdf) estimated that the cost of achieving all eight of the UN Millennium Development Goals by the year 2015 would be between $40 and $60 billion dollars a year. According to the authors, this would be the cost not only to reverse the spread of HIV through expanded prevention (part of goal 6) but also to (1) eradicate extreme poverty and hunger; (2) achieve universal primary education; (3) promote gender equality and empower women; (4) reduce child mortality; (5) improve maternal health; (6) combat malaria and other diseases; (7) ensure environmental sustainability; and (8) develop a global partnership for development - all of which are justified as investments in the future sustainable growth of the recipient countries. So one way of understanding the proposed annual expenditure of $50 billion is to consider whether we should forego all of these other efforts in order to single-mindedly focus on universal access to AIDS treatment and prevention and on the care of the orphaned children.
By effectively converting foreign assistance from discretionary to entitlement spending, the "success" of existing AIDS treatment programs has already locked us into a new aid paradigm. To the extent that the international community heeds the UNAIDS' call, entitlement spending will greatly increase in the next few years, both in absolute terms and, unless total assistance expands at the same phenomenal rate, as a percentage of total assistance. Are voting taxpayers of the OECD countries ready for this new entitlement paradigm? Growing funding for AIDS treatment suggests this possibility (including the latest Global Fund replenishment round this week in Berlin). But there is reason for concern: historically when budgets expand less quickly than planned, growing entitlements often squeeze out discretionary programs. And even if they do not, there may be negative repercussions from the extreme form of aid dependency that AIDS treatment represents. It's far past time to take a clear-eyed look at costs, benefits and long-term implications of the path that we've collectively chosen, so that foreign assistance continues to improve the well-being of all the poor and sick in developing countries while also sustaining their poorest AIDS patients.
This report of CGD's Global Health Forecasting Working Group, which was convened in early 2006 by senior fellow and director of programs Ruth Levine to sort out why demand forecasting has been so problematic, provides an elegant analysis of the problem and a sensible agenda for action. Their report offers specific recommendations that apply across a range of products and that could be implemented by identifiable public and private organizations.
Achieving better health in poor countries depends in part on giving companies that produce drugs, vaccines and diagnostics incentives to invest in their production by improving their ability to forecast which products will be purchased by whom in what quantities. This brief reviews the findings of CGD's Global Health Forecasting Working Group, which was convened in early 2006 to study the challenges surrounding demand forecasting, and offers recommendations for better forecasting, including the creation on an "infomediary" to mobilize, coordinate and disseminate information about product demand.
The success of global health programs largely depends on the availability of essential health products when and where they are needed. But weak links in the global health value chain are currently constraining on-the-ground access to drugs, vaccines and diagnostics--despite increased funding and ongoing scientific advances. Shortcomings in demand forecasting in particular have led to unnecessarily high prices, supply shortages, and reluctance to invest in R&D for developing country diseases.
This event marks the launch of a new report by the Global Health Forecasting Working Group, issuing key recommendations for donors to make strategic investments that would increase access to information and better align forecasting incentives, as well as suggestions for ways that donors could use innovative financing mechanisms to further reduce uncertainty and diversify and share risk in the supply chain. Their proposed improvements could have profound benefits for funders, suppliers and implementers in terms of both financial and health outcomes.