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Meeting public health needs in developing countries is more difficult without accurate forecasting of the demand for medical products. A CGD Working Group concluded that better forecasting requires wider sharing of the risk involved in producing drugs and aligning incentives among those who influence market dynamics. Read the Working Group’s report here. This work is now concluded.
In early 2006, CGD convened a working group–led by Ruth Levine- to address a pervasive problem in global health: poor forecasting of expected demand for key products. Long-term strategic demand forecasts are needed in order for manufacturers to make capacity investments, make more accurate long term plans for manufacturing and distribution, and for donors to conduct better multi-year program planning. Medium-term demand forecasts are equally essential. When such forecasts are off, manufacturers have to dispose of unsold drugs; donors and ministries of health may face uncertain prices and availability of essential products; and –most importantly- communities and individuals can face the terrible prospect of shortages, incomplete treatments and the emergence of drug resistance. The Wall Street Journal’s recent coverage of shortages of pediatric tuberculosis (TB) treatments demonstrates the weaknesses –or perhaps absence- of adequate demand forecasting in India’s anti-TB programs.
Six years later, global health funders are clearly headed towards better forecasting, as the major players make progress in areas that are closely aligned with the CGD forecasting working group’s recommendations.
First, the working group report recommended that funders take forecasting more seriously, and global health funders have delivered. UNITAID has been instrumental in supporting global forecasting for artemisinin-combination therapies and artemisinin. Since early 2010, it has been funding a consortium consisting of Boston Consulting Group, CHAI and MIT-Zaragoza* to generate global demand forecasts for ACTs with quarterly updates that inform policymakers for budgeting and program planning, and market participants for sourcing and supply planning. The forecasts are overseen by a steering committee consisting of UNITAID, Roll Back Malaria (RBM) Secretariat, WHO and the Global Fund to vet their validity and robustness but also to ensure there is coordination across these agencies around a single global forecast.
For vaccines, the GAVI Alliance has set up its in-house demand forecasting group; and recently put out a RFP for an evaluation of the accuracy of their forecasts. The US Government’s PEPFAR mega-project – the Supply Chain Management System (SCMS), whose $7 billion pre-bidding solicitation was recently released – includes many activities to improve effective forecasting and supply planning. The Global Fund has been slower to act, but there too recent actions bode well –under a newly reorganized Procurement Department, clearer responsibilities for forecasting have been put in place.
Second, the working group report recommended the creation of an “infomediary” that would gather and analyze data to forecast demand across a variety of diseases and products and make information available to all stakeholders, thereby enabling better budgeting from funders and clearer incentives for manufacturers to respond with best prices and adequate supply. Here again, UNITAID is leading on behalf of all funders, awarding a grant to IMS Health to develop a single repository of market information for the various markets UNITAID operates in. While the data tables generated by the project are mainly for the use of UNITAID, the architecture will be designed to facilitate access by other donors and stakeholders. If other funders buy in quickly, the infomediary can be a reality.
Finally, the working group recommended that global funders better align incentives and share risks through restructuring contractual agreements. Here, there has been some experimentation around the core idea. A group of agencies including UNFPA, BMGF, CHAI, CIFF, NORAD, DFID and USAID, recently set up a “volume guarantee” for the purchase of a new contraceptive implant. As was argued in the CGD working group report, a volume guarantee can help reduce prices and increase supply availability, and indeed the price of one of the implants was cut by almost half as a result of the volume guarantee. However, as was the case with the Advanced Market Commitment – such innovative risk sharing schemes always come with criticisms from some actors. For example some argue they lock in a single manufacturer for two years, potentially affecting long term price.
We revisit the issue of demand forecasting at the Global Fund in our recent report, ‘More Health for the Money’, now up as a consultation draft for comments. In the report, our colleague Victoria Fan finds that short lead-times in ordering are correlated with higher prices of a common first-line antiretroviral combination, suggesting poor demand forecasting and resulting “emergency” purchases. Of course, many other factors may also play a role via availability of funding, market structure, and contract and payment arrangements. However, although it’s completeness and consistency can be improved, the mere availability of the Global Fund’s Price and Quality Reporting (PQR) data enables a better and more rigorous understanding of what drives prices of products purchased with Global Fund monies. Other global donors should also consider investing in such transaction data recording systems.
Better demand forecasting is a low-hanging fruit in the quest for more health for the money and global health funders are well on their way; we’ll be watching for further progress.
*Prashant Yadav was previously employed at the MIT-Zaragoza International Logistics Program.
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.
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.