Going for Goals: How to innovate on health sector financing

Despite major improvements in health outcomes over the past 30 years, we still have a long way to go: HIV continues to be the leading cause of adolescent deaths in Africa, and the second-biggest cause of deaths of adolescents the world over; and malaria, while less deadly than HIV, caused the deaths of 6.2 million people between 2000 and 2015 — 60 percent of whom were children. While child mortality has improved considerably, more than 6 million children under the age of 5 continue to die of preventable diseases each year, and only about 50 percent of women in developing countries are able to access primary care services.

Sustainable Development Goal 3, ensuring healthy lives and well-being for all, calls for significant improvements across the full spectrum of health outcomes — from better maternal and infant mortality, to eliminating malnutrition, to achieving universal access to health care.

Achieving this goal — and indeed all of the SDGs by 2030 — requires the cooperation of governments, the private sector and nonprofit actors across the globe. They will also need considerable resources, which is why finding innovative and sustainable financing mechanisms will be critical to their success or failure.

Global development professionals are a key piece of the cooperation puzzle. They play a big role in innovating around key financing mechanisms — from public-private partnerships, to blended finance and impact investing — that can be employed to help bridge the $2.5 trillion annual funding gap, particularly for health outcomes.

Leveraging innovative PPPs

Financing health care in developed countries is already a complex challenge: Finding sustainable solutions that have the capacity to finance the SDGs will require creative thinking to foment new partnerships.

To encourage innovation, Jan-Willem Scheijgrond — global head of government affairs at Royal Philips — advocates rethinking traditional PPP relations, shifting toward partnerships built around outcome-oriented incentives.

“In most traditional public-private partnerships, the relationship between the public and private sector is often quite transactional,” Scheijgrond explained in an interview with Devex. “But what we need to move towards is a model in which the government formulates their challenge rather than the solution.”

One way to incentivize private sector partners to become more innovative is to hinge payment on the delivery of tangible results, rather than product delivery.

For example, Philips is currently the private partner in a public health center PPP that provides primary care to local communities outside Nairobi, Kenya. While Philips provides all the medical equipment in the center, the company agreed to be responsible for the proper functioning of the equipment, which includes its proper use by the staff — none of which are Philips employees. This outcome-oriented contract incentivized them to rethink their approach. Today, in addition to equipping the centers, it also provides staff training, remotely monitors equipment with immediate notifications received when equipment malfunctions, and ensures that a technical engineer is employed nearby.

In the future, Scheijgrond believes this model could be taken much further.

“We’d like to move towards a model where the government tells you what you are supposed to deliver, and you tell them how much it will cost you, and then you negotiate,” he said.

Ideally, this would require both private and public sector actors to rethink their roles in the partnership.

“Government needs to step away from being a provider of care, to being a regulator of care,” Scheijgrond said. “And companies should be rewarded for the results achieved with their products, and not simply the supply of their products.” 

Creating tools that align incentives, and reduce risks

Addressing the challenges outlined in the SDGs requires an innovative, integrated, multi-faceted approach, in which none of the solutions are guaranteed. This creates potential problems — both in terms of which policy approach to take, but also how to generate funding, particularly from private sector investors that want guaranteed returns on their investments.

According to Haoliang Xu, assistant administrator and director at the Regional Bureau for Asia and the Pacific of the United Nations Development Programme, one of the biggest challenges is aligning the financial goals of all stakeholders — including the public sector, private sector and nonprofits.

“Business is very competitive and companies therefore tend to focus on the bottom line,” he said. “This needs to shift if we are to achieve the SDGs.”

Rather than changing the culture of private sector actors, Scheijgrond advocates an approach that involves rethinking SDG funding tools and project business models.

“It’s easy to find financing for infrastructure, but less so for health care. People prefer to invest in concrete or steel, because it’s easier to estimate its value,” Scheijgrond explained. “Measuring the quality of care or efficiency of service delivery to a community is more complex, and requires a different business model.”

This is where creating financial tools that align stakeholder incentives and distributes risk between them becomes necessary in order to attract private sector partners.

For example, blended finance aims to use public and charitable funding to attract private funds to development projects that might otherwise be too difficult to monetize, or too risky for them to otherwise consider. The point of blended finance is to derisk those investments and attract more sustainable financing to the sector.

Suprotik Basu, CEO at U.N. Special Envoy for Health in Agenda 2030, points to social impact bonds as a blended finance tool with great potential to finance complex social issues such as health care by aligning the incentives of all key stakeholders.

“Social impact bonds bring in private financing largely as outcome payers — in which investors see a return on their investment when the outcome succeeds,” said Basu. “The donors act as guarantors to derisk that investment. It’s a model that has a lot of potential, though we’ve yet to see large-scale examples.”

If the government wants to improve health outcomes for children under the age of 5, for example, an investor would provide the upfront capital for the project. The investor would only see a return on their investment — generally paid by a donor agency, foundation or government — if the program achieved certain specific, pre-agreed goals.

“The idea behind social impact bonds looks really good on paper,” said Basu. “But they’re still relatively new, so what remains to be seen is whether they are scalable.”

Another model that is gaining traction throughout the developing world is the franchising of primary health care facilities. This consists of a for-profit hospital built around a proven template, while local entrepreneurs front the funds to build a primary health care facility. The hospital franchise functions similarly to how a high-street franchise works: By investing

in the hospital chain, entrepreneurs are buying a brand, which comes with proven medical infrastructure template — including equipment, medicines, architectural layout, and recommendations on how to recruit staff — which all help to derisk their investment.

“The brilliance of the franchising model is that it hits two birds — on one hand, the entrepreneur makes money, while the public sector also benefits by having more primary care facilities for the population,” said Philips’ Scheijgrond.

Looking toward domestic funding

Moving forward — particularly as international organizations shift from the role as a direct donor, to one as a facilitator — finding ways to leverage domestic funding to finance the SDGs will be more important than ever before.

To raise additional public funds, UNDP’s Haoliang believes that countries with low tax-to-GDP ratios should marginally increase tax rates.

“It’s quite straightforward,” he said. “One big problem in the Asia Pacific region is that the tax-to-GDP ratio is low — lower than in Africa. If you have more taxes, the governments have more money to spend.”

International organizations and foundations can also play a key role in incentivizing greater efficiencies within local governments; Basu sees potential in the use of donor funds to pay down the interest rates of country loans, particularly as more and more countries “graduate” from traditional development assistance. The Bill & Melinda Gates Foundation, for example, previously sought to partially pay down the interest rates of loans taken out by Pakistan from the World Bank for programs geared toward the eradication of polio, on the condition that they meet certain milestones. A similar structure is under discussion in Nigeria with the World Bank, the Global Fund and other partners to control malaria. This incentivizes the government to innovate programs and act more efficiently, in a way that traditional long-term repayment might not.

“On the domestic side, there are essentially two ways to bridge the SDG funding gap. You can mobilize money, or you can find ways to reduce cost,” said Basu. “The solution isn’t one or the other — we need look at both sides of the ledger, and create efficiencies to better leverage existing resources, while also finding ways to mobilize additional capital.”

Looking toward the future

Scheijgrond believes that developing countries looking to address health-related SDGs also have a comparative advantage when it comes to creating more efficient systems — a process that hinges on digitization.

“Digitization is key to making health care solutions more efficient,” he said. “The problem with using analogue data for planning and health management is that it’s unreliable, and inconsistent. The moment you digitize, suddenly you have real time data at the local level that allows you to plan on long-term treatment paths.”

And because many developing countries have not yet shifted from analogue to digital, they have the added advantage of avoiding mistakes that were made in the “global north,” for instance digitizing the analogue process, rather than coming up with innovative digital solutions.

“It’s very expensive to re-engineer our data system in the U.S., but very cheap to do it right the first time,” he said. “There’s a unique opportunity in African countries to leapfrog into better, more efficient systems.”

Over 10 weeks Devex, along with our partners the European Investment Bank, the International Finance Corporation, Philips, and the United Nations Development Programme, will take an in-depth look at the innovative financing mechanisms driving forward the 2030 sustainable development agenda. We’ll explore how the funding gap can be filled, ask how cross-sector collaboration can lead to improved global health care, and look at what it takes to build successful partnerships for change. Join us as we examine the innovative financing powering the Global Goals by tagging #Going4Goals and @devex.