How do we create stronger health markets? It’s a question with no easy answer, but one that all stakeholders invested in improving global health outcomes need to ask if we are to achieve Sustainable Development Goal 3: good health and well-being for all.
According to Yasmin Madan, marketing director for nonprofit Population Services International, a “functional health care market” is one in which health solutions, whether provided by public or private actors, are affordable and accessible to everyone.
This requires that all stakeholders have the capacity and incentives to sustainably perform the functions required for supply to meet consumer demand. “A functional market combines affordability, accessibility, awareness, assured quality and appropriate technology,” she said.
Because multiple actors are involved in the provision and distribution of health services, creating effective health systems requires high-level coordination and cooperation between governments, private companies, health care providers and nongovernmental organizations. But what role is each stakeholder best positioned to play? Are there any universal strategies that stakeholders can employ to make health markets work more effectively, or does each country need to chart its own path?
In this article, Devex explores what makes an effective health market, some of the challenges blocking market access in developing countries, and strategies that stakeholders can use to remove key barriers — from forming innovative partnerships, to developing markets, to social marketing, and medical franchising.
Identifying the root causes of market failures
Health care is one of the areas often cited as a classic “market failure” — where market incentives don’t necessarily lead to the best health outcomes. For example, voluntary health insurance schemes require the participation of the healthy and sick alike, so that the cost of caring for the sick is defrayed by the premium payments of healthy participants. However, healthy people have less incentive to pay for health insurance than sick people do, leaving companies (or governments) with unsustainable insurance programs dominated by sick people. Such failures explain why few countries have achieved fully functional health care systems.
In developing countries, market failures are complex, ranging from well-meaning but ineffective policies, to supply chain challenges in the distribution of health products, to a dearth of trained healthcare professionals, to inefficient governmental stewardship of health systems, among others.
“The most common symptoms of market failures are a lack of access and affordability,” said Madan. However, identifying the root cause of failures can be tricky. Before coming up with solutions, Madan advises a complete market analysis of the problem at hand, including the roles that policies, public and private actors play in order to identify exactly where and why the market is breaking down.
“One of the challenges with identifying market failure is that when we see that consumers don’t have something, we often assume it’s because they don’t know about it, and we are likely to focus on behavior change or awareness, without properly linking to the product and the service,” she said. “Another reason it’s difficult is because we tend to jump to providing products and services directly, without looking at systematic market failures — and as a result, we treat the symptoms of market failures rather than the root causes.”
In order to avoid these pitfalls, she said, it’s critical that parties responsible for conducting the market analysis remain neutral while examining the steps and players involved before suggesting solutions.
As an example, Madan cited the lack of options for family planning in India: Of the women living in Bihar and Uttar Pradesh, two of the poorest states, only half had access to birth control. Of those who did, sterilization was the primary available method, followed by condoms. Modern family planning methods like oral and injectable contraceptives and IUD’s were almost nonexistent, ironic given that India is one of the leading manufacturers of high-quality birth control methods, most of which are exported to international markets.
PSI identified several breakdowns in the health marketplace. These included government policies that created financial incentives leading providers to push sterilization over other forms of family planning, policies that created disincentives for private companies to develop the domestic market, and a lack of training among health care providers on all of the available birth control methods.
In the above scenario, PSI is developing key recommendations for each player: These include creating an enabling environment for manufacturers and other private sector players to invest in developing the family planning market in India, including manufacturing for domestic consumption and advertising, and that nongovernmental organizations help to educate rural health care professionals about other family planning options.
Although each country faces unique challenges, such innovative partnerships and cooperation are almost always necessary to sustainably address the root causes of market failure, according to Madan.
“One of the trickiest parts of addressing market failures is aligning the incentives to make sure that actors work in a way that will sustainably address root causes,” she said. “In order for that to work out, each player needs to do their part.”
Harnessing the power of the private sector
The private sector already plays a prominent role in health markets, by manufacturing and distributing medicines and medical devices. But there is more to be done, particularly in the areas of expanding private investment in hospital chains, creating new markets, and improving supply chains.
According to Khawar Mann, managing director for The Abraaj Group, a private equity investing firm operating in the growth markets of Africa, Asia, Latin America, the Middle East and Turkey, one of the biggest opportunities for the private sector is investing in tertiary health care facilities and training doctors and specialists to staff them — which creates significant improvements in health outcomes, and is also profitable.
“Private investment in tertiary care facilities has the potential to catalyze the development of health care systems,” explained Mann. “What scale brings you is the ability to create a hub and spokes system, and the ability to attract great doctors and other health care workers who want to work in an environment with the best in class technology and quality professionals.”
One example of how such investments can work is the CARE private hospital chain in India, which focuses on providing health care to low- and middle-income populations. Founded in 1997 by a team of Indian cardiologists, CARE delivers quality care at the right price point by creating efficient systems, managing costs, and billing patients on a tiered system.
Once hospital chains exist, the model can be expanded to other parts of the country, and also internationally: For example, The Abraaj Group, which invests in health care systems in growth markets as part of its investment strategy, is bringing doctors from other developing countries to CARE hospitals in India for training. Once trained, they return to their country of origin and share their knowledge with other doctors, thus making their hospitals more appealing to new talent. Once high quality primary care facilities are well-established, they are able to build tertiary facilities staffed by specialists. “It’s a system that builds upon itself,” said Mann.
Improving supply chains for the distribution of medicines is another area ripe for private-sector intervention. In many developing countries, governments have a monopoly on the warehousing, supply, and distribution of medicines, often leading to distribution bottlenecks that prevent medicines from getting where they are most needed. This is in contrast to OECD countries, where the supply chains of pharmaceuticals universally involve both public and private sector actors.
Prashant Yadav, a visiting scholar at Harvard Medical School specializing in medical supply chains, advocates the adoption of supply chain techniques drawn from the private sector, combined with appropriate government regulation and oversight. “Medical supply chains need to be agile and responsive — neither of which are qualities generally attributed to governments,” he said.
By incorporating private sector players and strategies, supply chains can become more efficient. For example, in Zambia, clinics around the country frequently stocked out of medicine, due to a bureaucratic review process that required multiple layers of approval whenever clinics placed new orders for medicines. By streamlining this process (a strategy frequently used by commercial retail suppliers) and allowing clinics to place orders directly with the central distribution center, Zambia was able to make the supply chain much more efficient.
Governments can also incentivize private wholesale suppliers to distribute medicines to areas traditionally seen as “unprofitable” (generally rural areas with low population density) by giving them contracts for “profitable” (generally high-density urban) areas, with the caveat that they must also take responsibility for supplying unprofitable areas as well.
“One broad lesson is that in global health, we often assume that ineffective supply chains result because people lack training,” said Yadav. “But in reality, it’s not an information blind spot problem, but an incentive problem — and training alone will not achieve the results we want. We have to create the proper incentives to move medicines where we need them to go.”
Promoting efficiency in the public sector
In order to achieve stronger health systems, governments around the world need to increase domestic funding in this field, and track funds to ensure that the resources, once mobilized, achieve their intended results.
However, this is easier said than done. “One of the big challenges is that resource allocation to the health care sector is, overall, too low, and health is often not prioritized relative to other sectors,” said Dr. Laurel Hatt, health finance lead for the U.S. Agency for International Development-funded Health Finance and Governance project. “Another common theme is low- and middle-income countries’ tax systems aren’t able to capture resources because the formal sector is very small relative to the informal sector.”
According to Hatt, there are various strategies that health ministries can employ to increase domestic funding — first, by becoming more efficient with the resources they already have. Health ministries need to demonstrate that they are good financial stewards, and are achieving measurable results, better positioning them to request additional funding in the future. Another option, according to Hatt, is government-regulated insurance schemes that take incentives into account.
Unfortunately, there is no “silver bullet” approach to creating effective health markets. “Each country needs to find their own way,” said Hatt. However, conducting thorough market analysis of failures, aligning the incentives of stakeholders, increasing domestic funding for health care schemes, training additional health care professionals, and allowing private sector actors to invest in medical franchises are some of the strategies that work.
What can stakeholders do to create better health systems? Have your say by leaving a comment below.
Making Markets Work is an online conversation to explore what’s being done to make global health care markets accessible to people at the base of the pyramid. Over 10 weeks, Devex and its partners — The Abraaj Group, Philips and Population Services International — will amplify the discussion around effective health financing, analyze key challenges blocking universal market access in the health care supply chain, and explore the key strategies to make markets more effective. Join us as we look at this important issue, and share your thoughts by tagging #MakingMarketsWork and @Devex.
Malia Politzer is an award-winning long-form journalist who specializes in international development, human rights issues and investigative reporting. She recently completed a fellowship from the Institute of Current World Affairs in India and Spain. For three years, she worked as a feature-writer at Mint, India’s second-largest financial newspaper, where she wrote about international development, strategic philanthropy and impact investing. She holds an M.S. journalism from Columbia University Graduate School of Journalism, where she was a Stabile Fellow for Investigative Journalism, and a B.A. from Hampshire College.
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