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Working Group on the Future of Global Health Procurement
Many low-and lower-middle-income countries currently procure a large portion of their health commodities—drugs, devices, diagnostics, and vector control tools—through centralized, donor-managed procurement mechanisms, and often at subsidized prices or as donations. Over the next several decades, however, the landscape of global health procurement will change dramatically as countries grow richer and lose aid eligibility; disease burdens shift; and technological breakthroughs change the portfolio of commodity needs. To consider how the global health community can ensure the medium- to long-term relevance, efficiency, quality, affordability, and security of global health procurement, the Center for Global Development (CGD) launched the Working Group on the Future of Global Health Procurement in July 2017. A final report is expected in late 2018. Throughout this process, CGD will engage key global health stakeholders—country representatives, procurement agents, funders, and industry partners—to reflect the range of views on these issues and encourage the adoption of proposed recommendations.
In recent decades, the world has made great strides toward improving global access to lifesaving health commodities, including medicines, diagnostics, medical devices, and vector control tools.* This increase in access has in large part resulted from the investments of international health partnerships such as UNICEF, UNFPA, and the Global Fund to Fight AIDS, Tuberculosis, and Malaria, and bilateral aid programs such as PEPFAR, DFID, and USAID. To deliver these lifesaving global health commodities to where they are needed most, these funders have also set up centralized procurement mechanisms to purchase drugs, diagnostics, devices, and vector control tools from manufacturers, and to subsequently make them available to countries at subsidized prices or as donations.
Over the next decade, however, most low-income countries will become middle-income countries that are ineligible for aid under current rules, spend more domestic public monies on health, and self-procure most needed health commodities. At the same time, demographic and epidemiological changes will affect the size and composition of demand for health care and related products; infectious diseases will diminish in importance while non-communicable diseases increase. Other factors—such as growing drug resistance, the pace of economic growth and its impact on public spending, the trend towards increasing decentralization of procurement and service delivery, and the continual development of new technologies in the context of rising expectations for more comprehensive health benefits—will also put new pressures on global health procurement. In this context, policymakers should be prepared to take preemptive action to ensure the medium- to long-term relevance, efficiency, quality, affordability, and security of global health procurement. CGD’s new Working Group will consider how global health procurement mechanisms can adapt to this changing landscape.
*Note: This working group does not consider vaccines.
Participants—Meeting #1 (July 2017)
Michael Anderson, CDC Group Francisco Blanco, World Health Organization John Crowley, USAID, Supply Chain for Health Division Francesco Decarolis, Boston University and Einaudi Institute for Economics and Finance Todd Dickens, PATH Rebecca Forman, Center for Global Development Akthem Fourati, UNICEF Amanda Glassman, Center for Global Development Eduardo González-Pier, Mexican Institute of Social Security and Ministry of Health, Mexico Lisa Hare, USAID, Malaria Division Supply Chain Branch Jay Heavner, USAID Global Health Supply Chain – Procurement and Supply Management Project Beverly Lorraine Ho, Department of Health, Philippines Christine Jackson, Crown Agents Sneha Kanneganti, World Bank Navjot Khosa, Kerala Medical Service Corporation Ltd., India Biljana Kozlovic, Consultant and formerly National Health Insurance Fund, Serbia Janeen Madan Keller, Center for Global Development Melissa Malhame, GAVI Alliance Susan Nazzaro, Bill & Melinda Gates Foundation Roxanne Oroxom, Center for Global Development Ed Rose, NHS England William Savedoff, Center for Global Development Eugene Schneller, Arizona State University Rachel Silverman, Center for Global Development Paul Stannard, Population Services International Netnapis Suchonwanich, National Health Security Office, Thailand Mariatou Tala Jallow, Global Fund Greg Vistnes, William Davidson Institute, University of Michigan Brenda Waning, Global Drug Facility Barnaby Wiles, World Bank Tommy Wilkinson, PRICELESS SA Hongwei Yang, National Health and Development Centre, China
Today, politicians are under growing pressure to squeeze more out of every dollar and guarantee greater access to better, more affordable healthcare for their citizens. In such a resource-constrained environment, wasting trillions of dollars on health every year is not viable. This note provides an overview of some of the approaches and policy options that the National Health Service in England has been using to maximise value for money.
This post previews preliminary answers to one initial question: what can we say about the size and nature of health commodity markets in low- and middle-income countries? We share early insights; list the data sources we used, while also signalling others we hope to draw on going forward; and highlight our assumptions and caveats.
What can we say about the relative size and composition of health commodity markets across different countries? While it is possible to answer this question for high-income countries, and especially OECD markets, data to analyze such trends across low- and middle-income countries are harder to come by. We took a stab at piecing together publicly available data sources to find an initial answer as part of the background work to inform the CGD Working Group on the Future of Global Health Procurement. The working group aims to develop actionable policy recommendations on how smarter, more efficient procurement practices over the next 10-20 years can ensure high-quality health commodities are available at affordable prices to those who need them the most. And a better understanding of the size and composition of health commodity markets in low- and middle-income countries is essential to that effort.
You can find a full description of our methods, data sources, preliminary findings, caveats, and plans for next steps in our new CGD note. Here is a quick preview of our early findings and initial analyses. If you have questions, feedback, or ideas for us, please reach out in the comments section below.
As a starting point, we aggregated multiple publicly available sources of data on the value of multiple health commodities (pharmaceuticals, hospital consumables, diagnostic devices, bed nets, vaccines) for 2015 across 50 low- and middle-income countries (we included countries with GNI per capita < $7000; China is not included). Our analysis also differentiates expenditures between the public (i.e., governments, social health insurance funds, as well as grants and loans from donors and NGOs) and the private (i.e., out-of-pocket spending, private insurance, as well as private not-for-profit, charitable, and faith-based organizations) sectors. By doing so, we aim to estimate the split between government, donor/NGO, and private procurement. And we are also interested in understanding how these different sectors carry out procurement functions. For example, is procurement consolidated or fragmented?
The WHO World Medicines Situation 2011 report, which estimated total pharmaceutical expenditure for 161 countries using data for 2006, is to our knowledge the most recent estimate predating our work. Our initial findings (depicted in figure 1), though not directly comparable, provide more recent estimates and also differentiate donor/NGO funding—a component the WHO report did not capture. The WHO analysis estimated that 77 percent of health commodities in the low-income countries (LICs) they studied were financed by the private sector. Our methodology suggests a much lower proportion of 36 percent in LICs, but a comparable level of private finance in lower-middle-income countries (LMICs) and upper-middle-income countries (UMICs). It is worth noting that India—where the health commodity market is mostly privately financed—moved from LIC to LMIC status in 2008, which would significantly shift estimates for the two groupings. In addition, the levels of donor assistance for HIV nearly doubled between 2006 and 2015, which we believe has significantly increased the relative share of the health commodity market from donor financing, especially in LICs.
While these are still very early results—and there are certainly caveats underlying these findings—we observe what looks like a commodities transition from a predominantly public consolidated and donor-funded procurement landscape in LICs to one that is predominantly privately financed in MICs. In some ways this points to the priorities ditch hypothesis—a concept our colleagues Amanda Glassman and Charles Kenny explain here—applied to health commodities.
There is certainly ample room for improvement, and over the coming months we are looking to expand and improve our analyses. We hope to draw on additional sources of data including IMS Health data and Indian export data to gather new evidence to inform the working group’s recommendations. For example, we are looking to understand how procurement prices vary both between and across countries, and how the composition of what countries buy (commodities for non-communicable versus communicable diseases, for example) changes over time as they become richer.
Stay tuned for additional analyses as we move forward in this process. In the meantime, if you have ideas about data sources we could use, or ways to improve our analyses, do leave us a comment.
After collaborating for several years under the leadership of Ghana’s National Drugs Programme, Ghanaian and UK partners came together earlier this year to help Ghanaian health authorities identify efficiency improvements in how the country’s National Health Insurance Scheme (NHIS) manages hypertension. Hypertension—a major risk factor for cardiovascular disease—is a growing burden across sub-Saharan Africa that now affects almost one in two Ghanaians; strokes and heart attacks were the third and fifth biggest killers in Ghana in 2016.
The resulting analysis (discussed here) was led by a Ghanaian heath technology assessment (HTA) task force under the auspices of the Ministry of Health, the International Decision Support Initiative, and the University of Southampton’s Health Technology Assessment Centre, itself a major partner of the UK’s NICE in producing HTAs for the British National Health Service. The task force report identifies a number of opportunities for improving efficiency without compromising (and in several cases, whilst improving) population health outcomes. It provides recommendations on institutionalising HTA whilst addressing skills and data gaps for making such targeted analyses routinely available to those who make spending decisions in Ghana. Ghanaian decision makers are particularly keen to use the analysis for redeploying any realisable efficiency savings into identifying, treating, and managing high blood pressure, especially amongst the estimated 300,600 Ghanaians who currently suffer from severe hypertension (which puts them at risk of imminent stroke or heart attack) but who remain undiagnosed, untreated, or inadequately treated.
According to the task force’s analysis, what drives inefficient spending boils down to two questions:
What hypertension medicines is Ghana’s NHIS buying?
How much is Ghana’s NHIS paying for the medicines it buys?
In other words, the model estimates are heavily driven by the selection of products and formulations, and by their acquisition costs. With a two- to eightfold variation in annual treatment costs within drug classes, and up to 50-fold across classes, this is hardly surprising. As a result, a slight (10 percent) shift in prescribing (in accordance with Ghanaian and international guidelines) from the most expensive to the cheaper and equally effective class would yield enough savings to treat all those diagnosed with hypertension but currently not on treatment four times over, generating 46,000 extra disability-adjusted life years (DALYs). (And in fact, this figure is likely to be an underestimate given that the model uses 2003 life expectancy calculations—the 2015 calculations are more favourable.) A 10 percent reduction in the average drug prices of the 17 hypertensive products that NHIS currently reimburses would generate savings amounting almost to 1 percent of the country’s significant $500m pharmaceuticals market, or one-eighth of the Ministry of Health’s centrally held procurement budget of $40m. Just to bring it closer to home (and to pick on the worst outlier), the British NHS gives an indicative price per capsule for the cheapest generic version of Nifedipine 10mg of 4-5 pence (£0.047) (if you have a UK IP address, you can confirm this on the British National Formulary website). The NHIS site price is almost twice that at £0.084 per capsule (1 GBP = 5.82802 GHS).
Ultimately, a lot of these issues relate to procuring medicines. CGD recently launched a working group on the Future of Global Health Procurement to consider the efficiency, quality, affordability, and security of global and increasingly country-led procurement, especially in light of countries such as Ghana rapidly transitioning away from aid. (The head of Ghana’s national drugs programme is a working group member.) Early data suggest a transition in commodities, with the gap left by the reduction in donor monies as countries move into the lower-middle-income grouping being filled by private procurement, mostly unconsolidated, and private financing, mostly out of pocket. This is the priorities ditch applied to commodity spending.
The Ghanaian authorities understand what is at stake as the fight to ensure the financial viability of their National Health Insurance Scheme. As the new Ghanaian Minister of Health states in the preface to the task force report: “Every cedi spent within the Ghanaian healthcare system should utilise the best possible value for health gains.” In that sense, the country is perhaps ahead of global organisations such as the WHO and the Global Fund, which still find it challenging to endorse and implement the notion of value for money. Ghana has strong institutions in place to commission, produce, and act on careful assessments of value for money for investments and, critically, disinvestment decisions. But it will need help to strengthen these analytical, administrative, and policy capacities before analyses such as the one discussed here can be produced routinely and in-country.
Ghana will need, for example, access to simple, ideally Excel-based, models as well as support in developing the skills to adapt those models to local circumstances. A repository of executable cost-effectiveness and budget impact models spanning all major diseases and conditions would be a valuable global public good. Ghanaian policymakers will also need support with incorporating the country’s vertical programmes into its NHI benefits package as donors depart. Take HIV: according to a recent Health Policy Plus (HP+) report, and as shown in the figure below, Ghana will need twice the projected commitment by PEPFAR and GFATM to achieve WHO’s 90-90-90 target (by 2020, 90 percent of people who are HIV infected will be diagnosed, 90 percent of people who are diagnosed will be on antiretroviral treatment, and in 90 percent of those who receive antiretrovirals, the amount of virus in their blood is undetectable). Another CGD working group is looking at incorporating economics and modelling in global health goals and guidelines; it just had its first meeting in DC and plans to release its report in summer 2018.
Whether it’s called strategic purchasing (a term increasingly popular in global health cycles), evidence-informed commissioning (popular in the UK), or value-based insurance (popular in the US), the quest to squeeze better value out of existing resources is global. But lack of clarity regarding global and national healthcare investment goals, coupled with low technical capacity in ministries of health and insurance funds and multiple competing interests for attracting healthcare dollars, all make proactive evidence-informed buying hard to achieve. Ghana has taken the first step in the right direction but there is a long road ahead. The global health community ought to help Ghana and countries like it strengthen their national systems for allocating resources including when selecting, negotiating prices, and procuring medicines for their populations. This is a global public good worth investing in.
 The task force comprised representatives from all major players in Ghana’s healthcare system, including the National Drugs Programme of the Ministry of Health, the local WHO office, Ghana’s Health Service, Ghana’s universities in Accra and Kumasi, NGOs, regional authorities, the National Health Insurance Agency, and professional associations, including the chair of the country’s well-established Standard Treatment Guidelines and Essential Medicines committee, who also chaired the task force.
 NICE’s guidelines have been relaxed from the original recommendation to start with a diuretic when the other antihypertensive classes lost their patent in the UK in the early 2010, leading to generic entry and a significant drop in prices. This is not the case in Ghana, where diuretics are still orders of magnitude cheaper than calcium channel blockers or ACE inhibitors.
Earlier this month, the Global Fund’s Office of the Inspector General (OIG) released a new audit report on Wambo.org, its online procurement platform for drugs and other health commodities, which is intended to streamline global health procurement and generate savings of $246 million by 2019. The headline: despite high marks from its users, Wambo.org is not yet on track to deliver the projected savings—and, in fact, it has not even recouped its far more modest start-up costs of about $10 million. But more than the headline, a close read of the report narrative helps us understand why reality does not yet reflect the Global Fund’s optimistic assumptions—and, reading between the lines, suggests three important lessons for the Global Fund and other international funders.
1. Calculating savings requires a meaningful counterfactual
The headline of the audit report suggests that Wambo.org is not on track to achieve its projected $246 million in savings by 2019—the “realistic” scenario set out in its original business case. But savings can only be calculated relative to a meaningful baseline or counterfactual, and the report does not inspire confidence that the methodology is sufficiently responsive to these other factors. Based on past trends, it’s likely that prices for health commodities will decline by 2019—but could that be attributed to Wambo? What about the new deal, spearheaded by the Bill & Melinda Gates Foundation, to provide best-in-class HIV treatment for just $75 per patient-year? Or the efforts of the Global Fund’s Pooled Procurement Mechanism more generally, which overlaps in scope with Wambo.org and has already claimed $650 million in savings over four years? Moving forward, an honest assessment of Wambo-related savings must account for these other factors by establishing a clear counterfactual.
2. But savings ≠ value
A $240 laptop is not necessarily good value for money.
True story: last fall I needed to buy myself a new laptop, but didn’t want to spend a lot of money. So I was delighted to open Amazon and find a shockingly cheap option for $240. It seemed fully operational, came loaded with a year-long subscription to Windows 10, and otherwise checked all the boxes—plus, I was “saving” hundreds of dollars! The computer arrived, turned on, and took 5 minutes to open an internet browser window—before promptly switching itself off. It continued to spontaneously shut down at random intervals, rendering it more or less unusable. And while $240 may be pretty cheap for a laptop, it’s pretty expensive for a two-pound block of gray plastic. (Thankfully, Amazon refunded the broken laptop after hearing my sob story.)
Clearly, value for money means more than a cheap sticker price; it means selecting products that deliver the most value for a given resource envelope. (Relatedly, my colleagues Kalipso Chalkidou and Janeen Madan Keller recently offered a compelling argument for why the Global Fund should adopt health technology assessment more broadly within its programs and operations.) The audit report does not directly comment on this issue with respect to Wambo, but hints at a continued lack of clarity. For example, the OIG discusses Wambo’s “catalogue function,” a promising feature that alerts purchasers when a less expensive option is available. But according to the report, the prompt appears to be generated on the basis of nominal price alone—not on cost-effectiveness. In theory, this could be pushing purchasers to choose less cost-effective options, even as they appear to generate “savings” based on sticker price alone. Perversely, this could even be counted as “savings” relative to a baseline in which more cost-effective products were purchased.
More generally, the Global Fund (and the Wambo.org project team specifically) needs to rethink its focus on achieving “savings’” without clear reference to the effectiveness of products being purchased. And going forward, the business case for Wambo.org should focus less on savings and more on delivering value: the most cost-effective health products, at sustainable prices, delivered when and where they’re needed.
While Global Fund documents projected that Wambo.org would save $246 million by 2019, the audit report suggests those original estimates were well off-base, and spends a substantial amount of time walking through the points where reality diverged from expectations. The OIG reports that the projections were developed by an external consultant using a proprietary model—and, somewhat alarmingly, the OIG was unable to access all the methods and data upon which those projections were based.
Reading through, it’s clear that the original estimate derived from a number of somewhat heroic assumptions, some of which are not directly tied to the functionality of Wambo.org per se. For example:
Assumption: 50 percent of the Global Fund’s overall procurement volume would be channeled through Wambo.org by 2019, which would in turn drive substantially lower prices for health commodities, accounting for $150 million in savings by 2019.
Reality: Onboarding has proceeded at a far slower pace, existing long-term agreements with suppliers remain in place (no change in prices), and there’s no evidence yet that greater volume will necessarily lead to additional savings beyond the negotiated prices already in place. Prices may already be at their lowest sustainable level due to aggressive negotiation in the previous period.
Assumption: The Global Fund would be able to renegotiate its logistics agreement, saving $27.8 million by 2019.
Reality: No change.
Of course, we all make assumptions; indeed, clearly articulated assumptions are an essential input to any sort of planning document or projection. And, as always, the Global Fund deserves enormous credit for its robust and transparent investigatory arm, which is what allows us to interrogate these methods in the first place.
Nonetheless, the large gap between expectations and reality underlines that while projections can be based on assumptions, impact must be transparently, rigorously, and directly measured based on actual data. In this audit report, we have a partial example of such a process, where the OIG is questioning/attempting to assess each of the projected savings levers. But the OIG’s audit-oriented process should not substitute for an independent, methodologically rigorous, and transparent impact evaluation, measured against a clearly articulated counterfactual.
Wambo.org seems to be a useful tool for helping to manage the Global Fund’s existing procurement arrangements, and high user satisfaction offers a great entry point for further expansion. But the clear divergence between the Global Fund’s lofty expectations and the relatively marginal impact observed thus far underlines the importance of understanding “value,” interrogating assumptions, and directly measuring impact against a meaningful counterfactual.
Health products—including drugs, devices, diagnostics, and vector control tools—are essential for meeting the healthcare needs of any population. Right now, many low- and lower-middle-income countries (LMICs) rely on donor-managed mechanisms to procure a large share of these health commodities, often at subsidized prices or as donations—and commodity financing represents a significant proportion of external health funding in these countries. (For example, procurement and supply management of health products comprise 40 percent of Global Fund annual grant disbursements.)
But this status quo won’t stay static for long, and the global health community must prepare for sweeping changes in global health and procurement over the next 10–20 years. Here’s some of what we see happening now—and on the immediate horizon:
LMICs are becoming wealthier. . . and graduating from aid eligibility. As countries lose access to free or subsidized health commodities, they may need to develop alternative procurement arrangements to ensure a steady and affordable supply of essential health commodities.
LMIC spending on health—and health products—is rising. As countries increase domestic health spending, they will see opportunities to expand the range of health products (and services) offered to their populations.
The composition of product needs and demand in LMICs is changing. As disease burdens in LMICs continue to evolve, with noncommunicable diseases accounting for an increasing share of the total burden, patients will need access to a different mix of health interventions. At the same time, wealthier and more sophisticated urban populations will demand more complex care—from cancer treatment to kidney dialysis.
Health commodity prices paid in LMICs can be high—and highly variable. While available information is neither very recent nor complete, the literature suggests that LMICs often pay high prices for health commodities, with significant variation across countries and procurers. Looking ahead, what procurement strategies, in different contexts and for specific product classes, could help LMICs achieve more affordable prices for high-quality commodities?
The fiscal burden of health commodity costs is increasing for LMIC governments. (See the Institute for Health Metrics and Evaluation’s projections here.) As these pressures continue, countries will need to strengthen national institutions for priority-setting and procurement to achieve greater efficiency from public spending on health.
New technologies are coming online and competing for scarce LMIC funds. As new technologies—ranging from injectable antiretroviral therapy to personalized cancer vaccines—become available, countries will need to prioritize the use of scarce public funds to cover the most impactful and cost-effective products and interventions.
In this context, how can the global health community act now to ensure the medium- to-long-term efficiency, quality, affordability, and security of global health procurement? This question is the subject of a new CGD working group on the future of global health procurement, which aims to produce actionable recommendations for the global health community. The working group, launched in late July, brings together representatives from LMIC governments, global procurement agents, funders, and international agencies, as well as experts on issues such as industrial organization, contract theory, and auctions.
The final report, expected in late 2018, will outline the working group’s key findings and propose recommendations for near-term action. Throughout this process, CGD will engage key global health stakeholders—country representatives, procurement agents, funders, and industry partners—to learn from their experiences and to eventually translate recommendations into action. We know procurement and prices can be controversial issues, and we are committed to reflecting the range of views and to finding solutions that are feasible and help improve outcomes.
Stay tuned for more updates as we dive deeper into global health procurement—including what does and doesn’t work—with an eye toward informing future directions. In the meantime, if you have thoughts or ideas to share, please leave us a comment below.