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Analysis: How to finance healthcare?

Susann Roth, senior social development specialist, Asian Development Bank, looks at financing mechanisms to meet the third Sustainable Development Goal.

Over 20 years ago, during my second year at medical school, I spent my semester break with an Indian nongovernmental organisation providing health services to the urban poor in Kolkata. I soon realised that being a doctor or a nurse accomplishes little if there isn’t enough money to pay for diagnostic tests or medicine.

Later, during some fieldwork in a province in the Philippines when I was working on my master’s degree in public health, I learned that even when funding is available, it does not necessarily result in better health outcomes.

Healthcare, I now know, is essentially a business, and as such needs proper funding mechanisms to deliver quality service.

When we think about financing strategies to meet the third Sustainable Development Goal – to ensure health and well-being for everyone – the first question that comes to mind is, how much will it cost? Probably hundreds of billions of dollars are needed. Health will account for the lion’s share of the US$1.3 trillion that developing Asia is expected to spend on social infrastructure by 2025. And health infrastructure alone is not enough. We will also need to invest in health professionals’ capacity development, as well as in health service delivery.

Economic growth should allow for more government spending on health. But that’s also not enough. Most countries in developing Asia spend far less on health than the Organisation for Economic Co-operation and Development's average and below what the World Health Organisation recommends. Investing in health is still not perceived as cost-efficient to obtain financial returns in the short-to-medium term.

On the positive side, most countries in the region are slowly increasing public health expenditure and are committed to providing universal health coverage. Some countries are scaling up social health insurance and others are exploring how to extend existing financial market instruments such as bonds to the health sector.

As traditional donor grants are harder to come by, it’s time to find new ways to access money. Bonds and blended finance can help, and engaging the private sector will be critical.

Bonds can support large-scale health and social infrastructure investment. Earlier this year, the Asian Development Bank became the first multilateral development bank to launch a health bond, targeting investors keen to contribute to a social cause that can deliver good long-term returns.

Another option is to leverage more blended financing. As more countries graduate from eligibility for concessional financing, blended finance can help make even the most expensive loans more accessible.

Blended finance can entail partnering with donors and negotiating grants beyond country allocations, linked to sector development or policy loans, basically structuring grants around loan policy conditions. This would allow existing non-government health providers to be funded through grants, which is crucial in countries where social contracting with civil society and the private sector is still difficult. Without access to grant financing, governments may be inclined to only finance physical health infrastructure such as hospitals and not the training and reforms that will make universal healthcare possible.

Blended finance can come from foundations or the private sector itself. The key here is to structure the project so that countries get the most bang from their buck from investments; grants target soft sectors such as capacity development, while loans are used more for hard targets such as infrastructure or procurement.

Beyond bonds and blended finance, the third option to increase health funding in developing Asia is to work with the private sector. While there has always been a heated debate about the value addition of the private sector in health, from my point of view it's the best way forward.

Public-private collaboration on health can bring huge benefits to both sides. For instance, pooled procurement of medicine and other health commodities allows the public sector to leverage economies of scale, so it can then negotiate better prices with the private sector and pay less for the same items. This is already happening with vaccines in countries that are graduating from top donor funds.

The public and private sectors can also work together on lease and maintenance arrangements for equipment. This reduces the initial investment burden on the public sector while ensuring longer contracts for private providers. A good example is a pilot programme in remote areas of Myanmar to convert shipping containers into operating rooms equipped with solar panels and telecommunications systems.

The case for more private sector funding in health is clear. The challenge for governments is to create the necessary incentives to make it happen, especially in emerging markets.

One way forward is to identify gaps where the public sector can guarantee payments over the long term to serve low-income populations. A government can, for example, approach a company to set up renal care clinics by committing to pay for a minimum number of dialysis cycles per month. This reduces the risk for the firm entering a new market where most people lack basic insurance and, even if they have it, cannot afford additional chronic out-of-pocket treatment.

Governments can also set up schemes that enable companies to check that their business models are providing accessible, affordable and equitable health care. The private sector stands to benefit – once it overcomes the resistance to invest in low-income settings.

To move forward on health financing in developing Asia, we need solutions as well as money. Funds must be targeted to each country, align with national health plans and be followed by serious government efforts to attract the private sector. Only then can we aspire to attain universal health coverage.

Posted on: 01/08/2017 UTC+08:00


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