In a Time of Tight Budgets, Where Should the Smart Money Go?

September 19, 2013

Carlos Bruen, Key Correspondent

Royal College of Surgeons in Ireland

Following the meeting organised by the IFGH and Irish Aid with Dr Mark Dybul, Executive Director of the Global Fund, and Irish Civil Society in Dublin, 6 September 2013, Carlos Bruen writes on the important issue of market dynamics and how the Global Fund remains at the centre of the debate about ways to ensure all those who need access to medicines, other essential commodities and diagnostic tools, have it.

Meeting with people from Irish research institutes, members of the Dóchas HIV and AIDS Working Group and other NGOs in Sep 2013, Mark Dybul (Executive Director of the Global Fund to Fight HIV/AIDS, TB and Malaria) engaged in a wide-ranging discussion about the Global Fund and health more broadly, displaying an impressively pragmatic outlook and a well founded optimism about future support for global health efforts.

Welcome as this future support is, the current climate of tight budgets means making savings without losing services is critically important. Dr. Dybul’s assertion that the Global Fund is taking an aggressive new approach to lowering commodity prices and managing the peaks and troughs that have impacted the supply chain for years will certainly be welcomed by both donors and others concerned about the effects of flat-lining financial trends since 2008 (1).

 

Background

Launched in 2002 as a finance pooling mechanism to fight the three major communicable diseases affecting people in middle- and low-income countries, the Global Fund has disbursed nearly $18 billion as of Nov 2012. Working with donors, civil society, implementing governments, multilateral agencies, the private sector and philanthropic organisations, this has resulted in 4.2 million people currently receiving antiretroviral therapy, 9.7 million people detected and treated for tuberculosis, and the distribution of 310 million insecticide treated bed-nets(2). While the Global Fund is not all about commodities, expenditure on health commodities like medicines, treated bed-nets and diagnostic tools takes up a substantial portion of its budget, up to 40% annually (3). Given its substantial resources, the Global Fund had promised to use its financial clout to have a market shaping influence in order to reduce the overall cost for low income countries procuring essential commodities, though this has not materialised.

Global Fund

Initially prioritising more expensive patented commodities, the Board of the Global Fund quickly reversed this position at its third board meeting in April 2002, where support was given to the principle of purchasing quality-assured medicines at the lowest price. This opened the way for implementing governments, NGOs and multilateral agencies like UNDP to use Global Fund financing for procuring generic commodities, and therefore to be able to get more products for the same price in order to reach more people.

 

Purchasing Potential Not Realised

In 2004, the Global Fund, the Clinton Foundation, the World Bank and UNICEF announced a joint plan outlining ways in which grant recipients could obtain lower priced medicines and diagnostics. The Clinton Foundation would assist in negotiating price agreements with manufacturers, while the other three organisations would offer a bulk procurement facility, the aim being that the lower priced medicines could then be available to all countries in receipt of Global Fund grants (4).

As the decade wore on, the purchase of large volumes of commodities like antiretroviral medicines or insecticide-treated bednets had not shown any significant impact in lowering prices. Additionally, the 2011 High Level Independent Review of the Global Fund was concerned that poor forecasting, delays in procurement, and stock-outs posed a critical vulnerability to Global Fund activities (3), a vulnerability that arguably also limits its marketshaping potential. While the responsibility to lower prices could not be laid solely at the door of the Global Fund, given that UN agencies or governments did little to bring about lower prices, the fact that the Global Fund (and PEPFAR) had created a multibillion dollar market which had not resulted in significant price drops in commodities or in stabilising supply was a problem. The coordination and pooling of procurement for lower prices was certainly a weakness of the Global Fund model, a weakness that innovative organisations such as UNITAID sought to overcome (5). The creation of the Affordable Medicines Facility-malaria (AMFm) by the Roll Back Malaria (RBM) Partnership, the World Bank and the Bill and Melinda Gates Foundation in 2006 was another experimental effort at reducing prices and increasing supply reliability for anti-malarial medication. Initially hosted by the Global Fund, its Board agreed to integrate the AMFm into its grant management and financial proceedings in 2012.

At the same time as this new initiative was being mainstreamed, the Global Fund was going through a challenging period after it was hit with a triple blow in the form of a fiduciary, financial and managerial crisis in 2011 (6). But where there is crisis, there is opportunity. Extensive reforms have been implemented at the Global Fund, two of which have been the establishment of the Market Dynamics Advisory Group within the core structure of the Global Fund, as well as other efforts around the general procurement and supply chain management system. One such effort includes the Procurement 4 Impact initiative which seeks to fundamentally reform the Global Fund’s procurement of goods and services to deliver greater savings and improve impact.

 

Pooling Purchasing Power

During the meeting in Dublin, Dr. Dybul pulled no punches in saying that the Global Fund are embarking on “a different and aggressive approach”. He identified a major component missing from past efforts, namely the lack of a global pooled system that countries could access using their own procurement systems. In the absence of such a global system, companies could play countries and other procurers like the Global Fund off one another in ways that meant procurers were not getting the best price possible relative to their purchasing power.

However, the Global Fund has pulled together the major procurers of medicines, diagnostics and other commodities such as treated bednets. The Global Fund, UNICEF, UK DfID and the US President’s Malaria Initiative, who together account for 90% of treated bednets, have recently put out a tender for 190 million bednets, where each are doing their own tenders but are negotiating collectively. This consortium aims to save about 30% on bednets from what would have been paid before the consortium-driven tendering process. Dr. Dybul added that they are going to do the same with ARVs by working with the US and South African governments, among others, to increase their collective purchasing power. Equally importantly, the consortium aims to incentivise a steady flow of products through better forecasting across the institutions, reducing the peaks and troughs that have characterised past supply chain management activities and striking a balance between getting better value for money and ensuring a viable, stable market is maintained for manufacturers. Through these consortium efforts for all procured commodities, the Global Fund aims to establish a global pooled system where countries can access lower priced and more reliably supplied commodities, and in the process save the Global Fund between $100 million and $200 million per year.

These efforts certainly bode well for the Global Fund as it seeks to take its market-shaping role seriously, and comes at a critical time when the organisation gears up for its fourth replenishment effort. ‘Getting more bang for the buck’, an ever increasingly heard term, certainly seems to be on the cards. These market-shaping changes will mean much more than costsavings – they can impact the lives of millions more people through better managed supply markets.

____________________________________

1) Institute for Health Metrics & Evaluation. Financing Global Health 2012: The End of the Golden Age? Seattle, WA: IHME, 2012. Available here

2) GFATM, 2013. Update on Results and Impact, April 2013. Geneva: GFATM. Available here.

3) High Level Independent Review Panel, 2011. Turning the page from emergency to sustainability: The final report of the High-Level Independent Review Panel on fiduciary controls and oversight mechanisms of the Global Fund to Fight Aids, Tuberculosis and Malaria. Geneva.  Available here.

4) Rivers, B., 2004. ‘Global Fund and Others Announce Cheaper Drug Possibilities for Grant Recipients’, Global Fund Observer, 22. Available here.

5) Lidén, J., 2013. The grand decade for global health: 1998–2008. Chatham House Working Group on Governance. London: Chatham House. Available here.

6) Mccoy, D., Bruen, C., Hill, P. & Kerouedan, D., 2012. The global fund: What next for aid effectiveness and health systems strengthening? Nairobi, Kenya. Available here.

 

Further Reading:

Dochas HIV/AIDS Policy Paper

UNAIDS: Why We Have To Act Now

Global Fund Needs Assessment

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