Working for Scale

I recently finished reading a book by Paul Polak and Mal Warwick called “The Business Solution to Poverty:  Designing Products and Services for Three Billion New Customers,” a call to arms in which the authors outline a rationale and strategy for businesses aimed at delivering products and services to the lowest income people ($2 or less per day).  Both have decades of experience in international development through enterprise, believe the traditional charity-oriented approach has failed, and advocate that companies find and sell the right product at the right price (using “zero-based design” and the “ruthless pursuit of affordability”) to grow into high-volume, low-margin, but profitable businesses while improving the lives of the impoverished.  The book is well-laid out and an easy read with several examples of business opportunities drawn from Paul’s experience as founder and director of International Development Enterprises (IDE), a non-profit development group.  Paul is also an enthusiastic and well-traveled speaker (as I learned at a conference I attended recently, see below); one can find out more about him, the book, and his ideas at Paulpolak.com.

A major problem with the book though is it is more vision than substance.  Although the authors are clearly familiar with how business operates, they fail to quantify their examples with the basic data that one needs to understand them, e.g., initial capital needs, costs, and sources; product design and development timeframes and costs; operating costs for personnel, manufacturing, distribution, and customer acquisition; revenues, margins, and return-on-investment.  Without these numbers, even if approximate and hypothetical, I was left with a smoke-and-mirrors impression of rather than a viable business model.  The book’s most detailed example is Spring Health, a company that Paul and colleagues started in 2011 (?) to sell chlorinated water in Indian villages.  A table projecting the company’s 2013-17 growth is given, but it lacks basic cost/price data.  I played with the numbers and got a price of $.003 per liter (but had heard in Paul’s talk it was $.08 per liter) and a per family consumption of 123 liters/year that seems way too low to me.  As for cost, data are not in the table, but in the text I noted, while the on-going costs of making the chlorination chemical is low, there is a 25% commission to a shop-owner where the water is stored, an unspecified commission to the delivery people, local marketing and service staff (42 per village), storage tank construction costs, and a central, management staff (I think Paul said there were currently 130).  Projected 2013 revenues are given as $284K, but in the talk Paul said the company is now selling 3.5 m liters per month, which by my calculation is $280K in revenues per month, so either the projection was way off or I misheard, but without the details I don’t know and the discrepancies are disconcerting.

Also in the book, the authors note that the social venture movement (composed of not-for-profits set up to address social ills and their funders) has had exponential growth over ten years but the “collective impact on the incidence of global poverty has been minimal” and that the problem is one of scale.  These enterprises do not plan to work, or do not work, on a large scale that the authors state should be 100 million customers in ten years and revenues of $10 billion.  While I agree with Paul about social venturing’s limitations (and have written about the movement’s lack of business orientation; see my ten or so postings tagged “social venturing”), I think revenues of $10 billion in ten years is an unrealistic (impossible) and artificial goal; if I had a profitable company that improved the lives of only 1 million people I’d be happy.  I also noted the authors ignore the many successful businesses that are selling products to the vast middle (but relative to US standards, low) income group.  I’d like to know why these businesses succeed and what limits their wider success, but the authors dismiss them as models.

Overall, I thought the book is inspirational and is more practically-oriented than many books on solutions to poverty.  Some of the useful advice for starting a mission-driven company is:

  • Base the business on helping poor people earn more money not making their lives better;
  • Have a product/service that is culturally independent;
  • Conduct extensive market research to test the business model; and
  • Expect to hire good employees at competitive salaries.

But starting a business requires a detailed plan (with lots of numbers), even though that plan will be/should be modified extensively based on the founders’ learning and experience, and I found the book short on planning.

As I noted above, Paul was the keynote speaker at a conference I attended hosted by MIT’s D-Lab called Scaling Development Ventures.  It was a good talkfest but, as with Paul’s and Mal’s book, lacking in specifics.  The more than 15 speakers and panelists were drawn from a government agency (USAID), a foundation (Grameen), social ventures, and social responsibility departments of major companies.  Here are three items I thought interesting.

Wendy Taylor, founder and director of USAID’s Center for Accelerating Innovation, gave a brief update of the agency’s Development Innovation Ventures (DIV) program.  She reported that DIV has “invested” (via no-return-expected grants) $50 million over past five years into about 60 ventures of which ten are making the “transition to scale” and has engaged the National Collegiate Inventors and Innovators Alliance to run a business accelerator program.  Unfortunately, she did not provide details (her allotted time was short), but because I have looked into the DIV as a source of funding previously, I plan to follow up on its progress.

Clive Alison, Global Director of Open Innovation for the consumer products giant, Unilever, made several points.  He noted that companies often face the challenge of changing potential customer behavior and to address it need to focus on a perceived value of the products they are selling.  He provided the example of Clean Team, which is a early-stage company that is offering a personal sanitation system in the second largest city in Ghana and was started with help from Unilever.  The Clean Team provides portable toilets that it empties 2-3 times a week, and, since one of the competing and less-costly alternatives is chamber pots with the contents disposed wherever, it emphasizes the reliability of its service and the friendliness of its staff.

The conference included a poster session for local students who are working on social enterprises of various sorts and stages.  One caught my attention, Pan Diagnostics by Vivek Sivathanu, evidently a wearable device for non-invasive monitoring of chronic diseases intended to address the global problem of many more people living longer and having chronic disease.  Unfortunately, I was not there when Vivek was but subsequently learned he is a doctoral candidate in MIT’s mechanical engineering department and a fellow at MIT’s Legatum Center and was on a MIT $100K business plan competition team for a diagnostic system called PeePod.  I‘d like to know more about both.

Although I found the presenters thoughtful and inspiring, I winced at the lack of specifics and quantification that I think are needed for the conference to successfully address its theme of scaling ventures also known as growing businesses.  Perhaps next year, the organizers could include a session called Business 101 for Development Ventures.

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In CITE

Last week, I caught up with Derek Brine, who manages the testing program of MIT’s Comprehensive Initiative on Technology Evaluation as its associate director (CITE), to learn about CITE’s progress.  I should note that Derek is also an entrepreneur having started a company in Kenya that sells a nutritional supplement derived from locally grown plant and that I was on his mentoring team.  I wrote a post that mentioned the start-up of CITE in December 2012 (“Walk the Talk”) and here’s the background.  CITE is funded through the USAID’s Higher Education Solutions Network (HESN) which is dispersing $137 million over five years to seven university-based “development labs” to harness “the ingenuity and passion of university students, researchers, faculty, and their innovative partners to incubate, catalyze and scale science and tech-based solutions to the world’s most challenging development problems” (MIT CITE Fact Sheet).  MIT is getting $25 million over five years for CITE and an International Development Innovation Network whose goal is “to establish and nurture a global network of local innovators using technology to address issues facing people living in poverty” (IDIN).  According to Derek, the share is about 40/60.

CITE has two main tasks:  developing the methodology for evaluating technologies (or products? a big difference, see below) and conducting evaluations along the three axes of suitability (is the product needed by the intended user and will it work as intended), scalability (can the product be provided and used widely), and sustainability (can the product be provided over the long term) (CITE Evaluation).  The intended clients of the evaluations are agencies that purchase products for deployment to low- and middle-income consumers in the developing world or for disaster relief.  Examples are donor-country development agencies like USAID; recipient-county government agencies; non-governmental organizations, e.g., Partners in Health and Oxfam; and relief organizations such as Mercy Corps (the latter three are listed as CITE Partners).  As noted by Derek, CITE may be thought of as a Consumers Union/Report for international development, and its first pilot review, on solar-powered lighting, will come out in February.  Other categories of products that may be reviewed are cook stoves, water filtration devices, agricultural equipment like pumps, small tractors, and rototillers, and disaster relief items.  Medical devices are not likely to be reviewed or at least not diagnostics, said Derek, since WHO has a review program (c.f., WHO Dx Prequalification).  Over the long term, CITE product reviews will help build a marketplace, initially among institutions and eventually among consumers, and that will encourage companies (and investors) to develop appropriate and affordable products for the currently under-served bottom-of-the-pyramid markets.

Of course, being a start-up enterprise, CITE has a number of challenges to meet.  As Derek pointed out, developing the testing protocols is difficult because CITE does not have direct access to the ultimate users who are defined and determined by the purchasing group (Consumers Union relies heavily on feedback from its members).  CITE also needs to gain credibility and recognition among its prospective customers, the government agencies responsible for product supervision in the countries where the products will be used, and any in-country consumer advocacy groups.  It will need to maintain its independence by not partnering with any group or company that may be perceived as pushing its view or product and generate funds to build out the testing apparatus that is needed.  Also there are no accepted performance standards for most products.  The solar lights are an exception in that an International Finance Corp./World Bank-backed group, called Lighting Africa, has developed standards as part of its push to “catalyze markets for modern off-grid lighting” (see its Minimum Performance Standards at Lighting Africa).  Derek also said testing products is time-consuming so the methods they design need to be simple.

A basic problem that concerns me (and that Derek noted) is finding products to test.  Although one of CITE’s founding assumptions is “there is an abundance of technological solutions” (MIT CITE Fact Sheet), there seemed not to be the recognition that a prototype is not a product and testing a prototype that may not be manufacturable, has no price, and cannot be purchased is not helpful.  I noted this problem in my earlier post and mentioned two on-line marketplaces where products aimed developing world consumers could be found- Kopernik, with whom CITE is working, and Maternova.  I took another look at both and found that Kopernik has about 70 products spread over 15 categories but only 8 with four or more products to test:  solar lights (15), water purifiers (12), stoves (8), solar chargers (5), drip irrigators (4), radios (4), and non-solar lights (4).  Maternova lists 38 natal/maternal products, but all are unique so no comparisons can be made.  I am guessing another source of products is within the developing countries, those that already that have found acceptance and utility among consumers but due to price, features, or distribution have not reached a wider market, but don’t know.

In any case at CITE, progress on a process for assessing suitability is being made.  What about evaluating scalability and sustainability?  Derek and I did not discuss these directly, but my thinking is that these are basic questions in forming a company and should be answered no differenly for technologies/products reviewed by CITE.  At the Venture Mentoring Service (as well as at the many other entrepreneurial support groups at MIT), we encourage the venture principals to have a plan for manufacture, marketing, distribution, and funding through start-up and launch until break-even and revenues.  We pressure-test that plan and provide advice on improving it.  It is not clear to me if CITE will be taking this approach and reviewing the business plans of the companies (or groups) of the products under evaluation, or what approach it will be taking.  In my quick look at the bios of the faculty/staff and research assistants (a large group, 11 of the former and 15 of the latter), I found very few with company start-up, product development, or business experience.  They do have a wide range of experience, much of it in international development, and I am interested to see how they apply it to “to identify the bottlenecks that prevent products from achieving measureable impact” (About CITE).

Health Care for All

Last week was a difficult one here in Boston.  It’s really a small town and many people, me included, although not injured or killed in the bombing or the manhunt mayhem, are one or two connections removed from people who were.  Trying to make sense of the tragedy, I realized those connections are needed in healing us after episodes of hate-fuelled violence and also in preventing them.

Also last week, I attended a conference sponsored by the Harvard University Program in Ethics and Health and Harvard’s Global Health Institute on “Universal Coverage in Developing Country Health Systems:  Ethical Dilemmas,” the “universal coverage” here meaning that all citizens have access to a country’s health care system (Conference website).  I tend to stay away from these types of meetings since the participants are usually not practitioners of global health (e.g., government officials from ministries of health or health care delivery NGOs) but rather researchers and analysts whose studies may be used to make or “inform” policies of the practitioners.  However, given my interest in universal coverage (UC) in developing/emerging countries as a potent “pull” mechanism for global health businesses and in the new approaches governments and NGOs are trying to achieve UC (see my posts tagged “delivery” and “international development”) and my realization that a couple of speakers were from the developing/emerging world, I attended and am glad I did.  The conference helped me understand the philosophical, political, and practical underpinnings of UC.

The co-chairs started the by positing that UC is based on the idea that health is important to the well-being (physical and economic) of a society and countries and therefore its provision should at least be overseen, if not managed or even provided (the US not withstanding), by governments.  Then the idea is complicated by three serious questions:  who is covered and when (women and children first or those with ”curable” disease or in the government and military?); what gets covered (maternity, public health, catastrophe, and not what happens when we chose to something?); and how to pay (out of patients’ pockets, insurance premiums, general or special taxes, as a benefit of employment?).  And then underlying answering these questions are ethics, what we as individuals and a society believe is the right and just thing to do, and social equity, how a society distributes its always scarce resources to benefit its members.

The next speaker was Julio Frenk, dean of the Harvard School of Public Health, who described his experience as the minister of health for Mexico in designing and implementing the latest version of that country’s health system.  I was deeply impressed not only by his clear and thoughtful delivery but also by the politically efficient way the country addressed achieving UC (especially compared to the fractured and inefficient method in the US).  The starting point was an employment-based system (health care as a benefit) that only covered half the population of 100 million, the other half either not working, working for themselves, or employed part time or in small companies, and the explicit statement in the Mexican constitution that health was  social right.  The first step was a national debate at all levels that led to the conclusion that, since people have little control of their health (this is true on an individual level, e.g., not all smokers get cancer and some marathoners have heart attacks), everyone should have equal access to health care, and that to make this happen, each person will contribute according to his/her capacity to do so and receive services based on need.

Next the health ministry identified specific goals to be achieved (incidence of disease, infant mortality rates, longevity, etc., I think) and then what interventions were needed and been shown to be cost-effective in reaching those goals.  Dean Frenk said the ministry came up with 260 interventions and/or services that addressed 95% of the need and 67 low incidence but high impact interventions, like cancer chemotherapy.  Next was the hard part, convincing the finance minister that the UC implementation was not going to bankrupt the country and getting his backing to gain legislative approval.  The health ministry won by presenting the details on cost and advocating for a multi-year allocation, but not the number of years, hence not asking for a blank check to be spent each year on whatever the health ministry wanted, but an annual and predetermined amount to be spent as directed by the goals and interventions.  This approach worked (along with putting in place a system of accrediting health care providers to assure quality) and now, after a commitment of 1% of GNP over seven years, 52 million previously uninsured are insured and can access heath care.  For details, Dr. Frenk referred to an article he co-authored published in Lancet last year (Frenk et al. 2012) and I noted a nice summary in Nature (Nature news).  My thought was, could this multi-year effort be replicated elsewhere (like in Massachusetts)?

While I learned something from each of the subsequent speakers and discussion, I’ll skip to those who spoke on my interests, that is, what is being tried and what works (if one is interested in the rest of the conference, the organizers will up a video version in May at PEH).  Here is a short recap:

Lisa Hirschhorn spoke about Rwanda from her experience with the NGO, Partners in Health, and noted that an national insurance program, implemented 2000-2008, has achieved 85% coverage for basic and catastrophic care but that the health care is still a major out-of-pocket expense for the poorest.  She also noted the UC plan includes direct financial assistance to pay for health-related expenses like better food and transportation to clinics and the training of heath care workers to do tasks they were previously not “qualified” to do, so called “task sharing” but its utility had not been determined.

Emanuela Gakidou of the University of Washington described measuring health outcomes in Zambia where a concentration on maternal and child health has decreased child morality by one-third in eight years but infectious disease mortality has not budged despite efforts like increased bed net use for malaria prevention, use of regional hospital rather than clinics, and access to anti-viral treatment.

Richard Levins, a Harvard ecologist and self-described third-generation Communist, spoke glowingly about Cuba where health care is integrated with other social services, is community-based (one clinic per 1000 people), and has achieved some of the best measures of health in the Western Hemisphere.  He also noted a shortage of toilet paper in the hospitals and a need to import 30% of the country’s food.

Peersapol Sutiwisesak of Thailand’s National Health Security Office (NHSO) noted that Thailand undertook a forty-year UC effort, that UC was achieved in 2003, and now, in addition to overseeing the system, his office is offering guidance to other countries interested in the Thai approach.  I wasn’t clear on the details (which can be found at NHSO) but understand it is insurance-based with two tiers of costs/benefits, emphasizes rural capital investments (I guess it assumes that for-profits will concentrate in the cities), is audited yearly by the inspector general, uses a mix of payments methods (e.g., fee-for-service and capitation), and has incentives to providers for improved quality.  The Office also has pooled procurement for medical devices and group that evaluates the cost-effectiveness of new interventions.  I think I noted that he said this combination had significantly decreased the cost of dialysis and led to rejection of the new HPV vaccines since the group and the pharma companies could not agree on a price (I think they did not try hard enough).

Reality Check

[4/16/13:  I have revised last week’s post to reflect its review by my interviewee, Manish Bhardwaj whose notes appear in brackets below.]

I had a reality check last week when I had a Starbucks’ sit-down with Manish Bhardwaj, PhD, founder and current CEO of Innovators in Health (IIH).  Mannish came to my attention in February 2010 when I noted he was giving a talk at MIT entitled “Technology X will save the world and other myths of social entrepreneurship,” which, according to the description, was about the need for tech/social entrepreneurs to understand the market place and the customer/client as a critical element for success.  I missed the talk but contacted him recently (three years later) and asked for some of his time.  When we met and after giving him my brief bio, I listened for the next hour plus as he shared his experience in tech-based social entrepreneurship, his heart-felt passion for improving lives of the less fortunate, and his “grand unified theory” for reconciling the inequities of the world.

His credentials as a technology entrepreneur are solid, having earned a bachelor’s degree at the Nanyang Technological University, Singapore, and master’s and doctoral degrees in electrical engineering/computer science at MIT and then co-founding a wireless chip design firm, Engim, whose IP was acquired by a Canadian company around about 2005 (IIH People).  While working on his doctorate, he apparently got the technology-X-will-save-the-world bug and, in 2007,  initiated or joined a team, IIH, formed to enter MIT’s 100K Entrepreneurship Competition with the aim of developing technologies to improve the delivery and use of the standard drug therapy for tuberculosis.  IIH won a prize for their pitch (and also that year a grant from a national innovation association and an international development award at MIT), but more importantly gained enough backing and momentum to prototype and pilot study in India several parts of an integrated TB drug delivery program (for details, see IIH Solutions).

IIH has local community partners in the two places it is testing its solutions in India (Bihar state and the city of Delhi), and Manish is a primary connector, facilitator, and promoter of the myriad relationships needed.  [Note from Manish: The Delhi deployment is mostly the work of Microsoft Research, where my close friend and IIH co-founder, Bill Thies, went to work. The only credit we can take is to have gotten that project off the start and then handed over to Microsoft Research.]  He spent months talking and living with many of the principals from the TB patients and their families to government TB program administrators to community health workers to representatives of foundations and private aid organizations.  And while IIH’s technological solution improved the care of about 400 patients over the past three years, his experience in trying to implement this approach changed him and the direction of IIH.  [Note from Manish: We did not deploy any technology in our treatment program in Bihar (we briefly tested it in 2008 to study viability.) So the 400 patients have gotten better due to our investments in training people, not any technology.]

He learned first hand of the pernicious connection between poverty and  health where the cost of accessing care is too high because a patient cannot earn that day’s subsistence income while traveling to a clinic, illiteracy and lack of trust in public hospitals need to be overcome, and malnourished patients have the adverse side effects from the drugs they are given.  And, moreover, how intractable to remedy is this poverty/health connection.  So he is now focused on improving what he has concluded is a critical part of the health care delivery system, the community health care workers, who are primarily women who travel to villages and through slums to find and refer patients to clinics and sometimes monitor their treatment.  He and his partner organizations are working to improve the training, pay, and status of the workers with the goal of serving a “catchment” population of hundreds of thousands and treating 10,000 in the next two years.  [Note from Manish: We started in 2010 with the goal of treating 10,000 patients in two years, which I abandoned pretty swiftly after learning of the challenges. We did just 400 in 3 years!]

I also learned Manish is interested in and working on other three other aspects of his unified theory of how to make the world better by addressing:

  • the failure of social entrepreneurs and NGOs (nongovernmental organizations) in general to appreciate and attend to the need and difficulty of scaling their particular solutions to the point of making a difference;
  • the failure of governments and their bureaucrats to be motivated and guided by ethics, knowing and doing the right thing; and similarly
  • the reliance of entrepreneurs of the developed world on technological solutions and failure to be guided by aspirations.

[Note from Manish: I think as far as my “unified theory” of making the world better, I think institutions universally have failed us in instilling a sense of civic virtue, in training us to deal with the ethical dimensions of large problems like poverty, climate change, etc., and guiding young people in not just how to do things but also what is worth doing.]

Hence, in addition to doing for-profit work so he can pay his bills and support IIH and Indian projects, Manish is a fellow at the Dalai Lama Center for Ethics and Transformative Values at MIT (Technology Review article).

I appreciated the opportunity to meet Manish and get a reality check on my aspirations in global health.  My work is far removed from people living in and dealing with poverty, and it is good for me to get a first-hand account of the hard work that is needed, to put the role of technology in perspective, and to meet someone so clearly dedicated to making a difference.

Crossing My Desk Again

In checking my list of subjects for this week’s post, I saw a few of recent news items that I thought are relevant to the business of global health and worthy of noting.  Here is what caught my attention:

Big Pharma’s Report Card

Two weeks ago, the Access to Medicines Foundation issued its biannual Index, a well-balanced overview and ranking of the efforts of twenty of the largest pharmaceutical companies in how they are meeting the world’s need for affordable and needed drugs and vaccines (Access to Meds).  The Foundation rates a company on seven factors (management, public policy, R and D, pricing, patents, capability, and donations) and writes up a thorough summary of the activities of each.  While all ranking systems are susceptible to hidden biases, the Foundation’s methodology seems to me to be comprehensive in that it is developed with input by a wide range of experts in global health and is reviewed and adjusted frequently (Methodology).  Some of the highlights of the 2012 Index are:  all the companies are improving with some creating departments with access responsibility, are making their goals and processes more transparent, and have products and pipelines that are meeting a greater number of needs.  GlaxoSmithKline is still at the top with Johnson & Johnson and Sanofi improving to take the number two and three spots, respectively, surpassing two of the previous leaders, Merck and Gilead.  Most useful for me are the individual company reports that provide details of a company’s global health R and D activities and therefore indicate partnering opportunities (e.g., Novo Nordisk report).

Best Sellers

Did you ever wonder what are the world’s best drugs, at least in terms of the usefulness, safety, and affordability?  Eric Palmer of the newsletter, FiercePharma, recently used data from IMS Health, the leading firm for tracking pharmaceutical sales, to compile a list of the twenty top-selling generic drugs, noting “Some of the meds on the list are not prescription drugs but everyday over-the-counter products that are safe, effective, cheap, easy to make, easy to transport, and easy to store and so likely to show up everywhere in the world” (FP special report).  First on the list is pain-reliever, antipyretic paracetamol (acetominophen) at $6 billion in 2011 sales, apparently now favored over aspirin (no. 8) as the drug in the “take two and call in the morning” bromide.  At number two at $3 billion in sales is ethinyl estradiol, used in most contraceptive formulations (Wikipedia article) which are clearly popular through out the world.  Not surprisingly, two on the list are anti-cholesterol drugs (atorvastatin and simvastatin) and two are antibiotics (amoxicillin and clavulanic acid), all selling at $1.5 billion or more each.  Rounding out the twenty are an anti-acid (omeprazole), blood pressure controller (amlodipine), an opioid (fentanyl), anti-inflammatory (diclofenac), and anti-diabetic (metformin), also all selling at more that $1.5 billion each year.  One take-home lesson is that the market is working in creating cheap and (mostly) effective drugs for a wide range of aliments.  The take-home  for global health is that these are the drugs that should be considered essential by all public health agencies and there are business opportunities in improving their use (better diagnostics, compliance tools, formulations) and availability (distribution and sales).

Biggest Investor in Private Health Care in the Developing World

If you manage a life sciences company in an emerging economy country and need funding, skip the local bank and try the International Finance Corporation, a division of the World Bank that evidently has invested $450 million in life sciences companies over the past 10 years (IFC life science investment).  In addition to investing in established companies such as drug manufacturers, hospital and diagnostic chains, and drug distributors, the IFC invests in “innovative companies aiming to increase product access through research and development or new product development using a viable and sustainable business mode” and “private equity funds investing in early- or later-stage development projects where there are technical risks, but where success could lead to significant development impact in the fight against diseases” (IFC Approach).  Sounds good but the IFC investments are primarily as debt or equity, meaning the investee needs to have some assets and/or revenue to qualify, and I could find few details on how to apply and terms.  There are two business contacts listed though.  I also found a guide put out by the IFC that may be helpful for startups looking to sell into emerging market health care systems and needing to know the bumps (IFC Guide).

Boot Straps

It would be hard to miss the political football that persons of all political persuasions are playing with the Affordable Care Act (aka Obama Care, but since it is a rehash of a plan pushed by some Republicans in the reign of Bush I, it should be called O-B [Obie] Care).  One aspect of the game of interest to me is what minimum health care benefits/services the Health and Human Services Department (HHS) will require in insurance policies and what those plans may cost.  It is of personal interest because in the next few years I (we) will without employer-subsidized insurance and will need to buy some kind of insurance, and of professional interest because other governments, especially of the low-income countries, are also working on defining and paying for a minimum level of health care services.  HHS is just starting its process of defining its “Essential Health Benefits” (HHS fact sheet), and has listed the categories of services to be provided:

  • Ambulatory patient services;
  • Emergency services;
  • Hospitalization;
  • Maternity and newborn care;
  • Mental health and substance use disorder services;
  • Prescription drugs;
  • Rehabilitative services and devices;
  • Laboratory services;
  • Preventive and wellness services and chronic disease management; and
  • Pediatric services, including oral and vision care.

I am sure there will be pushing and shoving among various parties on what providing these services may cost, but a good guess is that the plans will cost about what the most basic plans cost in Massachusetts, most high medical cost state, which is about $6000 per person per year (MA Health Connector).

What about the rest of the world?  Leaving aside the questions of quality, quantity, and government support/control, the average per capita health care spending was $3000 in 2009 among the 30 “the high-income” countries of the OCED (Organization for Economic Cooperation and Development) (OECD Statement to the US Senate) and which I am equating to the cost of providing basic health care since most of these countries are single-payer (government) systems.  For the mid-income countries, data are lacking.  I found that the Indian government is designing an essential health plan (EHP) that will cost about $60 per family per year (Times of India article).  In Brazil, 25% of population has health insurance at a cost of $88 per person per year (Affat 2012).

As for the low-income countries, I wrote about EHPs and their costs in a previous post (“A Plan for Essential Care” 1/20/11).  I noted that an EHP typically provides for:

  • Reproductive and child health (e.g., obstetrics, family planning, immunization, nutritional deficiency);
  • Communicable disease control (malaria, TB, HIV/AIDS/STD, epidemics);
  • Non-communicable disease control (cardiovascular disease, diabetes, trauma, mental health);
  • Other common conditions (eye, dental disease); and
  • Community health promotion and disease prevention (Tanzania Essential Health Package 2000).

As for cost, the few EHPs that exist cost about $30 per person per year in non-adjusted US dollars:

Country Cost* Source
Generic low income 16-32 WHO Technical Brief 2008
Malawi 28 Bowie and Mwase 2011
Uganda 28 Ssengooba 2004

More recently, the WHO estimated that an EHP covering maternal and child care alone could be provided to 95% of all Africans at a cost of $8 per person per year and is advocating that governments to spend a minimum of $40 per person per year on providing health care (WHO 2010).  So for a government to provide a minimum level of health care costs from $30 to $6000 per person per year depending, of course, on what is provided and by whom.

Why is this important and why should health care companies care?  First of all, for just about everywhere except the US, these plans characterize the “public sector” market for health care, that is, on what and how much governments are spending or plan to spend and there for provide an index of business opportunities.  For example, if all of the sub-Saharan countries were to spend $0.50 out of their $30 per person EHP budget on drugs to treat STDs (sexually transmitted disease) that would an annual $500 million dollar market and worth looking into.  Second, a government’s commitment to a EHP demonstrates its acceptance of the responsibility to provide a minimal level of health care as a good investment for the country and as an alternative to letting people die or having families carry the cost of care.  Last, an EHP creates a health care marketplace where a minimum level of publicly-provided care (which could be provided through government-owned means or through for- or not for-profit companies) is the base on which the other parts may build:  insurers, pharmacies, medical educators, hospitals, lab services, etc.  So for the developing countries not yet enjoying the sophistication and expense of a US-type health care system, the design and implementation of EHPs are good straps for boot strapping to better health care and, for companies, an opportunity to contribute to building new markets.

Hunting the Elusive Snark

I was surprised, and a bit disquieted, when I was notified in late December by the program committee that my proposal for a panel in the upcoming Bioindustry Organization (BIO) International Convention had been accepted.  I have attended the BIO confab in the past during my employed years and more recently under my own banner, and, in the latter capacity, organized a panel when the meeting was last in Boston in 2009, but the topic I proposed for the Global Innovations and Markets Track of this year’s meeting, “Accelerating Access to Public Sector Markets,” is outside my professional experience.  My theme is that the public sector buyers, i.e., international health agencies, governments, and non-governmental organizations, are an important part of the “emerging market” (that outside the US/EU/Japan), and pharma companies, big and small, need to  figure out how to sell to them.  Obviously, the public sector poses lots of challenges, like corrupt governments, uneven or nonfunctional approval systems, the bias of the donor governments to run own bilateral programs, the preference of NGOs for donations of “free” drugs, the general bad rep of the pharma industry in global health, and others.  I guess my list of proposed panelists impressed the committee and I was given a slot.  Fortunately, two of my speakers, a leader of a foundation’s drug access program and a diagnostic company CEO, have agreed to participate and I have invitations out to representatives of the emerging market groups of the major pharma and generic drug companies and, with luck and help, may be able to fill out the panel.

The program committee’s feedback (or warning) was to “cover new, novel approaches,” and my charge (request) to my panelists will be to be to posit approaches that not obvious and risky.  Over the past 10-15 years, donors, policy wonks, and governments have implemented several programs to provide affordable medicines, mostly vaccines, but their sustainability, especially in the current recession, is uncertain.   In several of my past posts, I have written about these programs as well as other efforts to create a market for essential medicines.  Here is a recap:

Multilateral global programs:  these intermediary wholesale purchasing agents are typically funded by governments and foundations, identify and certify suppliers, and negotiate prices and sometimes provide funds to subsidize purchases by the international agencies, national health systems, or sometimes nongovernmental organizations (NGOs) of large volumes of drugs or vaccines for the big three neglected diseases (malaria, tuberculosis, and HIV/AIDS) or for childhood immunization programs.  Examples are the Advance Market Commitment program of the Global Alliance for Vaccines and Immunizations (GAVI AMC, my post “Creating the Upside” 1/20/10), the Affordable Medicines Facility for Malaria of the Global Fund (AMFm, my post  “AMFm:  not your Ordinary Radio” 6/10/10) and the Global Drug Facility for tuberculosis drugs (GDF).  The WHO has a similar program for purchase of HIV meds and diagnostics for WHO-affiliated groups, the WHO/Contracting and Procurement Service (WHO/CPS), and the Pan American Health Organization has a Revolving Fund through which member states can pool their funds and purchase vaccines and related supplies at negotiated prices (Revolving Fund, Revolving Fund).   While these multi-lateral programs have been criticized for being overly bureaucratic, too selective in the meds offered, and for negotiating too high a base price, I have not seen a comparison of what works best, perhaps their track record is too short (e.g., the AMFm is in Phase I and to be evaluated this year, AMFm Monitoring).

Not-for-profit company programs:  in my post on sources of essential meds (“S and M” 8/14/11), I noted three not-for-profits companies (distinct from “non-profits” in that each seeks to make a profit to sustain their operations).  One is Mission Pharma (Mission Pharma) which is based in Denmark, founded in 1975, and aims “to be the preferred provider of generic medicines and medical devices for the benefit of economically disadvantaged populations.”  Their main product groups are generic pharmaceuticals, medical devices and equipment, and medical kits, representing about 2,500 different products that they distribute to customers in 70 countries, primarily governments and NGOs.  The second company is the IDA Foundation (IDA) which is headquartered in the Netherlands with regional offices on most continents.  In business since 1972 when it began International Dispensary Association, IDA now has 160 employees, more than 800 customers and distributes 3,000 mostly generic products in 100 countries to reach annual sales of $150 million.  IDA also offers a range of services to the companies whose products it sells such as  warehousing and distribution, repackaging and labeling, in-country knowledge, and country-by-country product registration (IDA services).   The third is WomenCare Global (WCG) and it “provides access to high-quality, innovative and affordable reproductive healthcare technologies for contraception, fertility, and pregnancy management” to both public and private sectors in the underserved markets of Africa, Asia, and Latin America and, notably, it is oriented to “selling” products as opposed to responding to purchaser requests.  WCG formed its recently formed a subsidiary, Devapharma Trading Ltd., to handle “all product-related activities including global sales, regulatory standards, quality assurance, pharmacovigilance, medical affairs, logistics and supply chain management, and product commercialization” (WCG press release).

For-profit company programs:  as I mentioned above, big pharma has provided billions of doses of drugs for the neglected tropical diseases (my post “NTD TD,” 1/2/12), essentially having sales of product to wealthy countries subsidize purchase for the less wealthy.   It is unlikely companies and their customers, who are primarily employers and governments, will be able to sustain the effort forever and expand it to include needed, novel treatments.  The generic pharmaceutical companies are obviously major players in both the public and private sector markets in the emerging markets, and at least one, Cipla of India, has a strategy of keeping its costs as low as possible and passing the savings on to buyers (my post, “Generics Play,” 9/15/11).  But these companies are successful due to their competitive nature and, absent deep-pocketed sponsors as those treating HIV/AIDS, public sector markets may cut their margins too thinly.

I am hoping my panelists will have the experience I lack and contribute some new ideas to improving, or creating, an international wholesale market place for essential drugs.  In addition to facing and justifying the financial risk, any company or companies advocating an new approach will contend with the highly fractured and territorial members of global health field, which, according to the Council on Foreign Relations, involves forty bilateral donors, twenty-five UN agencies, twenty global and regional funds, and ninety global initiatives (CFR Backgrounder).  Am I on a snark hunt?