Putting the Invisible Hand to Work for Health

A patient gets medicines at a pharmacy inside a community health center in Tegucigalpa, Honduras. (Photo by Brendan Bannon for USAID/ Courtesy of Photoshare)

In his landmark economic text Wealth of Nations, Adam Smith wrote that the “invisible hand” of the market would neatly divide the world’s resources among its needs: Prices would act as a communicator and clearinghouse between demand and supply. For a new, optimized HIV treatment regimen with patients mostly spread across sub-Saharan Africa, however, widespread uncertainty can muddle the price. Suppliers cannot predict how quickly, nor in what volumes, countries and donors will switch to buying the new drug, and therefore may set high prices for their first sales. Faced with these high prices, Ministries of Health may delay ordering the new drug. Initial orders also tend to be small, as patients gradually transition to the new regimen. This keeps prices high, with suppliers operating at small scale and holding off on factory investments that could bring down costs. The “invisible hand” thus becomes a vicious cycle of uncertain orders leading to high prices that, in turn, produce small orders—when the actual demand is nearly all of the 13 million patients on treatment supported by President's Emergency Plan for AIDS Relief (PEPFAR), as well as additional patients supported by other procurers. 

This scenario is not a hypothetical. Treatment regimens with the antiretroviral (ARV) drug dolutegravir (DTG) outperform the current standard of care for first-line HIV patients in important ways: faster suppression of the HIV virus, fewer side effects, smaller pill size, and lower risk of developing drug-resistant strains of HIV. Despite these benefits and the fact that DTG-based regimens have been available in the United States since 2013, there has been risk of a slow switch for low- and middle-income countries (LMICs).

Breaking the uncertainty cycle for an optimized ARV

To break the cycle of small orders and high prices driven by uncertain demand, a multiparty partnership reached ceiling price agreements for the new DTG-based regimen with the two generic manufacturers who have received tentative US Food and Drug Administration approval. The ceiling price agreements draw on donors’ and procurers’ visibility and influence over the uptake of DTG-based regimens to guarantee a price at launch that would typically emerge only after LMIC markets reach scale—with savings estimated at nearly $1 billion over the next six years. Moreover, this price is nearly the same as that of the most common regimen, so countries can switch without incurring higher costs.

To spur immediate production, PEPFAR placed advance orders so that manufacturers didn’t have to wait for countries to undergo their revised forecasting to receive formal orders. Importantly, country-level clinical and supply chain transition planning are also underway to ensure that health care providers, policymakers, supply chain specialists, and others are all informed, trained, and supported in enabling this transition.

Fast-tracking R&D for a new Zika test

Market-shaping tools can also reduce uncertainty, align incentives, and accelerate access to health products that don’t exist yet. When the World Health Organization declared the Zika outbreak a public health emergency in 2016, United States Agency for International Development (USAID) first sounded a call for new solutions through a $30 million Grand Challenge for Development. The effort sought to attract and develop ideas to address the current Zika outbreak, as well as improve USAID’s preparedness for future infectious disease outbreaks. Innovators from around the world submitted nearly 900 ideas, including new diagnostics, which surfaced many groundbreaking solutions that otherwise may not have moved forward.

Despite this response, a significant gap remained. The world urgently needed an effective, on-the-spot test for Zika to quickly separate out Zika cases from cases of other viruses or conditions with similar symptoms. Recognizing that only a limited set of specialized manufacturers could develop such a diagnostic, USAID partnered with United Nations International Children’s Emergency Fund (UNICEF) to launch a $10 million advance purchase commitment (APC) to reach out to these manufacturers. This APC enables UNICEF to commit today to buying future Zika tests that meet preset standards even before they get to market. Over the course of the APC’s three years, its market pull could produce 40 million Zika rapid tests at a faster pace than would otherwise be possible.

Making the most of markets

Both USAID and UNICEF continue to pursue these types of market-based approaches (including those catalogued in the “USAID Market Shaping Primer”) and to call for more proactive, strategic engagement of the private sector to accelerate access to health products. Beyond USAID and UNICEF, other global health organizations are similarly mobilizing around opportunities to use market-shaping or market-based interventions to extend their impact. The Global Fund recently launched its “Market Shaping Strategy” for 2016-2021, which emphasizes partnership, as well as sustainability, flexibility, balance, and focus; Unitaid continues to focus on market shaping for HIV, tuberculosis, and malaria product markets; and Gavi employs a healthy markets framework to help steer its 2016-2020 strategy.

Moreover, interest is expanding to a broader set of global health actors, with an accompanying set of tools to help define market approaches, share past experiences, and apply these principles to new areas. The Reproductive Health Supplies Coalition produced a market-shaping guide for family planning products, PATH developed a market-strengthening guide for advocates, and the William Davidson Institute worked with partners to develop Market Bookshelf, an open-access, online library of health market data and reports.

Using market-based approaches for today and tomorrow

As traditional foreign aid budgets fall, donors like USAID need operating models that harness the full potential of market-based approaches to help meet the massive global health needs of LMICs. We must investigate how to generate greater impact from donor funds, such as by using tools like ceiling price agreements or APCs to attract new or faster investments from the private sector and speed up access to health innovations.

Of course, market-based tools are not the answer to everything. They will not make up for all the funding shortfalls, are not appropriate for every situation, and depend on a host of other “programmatic” activities like health care provider training or supply chain management. After all, an affordable drug price doesn’t help an HIV patient without an updated prescription, and a new Zika rapid test on the market doesn’t identify cases until sufficient quantities are regularly reaching clinics.

Nevertheless, there are likely more opportunities to employ market-shaping approaches by proactively assessing global health challenges against these market-based approaches. We should keep all options on the table and systematically test whether market-based approaches, even if they have not been used traditionally or extensively in a given sector, might be effective.

As more countries achieve income levels that graduate them out of traditional donor assistance, as digital technologies open up new possibilities for reaching low-income populations, and as non-communicable diseases comprise more of the global health burden, we need to update our global health approach. We must consider how market-based approaches can bring new health products through new channels to reach those in need faster. Where possible, let’s break the uncertainty cycle and leverage the power of the “invisible hand” to better respond to tomorrow’s global health needs.

Read more stories by Amy Lin.