In Health Spending, Middle-Income Countries Face a Priorities Ditch, Not a Financing Ditch – But That Still Merits Aid

After a successful replenishment earlier this year, the board of Gavi, the Vaccine Alliance, is thinking through how to maximize the impact of the money it has raised. One hot issue is graduation from Gavi support. Currently, the Alliance uses an income cutoff loosely based on eligibility for IDA — soft loans from the World Bank. Other aid agencies, including the Global Fund to Fight AIDS, Tuberculosis and Malaria, also use World Bank income classifications as an important part of their eligibility and graduation systems.  

Within the eligibility and graduation debates, a major touchstone is whether health aid recipients, as they get richer and graduate, are going to pick up essential health services currently funded by aid such as immunizations or antiretrovirals. And, if not, why not and what should donors do about it? 

We believe the idea of a ‘financing ditch’ for lower middle income countries (meaning they cannot afford to pay for at least some essential drugs) is over-played. At the same time, donors do have a role in helping recipient countries overcome a ‘priorities ditch’—providing support for more expensive vaccines and global public goods alongside incentives to increase national financing of cost-effective interventions. 

The global health partnerships argue, based on Kharas et al, that middle-income countries face a financing ditch as aid declines and tax revenues remain low and that this is a justification for continued aid eligibility. Dercon et al cannot confirm this finding; using more data points, they find no systematic decline in total government resources during early middle-income status and suggest the variation in available revenues between countries at similar income levels likely reflects specific policy choices, not fiscal capacity. Other work on the evolution of health spending as countries grow comes to a similar conclusion: public money for health grows predictably alongside economic growth, but its impact on health depends on policy choices (see our colleagues Victoria Fan and Bill Savedoff’s work on this here). 

We agree with Dercon et al that middle-incomes don’t face a financing ditch as a group. Instead, we think there is a middle-income ‘priority ditch’ related to affordability and priority-setting and that this ditch does merit continuation of aid, albeit applying different criteria than those employed to date: 

• Affordability: price matters for priority. Our recent work on Gavi with Justin Sandefur and Sarah Dykstra shows impact on coverage in currently eligible middle-incomes depends more on the characteristics of the vaccine than the level of country income. Gavi doesn’t add value on relatively inexpensive vaccines but does on the pricier, on-patent but still cost-effective vaccines that countries do not buy on their own. Our work suggests that a vaccine-by-vaccine approach to graduation is the way to go and that some Gavi financing support (or at least lower than market prices) should remain available on some vaccines even after the current income cutoff.

• Priority-setting: the policy choices that matter for health. Most middle-income governments lack formal mechanisms to decide what health technologies will be funded with the next available dollar of public money. In the past, decisions on technology adoption have been ad hoc and have generally omitted aid-funded technologies as these were covered by external sources. International guidance and increasing population demands aggravate the problem; new HIV treatment guidelines that double eligible populations, inclusion of high-cost medications on the WHO essential medicines lists, or indeed rapid aid graduations all leave governments struggling to understand what will be the most cost-effective use of their scarce public resources. Our work on priority-setting suggests better approaches are feasible, but support to countries needs to be provided (see here). 

• Cost-effective for whom: don’t forget global public goods. Some vaccines are only cost effective from a global perspective. For example, a shift to inactivated polio vaccine (IPV) from oral polio vaccine is considered necessary for polio elimination, which would be cost effective and even cost saving from a global viewpoint. But IPV is expensive and not even close to cost effective from a national perspective, where only one or two polio cases might be averted in a given year. A recent study from HITAP in Thailand notes this conundrum, for example. This is why Nancy Birdsall and others have long advocated for aid to focus on these kinds of global public goods.

• Better aid incentives. Finally, if the global health partnerships have long provided recurrent funding for cost-effective interventions and suddenly decide to phase out, it is no one’s fault but their own that they didn’t set up the right incentives for governments to finance the most cost-effective expenditure themselves. The partnerships need to structure their aid differently: still achieving price reductions via economies of scale in the purchase of key technologies, but creating mechanisms that reward governments’ own-financing of the most cost-effective services. This matters not only for graduation or sustainability, but also because aid is notoriously volatile and ill-suited to finance key recurrent expenditures like vaccination and antiretrovirals, where any interruption in services puts the worst-off at risk. We’ve been writing about this issue for years; it’s time to finally pay attention (see here, here and here).

What does it all mean for global health partnership boards in the thick of aid eligibility debates? In summary:

• Vaccine-by-vaccine not country graduation
• Support to more systematic priority-setting for public budgets based on cost-effectiveness
• Subsidies to global public goods
• Better incentives for countries’ own-financing of most cost-effective services

No one likes the idea of aid to India for antiretrovirals while they finance a space program or aid-funded vaccines to Angola while the country builds Dubai on the South Atlantic with oil revenues. That said, no one likes successful vaccines programs in Nigeria suddenly going unfunded or children left unvaccinated either. Donors at Gavi (and the Global Fund) need to use better tools to ensure aid financing delivers a bigger global health benefit for the dollar — especially amongst richer aid recipients.