the need: quickly, consistently and cost-effectively delivery health commodities
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The Pledge Guarantee for Health (PGH): A New Platform to Improve Efficiency and Impact of Donor Financing for Health Commodities. The Need: Quickly, consistently and cost-effectively delivery health commodities The Opportunity: The Pledge Guarantee for Health – what it is, and how it works - PowerPoint PPT PresentationTRANSCRIPT
The Pledge Guarantee for Health (PGH): A New Platform to Improve Efficiency and Impact of Donor Financing for Health Commodities
The Need: Quickly, consistently and cost-effectively delivery health commodities
The Opportunity: The Pledge Guarantee for Health – what it is, and how it works
Example PGH deals
Q&A
• The PGH is a financial product that enables grant recipients to access short-term credit for health commodity procurement
• PGH enables health commodities to reach recipients more quickly, consistently and cost-effectively
• Several principles guide the design and use of the PGH:
– Increase efficiency of existing resources for health commodities
– Leverage existing financing mechanisms and institutions
– Enhance country ownership of procurement and local capacity building
– Promote aid transparency
• Opportunity for leaders to demonstrate innovation, action and impact -- PGH creates win-win for country grant recipients, funders, and an opportunity for bank partners to catalyze a market
The Pledge Guarantee for Health (PGH)
Contra-ceptives and
RHequipment
STIDrugs
EssentialDrugs
Vaccinesand
Vitamin ATB/Leprosy
BloodSafety
Reagents(inc. HIV
tests)
DFID
KfW
UNICEF
JICA
GOK, WB/IDA
Source offunds for
commodities
CommodityType
(colour coded) MOHEquip-ment
Point of firstwarehousing KEMSA Central Warehouse
KEMSARegionalDepots
Organizationresponsible
for delivery todistrict levels
KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs,
consumable supplies)
ProcurementAgent/Body
CrownAgents
Governmentof Kenya
GOK
GTZ(procurement
implementationunit)
JSI/DELIVER/KEMSA LogisticsManagement Unit (contraceptives,
condoms, STI kits, HIV test kits, TBdrugs, RH equipment etc)
EU
KfW
UNICEF
KEPI ColdStore
KEPI(vaccines
andvitamin A)
Malaria
USAID
USAID
UNFPA
EUROPA
Condomsfor STI/
HIV/AIDSprevention
CIDA
UNFPA
USGov
CDC
NPHLS store
MEDS(to Missionfacilities)
PrivateDrug
Source
GDF
Government
NGO/Private
Bilateral Donor
Multilateral Donor
World Bank Loan
Organization Key
JapanesePrivate
Company
WHO
GAVI
SIDA
NLTP(TB/
Leprosydrugs
Commodity Logistics System in Kenya (as of July 2006) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicateany inaccuracies to [email protected] or telephone 2727210
Anti-RetroVirals
(ARVs)
Labor-atorysupp-lies
GlobalFund forAIDS, TB
and Malaria
PSCMC(CrownAgents,GTZ, JSI
and KEMSA)
BTC
MEDS
DANIDA
Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres,Dispensaries come up and collect from the District level
MEDS
Provincial andDistrictHospital
LaboratoryStaff
Organizationresponsible fordelivery to sub-district levels
KNCV
MSF
MSF
JSI/DELIVER
KEMSA
JSI
WHO
Complex systems for commodity financing, procurement and distribution
Country owned procurement approaches are recognized as critical to long term sustainability
As a result [of weak systems], externally funded programmes often institute their own purchasing and distributions systems;
while these provide an immediate solution specific to the programme, they cause major difficulties in standardisation and management for the system as a whole, as well as ignoring the long-term issue of reform.
In many cases they do not address the underlying capacities constraints on ministries’ and private sector’s ability to forecast, plan, manage and distribute within the context of a national system for drugs and supplies.
Taskforce on Innovative International Financing for Health Systems, Working Group 1 Report
Funding for health has increased, however…
…Value destruction due to aid volatility1
Funding volatility creates adverse impacts on systems and users
(1) Source: P. 4, Brookings Institution. August 2008. “Smooth and Predictable Aid for Health – A Role for Innovative Financing?”; Dalberg analysis.
Aid value
ODA, past 15 years
$1.00
$0.72
7-28% of value lost
• Lack of access
• Loss of patient confidence
• Extra commodity cost
• Impaired supply chain management
Adverse impact on systems and
users
$1.00
$0.72
Donor volatility within annual funding cycle makes it difficult to effectively plan commodity purchases
Dec Jan Feb Mar
1.8
April May June
0.5
July Aug Sept Oct
1.3
Nov
8.0
Dec Jan Feb
9.8
Mar
2.1
4.5
April May June July Aug
0.5
Sept Oct
1.4
Nov
12.7
Dec Jan Feb Mar
4.0
April
Funding flows to one recipient of donor funding from multiple sources, December 2005 – May 2008 ($M)
Source: Dalberg analysis with sanitized data from recipient of donor funding (per recipient’s request)
2006 2007 20082005
Donor A
Donor BDonor C
Donor D
Donor EDonor F
Donor GDonor H
Illustrative donor grant process
Board or legislative authority approves grant application/budget approval
Time
First grant disbursement to recipient
Grant agreement Signed/Confirmed
Source: The Global Fund database available on its website. Dalberg analysis of >250 grant applications.
Unpredictability of timing of first disbursement is more a reality than a problemUnpredictability of timing of first disbursement is more a reality than a problem
6 – 12 months 1 – 5 months
Broad range of development areas
(E.g., micro, agriculture, water, SMEs, education)
Reproductive Health: ~$277M1
Health commodities: ~ $6.8B2
Includes Global Fund and PEPFAR
Demand for financial products to manage procurement and finances across $6.8B in health commodities purchases – and potentially beyond
(1) RHI 2007 data and UNFPA 2007 3rd party procurement data; does not include USAID or IPPF funded procurement as both organizations have indicated they would not be a part of PGH; Government funding from McKinsey’s 2006 analysis; donor-funded procurement is defined as funding that has been transferred from donors to entities that procure RH commodities i.e. NGOs or MoHs; government-funded procurement is government revenue-funded or SWAp/non-RH budget line funded procurement
(2) The health commodity market is estimated based on Global Fund and PEPFAR disbursements in 2007, with 47% of funding being used for procurementSources: RHInterchange, www.globalfund.org, www.pepfar.gov; UNFPA interviews; Dalberg team analysis
The Need: Quickly, consistently and cost-effectively delivery health commodities
The Opportunity: The Pledge Guarantee for Health – what it is, and how it works
Example PGH deals
Q&A
How it works
BankGrant
recipient
Supplier
DonorUNF /
guarantee
2
3
65
1
Legend:CommitmentFund
Commodity
UN Foundation plays a catalytic role in facilitating recipients’ access to credit
1 Donor has existing commitment to recipient for health commodities
Bank extends credit line for commodity purchase and issues L/C to supplier
2
Supplier ships health commodities after PGH customer procures through existing channels
3
Bank pays for commodity based on invoice
4
Donor disburses funding to bank to pay back principal
5
UNF provides backing through full / partial guarantee
6
4
6 – 12 months
Board or legislative authority approves grant application
1 – 5 months
First grant disbursement to recipient made
Grant agreement signed
Source: Global Fund database available on its website. Dalberg analysis of >250 grant applications.
Letter of Credit (9-month)
Begins procurement (bidding) process
Access to a Letter of Credit through PGH helps advance procurement ahead of grant disbursement
Speeds up procurement process and results in cost
savings
time
Benefits of PGH
6%
5%
26%
5%
10%
Expedited production
Potential additional premium for uncertain payment timing
Emergency shipment
Uncertain payment timing
Cost savings by addressing premiums on commodity purchase
Optimize supply chain and procurement
• Avoid stockout and effect on distribution and inventory downstream
• Avoid overstocking and its cost implications on storage
• Reduce wastage/leakage and expiry of essential health products
• Optimize drugs’ shelf life
Source: Studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale orders
Estimated premiums
Illustrative example: 18% savings potential in ARVs could enable large volumes for the same price
1. Pricing per ARV (Lamivudine - 3TC), Zidovudine – ZDV or AZT) pack based on Global Fund Price Reporting Mechanism Full Purchase Price Report. 2. Based on 15% commodity price reduction based on studies commissioned by Gates (July 2006) and Dalberg analysis. Excludes premium on sub-scale order. Note: Benefits captured here do not include time value of money and measure of additional lives saved or stock-out avoided. Source: Global Fund PRM, Gates Foundation analysis, Dalberg analysis.
Quantity of ARV packs
Commodity procurement without
PGH
330
Commodity procurement with
PGH
390+18%
Illustrative example for ARV procurement for $5M transaction Illustrative example for ARV procurement for $5M transaction
• Customer-driven tool that supports country ownership of procurement and supply chains management in line with Paris Declaration
• Deliver essential health commodities when they are needed, bolstering confidence in the health system
• Reduce premiums (expedited production, emergency shipment, and payment risk) on commodity costs by 10-30%
• Avoid stock-out and its cascading effect on distribution, planning and inventory downstream
• Avoid overstocking that includes storage cost and waste/leakage
PGH benefits players throughout value chain
• Enables and rewards countries/NGOs with a good track record to further manage and optimize health procurement and supply chains
• Improves overall efficiency, effectiveness and transparency of aid utilization
PGH benefits players throughout value chain
• Opportunity for new business opportunities in emerging markets for credit within the philanthropic and international development sectors
• Lowered credit risk by partial guarantee on the collateral
PGH benefits players throughout value chain
• Customer-driven tool that supports country ownership of procurement and supply chains management in line with Paris Declaration
• Deliver essential health commodities when they are needed, bolstering confidence in the health system
• Reduce premiums (expedited production, emergency shipment, and payment risk) on commodity costs by 10-30%
• Avoid stock-out and its cascading effect on distribution, planning and inventory downstream
• Avoid overstocking that includes storage cost and waste/leakage
• Opportunity for new business opportunities in emerging markets for credit within the philanthropic and international development sectors
• Lowered credit risk by partial guarantee on the collateral
• Improved payment certainty and/or terms
• Plan manufacturing in advance and transfer cost savings downstream
• Catalyze a commercial solution with minimum new resources
• Enables and rewards countries/NGOs with a good track record to further manage and optimize health procurement and supply chains
• Improves overall efficiency, effectiveness and transparency of aid utilization
PGH benefits players throughout value chain
The Need: Quickly, consistently and cost-effectively delivery health commodities
The Opportunity: The Pledge Guarantee for Health – what it is, and how it works
Example PGH deals
Q&A
Senegal: With low expected default risk of donor funding and the backing of a guarantee, Senegal is able to utilize a Letter of Credit
Expected risks
• Global Fund rating of Senegal1: A
• Risks:
Default
Length of delay
Grant disbursement reduction
Basic terms and parties
• Product type (maturity): Term L/C (9-month)
• PGH user: Pharmacie Nationale D'approvisionnement (PNA), Ministry of Health, Senegal
• Donor: Global Fund (GF)
• Bank: Ecobank Senegal (Its parent company: 600 branches in 31 African countries, $6,550M in assets in 2007, $100M covertible loan invested by the IFC in 2009)
(1) Alliance Nationale Contre le SIDA: Rated A, A, A1 and then A1 in last four disbursement periods from 12/1/2007 – 5/31/2009; The National AIDS Council of Senegal: Rated A, A2, A1 and then B1 in last four disbursement periods from 3/1/2008 – 5/31/2009.