Innovative Financing: Transforming Health Systems Worldwide

In the quest to attain the Sustainable Development Goal 3 (SDG 3) of ensuring health and well-being for all, innovative financing for health has emerged as a crucial tool. It offers a powerful means to scale up proven health financing approaches, attract new funding sources, and encourage more risk-taking in investment decisions.

Emergence of Innovative Financing for Health

The ThinkWell research, funded by the French Ministry of Europe and Foreign Affairs, conducted a comprehensive review of innovative finance initiatives since 2000. This was the first significant review of innovative finance for health since 2011. The study mapped 42 major financing initiatives that address SDG 3, presenting ways to make health financing more innovative and effective.

This review was aimed at informing leaders at the G20 summit about directing finance and attention to initiatives demonstrating impact and replicability. It presented ways to make health financing more innovative by attracting new funding, particularly from the private sector.

The Role of SDG 3 in Health Financing

In 2015, the UN General Assembly adopted 17 sustainable development goals (SDGs) to end global poverty, improve health, boost economic growth, and reduce inequality by 2030. SDG 3 is specifically aimed at “ensuring healthy lives and promoting well-being for all.” The goal sets ambitious targets to improve various aspects of health, including reproductive, maternal, newborn, and child health, communicable and non-communicable diseases, mental health, environmental risks, and health systems strengthening.

However, the annual funding gap to achieve SDG 3 is estimated at US$371 billion for low- and middle-income countries (LMICs). The delay in funding for SDG 3 leads to higher annual costs and lives lost, with health pressures continuing to mount, compounding the adverse effects.

Challenges in Health Financing

Ensuring that the targets of SDG 3 are met requires a review of the social determinants of health and related SDGs. There is an urgent need for health leaders to generate and deploy more effective official development assistance (ODA) and other financing, including from the private sector, for SDG 3 and related areas.

Innovative finance can accelerate the participation of private investors in health and drive more capital into the health sector. However, the cost of entry to invest in SDG 3 in frontier markets is often perceived as too high by the private sector.

Addressing the Challenges

To address these challenges, there is a need for donors and Development Finance Institutions (DFIs) to scale up funding that builds an investment pipeline and “crowds in” private sector investment. Moreover, there is a need for more transparency and alignment of metrics across all innovative financing mechanisms in health to improve financial and health impact.

The Five Classifications of Innovative Financing

The ThinkWell study mapped initiatives and mechanisms across five classifications of innovative financing:

  1. Results-based financing: Funds are disbursed after pre-agreed results are achieved at specific milestones.
  2. Catalytic funding: This type of funding aims to stimulate private sector investment by lowering the risks associated with such investments.
  3. Impact investing: This involves investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
  4. Socially responsible investing: This involves investing in companies that meet certain ethical or moral standards.
  5. New channels of international and domestic taxation for development: These are innovative methods of raising funds for development projects through domestic or international taxation.

Adapting the OECD’s Development Assistance Committee Criteria

For the outcomes analysis and to formulate recommendations, the study adapted four criteria from the Organization for Economic Co-operation and Development’s (OECD) Development Assistance Committee (DAC): relevance and coherence, effectiveness and efficiency, impact, and sustainability.

Recommendations for Global Health Progress

The ThinkWell study developed four recommendations for effective progress in the field of global health:

  1. Innovative financing initiatives must be co-created and designed to be fully compatible with local health markets.
  2. Donors and DFIs can address the high cost of entry to invest in SDG 3 in frontier markets by scaling up funding that builds an investment pipeline and “crowding in” private sector investment.
  3. There is an urgent need for more transparency and alignment of metrics across all innovative financing mechanisms in health to improve financial and health impact.
  4. Innovative finance offers a significant opportunity to fill the SDG 3 funding gap sustainably, but the differences in the relative strengths and weaknesses of the mechanisms should be considered by donors and DFIs during design and then taken to scale.

Innovative Financing Platforms

Organizations like the Global Fund are focusing on key innovative financing platforms that complement government spending and amplify domestic health financing. They connect countries with diverse partners – private sector investors, philanthropists, civil society organizations, and multilateral donors – to develop and implement practical, innovative finance mechanisms to increase the impact against diseases.

Consumer Donations and Philanthropic Platforms

Some innovative financing platforms work by fostering partnerships that empower individuals to contribute to global health. They raise funds when individuals purchase products or services, or create grassroots fundraising mechanisms. Some or all of the proceeds support health programs.

Innovative philanthropic investment funds enable different types of investors, foundations, philanthropic leaders, and others to pool their financial contributions. These pooled funding mechanisms aim to mobilize and distribute funds in a more coordinated and efficient way.

Debt Swaps and Blended Finance

Debt swaps, like the Global Fund’s Debt2Health program, convert debt repayments into lifesaving investments in health. In return, a creditor country cancels debt owed by the implementing country.

Blended finance combines grants with other sources of financing, including investments from development finance institutions. Health programs can be conditional on, or implemented in coordination with, investments from funding partners.

Results-based Financing and Outcome-based Financing

Results-based financing is the disbursement of grant funds after pre-agreed results are achieved at specific milestones.

Outcome-based financing is the disbursement of funds after pre-defined outcomes are achieved, with the donor or private investor generally providing upfront financing to a program implementer. If the pre-agreed outcomes of the program are met, the investment is repaid, often with a financial return.

The Future of Health Financing

The COVID-19 pandemic has underscored the need for a diversified toolkit to effectively finance health systems and services in the short, medium, and long terms. The impact of the crisis on the official development assistance budgets and domestic resources has highlighted the potential of innovative financing for development. It offers both crisis response capacities and additional resources to meet the significant development financing gap increased by the crisis.

Innovative financing for health, therefore, offers a promising pathway to transforming health systems worldwide, enabling us to achieve the ambitious health targets set by the Sustainable Development Goals.

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