In trying to define strategic investment priorities, it is important to bear in mind that the performance of health supply chains and the resulting health outcomes will be determined by many factors, a good number of which are locally specific, and so should not be generalized. Thus, a portfolio of investments that vary in nature, size, and financing can provide important insights. Similarly, it would be advantageous to select investments that reinforce each other and lead to greater collaboration with the public sector for supply and service provision.

One way of prioritizing investments is to base it on the currently observed gaps in the level of performance on each of the indicators (i.e., access, availability, affordability, quality, etc.) influenced by supply chain activities (See Figure 2). However, poor performance on a given indicator is often due to lack of appropriate performance in an upstream/supporting segment as illustrated in the influence diagram (See Figure 3). In this case, an investment improving the enabling activity may be necessary before an investment in the worst performing area results in improved health outcomes.

A variety of different initiatives are highlighted in Chapters Three and Four. Depending on the level of implementation and commercial viability, each of these initiatives may be financed through a range of different financing options. The evidence for which financing option will best maximize efficiency and effectiveness is very limited.

However, it is important to consider that many of the efficiencies of the private sector stem from strong ownership and shareholder return requirements. Thus, private sector-led models may be more suited to equity and debt financing than conventional grant making. Investing in private sector supply chain initiatives may require a stronger emphasis on additional financing types than are conventionally used in global health. Some may argue that if private sector supply chain models are truly self-sustaining they should seek financing through the traditional banking system. However, sustainability of many of the initiatives depends on rapid scale-up and slow initial access to capital may often limit that scale-up, thus rendering the model unviable thereafter. Similarly, traditional lenders do not have a good grasp of the dynamics of the health supply chains, and thus are hesitant to avail financing. This highlights the need and potential for specialized debt and equity financing that can stimulate a stronger private sector in health supply chains.

Additionally, it is also important to consider the stage of funding of any given initiative. Depending on the level of implementation and the existence of commercial viability, initiatives can be roughly divided into four segments that will fulfill different roles, as presented in Figure 8 below.

Figure 8. Matrix of Commercial Viability and Stage of Implementation

Seed/ early capital investment (“proof of concept” stage)

Invest in expansion of commercially viable (but likely low return) business

Grant to new initiatives Ongoing support to

expand reach of initiatives

Initial / prospective Already running

Lo w Hi gh Ex is te nce o f com m erc ial viabili ty

Level of implementation of initiative

Each actor (private investor, social investors, national governments, international donors) should thus consider multiple factors before creating an investment strategy for a private sector role in health supply chains. In the final chapter, we lay out specific recommendations about how each actor can contribute to improving health outcomes by engaging and/or investing in the private sector.

Chapter  6:    Recommendations:  Making  Supply  Chains  Work 

Requires  Action  by  National  Policymakers,  Private  Investors,  and 

Donors 

While a full understanding of the performance of the supply chains in LMICs is lacking, we can say with certainty that they are not sufficiently serving the needs of patients nor are they playing the critical enabling role in supporting the achievement of health outcomes.

A wide range of efforts is needed, both to directly support the most promising supply chain models and actors, as well as to provide the enabling environment for the positive evolution of supply chains. We define practical actions for three primary groups of actors: 1) national governments and policy makers; 2) private investors, including foundations, equity/debt providers and “social impact investors,” who seek investments with a mix of social and financial returns; and 3) international donors and foundations.

In summary, these recommendations, seek to:

• Increase the overall scale and sophistication of investments in private supply chains. • Create a national policy environment that effectively sets the rules of the game for private

actors in the supply chain, while maintaining incentives for their increased provision of service in this area of health delivery.

• Improve transparency and quality of information on supply chain performance. • Increase access to finance (including debt and equity) for supply chain actors.

National governments and policy makers 

 

National governments and policy makers need to take into consideration the role of the private sector actors in the supply chain, and create an enabling environment that allows for complementarity of their respective skills. As detailed in earlier chapters, the private sector can directly play a role in the supply chain, as well as develop and support the enablers with flow of financing and information.

Governments and policy makers should therefore:

1) Develop strategies for using private sector supply chain actors to provide products and services to the public sector

a. Sourcing arrangements

b. Deliver direct services, in particular, distribution and logistics

2) Develop policies and regulation toward private sector actors in supply chains, including but not limited to:

a. Accreditation schemes b. Quality standards

c. Contractual terms between government and private actors

These should take into consideration the unique in-country distribution channel structure, distribution of population, and the overall health system strategy.

3) Enforce guidelines and regulations for the private sector, while maintaining sufficient incentive for continued engagement. Regulation must find a balance between encouraging

positive contributions by private actors and putting in place the necessary standards and terms for their participation. For example, accreditation schemes for retail pharmacies can be highly valuable in ensuring quality of distribution; however, they can also put smaller local players out of business if too restrictive.

4) Support efforts to substantially improve the quality and quantity of information available on supply chain performance. Information is essential to enable good decisions on health supply chains (including both Government-led and third party independent); existing monitoring and evaluation systems are weak and have limited capacity to collect, analyze and disseminate information.

5) Develop forums for greater coordination. Each developing country faces similar challenges in having multiple donors, fragmented implementers and disjointed funding streams for health products. Coordination then becomes an important aspect that Governments and policy makers should invest in.

In document Private sector role in health supply chains Review of the role and potential for private sector engagement in developing country health supply chains (Page 37-40)