# Sustainable healthcare system financing in emerging economies

Exploring challenges and opportunities July 28, 2023

Healthcare systems around the world are grappling with the same problems, delivering services amid resource constraints and increased demand, with a rise in aging and growing populations, increases in non-communicable diseases, the ongoing struggle with communicable diseases and epidemics, and the impacts of climate change.   Global level research findings Since its inception in 2020, the Partnership for Health System Sustainability and Resilience (PHSSR) has commissioned research on health systems in 18 countries. A summary report of this research has revealed an urgent need to address weaknesses in healthcare services around the world. Topping the list of weaknesses was healthcare system financing, key findings include: Healthcare systems are underfinanced and the financing mechanisms in place are often ineffective and do not incentivize better health outcomes.  There is a need for progressively financed, targeted reforms to ensure sustainable financing and alleviate financial barriers to access such as out-of-pocket payments and coverage exclusions.  Systems heavily rely on expensive secondary care and tend to underfund public health, primary care and mental health services. Emerging market challenges and opportunities While 70 percent of jurisdictions studied by the PHSSR to date have been countries with advanced economies, 30 percent have been emerging market countries and this will be a critical element for future PHSSR research.  Recently members of the PHSSR’s leadership team discussed emerging market health system challenges and opportunities with a representative from the International Finance Corporation (IFC). The IFC is the private sector arm of the World Bank Group and is the largest global finance institution focused on economic development and growth through the private sector in developing countries. The work of the organization is aimed at ending extreme poverty and boosting shared prosperity.The following individuals took part in this discussion:


### Zeynep Kantur Ozenci

Global Head of Health at the International Finance Corporation. In her role, Zeynep is responsible for growing IFC’s investment and advisory portfolio in healthcare, life sciences and medical technology sectors in emerging markets. Her professional background spans sector diagnostic and policy work, development finance, and investment banking.


### Syaru Shirley Lin

Research professor at the Miller Center at the University of Virginia, and a nonresident senior fellow in the Foreign Policy Program at the Brookings Institution. She also teaches at the Chinese University of Hong Kong. Professor Lin is founder and chair of the Center for Asia-Pacific Resilience and Innovation (CAPRI). Professor Lin is currently writing a book on the challenges facing high-income societies in Asia Pacific, including inequality, demographic decline, inadequate policy and technological innovation, and threats to public health and environmental sustainability. Professor Lin is a member of the PHSSR Steering Committee.


### Alistair McGuire

Head of Department and Chair of Health Economics at the Department of Health Policy of the London School of Economics. He has been an advisor to governments, international bodies and industry groups. His research covers many topics in health economics, including international comparisons, hospital economics, public/private sector interfaces, cost-effectiveness analysis of health technologies, and health economics alongside clinical trials. Professor McGuire is also a PHSSR Steering Committee member.

Below is a transcript of the discussion that took place.

What kinds of challenges are hindering sustainable healthcare system financing in emerging markets?Alistair McGuire  If we want to move towards a sustainable financing future for healthcare, we really must move away from reliance on out-of-pocket expenditures as a finance mechanism and towards public financing of healthcare at some level and that means increasing the domestic revenue mobilization to fund healthcare access for all. The problem is, of course if you've got increasing levels of public debt, particularly in low- and middle-income countries and protecting some of that public finance for the health sector, itself is becoming increasingly difficult. To progress, finance ministries must be centrally involved in any healthcare reforms within any country.  Zeynep Kantur Ozenci  At the IFC, we see a low level of healthcare spending in low- and middle-income countries, both on the demand and supply sides. Africa especially has some of the lowest healthcare expenditures in the world, five percent of GDP across Sub-Saharan Africa, and it goes as low as two percent in some of the countries. How governments deploy this spending is important. Instead of investing in prevention and primary care, in many of the region’s countries much of the spending is going to tertiary treatments and care to help people when they are very sick which is increasing the cost of healthcare. In addition to system financing, to build on what Alistair mentioned, out of pocket expenditures are also a problem and can be as high as 70 percent in a country like Nigeria, 50 percent in Senegal, and roughly about 30 percent across the continent.  Syaru Shirley Lin  Sub-Saharan Africa is not alone in their challenges related to funding coordinated and proactive care. Our PHSSR research has shown that investments in primary care, prevention and health promotion tend to be low in many countries, no matter their income levels. In many countries in Asia Pacific, there's also a gap between the needs of citizens and the levels of healthcare system financing governments provide. For example, in low- and low-middle–income countries like the Philippines and Indonesia, the governments are able to cover only 60 percent of the needs, so there's a big gap. And when there are healthcare crises, the gaps get bigger.  Going back to what Zeynep said about healthcare spending, from an Asia-Pacific perspective, there is also a need for sustainable funding. The region has such high potential, with nearly half of the world’s economic growth expected to come from Asia Pacific. However, spend on healthcare is no more than Africa; the average in emerging Asia is two to three percent. The Asia Pacific is growing very fast, yet this underspending is notable, unlike in some regions where slow economic growth and underspending are both issues. The region is not spending more on healthcare because of the traditional way of thinking among policy makers, who see overspending on health as a cost as opposed to thinking about it as an important part of the economy.Hasn’t the pandemic demonstrated to governments that health is wealth, and that healthcare should be seen as an investment in having a strong economy and society, vs. an expense?Syaru Shirley LinIn the Asia Pacific there is absolutely a tie between health and the economy. For all of the countries who underinvested, it really came back to haunt them during the pandemic. For example, Indonesia was an upper middle-income country in 2019, but its GDP contracted 2.1 percent in 2020 and it is now reclassified as a lower middle-income country because of the pandemic. The Philippines’ economy also contracted 9.5 percent and Malaysia’s by 5.6 percent. This regression can mean one of two things: that there is no more money to spend on healthcare, or that the economic argument for investment is stronger than ever. If you don’t invest in health, you're not going to have an economy and you're not going to be able to invest in the future and be resilient for the next shock.What are some possible ways of addressing challenges in healthcare system financing in emerging markets?Alistair McGuireI think health system finance is difficult. However, there are some quick wins. For example, government accountants deliver income and expenditure flows in the national accounts for countries and are bound by the rules for those through accounting principles. Many of the low- and middle-income countries have been saying that they want to change some of the rules for accounting practices for some time, because they feel they are constraining. Such accounting principles, for example, constrain the development of preventative care. For instance, investment in chronic disease prevention-based activities is something that governments pay upfront for and don't necessarily see the benefits until further down the line. I think it is possible to start thinking about how we define investment and the timing of preventative costs and outcomes. If you could reclassify investment in prevention and define it as capital investment income, that income, (it’s paper income after all) could be leveraged in terms of moving real resources that could put more emphasis on the preventative side of healthcare, just through an accounting procedural and definitional change.A second thing that could be done is place more emphasis on progressive taxation, taxing the rich at a much higher rate. I have seen this done in some African countries through the raising of taxation on “luxury” goods, for example air travel. Airline ticket prices in some of these countries are among the highest in the world because they have very high tax rates on tickets in a progressive manner of taxation because it's normally the wealthy people that want to fly.Finally, I think in terms of moving low- and middle-income countries to strengthen their healthcare systems themselves, we’ve really got to be serious about investing at the healthcare system level. We are coming out of a period where there has been much more focus on vertical delivery within systems and more focus on specific diseases including HIV and malaria, for example. I'm not saying that work to fight those diseases is not important, but I think we really have to take a systems level look at things because if resources are diverted into one disease or channel, you've got even less scarce resources for everything else. So, unless you take a system view, you're never really going to get the appropriate balance and that really means looking at things like increasing infrastructure in the health sector, laboratories, clinical scientists and data systems. Getting finance and health ministers into the same room will be key to solving this challenge.Syaru Shirley LinBeyond just filling in healthcare system funding gaps, the key to healthcare system financing is accurate forecasting. Increasing service demand together with aging populations means that if forecasts are incorrect, the sustainability of public health finance is in doubt. People know current spending is not meeting the needs of many countries, so the question is how do we finance public health programs sustainably? I believe intraregional financial mechanisms, coordinated by regional institutions such as the Asian Development Bank, are very important for the Asia Pacific. Countries need to build in capacity to keep up with the demand and make sure that going forward they not only continue to fill gaps in services but also ensure their infrastructure does not fall behind. With regards to an example of successful health system financing from the Asia Pacific region, Thailand comes to mind. They have expanded their universal insurance coverage scheme and adopted a different perspective on payment methods, including capitation for outpatient services, a diagnosis-related group-based payment system along with a global budget for inpatient services.Zeynep Kantur Ozenci I want to bring a different twist to the conversation we are having. At the International Finance Corporation, we look at health systems across the value chain, so there’s the health service delivery but there is also access to healthcare products, production, and innovation. COVID-19 put a strong spotlight on the importance of health security and pandemic preparedness, in other words strengthening health resilience. At IFC, we do not see this as every single country aiming for self-reliance in terms of all products and delivery. It means that the low and middle-income countries (LMICs) will have to be part of the global value chain to ensure more equitable access. According to IFC, this can only be achieved through sustainable regional capabilities supported by conducive regional policies and funding mechanisms. LMICs will also have an opportunity to leapfrog in some aspects of healthcare. However, this will require investment and research capabilities for the private sector to pioneer innovation in these countries, which, today, are highly dependent on exporting know-how and certain ingredients. What India has been able to achieve in the pharmaceutical space is actually one of the very good examples of this where they’ve been able to backward integrate into raw materials, as well as innovation in biopharma. In fact, some of the most efficient products are coming from India, serving many of our emerging markets. The private sector can spearhead positioning low-and middle-income countries in the global supply chain through sustainable and bankable projects, if they find the right enabling environment, conducive policies, and the ‘right’ financing in place. I’d also like to add that at the IFC, we feel very strongly about the sustainability of investments. We do not want to create big white elephants or try to create totally self-reliant ecosystems.The PHSSR thanks Zeynep, Shirley and Alistair for their time and for sharing their perspectives on the topic of healthcare system financing in emerging markets.