World Bank and Global Health Financing

Health as a “global public good”: creating a BMJ: first published as 10.1136/bmj.j3397 on 31 August 2017. Downloaded from market for pandemic risk In the final article of the series Felix Stein and Devi Sridhar examine how the World Bank is trying to provide finance to improve preparedness for global pandemics

fter the 2014 Ebola outbreak, the around global public goods describes any Rivalrous Non-rivalrous World Bank committed to pro- material or immaterial entity according to Club goods Private goods viding a financial mechanism to whether it is excludable (ie, can a party be eg, patent Excludable eg, pills, protected support global pandemic prepar- stopped from consuming it?) or rivalrous syringes knowledge edness. In line with its mandate of (ie, does its consumption reduce its Acreating new markets, the bank is proposing availability for others or not?).7-9 Depending Public goods Non- Common goods eg, public an insurance arrangement that does not sim- on these two features, economists often excludable eg, universal information, ply pool donor money but creates a market divide entities into four kinds—namely, healthcare pandemic preparedness for private sector investment. We outline the private goods (eg, pills and syringes), club bank’s efforts to do so through the Pandemic goods (eg, knowledge protected by patent), Fig 1 | Categorisation of global public Emergency Financing Facility (PEF). We then common goods (eg, universal healthcare), 7-10 analyse some potential benefits and wider and public goods (eg, public information or goods. Pure public goods are usually entities that are non-rivalrous and non- concerns about private sector involvement pandemic preparedness) (fig 1).10 excludable in global health. The bank’s description of objects and activities as “goods” reflects its Pandemic preparedness as a global public economic approach to human health, in that the bank works with) as well as United good which market demand and supply affect Nations agencies and other yet to be speci- In reaction to the 2014 Ebola outbreak, a healthcare provision. This approach was fied development and humanitarian aid series of expert panels and committees rec- already laid out in 1993, when the bank organisations.15 This coverage may seem ommended that a faster and larger inter- gave its reasons for becoming involved in low, both because it is only 0.8% of the national financial response to outbreaks health, describing control of infectious bank’s 2016 financial commitments worth should be part of pandemic risk mitiga- disease as a highly effective, yet low cost, $64.2bn and because the bank only pays http://www.bmj.com/ tion.1 2 The World Bank offered to provide “investment” target.11 Seeing health as a for parts of it itself. Moreover, $500m is a financial solution to support global pan- driver of economic wellbeing also justified only a small fraction of the estimated tril- demic preparedness and complement the its major financial contributions during lions of dollars that a major influenza out- work of the Global Health Security Agenda, the fight against Ebola, which amounted to break might cost.15 which focuses on assessing domestic capac- $200m (£150m; €175m) in August 2014, However, the PEF is supposed to act as ity in surveillance and support of health sys- and over $1.6bn by mid-April 2015.12 an example because it sets out to to provide

tems, and the World Health Organization’s private sector funding for health in a new on 26 September 2021 by guest. Protected copyright. health emergencies programme. Creating a market for pandemic risk way. It draws on funds from reinsurance However, the World Bank’s involvement In May 2016, the bank announced the and bond markets to contribute to future is more than an act of charity. It considers creation of the PEF, a health insurance costs of pandemics in the world’s poorest pandemic preparedness to be a “global scheme for the world’s poorest countries countries. Premiums are not paid by the public good.”3-6 The theoretical framework and for qualified international respond- recipients of risk coverage but by donors ing agencies.13 14 Recently introduced, the and private sector investors. The PEF is PEF should provide insurance coverage of supposed to “scale up” response to an Key messages initially up to $500m to countries eligible outbreak by attracting additional private for support from the International Develop- funds for every donation it receives from the • The World Bank’s interest in “global 15 public goods”, such as pandemic pre- ment Association (ie, the poorest ­countries bank’s member countries. It is designed paredness, reflects its role as an inter- national financial institution active in global health. WBG development partners Reinsurance companies Private investors buying cat-bonds Insurance Premium Coupon Bond • The bank’s forthcoming Pandemic pay-in pay-in Emergency Financing Facility (PEF) Aid Premium includes private sector finance in order and coupon Premium and to establish new insurance markets PEF coupon In a pandemic outbreak, the PEF Cash window -m Insurance window m WBG treasury • Pay-in promises speedy, large scale payouts, Aid based Private sector according to predefined criteria coverage based coverage • The structure of the PEF raises seri- Countries covered by IDA and ous concerns, which include pulling responding agencies (including UN and NGOs) donor money away from preventing outbreaks, complicating healthcare Fig 2 | Financial mechanisms of the PEF: “insurance window”, “cash window” (based on 15 financing, and possibly overcharging data from World Bank Group ). IDA=International Development Association; NGOs=non- donors for risk coverage governmental organisations; PEF=Pandemic Energy Financing Facility; WBG=World Bank Group; UN=United Nations the bmj | BMJ 2017;358:j3397 | doi: 10.1136/bmj.j3397 1 World Bank and Global Health Financing

eventually to establish a new global market may also find it appealing. They will be a payout threshold has been reached. The for pandemic insurance products, thereby given the option of buying “pandemic following day, $140m could be paid out BMJ: first published as 10.1136/bmj.j3397 on 31 August 2017. Downloaded from increasing the coverage provided in the catastrophe bonds” issued by the bank from the insurance and the cash window. medium term. treasury. If they do, and a health pandemic If confirmed cases and deaths rise further, The PEF consists essentially of two finan- breaks out with the insurance window additional payouts would be triggered, cial mechanisms, known as “windows” becoming operative, they lose part of the according to the currently unspecified (fig 2). The first is the “insurance window,” invested capital (the “principal”). Yet, payout procedures, disbursing hundreds of which provides cover of up to $500m for if the insurance window is not paid out, millions of dollars among, in this instance, infrequent, severe health pandemics. In they get the full principal back after three the affected countries, WHO, World Food an outbreak, part of the money it holds is years. While investors hold on to the bond Programme, and Unicef.15 paid out as long as the following criteria and risk losing their money, donors are are met15: a country must be affected by a meant to pay them an annual interest (a Concerns about the PEF specific kind of pathogen, including ortho- “coupon”) via the bank’s treasury. The The PEF raises several broad concerns. myxoviridae (eg, new influenza virus A, B, financing from reinsurance companies is First and foremost, donors worried about and C), coronaviridae (eg, severe acute res- similar, in that it provides coverage based the next epidemic outbreak may prefer to piratory syndrome, Middle East respiratory on the same payout criteria, in return for focus on more concrete preventive meas- syndrome), filoviridae (eg, Ebola, Marburg), annual premiums. ures rather than insurance. Risk mitigation and other zoonotic diseases (eg, Crimean The idea of raising private money does not have to be financial, but can come Congo, Rift Valley, and Lassa). Moreover, to reduce risk of a pandemic may find in the form of trained health workers, clini- the size of an outbreak, measured in num- widespread approval. People in developing cal capabilities, health surveillance sys- ber of cases or of deaths, must be consider- countries, as well as their governments, tems and laboratory networks, to provide able (eg, 2000 confirmed cases worldwide are likely to appreciate free financial risk just a few examples.19-24 Whether delays for influenza), outbreak growth must be fast coverage, and donors will be happy that in responding to Ebola were primarily of a (eg, an increase of confirmed cases from the bank can raise private sector funds for financial nature remains contested,19-24 and 2000 to 5000 within a month), and spread each dollar given to the PEF. The PEF is also putting money into a finance mechanism of the outbreak must be broad (eg, two or meant to smooth the boom and bust cycles rather than using it for other forms of risk more countries must be affected). of donor willingness to give, and provide mitigation may not be appealing to donors. The second financial resource is the a health related service that may hitherto Moreover, private sector involvement smaller and more flexible “cash window”, have been underfunded because it was in pandemic insurance provision greatly which provides insurance coverage of invisible until an outbreak.17 Moreover, it is complicates the already convoluted $50m-100m. This resource is financed likely to strengthen the bank’s own position structures of the health development entirely by donors, with no private sector in the health development sector and allow sector. Introducing private investors http://www.bmj.com/ involvement. It can be used when the it to live up to its mandate of fostering with their own set of interests and a payout criteria of the insurance window economic growth. If the bank decides to penchant for privatising knowledge have not yet been met. For example, it charge fees for its financial services, the into an industry filled with multilateral provides money for severe single country PEF might even constitute a source of bank development agencies, charities, non- outbreaks and for new or unknown profit. governmental organisations, healthcare pathogens. Moreover, in crises money can The private sector has also large business providers, pundits, and state officials

be paid out earlier and maybe even faster interests in epidemic preparedness, does not promise greater transparency or on 26 September 2021 by guest. Protected copyright. than from the insurance window, and response, and recovery. It knows that efficiency.2526 Importantly, potential donors can supplement financing for pathogens epidemics are bad for business. A World will need to assess whether the insurance covered by the latter.15 Economic Forum/Boston Consulting Group premiums and bond coupons they are report noted that they “can have a major supposed to pay for risk coverage are Potential benefits of the PEF impact on employees, customer bases, justified. Since the likelihood of a pandemic For donors, a big appeal of the PEF’s insur- and operations more broadly. Epidemics is largely unknown, this assessment relies ance window is that the bank’s devel- can devastate economies and threaten on risk calculations based on data and opment partners pay only the interest major investments by multinationals and calculative logics first established in the needed to attract private investment. In small businesses alike.”18 Moreover, the bond and insurance market of natural return, reinsurance companies and inves- bank promises that apart from diversifying catastrophes.27 Development partners tors on capital markets provide them with private investor portfolios, “investing in might not want to engage in this business of a multiple of their payments in risk cover- preparedness yields significant returns”.15 “fat tail risk assessment” (ie, estimating the age. Moreover, the PEF promises to greatly It estimates that at a targeted maximum risks of extremely unlikely but very costly “increase the speed of payment”—as this coverage of $500m for three years, events), which has only recently developed parametric insurance can be settled within annual interest payments by donors to for earthquakes and hurricanes, and days of activation criteria being met, the private sector should be in the range continues to be based on insufficient data instead of waiting until damages have been of $55m-$65m (ie, a lucrative 11-12% of and evolving mathematical logic.1527 It may identified. It may even enable an “objective coverage).15 be hard for donors to ensure that investors benchmarking of risk”—since payout crite- The bank has provided a hypothetical and reinsurers do not overcharge them as ria are not explicitly linked to the economic example for how the PEF would work the latter have been in the business of risk or political situation of covered countries.15 during an Ebola outbreak. As soon as assessment for decades, dedicate entire Finally, it is meant to incentivise countries Guinea, Sierra Leone, and Liberia notify research departments to risk pricing, and to improve surveillance and early warn- the WHO of more than a total of 250 often collaborate closely with companies ing systems, in line with the International cases—that is, an increase of over 90%—the specialising in pandemic risk assessment. Health Regulations.16 bank’s PEF coordinator would get in touch Moreover, the PEF’s payout methods Investors on capital markets, who are with the private company AIR Worldwide, as well as underlying risk models have always eager to diversify their investments, which would then verify and declare that mostly been developed by a working group

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consisting of the bank, WHO, and three investors can take a view on whether the infocus/HLP/2016-02-05_Final_Report_Global_ private sector firms—Munich Re, Swiss PEF bond prices reflect the risk of epidemic Response_to_Health_Crises.pdf 15 3 World Bank Group. Annual report 2016. http://www. BMJ: first published as 10.1136/bmj.j3397 on 31 August 2017. Downloaded from Re, and AIR Worldwide. Thus, insurance outbreaks or not. In that case, we might worldbank.org/en/about/annual-report. cover and payout thresholds have been find that some investors are short selling 4 World Bank Group. Global public goods: a established “based on the epidemiological them, in the belief that the likelihood of framework for the role of the World Bank, 2007. https://www.cbd.int/financial/interdevinno/wb- characteristics of the diseases [as well as a pandemic outbreak is higher than bond globalpublicgoods2007.pdf the] affordability and risk appetite of holders estimate. In this case, at least 5 Kim JY. Speech by World Bank Group President investors and reinsurers” with little to no some investors will have a direct economic Jim Yong Kim at the annual meetings plenary. public oversight.15 It is still unclear to what interest in seeing a large health pandemic 2016. http://www.worldbank.org/en/news/ speech/2016/10/07/plenary-speech-by-world- extent investor interests have been written happen. bank-group-president-jim-yong-kim-2016 into the PEF, a question that merits donor 6 Jonas OB. Pandemic risk. World Bank Group, 2013. attention since Munich Re and Swiss Re http://un-influenza.org/sites/default/files/WDR14_ bp_Pandemic_Risk_Jonas.pdf are themselves potential investors. This Market based solution to a public health problem 7 Kaul I, Grunberg I, Stern MA, eds. Public goods: question also raises concerns as to the international cooperation in the 21st century. Oxford degree to which WHO’s mandate as the In conclusion, in declaring pandemic University Press, 1999doi:10.1093/0195130529.0 global arbiter of health emergencies, preparedness a “global public good”, 01.0001. the World Bank becomes more central in 8 Mankiw GN. Public goods and common resources. through its power to declare a public health In: Principles of economics. 6th ed. Thomson South- emergency of international concern, has ensuring global health security. As a finan- Western, 2012: 219. been curtailed. cial actor it also tries to provide a financial 9 Hardin G. The tragedy of the commons. The solution to a global health problem. Yet, population problem has no technical solution; Even if bank donors had no information it requires a fundamental extension in morality. deficits in relation to the PEF, it remains in putting particular emphasis on market Science 1968;162:1243-8. unclear whether a “market” for pandemic based solutions to health concerns, the 10 Moon S, Røttingen J-A, Frenk J. Global public insurance provision by the private sector bank risks creating a financial mecha- goods for health: weaknesses and opportunities nism that is inefficient and opaque. This in the global health system. Health Econ even exists. Donor country governments Policy Law 2017;12:195-205. doi:10.1017/ like Germany and Japan tend to have a points to the wider tensions between the S1744133116000451 lower cost of capital than many private immediate pursuit of profit and the goal 11 World Bank Group. Development report 1993: of providing healthcare to the world’s investing in health. 1993. https://openknowledge. sector institutions and can generally obtain worldbank.org/handle/10986/5976?show=full money on capital markets more cheaply poorest people. Healthcare practitioners, 12 Gostin LO, Friedman EA. A retrospective and than private borrowers. So should these donors, and people seeking healthcare prospective analysis of the west African Ebola virus disease epidemic: robust national health systems at governments really pay private investors should examine on a case-by-case basis how business and financial interests may the foundation and an empowered WHO at the apex. to provide the money for them? Lancet 2015;385:1902-9.. doi:10.1016/S0140- Several ripple effects and unintended or may not align with the goal of improving 6736(15)60644-4 http://www.bmj.com/ consequences are also worth thinking public health. 13 Tyson J. Inside the World Bank’s Pandemic 28 Emergency Facility. 2016. Devex. https://www.devex. about. A financial market for pandemic Contributors and sources: FS collected the data, com/news/inside-the-world-bank-s-pandemic- risk management may replace the boom analysed it, and drafted the initial version of the emergency-facility-88195 paper. DS helped conceptualise and design the and bust cycles of donor willingness 14 World Bank Group. World Bank Group launches analysis and revised the draft. FS is an economic groundbreaking financing facility to protect to give with the willingness of finance anthropologist studying the World Bank. His research poorest countries against pandemics. 2016. 29 professionals to invest. As part of this focuses on the moral and financial aspects of global http://www.worldbank.org/en/news/press- health economics. DS holds a Wellcome Trust release/2016/05/21/world-bank-group-launches- development, risk analysts and investors on 26 September 2021 by guest. Protected copyright. Investigator Award on the role of the World Bank in will incorporate the opinions of healthcare groundbreaking-financing-facility-to-protect-poorest- global health and is the coauthor of Governing Global countries-against-pandemics practitioners into their market assessments, Health: Who Runs the World and Why? (OUP, 2017). 15 World Bank Group. Pandemic Emergency Financing turning public statements of health experts Data analysed for this series included World Bank Facility—global pandemic response through a financial datasets, archival sources, publications and as well as WHO data into financial market financial intermediary fund. 2017. http://documents. reports, and staff interviews. worldbank.org/curated/en/2016/05/26238695/ indicators worth hundreds of millions of Competing interests: We have read and understood pandemic-emergency-financing-facility-global- dollars. BMJ policy on declaration of interests and have no pandemic-response-through-financial-intermediary- Moreover, people in the world’s poorest relevant interests to declare. This work was supported fund countries who will be considered “covered” by Wellcome Trust [106635/Z/14/Z]. A senior 16 World Health Organization. International member of the World Bank is on our project’s advisory Health Regulations (2005): areas of work for by the PEF once it is active might want to board. implementation. 2007. http://www.who.int/ihr/ finalversion9Nov07.pdf know how their coverage operates. This Commissioned; Provenance and peer review: 17 International Working Group on Financing knowledge is currently not available externally peer reviewed. Preparedness. From panic and neglect to to them, as more detailed information This article is one of a series commissioned by The investing in health security: financing pandemic about the model that determines when BMJ based on an idea from WHO SEARO. The BMJ preparedness at a national level. 2017. and how the insurance is paid remains retained full editorial control over external peer http://documents.worldbank.org/curated/ proprietary and is held by AIR Worldwide, review, editing, and publication. en/979591495652724770/pdf/115271-REVISED- Felix Stein, postdoctoral research fellow IWG-Report-Conference-Edition-5-25-2017-1-1- a catastrophe risk analysis company with optimized-low.pdf headquarters in Boston.30 They might also Devi Sridhar, professor 18 World Economic Forum, Boston Consulting Group. wonder about the “moral hazard” of this Medical School, Edinburgh University, Edinburgh, UK Managing the risk and impact of future epidemics: options for public-private cooperation. 2015. http:// new insurance mechanism. In an outbreak, Correspondence to: F Stein [email protected] www3.weforum.org/docs/WEF_Managing_Risk_ will their governments continue to have Epidemics_report_2015.pdf their wellbeing at heart, even if just a few 1 Moon S, Sridhar D, Pate MA. Will Ebola change 19 Commission on a Global Health Risk Framework the game? Ten essential reforms before the next for the Future. The neglected dimension of global more cases of a certain disease may promise pandemic. The report of the Harvard-LSHTM security: a framework to counter infectious disease them millions of dollars by pushing them Independent Panel on the Global Response to Ebola. crises. 2016:59. https://nam.edu/wp-content/ over existing insurance payout criteria? Lancet 2015;386:2204-21.. doi:10.1016/S0140- uploads/2016/01/Neglected-Dimension-of-Global- Finally, unintended consequences could 6736(15)00946-0 Security.pdf 2 Kikwete JM. Protecting humanity from future health 20 Erikson SL. The financialization of Ebola. arise if the PEF bonds were to be bought crises. High-level Panel on the Global Response to Somatosphere. 2015. https://www.google.co.uk/ and sold on secondary markets where Health Crises. 2016. http://www.un.org/News/dh/ url?sa=t&rct=j&q=&esrc=s&source=web&cd=1& the bmj | BMJ 2017;358:j3397 | doi: 10.1136/bmj.j3397 3 World Bank and Global Health Financing

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