Building Trust and Building Hospitals in the Developing World

As my plane jets across the Great Plains on its way from the Washington area to San Francisco, I am thinking about trust.  I am on my way to the 2013 Social Capital Markets Conference (SOCAP13), where investors and entrepreneurs have gathered each year for the past five to take in a beautiful of view Alcatraz (and lately, the America’s Cup catamarans that shoot across San Francisco Bay at speeds give lie to the term “sailing”) and discuss the potential and pitfalls of investing to do well by doing good – what we now call impact investing. 

My focus for the event this year is Global Health.  Health is an area where social and financial returns should naturally meet, particularly in the health services deprived developing world.  There have been several notable impact investments in health – the Eye Fund, the Medical Credit Fund – but the sector is challenged in the poorest countries by a vicious cycle.  Demand in developing countries is limited because consumers have little ability to assess the quality of care they pay for, which reduces the upside for investors financing health services.  This is particularly true for health infrastructure like hospitals and clinic networks, which require a long period of time to earn a return on invested capital.  Into this breach step donors, with the best of intentions but the result  – through the importation of commodities and potential to undercut the private market – of further diminishing the potential for investment.  Africa is a case in point – it has 10% the world’s population, half the communicable disease burden, but only 1% of global health expenditures.  It has fewer than one hospital bed per thousand people, compared to a global average of 3.6, and less than half a pharmacy per 10,000 people compared to a global average of more than 2. 

At the root of this vicious cycle is a lack of trust.  Trust is an essential component of any economic interaction, but it really matters in healthcare where consumers cannot judge the appropriateness of the treatments their doctors prescribe or even whether the contents of a vial of medication are in fact what is described on the label.   In the developed world, government regulation and industry certification give people confidence in the health system.  This creates a virtuous cycle – patients believe doctors and hospitals will provide competent care and medical devices and medication will perform as advertised, resulting in more demand in the system, which encourages investors to finance the necessary supply.

 How do we recreate such a cycle in developing countries, where governments often do not have the technical capacity or resources to regulate the health system comprehensively.  In the spirit of SOCAP, it must start in the private sector, where the majority of the citizens of poor countries get their care.

This is the subject of two panels at SOCAP.  On Wednesday, some the providers and funders of critical health infrastructure in the developing world will discuss the challenges and opportunities of financing the key elements of a health system – hospitals, clinics, training facilities, information and payment networks, etc. – in some of the world’s most challenging environments.  To make investments in such long-term facilities work they need to develop financial models that both provide sufficient revenue to service debt and reinvest, yet also meet the needs of much of a population with little discretionary resources and likely no health insurance.  In such an environment, finding ways to cross-subsidize services to the poor with revenue from the emerging middle class may be the difference between struggling along the decaying facilities and finding the investment dollars to fund quality care.  Technology also offers opportunities to bridge the gap with health services delivered through information networks and mobile phones to as great an extent possible.

But what is quality care?  On Friday, a second panel of experts will discuss the different systems for assessing quality in the developing world.   Such systems developed in the private sector offer consumers and emerging payors the ability to know if they are getting something worthwhile for their medical fees, and investors a way to discover investments that provide real impact for their investment dollar.  Both sides of this equation need to utilize these methods to hold providers to account if such metrics are going to realize their potential.    

Ultimately, these private solutions must gain acceptance from all the different parties involved in the healthcare equation – patients, providers, payors, and funders  (investors/donors/ governments) – if we are to unlock the virtuous cycle necessary for the health system to deliver comprehensive and proactive, as opposed to episodic and reactive, care.  Local civil society organizations – religious cultural, and educational – need to be brought into the mix to promote quality healthcare (note the problems with polio vaccines in Northern Nigeria and Pakistan to see the result when such groups are ignored) and local governments will need support to engage and move these discrete models to system-wide scale.  The challenge is immense, but so is the pay-off – a dynamic healthcare marketplace offering new opportunities for providers and investors, and much greater health for billions of the world’s people.   

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