A Lethal Subsidy

By Roger Bate and Richard Tren

By trying to do too much, the disease-fighting Global Fund has run into problems. It is spending public funds in a way that is perverting the market for malaria drugs and could do more harm than good.

Thanks to growth in donor-funded malaria control programs, fewer Africans are dying from the disease than a decade ago, and those afflicted have a greater chance of survival because of improved access to the best medicines.

Most of the financial support to fight malaria comes via the Global Fund to Fight AIDS, Tuberculosis, and Malaria, a UN-backed multi-billion dollar initiative funded largely by U.S. taxpayers. The Fund has been highly successful in getting life-saving medicines and other commodities into poor countries. However, the Fund has crept away from its core mission of funding commodities for the public sector and toward the more complex task of building health systems, which should be the purview of other, more competent organizations. The Fund is now throwing money at a speculative financing mechanism that amounts to an expensive experiment. By trying to do too much, the Fund has run into problems with stolen money and drugs.

The Fund has supported African governments in buying the best medicines and has saved thousands of lives as a result. Rather than individual wealthy countries simply buying drugs on an ad hoc basis, the Global Fund has served as a clearinghouse, ensuring that funds were distributed according to need and trying to prevent overlap and inefficiencies. It was an approach that gained the endorsement and support of the U.S. government. The Global Fund has dispersed an incredible $22.4 billion in grants since its creation, $5 billion of it donated by the United States.

In 2010, the Fund took a new approach. Most people in poor malarial countries seek treatment for the disease in private shops and pharmacies, but to provide better treatment, the Fund launched a $225 million facility that offers subsidized malaria drugs. The Fund’s aim is to give the poor better access to medicine and to drive bad quality drugs from the market. The new facility provides subsidies so that shops can sell relatively expensive drugs at low cost, thereby using the reach and power of markets to save lives. As such, it sounds sensible and fairly simple, but it also ignores human nature with damaging results—it subsidizes valuable products, which are then easily, if illegally, traded into non-subsidized private markets, profiting drug sellers and middlemen. The new system is encouraging the wholesalers and retailers that receive the subsidy to buy large amounts of the medicines, which often go to patients without malaria, while malaria victims go untreated.

The Global Fund has dispersed an incredible $22.4 billion in grants since its creation, $5 billion of it donated by the United States.

The subsidy is already causing chaos in procurement of malaria medicines. Orders for the new subsidized malaria drugs from just four countries—Nigeria, Ghana, Kenya, and Tanzania—account for over 70 percent of the total global production capacity. Although these are highly malarial countries, this is a dramatic increase from their previous malaria drug consumption. Almost all of the new drug orders are going to profit seekers in those four countries, and they are driving out sclerotic government ordering. There are more than 40 malarial countries in Africa that need the new effective malaria treatments, to say little of those in Southeast Asia and Latin America. Even the U.S. government’s lead malaria program, the President’s Malaria Initiative (PMI), told us that it is “very concerned” about being able to procure sufficient supplies of the leading malaria medicine.

The inability of the PMI to buy sufficient quantities of the best malaria drugs should set off alarm bells. The PMI works with its partners in malarial countries to improve diagnosis procedures so that malaria drugs are only given to people who actually have the disease and not some other fever. The private sector plays an important role in delivering malaria products, but pharmacists and shop owners far too often sell drugs to people who do not actually have malaria. Malaria scientists estimate that, depending on the setting, between 30 percent and 70 percent of people treated for malaria actually have other causes for their fevers. And while public clinics do not routinely test for malaria, definitive diagnosis is far more likely in clinics than at private shops or pharmacies. Improving diagnosis should be a major part of the new drug subsidy, but it has taken a back seat to the Fund’s goal of subsidizing and distributing millions of malaria treatments.

Evidence that the subsidized medicines are probably not being used to treat actual cases of malaria is found in the fact that over 70 percent of all orders are for adult treatment courses. As the Fund well knows, malaria is a disease that mainly affects children, not adults, which makes their approval of so many adult treatment orders very curious.

In our own survey last month of 166 antimalarials purchased from 37 different pharmacies in Lagos, Nigeria, and Accra, Ghana, no pharmacist advised a test, or even sold one, nor did they request a doctor’s prescription. Our research team is currently analyzing the quality of the subsidized medicines being sold, but it was immediately obvious that the drugs are being sold, on average, at prices at least double those intended and, in a few instances, five times higher. So while the subsidy has certainly lowered prices for good malaria drugs in the private sector, it has not lowered them enough for the poorest to benefit. And increasing access for the poorest was one of the important goals of the subsidy scheme.

Even the U.S. government’s lead malaria program told us that it is 'very concerned' about being able to procure sufficient supplies of the leading malaria medicine.

A stroll around the open-air markets in search of malaria medicines in Lomé, the capital of Togo, Ghana’s Eastern neighbor, reveals that the subsidized products are easy to find. Togo is not participating in the subsidy scheme and these medicines are not supposed to be sold in the country, let alone be sold in open air markets. West African colleagues tell us that every francophone country in the region, notably Cote D’Ivoire and Benin, also has significant amounts of these stolen products, and none of them are participating in the subsidy either.

As the evidence mounts that the subsidy scheme is causing actual harm to existing malaria treatment programs, the Global Fund must be prepared to scale it back. Furthermore, the Fund and its governing board should be prepared to rigorously investigate all thefts and diversions and hold the private shops and suppliers to account.

The Global Fund has undoubtedly been a global force for good, saving countless lives. The Fund is also the most transparent public health funder, making it possible for anyone to track funds committed and spent, as well as commodities supplied. But this positive record should not give the Fund a free pass to spend public money in a way that is perverting the market for malaria drugs and could do more harm than good. The United States has, perhaps rightly, so far declined to fund the malaria drug subsidy.

Nevertheless, a thorough examination of the way in which this scheme is undermining drug distribution systems would be a valuable step for Congress. The United States is not funding the subsidy, but the subsidy is harming programs the United States is supporting. Understanding and then stopping wasteful spending decisions would save money and lives.

Roger Bate is the Legatum Fellow at the American Enterprise Institute and Richard Tren is the director of Africa Fighting Malaria. Their full research on the malaria subsidy is available here.