Executive summary
This strategy note sets out to demonstrate the overall rationale for the International Finance Corporation’s involvement in health care, to assess our experience to date, and to outline our strategic investment directions in this ever-evolving and challenging sector. It is in no way intended as a policy prescription to our client countries. In particular, we recognize the importance of a country-by-country approach in determining specific levels of private participation in health care provision and financing. In general, our strategy is guided by our overreaching goals in the sector (to improve health outcomes, to protect the population from the impoverishing effects of ill health, and to enhance performance of health services). This document comes at a time when many developing countries and transition economies are rethinking the role of private health care. The IFC has an especially useful role to play in this regard.
Health Trends and the Private Sector
Despite significant improvements in general health indicators, vastly advanced medical technologies, and increasing expenditures in health, serious challenges remain in the quest for universal and good quality health care. Particularly pressing are issues related to changing epidemiology of aging populations, the lack of decline and resurgence of infectious diseases in certain low and middle-income countries, the HIV/AIDS epidemic, and escalating costs.
The reliance solely on the public sector to address these major challenges appears to be no longer a viable or sustainable option in the long term because of fiscal constraints. Moreover, in some countries, these fiscal constraints are compounded by the poor quality, ineffectiveness, and inefficiency of existing health systems.
Global trends point to a significant and expanding role of the private sector as a partner with public health systems, particularly in the provision of health care. Many governments are rethinking the respective roles of public and private agents in the health sector, and are beginning to turn to market instruments to enhance the efficiency and quality of health care provision. The aim of much of the recent health care reforms in various countries has been to increase the role of the private sector as the provider (rather than the financier) of care, while complementing the activities of the public sector. The general argument is that these reforms can retain equity in the financing of health care, yet promote efficiency by introducing and encouraging competition. High performing health systems are characterized by mixed delivery of services, with private providers playing an integral role. This private sector role is enabled by an appropriate regulatory framework and strong government participation in financing.
The changing policy environment and the resulting increased potential for private sector involvement has led to an explosion in the demand for long-term financing of private institutions. In many countries, local financing for these institutions is extremely scarce and tends to be limited to short-term loans or leasing. This currently unmet demand for health project financing provides the IFC with the opportunity to play a pioneer role. Of course, being a pioneer entails certain risks. It is the aim of this strategy to provide a roadmap to guide the IFC through the evolving sector environment, to manage the associated risks, and ultimately to provide a positive and lasting impact in the sector.
IFC’s Objectives in the Health Sector and Potential Range of Investments
Two objectives are core to IFC’s strategy in the health sector. The business objective aims to provide value-added financing to viable projects. The developmental objective seeks to ensure that our investments contribute to institutional and systemic capacity building and promote efficiency and innovation within the sector, while improving health security and expanding financial protection against impoverishing effects of ill health. These objectives govern the way in which potential projects are screened and how they are monitored. Together with the analysis of global trends and IFC experience to date, they form the basis for our overall investment strategy.
Our desired investments fall into two categories. First is the continuation of our existing investment activities (predominantly in the hospital sector). Second is expansion into new growth areas with higher investment probability where the rationale for IFC investment is strongest. We expect our growing portfolio to:
- increase the focus on non-hospital investments;
- focus more on private health insurance, to benefit the lower-middle and middle classes in countries without universal risk pooling and to support growing supplementary insurance in many of our client countries;
- increase investments in the pharmaceutical, medical devices, and biotechnology sub-sectors; and
- boost investments in the area of health workers education and training.
Tasks Ahead for IFC’s Investment Strategy
A number of critical tasks are necessary if IFC’s strategy is to be implemented successfully. They include the need for:
Developing instruments to support small projects. Given the importance of small projects in the health sector, IFC will continue to consider and support relatively small-scale operations. In addition, we will develop regional support to reduce promotion and processing costs of smaller projects. We will pursue local currency loans and guarantees to mitigate foreign exchange risk of local currency revenue operations. We will also explore the viability of health investment facilities (funds), specialized lines of credit, and technical assistance facilities that could provide assistance and small equity/debt financing to institutions that might not otherwise have access to traditional funding.
Increasing efforts to strengthen the social impact of IFC projects. By investing in projects that expand access to and improve the quality of health services for diverse groups of the population, IFC can help insure that more people have better financial protection against ill health, which in turn can strengthen the middle class. We will strive to maximize social impact and poverty alleviation throughout our portfolio, in part by finding innovative ways to work with not-for-profit institutions.
Enhancing promotional activities. To date, IFC’s health sector investments have mainly been reactive to the expressed demands of the market. However, broader impact and more portfolio diversity can be achieved only through increased promotion. We will increase the scope and reach of our promotional activities through targeted country visits, closer industry contacts, and focused market studies.
Strengthening collaborative efforts and leveraging existing knowledge. Developing clear country and regional World Bank Group strategies that successfully promote the integration of the private health sector has become increasingly important and will continue to be a focus of IFC. In addition, we will deepen collaboration with other multilateral and bilateral development institutions, as well as with the non-governmental sector.
Developing monitoring and evaluation framework. In March 2001, we presented a monitoring and evaluation framework for the social sectors. Since then, significant progress has been made in developing a set of baseline indicators that adequately measure our objectives without placing undue burden on either the client or the investment team. We are in the process of refining this framework.
Health in Africa