Editor’s note: New blogger Ajay Nair is a Portfolio Associate based in New York City. He holds degrees in medicine and public health.
What role can markets play in providing health services to the poor in developing countries? This was the theme of Acumen Fund’s Health Breakfast last week, which was presented by Omer Imtiazuddin, Acumen’s Health Portfolio Manager.
Omer started out by discussing how 40 to 60 percent of the population in our geographies (India, Pakistan and East Africa) currently use the private sector for health services (For example, see How Private Health Care Can Help Africa, McKinsey Quarterly). These services are generally not available to the base of the pyramid at an affordable price. Consequently, in India for example, 24 percent of all people hospitalized in a single year fall below the poverty line due to the cost of hospitalization. (See Health Insurance in India: Current Scenario, World Health Organization.)
These data point to a dire need and also to an opportunity for social entrepreneurs committed to providing affordable health care to the poor. We have learned from Lifespring (one of our investees in India) that it is possible to provide high quality medical care at one third to one half of market price with a little innovation and a focus on standards of care.
Omer also introduced our ecosystem approach to the health sector. We now have investments in healthcare providers, health financing and support systems. These generate significant opportunities for shared learning across our portfolio as well as for cross pollinating ideas and innovative solutions across geographies.
Our approach to malaria has been similar - we have built a portfolio of companies in the space. Our investments in A to Z Textile Mills (Tanzania) and Advanced Bio-Extracts (Kenya) have created leaders in the manufacture of long lasting insecticide treated bed nets and artemesinin (the critical component of new drugs to fight malaria). We have also moved into new product development with our investment in an insecticide treated wall lining. Beyond investments, we have also been working hard on research to better understand these markets.Omer concluded with some of the key learnings from our seven year engagement with investing in health.
The market is limited in terms of reaching the poor; subsidies are required for large scale distribution - especially to reach the poorest of the poor. At the same time, the private sector manages to provide last mile distribution and continuous access much more efficiently than the public sector.
Acumen has also learned that innovative health products and services need risk capital - an example of this is our investment in Pakistan’s first micro insurance agency. Lastly, emerging ‘clusters’ of investments can create ecosystems of learning - be it in health care delivery, distribution of health products and services, or franchising.
Our guests at the breakfast had interesting questions about cross subsidy models. This is one of the questions that we have struggled with: what is the proper ratio of subsidized services to market price services that maximizes the social impact of the organization while keeping them commercially viable and functioning? We have typically seen companies cross subsidize 20 to 30 percent of their customers (i.e., 20 to 30 percent receive free services, which are subsidized by the other 70 to 80 percent who pay). There was also a good discussion around health insurance for the poor and overcoming some of the major challenges (like adverse selection) in the markets in which we operate.
All in all, it was good to engage with our community over breakfast. I left with the feeling that there are many unanswered questions when it comes to our health portfolio, but with the support of many partners, we are making progress.
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