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Every year, some $455 billion of the world’s health care spending is lost to fraud—an amount that is more than the GDPs of Finland and Sri Lanka combined. Although a portion of this abuse occurs in rich states, a large share takes place in developing countries, where lost money can have major costs for public health.
In 2011, UN Secretary-General Ban Ki-moon estimated that “corruption prevented 30 percent of all development assistance from reaching its final destination.” There is reason to believe that a similar figure holds in the global health sector. In 2011, for instance, the Global Fund, the world’s largest clearinghouse for funds related to the treatment of HIV/AIDS, malaria, and tuberculosis, asked the governments of Djibouti, Mali, Mauritius, and Zambia to repay some $34 million it claimed was misspent, fraudulently accounted for, or had simply disappeared. GAVI, a global vaccine alliance, has been reimbursed by 11 countries for misused funds; this year, it expects to receive $5.4 million from the Nigerian government.
For too long, donors have focused on getting grants out the door instead of maximizing the returns on their investments.
Fraud and misuse also occur on the donor side. In 2014, Columbia University reached a $9 million settlement with the U.S. government for fraud related to grants the university received through the President’s Emergency Plan for AIDS Relief program, or PEPFAR. And then there is the matter of inefficiency, which often results from the weaknesses of health care systems rather than from malfeasance. In 2016, the Global Fund found that 70 percent of the affiliated facilities it visited in Uganda had run out of antiretroviral drugs for HIV/AIDS for periods of at least three weeks over the previous year. GAVI’s 2017 annual report showed that in 19 national audits performed over the previous two years, 47 percent of the programs it had backed were using funds ineffectively. Sixty-eight percent of those programs had failed to properly manage their vaccine stocks.
These problems hold back the health care systems of developing countries and discourage private investment. Together with inadequate government spending, corruption and inefficiency help explain why most of the world’s health care systems are underfunded—and why many states continue to suffer preventable outbreaks of deadly diseases, as the countries of West Africa did during the Ebola outbreak of 2014.
For too long, donors have focused on getting grants out the door instead of maximizing the returns on their investments. Blockchain, the technology best known for underpinning Bitcoin and other cryptocurrencies, could help change that. By allowing donors to track money, goods, and treatment in real time, blockchain could transform how organizations fund and execute health programs, curbing waste, saving money, and bringing better care to billions.
HOW TO STOP THE BLEEDING
There are a several reasons why fraud and waste are rife in the global health sector. Donors tend to send money to ministries of health and other organizations in large tranches, mostly because making smaller grants involves higher transfer fees and bigger administrative burdens. This creates surpluses and easy targets for graft. What’s more, supply chains in low- and middle-income countries are often weak and opaque, sometimes involving dozens of changes in custodianship before goods reach their destinations. Medicines and equipment can easily go missing or expire–as 1.3 million doses of pentavalent vaccine (a kind of vaccine that protects against five diseases) did in Pakistan in 2015. The cost of identifying the breakdowns in supply chains often outstrips the value of the goods that are lost.
Many international organizations are trying to deal with these problems. Since July 2011, the World Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and several others have blacklisted 368 individuals and firms involved in corruption. But such scrutiny takes money and time. The World Bank employs 417 people to monitor compliance with its financial and procurement standards, and in a single investigation in the case of Mali in 2010, the Global Fund reviewed some 59,000 documents. Worse, auditors can only identify fraud that has already occurred. They cannot track and stop problems as they develop. The result is that donors catch only a fraction of transgressions, months or years after they have happened. And when donors respond by suspending aid, patients suffer.
This is where blockchain comes in. Commonly referred to as a distributed-ledger technology, blockchain creates secure digital records of transactions that can be accessed by approved users across a wide network. Every transaction validated by the network adds a new “block” to the “chain,” creating an indelible record that can be accessed in real time. A number of multinational corporations—from Walmart and IBM to the mining giant BHP Billiton—are already using the technology to manage supply chains, following goods as they move around the world.
Aid groups could similarly use the technology to oversee medical supplies as they travel from factory to patient. As a shipment of vaccines approaches its destination, for instance, each of its handlers—from the crew unloading the shipment at the airport to the courier bringing it by motorcycle to a village clinic—could use a smartphone to tag it with a permanent, real-time record of where it has been, when it was there, and who has dealt with it. All these details would become part of the shipment’s digital identity, creating a record of its custody and making it impossible for goods to be stolen or replaced with counterfeits without the network being notified. Because many kinds of data can be logged on a blockchain, information such as expiration dates and storage conditions could be included, too. And if nurses, doctors, and patients all receive unique digital identifiers, as most of India’s citizens have through that country’s biometric identification program, clinicians could document the details of each encounter with a patient. By making it easier to log information about appointments, blockchain could eventually help document how, when, and where every dollar of aid is used.
Such a system would have a number of benefits. Beyond reducing misuse and graft, using blockchain would let managers see when medications have expired, giving them the chance to alert clinicians and prevent them from being used. It could help donor agencies understand when understaffing is keeping aid from being dispersed and when clinicians are using medications inappropriately, as has been the case in Uganda, where a 2016 Global Fund audit found that a number of facilities were using HIV/AIDS drugs to treat Hepatitis B. It would reveal when supplies are running low, helping to prevent stockouts. By streamlining supply chains and making it easier to oversee them, blockchain could help free up funds to spend on patients. All of this would give patients more confidence that they can access the right medicines when they need them.
Adopting blockchain could also make ministries of health more efficient. Rather than moving large tranches of funds to ministries, which officials must then oversee, donors could use so-called smart contracts, which trigger transactions when their parties meet certain conditions, to automatically send money to medical facilities and suppliers as they complete treatments and services. That would limit opportunities for graft and lift much of the administrative burden faced by civil servants, who now spend far too much time managing grants.
HEALTHY AND WEALTHY
The World Bank, International Monetary Fund, United Nations, and the development agencies of the United States and United Kingdom have all indicated that they are interested in using blockchain in their aid programs. Yet big donors will not invest in blockchain-based programs until they trust the resilience of the underlying technologies. Ethereum, the platform best suited for such work, may still have a number of technical and security flaws. Those organizations and others should run pilot programs using the technology to expose and address these potential problems. Blockchain-based transactions must also become more energy-efficient: Bitcoin, the slowest and most secure of the cryptocurrencies, requires thousands of times more power per transaction than credit cards do.
In 2016, the world’s spending on health care approached $8 trillion, or around 10 percent of global GDP. That figure should reach around $18 trillion by 2040. Translating this investment into health and prosperity will require ending fraud and transcending the barriers to accessible, equitable funding. Blockchain offers a way to start.
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