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«New, Cheap, and Improved Assessing the Promise of Reverse and Frugal Innovation to Address Noncommunicable Diseases Thomas J. Bollyky June 2015 This ...»

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DISCUSSION PAPER

New, Cheap, and Improved

Assessing the Promise of Reverse and Frugal Innovation to

Address Noncommunicable Diseases

Thomas J. Bollyky

June 2015

This publication is made possible by the generous support of the Robert Wood

Johnson Foundation.

The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization,

think tank, and publisher dedicated to being a resource for its members, government officials, busi- ness executives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries. Founded in 1921, CFR carries out its mission by maintaining a diverse membership, with special programs to promote interest and develop expertise in the next generation of foreign policy leaders; convening meetings at its headquarters in New York and in Washington, DC, and other cities where senior government officials, members of Congress, global leaders, and prominent thinkers come together with CFR members to discuss and debate major in- ternational issues; supporting a Studies Program that fosters independent research, enabling CFR scholars to produce articles, reports, and books and hold roundtables that analyze foreign policy is- sues and make concrete policy recommendations; publishing Foreign Affairs, the preeminent journal on international affairs and U.S. foreign policy; sponsoring Independent Task Forces that produce reports with both findings and policy prescriptions on the most important foreign policy topics; and providing up-to-date information and analysis about world events and American foreign policy on its website, CFR.org.

The Council on Foreign Relations takes no institutional positions on policy issues and has no affiliation with the U.S. government. All views expressed in its publications and on its website are the sole responsibility of the author or authors.

For further information about CFR or this paper, please write to the Council on Foreign Relations, 58 East 68th Street, New York, NY 10065, or call Communications at 212.434.9888. Visit CFR’s website, www.cfr.org.

Copyright © 2015 by the Council on Foreign Relations® Inc.

All rights reserved.

This paper may not be reproduced in whole or in part, in any form beyond the reproduction permit- ted by Sections 107 and 108 of the U.S. Copyright Law Act (17 U.S.C. Sections 107 and 108) and excerpts by reviewers for the public press, without express written permission from the Council on Foreign Relations.

1 Acronyms ACE angiotensin-converting enzyme CFR Council on Foreign Relations DAH development assistance for health EPO erythropoietin HIV/AIDS human immunodeficiency virus / acquired immunodeficiency syndrome HPV human papillomavirus ICT information-com

–  –  –

Introduction In Mexico, a company called MedicallHome provides phone-based health services to more than five million people. For a five-dollar monthly fee, subscribers can reach a physician twenty-four hours a day, seven days a week. Participating physicians make their diagnoses pursuant to standardized clinical protocols. The service averages ninety thousand calls per month. Two-thirds of those inquiries are resolved over the phone and without a doctor’s visit.1 In India, Aravind Eye Care, a hospital chain, performed 280,000 eye surgeries in 2011 at a perpatient charge of less than 2 percent what it would cost the United Kingdom’s National Health Service. Aravind Eye Care has built its high-volume, low-margin business by standardizing the entire process from screening and diagnosis camps to recruiting traditionally difficult-to-reach rural patients, to surgical procedures, recovery, and discharge.2 In Indonesia, rural health clinics are using the Lullaby baby warmer, a device that General Electric (GE) developed specifically for use in Indonesia and in India. It costs less than one-quarter of the version that GE sells in the United States and monitors a baby’s pulse and weight in addition to warming the child. The Lullaby Warmer has proven popular and now sells in sixty-two countries, including Belgium, Italy, and Switzerland.

These anecdotes are some of the best-known examples of what proponents describe as a larger global trend of frugal and reverse innovation. The notion that health technologies, services, and delivery processes developed for low-income customers in low-resource settings (known as “frugal innovations”) might also prove useful in other countries and higher-income settings (a process some call “reverse innovation”) is not new. In recent years, however, frugal and reverse innovations have gained attention as potential strategies for increasing the quality and accessibility of care while slowing the growth in health-care costs and improving health outcomes at the patient and population levels. No health challenge is in greater need of such a strategy than noncommunicable diseases (NCDs).

Once perceived to be the problems of wealthy nations alone, cancer, diabetes, cardiovascular disease, and other NCDs are now on the rise in every region of the world. Developed and developing countries alike are straining to cope with the staggering economic and social costs of these chronic diseases. With these costs projected to continue to increase, the World Economic Forum has ranked NCDs as a greater threat to global economic development than fiscal crises, natural disasters, and transnational crime and corruption.3 In addressing this shared challenge, there may be much that high-income countries can learn from their low- and middle-income country counterparts, and vice versa. Developing countries are leading the way in experimenting with lower-cost chronic care models. Pharmaceutical, medical device, and information technology companies operating in these countries are working to develop more affordable, simplified point-of-care diagnostics, therapies, and information technologies usable in lowinfrastructure settings.





3 There is a sizable literature on frugal and reverse innovation, particularly its use as a business strategy.4 Several smaller-scale initiatives have been created to encourage the identification of these innovations in health care and foster their dissemination internationally.

Increased attention on innovation is welcome—particularly when it is in service of improving the economic opportunities of the world’s poorest and increasing their access to much-needed healthcare products and services. The trick will be, however, to ensure that the focus on reverse and frugal innovation goes beyond the latest buzzword and translates into real investments and results on the most pressing health challenges facing the poor. With this goal in mind, it is important to answer

three practical questions regarding reverse and frugal innovation and NCDs:

Are reverse and frugal innovations likely to be important for addressing the NCD challenges  facing the poor in high- and low-income settings?

Which pressing NCD challenges are reverse and frugal innovations best suited to help solve?

 What measures can donors, private companies, and nongovernmental organizations (NGOs)  take to facilitate the use of reverse and frugal innovations to solve those problems?

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Defining Frugal and Reverse Innovation As interest in frugal and reverse innovation has increased, researchers and practitioners have come to use the terms differently, obscuring their meaning.5 This paper will use the terms as follows.

“Innovation” includes the development and deployment of new technologies, services, and processes, such as delivery, procurement, or human resource management improvements.

“Frugal innovation” includes the use of new technologies, services, and processes designed or adapted for impoverished patients or health-care providers in settings with limited infrastructure.

These innovations may include lower-cost versions of existing technologies or services, less infrastructure-dependent versions of existing technologies or services, or new technologies, services, and processes developed for low-resource patients or providers in low-infrastructure settings. Examples would include technologies, services, and processes that function in settings without reliable energy grids, and with limited-skilled health workers and high heat, humidity, and dust.

“Reverse innovation” is the deployment of frugal innovation developed first for use in other markets. This is broader than the standard definition of reverse innovation, which generally refers to high-income-country adoption of technologies, services, or processes developed for low-incomecountry use. The broader definition captures the flow of low-cost, less resource-intensive innovation among developing countries (“South-to-South”) as well as from developing countries to their wealthier counterparts (“South-to-North”).

The terms frugal innovation and reverse innovation are relatively new, but the underlying commercial phenomenon is not. More than a century ago, Henry Ford’s assembly line began producing its simple, affordable cars and I. M. Singer & Company began selling its sewing machines through franchisees. These innovations have been continually adapted, improved on, and combined with new insights to lower the cost and increase the accessibility of other products, processes, or services globally. Lean business strategies pioneered in Japan helped systematically wring waste out of auto and consumer product manufacturing and spur the country’s export-driven economic recovery after World War II. Jugaad entrepreneurs working in India today are finding low-tech solutions to satisfy the poor’s unmet needs for goods and services and building thriving businesses in doing so.

The basic concepts behind frugal and reverse innovation are also not new to global health. The “appropriate technology” movement began in the early 1970s as a reaction to an infrastructure- and capital-intensive, technology-driven model of international development that dominated aid initiatives at the World Bank and bilateral donor agencies. Appropriate technology was cheap, easy to operate and maintain, and designed for a specific context and people.6 The World Health Organization (WHO) established an appropriate technology program. A nonprofit founded to pursue this strategy in reproductive health—the Program for Appropriate Technology for Health—later evolved into PATH, one of the most successful international NGOs working in global health.

Donors and nonprofits have long sought to leverage potential markets or dual uses in high-income countries to subsidize the development and delivery of global health technologies to the world’s poorest. A common example would be a profitable travelers’ market for a drug or vaccine for a developing world disease such as malaria or yellow fever.

5 The novelty and promise of frugal and reverse innovation is its marriage of the innovation and entrepreneurial energy of large-volume, low-margin business successes of the past with the social objectives and context-driven focus of the appropriate technology movement. To start, frugal innovation has focused on addressing the unmet needs of low-income people, not just the broader public. Frugal and reverse innovations have also generally been employed as commercial strategies with customers, rather than charities with beneficiaries. The possibility that the health needs of the poor will be a sustainable business opportunity—and not an unending humanitarian obligation—is important for attracting investment and aid to ensure those needs are met. As business practices, frugal and reverse innovations have had significant success in low-income customer segments of large emerging economies, particularly India. It remains unclear if that model can be adapted to low-income countries or be used to significantly alter health-care provision in high-income countries.

6

Why Frugal and Reverse Innovation Matter on NCDs

As defined by the WHO, NCDs are a broad category of diseases and conditions that cannot themselves be spread from person to person, although some are caused by viruses or bacteria that can.7 Within this category, several subgroups of illnesses dominate. Cardiovascular diseases, cancers, and chronic respiratory illnesses are responsible for most of the deaths from NCDs globally. Rates of diabetes are increasing the fastest. Mental illness is a leading cause of disability worldwide and its sufferers are more likely to smoke cigarettes, be obese, and have multiple NCDs.8 As a group, NCDs are the leading cause of death and disability in every region of the world other than sub-Saharan Africa, although rates are rising quickly there, too.

Because NCDs are a challenge in poor and wealthy countries alike, there is the possibility of identifying the technologies, services, or delivery strategies that prove effective and cost-efficient in preventing, diagnosing, or treating an NCD in one setting and implementing them in other places as well. These opportunities are important for three reasons.

First, it is essential to find new and cheaper ways to prevent NCDs, diagnose them earlier, and treat them more efficiently and effectively. The chronic nature of most of these diseases and conditions means patients are sick and suffer longer and also seek and require more medical care and hospitalization. The resulting social and economic costs are staggering.

In high-income countries, the health-care costs have escalated since their populations underwent the epidemiological transition from infectious to chronic diseases after World War II. Over the past sixty years, increases in health-care expenditure in Organization for Economic Cooperation and Development (OECD) countries have, on average, exceeded gross domestic product (GDP) growth by two percentage points annually.9 The growth in health-care costs will only become more unsustainable as populations in high-income countries age, requiring more chronic care over longer periods of time. Advances in science and technology are offering new possibilities for treatment, especially for many cancers and diabetes, but the costs are often high and may increase inequalities in access.



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