Innovative health sector financing: the Vaccine Independence Initiative

The Vaccine Independence Initiative was one of the first innovative health financing mechanism designed to help countries pay for vaccination programs. Photo: PATH/Joel Aaron Santos.

This week the UNICEF Board is considering expanding the Vaccine Independence Initiative (VII). This financing mechanism was launched almost 25 years ago in 1991 to decouple the procurement of vaccines from the payment for these vaccines by countries out of national budgets.

We caught up with PATH’s chief strategy officer Amie Batson, who has an intimate connection with this program.

Tell us about your connection to the origins of this UNICEF program.

It’s actually an idea I developed when I was getting my masters degree at Yale’s School of Management. Thanks to the vision of James Grant, the then executive director of UNICEF; Terrell Hill, the head of the UNICEF immunization program; and James Cheyne, programme leader at the World Health Organization, it became one of the first innovative health financing mechanisms when it launched in 1991.

What is VII, exactly?

The VII was developed to address procurement and financing challenges faced by national vaccine programs. Many low- and middle-income countries that were able to finance their vaccine programs still benefited from UNICEF procuring vaccines on their behalf, because when they ordered independently, small volume orders and poor credit ratings resulted in high prices and other challenges.

But for UNICEF, the challenge was that many governments had (and continue to have) a policy requiring goods be received in country before they could issue payment. This policy directly conflicted with UNICEF’s board-mandated requirement that it receive payment in advance of procuring and shipping goods.

In addition, some countries had frequent and long delays in issuing payment, which created financial risk for UNICEF if it prepaid for vaccines. The VII mechanism enables flexible credit terms, while providing financial security to UNICEF.

UNICEF uses the VII funds to purchase vaccines from the manufacturer, and the country they are shipped to then reimburses UNICEF (and the VII fund) once the vaccines are received. Each country has an established financial ceiling—a limit on the amount of funds that it can owe UNICEF—which mitigates risk and encourages countries to reimburse quickly in order to permit future orders.

The VII showed the immunization community that there were ways to support health programs and their financial sustainability through more innovative structuring of health financing. Since then, innovative financing in the health and development sector has become increasingly sophisticated and widely used.

Tell us more about your role in its origins.

I developed the VII during my summer graduate school internship at the World Health Organization (WHO), and I was hired back after graduation to implement it at UNICEF.

Bringing VII to countries was a challenge. At the time, explaining financing concepts to health staff was, to say the least, novel. I had the added challenge of doing it in French since the first target country was Morocco. The WHO translator had to call his banking friends to get a translation for new words and concepts like “revolving fund.”

After Morocco, I was thrilled to be sent to the Pacific Islands to structure a VII that bundled demand and financing for 13 island nations. For my colleagues who doubted how hard I was working in Vanuatu, Fiji, and New Caledonia, I am happy to report that this specially adapted VII is still in use today, over 20 years later.

What is next for the VII?

During its meeting this week, the UNICEF Board is considering expanding the VII ten-fold (from $10 million to $100 million) to cover prefinancing of vaccines as well as many health products like bednets treated with long-lasting insecticide and supplies needed for Ebola response. As countries graduate from Gavi and other donor support, there are increasing demands for mechanisms such as the VII that create greater financial flexibility.

UNICEF is also proposing to use the expanded VII to support special contracting to improve pricing and supply security.

VII has given rise to many other examples of innovative financing. Today, it’s much more common to find innovative health financing mechanisms like the VII, advance market commitments, development bonds, and purchase guarantees. Each mechanism is designed to address inefficiencies caused by differences in certainty of market information, risk tolerance, and financing policies, to name but a few.