The Health Impact Transfer Institute has been established by a group of graduates of Harvard University as a non-profit research association in order to address the most pressing issues of global resource allocation in healthcare. As the name suggests, this institution is concerned with impact, meaning that the main area of focus is research on how to create the strongest impact on general population health.

Healthcare System

Addressing Systemic Market Failure in Healthcare for Investments into Prevention and the Clinical Research of Prevention

(by Sascha Mundstein © 2020)


Examining the general trends in health care in developed economies in past decades, we invariably find the same factors at play (1): ever more sophisticated diagnoses and therapies, a rapid progression of research and methodological approaches, a constant expansion of both individual and societal health priorities, etc. The result of all of these elements is a sustained and significant increase in health care costs.

At the same time, existing financing mechanisms are increasingly incapable of addressing these expanding needs (2), resulting in growing inequity (3), delayed development in some less prominent areas, such as digitization or prevention programs, and even leading to arbitrage at the costs of patients (4).

Systemic Failure and Misguided Incentivs in Healthcare

It is evident in the structure of most health care systems, that most of the effort and associated resources are geared towards curing existing, acute conditions (5), even despite the prevalence of the modern phenomenon of large quantities of multimorbid chronic patients (6). The vast bulk of research investments are also concentrated on potential cures, especially if they promise substantial financial payoff. Indeed, it could be asserted that most of the infrastructure of developed healthcare systems, including hospitals, the pharmaceutical industry, pharmacology, etc., are designed to create incentives for the existence rather than the absence of disease (7). The result is a misallocation of investment capital on a mindnumbing scale.

In the author’s view the reasons for this continued development are both structural and psychological. When building up ever more powerful entities that profit from repair-medicine, it becomes increasingly challenging to transform such entities, e.g. to focus more on prevention rather than solely on therapy. Volume-based pricing of pharmacological products, opportunistic cost inflation of specific interventions, notably novel ones, and scarcity of investments in prevention-associated research (8) (in comparison to cure-oriented research) are common symptoms of this deplorable trajectory.

This is possible because societies find consensus around typical psychological prerogatives such as the undue importance of urgency (9). Due to this simple mechanism, acute illness will always be prioritized over prevention and attention to longer-term goals will be crowded out in the context of the necessity to address more immediate healthcare needs. The result is simply the systemic negligence of both research and direct project investment in population-wide medical prevention.

Approaching the problem via a public-private partnership

This urgency bias suggests that there is too big a time lag between a possible investment and its payout, even if there are enormous gains both in patient and population welfare, and in time-adjusted monetary terms. The liquidity crunch resulting from urgency prioritization, misaligned incentives as well as continually increasing healthcare costs can be alleviated by transferring the investment burden, including its inherent risks, to the private sector. (10) The concept of a privately financed solution to a public problem with repayment dependent entirely upon the success of the financed measure is known as a Social Impact Bond, or SIB, (even if the “Bond” part of this term is often misleading), with often mixed results in practice (11).

Success-based research funding

We propose a PPP solution by identifying health prevention projects that are not only beneficial for a population’s health but have the added benefit of avoiding a significant amount of direct and immediate treatment costs in the short term. Common measures for the outcome of medical interventions focus on such much more long-term artifacts as QALYs and other often evidence-based efficiency metrics (12), while not taking into account the marginal economic effects (13). However, there is a category of medical interventions that do exhibit this cost-saving trait, even though every case is typically a multivariate and quite unique problem so that any generalization is often quite challenging. But there are have been attempts to categorize preventive measures with the aim of quantifying their cost-saving properties (14). By focusing on this kind of projects, financiers could make educated bets on the positive outcomes both for patients and public finances and offer an attractive return to their investors. It is economically beneficial to fix diagnostic and treatment shortcomings in diabetes, rather than ac-cept additional foot amputations; to perform prenatal screening in order to prevent pre-term births; to use education and telemedicine to optimize post-traumatic treatment of stroke patients in order to reduce the likelihood of a relapse; etc.

Our research has found, that there are certain project traits that are particularly suitable to success-based financing, such as reasonably short project duration, large cohort size, good cohort identifiability and reachability, intrinsic patient motivation or other effective incentives optimizing adherence, manageable intervention cost, high cost of avoided treatment, minimal invasiveness of the diagnosis or procedure, established correlation with the desired outcome, availability and measurability of outcome data, valid comparison data, and many more (15).

One solution to the pervasive operational failure of otherwise well-intentioned Social Impact Bonds is to structure them as clinical research projects. This amounts to a realignment of incentives: while ordinary SIB project agents have little motivation to be thorough, accountable and honest in connection with the execution and final outcome of the project, medical researchers are far more likely – and legally bound – to apply rigorous discipline when designing, planning, executing and evaluating a preventive clinical intervention.

The benefits of combining profit-based project execution with clinical research are remarkable. Apart from the reduction in operational risk, the final output will be a thorough clinical study, typically with very large cohorts, so that there is undeniable value creation in terms of research insights even if the effects aimed for by the SIB are not achieved. Furthermore, if the research reveals that a measure reduces costs while benefitting patients, this published information can lead to pervasive and sustained system change, as risk-averse public entities can base their own investment decisions on solid evidence.

Problems with social impact bonds and possible solutions

The authors have identified numerous shortcomings of SIBs that explain their lackluster performance and wanting popularity, including in the realm of healthcare. Almost by definition, SIBs are limited in scope and focused on one specific problem. Thus, it is impossible to achieve risk diversification, also because the volume of SIBs has so far not been deemed sufficient to cluster them into investment funds or similar vehicles. This is compounded by the fact that a SIB is typically a long-term, entirely illiquid investment. Significant and mostly unaddressed agency problems between investors, social agents and bond operators lead to a common lack of transparency, so that in the final analysis, a SIB counts as a rather unattractive investment category. On top of all that it might just not work and thus not even pay the desired social dividend.

One solution to this conundrum would be a freely tradeable fund of SIBs that diversifies the risk and creates a tradable entity that allows investors to invest and divest regardless of project constraints. This diversification could span different geographies, project sizes and durations, therapeutic areas. Furthermore, we propose the optional tokenization (16) of such a fund in order to facilitate a very granular reporting regime that can provide unparalleled levels of transparency for investors. This could also produce an objectifiable index of the state preventive medicine, based on solid project data, research outcomes and market forces acting on this information.

Conclusion and Outlook

We have shown that in healthcare, an intrinsic and entrenched systemic failure of financing both projects and research in the area of prevention can be addressed by disaggregating investors, agents and payors via a transparent and technology-driven system that stresses accountability, transparency and scientific rigor. Such an approach can bring paradigm-shifting innovation to medical research, healthcare economics, financial investment and digital medical technology.

It is our hope that this approach will also lead to sustainable system change, a boom in clinical research in the area of prevention, as well as a very large number of avoided acute conditions and better health and life quality for scores of patients, thousands saved lives, and billions in freed-up public funds.




1 PJ Feldstein, 2007: Health Policy Issues: An Economic Perspective, p.7ff

2 B Lindgren, CH Lyttkens, 2010: Financing Healthcare, a Gordian Knot in Population Ageing – A threat to the Welfare State p84

3 FS Ehring, C Weber, 2009: Zwei-Klassen-Medizin: Zur Diskussion von Leistungs- und Qualitätsunterschieden im deutschen Gesundheitswesen, in Gesundheit 2030

4 P Dolan, JA Olsen 2002: Distributing Health Care: Economic and Ethical Issues, p40f

5 HD Miller, 2014: Measuring and Assigning Accountability for Healthcare Spending, Center for Healthcare Quality and Payment Reform

6 DL Veltrano, A Calderon-Larrañaga, 2018: An International Perspective on Chronic Multimorbidity: Approaching the Elephant in the Room, in Journals of Gerontology Series A, Vol 73, p1352

7 See, e.g. V Govindarajan, R Ramamurti, 2013: Delivering World-Class Healthcare, Affordably in Harvard Business Review Nov 2015 p118

8 AM Tonkin, L Chen, 2009: Where on the Healthcare Continuum Should We Invest? The Case for Primary Care? in Heart, Lung and Circulation Vol 18, issue 2, p110

9 A Gneezy, A Imas, 2015: Poverty as Helplessness: How Loss of Control Affects Impulsivity and Risk- Taking, in NA Advances in Consumer Research, Vol 43 ACR p209

10 See the debate initiated by T Besley, M Ghatak, 2001: Government Versus Private Ownership of Public Goods, in The Quarterly Journal of Economics, Vol 116, Issue 4, Nov 2001, p1343ff

11 See in particular the failures described in ME Warner, 2013: Private Finance for Public Goods: Social Impact Bonds, in Journal of Economic Policy Reform, Vol. 16, Issue 4, p308ff

12 SJ Whitehead, S Ali, 2010: Health outcomes in economic evaluation: the QALY and utilities, in British Medical Bulletin, vol 96, issue 1, p5-21

13 AC Haddix, SM Teutsch, PS Corso, 2003: Prevention Effectiveness: A Guide to Decision Analysis and Economic Evaluation, Oxfort University Press, p70f

14 See the seminal work by JT Cohen and PJ Neumann, 2009: Cost Savings and Cost- Effectiveness of Clinical Preventive Care, in The Synthesis Project, Research Synthesis Report No 18, Sep. 2009

15 For more project characteristics, see also the Health Impact Transfer Whitepaper, likely to be published in 2022.

16 F Jervis, 2019: From Economization to To- kenization: New Forms of Economic Life On-Chain, in SSRN,