On December 12, 2015, 195 countries adopted the Paris Agreement, the most ambitious climate change pact to date. The document lays out a plan to curb greenhouse gas emissions, among other climate-related initiatives. Participating countries must now find ways to translate those ambitions into policy, and answer important questions about financing, transparency and accountability, national implementation, and accelerated emissions reduction goals, to name but a few. But one issue looms large: coal.

Coal-fired electricity is responsible for producing 40 percent of the world’s power and about 70 percent of its steel. The coal industry employs millions worldwide and provides billions of people with electricity. Analysts estimate that the world has hundreds of years of coal reserves in the ground, at current consumption levels. Its abundance, low price, and global availability make it a difficult fuel source to give up. But despite coal’s advantages, it poses significant environmental and health risks. Ten percent of coal consists of ash, which contains radioactive and toxic elements. It is responsible for over $50 billion in medical costs annually in the European Union alone. The environmental consequences of coal use, such as water contamination and habitat destruction, are common. Burning coal adds millions of tons of dangerous particulates and greenhouse gases, including carbon, to the atmosphere.

States and societies around the world rely on coal, even though many of its dangers have been known for decades. If the Paris Agreement is to succeed, global leaders must address the reasons why many countries—particularly in the developing world—still rely on coal. Better yet, they must find new ways to provide coal-reliant countries with affordable, alternative energy, and invest in new technologies that could help mitigate coal’s negative consequences.

COAL ACROSS THE WORLD

Globally, coal production and consumption has risen almost continuously for more than 200 years. The International Energy Agency has estimated that the world burned approximately 7,876 million tons of coal in 2013, adding over 14.8 gigatons of carbon to the atmosphere. But global coal statistics do not tell us much about markets and trends. In fact, coal usage varies enormously around the world, with some regions transitioning away from the resource as others have increasingly embraced it.

For example, stringent environmental, health, and safety policies in the United States have put increasing pressure on the coal industry. Well-funded environmental groups have succeeded in closing coal-fired power plants, and many states on the country’s west coast and in its northeast have aimed to create a coal-free power grid. Yet market forces have turned out to be the nail in U.S. coal’s coffin. The rise of natural gas in the United States has gave the country’s electricity producers an incentive to shift away from coal. In fact, U.S. coal consumption declined from a billion tons in 2008, to roughly 850 million tons by 2013. This year, analysts suggest that coal will fuel only 32 percent of all U.S. electricity, and natural gas will become the country’s leading electricity source for the first time. As a result of low prices, low returns, and political controversy, investors have shied away from coal, which has caused major coal companies to struggle to stay afloat. Of all announced new electricity generation capacity in the United States, not a single megawatt is coal-fired. Although change is happening, it will likely be decades before coal is no longer an important fuel source in the U.S. economy. Canada’s coal sector faces similar pressures: weak demand from Asia, public opposition to the construction of new export facilities, domestic environmental legislation, and the shale boom have all taken their toll.

In Europe, stringent air quality controls and climate change regulations have cut the use of coal dramatically in Denmark, Sweden, and the United Kingdom. But the EU emissions trading scheme, which relies on carbon offsets and carbon dioxide caps, has proven disappointing. In fact, most European countries still lack an economically competitive and readily available alternative to coal. Plus, the coal industry still has political power in capitals like Berlin and Warsaw, which lowers the European common denominator for energy policy, as well as its policies that fight climate change.

Photo courtesy of REUTERS/James Regan/File Photo. Coal is stockpiled at the Blair Athol mine in the Bowen Basin coalfield near the town of Moranbah, Australia, June 1, 2012.

In Asia, both Japan and South Korea are set to expand their use of coal despite signing the Paris Agreement. After the Fukushima disaster, Japan has implemented ambitious renewables and energy efficiency policies, but those cannot take the place of its nuclear energy production on their own. These countries are entirely import dependent, which makes natural gas prices high. This, in turn, makes natural gas a less likely fuel source as the countries transition to greener electricity. In this context, high-efficiency coal plants appear to be a viable alternative, especially as nuclear power remains highly controversial.

And outside of advanced economies, coal often plays the role it once played in Europe and North America. For over a decade, China was the main engine of global coal consumption, driving booms in coal mining and shipping. China’s domestic coal production skyrocketed, and other countries, such as Australia, experienced coal booms to keep pace with Chinese demand. Although China produced and consumed almost as much coal as the rest of the world combined in 2014, it seems that the country’s consumption has peaked. But China will still rely heavily on coal-fired electricity for decades. The country remains a key player in steel production, and millions of its citizens continue to work in the mining industry, despite recent layoffs.

South Asian countries continue to invest heavily in new coal-fired electricity plants and industrial projects. India may appreciate the risks of climate change, but its chief concern is delivering low-cost power to 350 million of its citizens who lack electricity. Coal is set to play a prominent role in meeting such goals. Countries like Indonesia, Thailand, and Vietnam have followed suit as they search for low-cost electricity to power their countries.

In short, coal remains a big player in the global fuel mix, even as it faces tough challenges from stringent environmental regulations, competition from other fuel sources, and a lack of new investments.

Photo courtesy of REUTERS/Sheng Li/Files. A labourer carries honeycomb briquettes at a coal processing factory in Shenyang, Liaoning province in this December 2, 2009 file photo.

WHITHER COAL?

Different strategies apply in different parts of the world when it comes to eradicating coal, despite the global agreement in Paris. Just as there is not a global energy grid, there is also no single, global transition to lower-carbon energy. Although some countries are transitioning away from coal, others continue to transition toward it.

Second, pragmatism and persistence—rather than ideological purity—remain key values as countries transition towards low-carbon economies. Natural gas provides North America with a backup fuel as it transitions to green energy. Without major bulk terminals on the west coast, western U.S. coal producers will not find new markets for their products overseas. And in Europe, policymakers will have to make good on long-promised and long-delayed changes to energy policy and infrastructure. If Germany and other EU states are to achieve promised clean energy transitions, coal production must be scaled back substantially across the continent. European leaders must also build an “Energy Union” that will accelerate the flow of cross-border electricity, if they are to achieve the Paris Accord’s climate change goals. Europe must also reform its existing carbon pricing mechanisms. And across China, Europe, and North America, workers will have to be re-educated for new job opportunities as the coal market dries up.

But for now, coal still keeps the light on around the world. It powers new, high-tech economies, as well as a huge share of traditional manufacturing. If hundreds of millions of Africans and Asians are to gain access to electricity, new coal-fired power plants will have to come online in the years ahead. As coal continues to play a prominent role in industrial processes like steel and cement making, technological investments are required to limit its consequences.

To tackle these challenges, coal advocates, as well as some climate experts, suggest that more countries must invest in carbon capture and sequestration (CCS) research. But such investments are lagging, and the world would require several dozen CCS projects in order to make the technology commercially viable in the long term.

If the Paris Accord is to succeed, the earth’s atmosphere cannot remain a free dump for billions of tons of pollution every year. In fact, virtually all greenhouse gas emissions must be reduced. Countries can impose taxes, cap-and-trade schemes, and regulation to make this happen. Governments will have to design unique strategies that are custom fit to their countries, and, in some cases, find opportunities with their neighbors as well. For example, some private and public institutions have chosen to stop financing coal-fired projects, and the Obama administration has indicated it will not give out new leases for coal mining on federal land. Others will choose to build more coal-fired plants until the alternatives are cheaper, or until someone pays them not to.

Globally, coal may indeed be at the beginning of the end. But the energy transition is not strictly global. It is also national, regional, and local. Coal remains economically competitive—attractive even—in many parts of the world. Some countries will wage wars on coal, which will be as much economic and financial as they are political. But some countries, like India, will host coal booms regardless of the consequences. After Paris, there is no point in ignoring coal. It will be powering the world—and the world’s debates—for decades to come.

This piece was originally published by Foreign Affairs.

       

The debate surrounding net energy metering (NEM) and the appropriate way to reform this policy is under scrutiny in many U.S. states. This is highly warranted since NEM policies do indeed need reforming because NEM often results in subsidies to private (rooftop) solar owners and leasing companies. These subsidies are then “paid for” by non-NEM customers (customers without private rooftop solar installations). The fundamental source of the NEM subsidy is the failure of NEM customers (customers with private rooftop solar installations) to pay fully for the grid services that they use 24/7. These subsidies are well-documented and underpin much of the regulatory reform efforts underway across the United States.[1]

In a recent Brookings paper, “Rooftop solar: Net metering is a net benefit,” Mark Muro and Devashree Saha contend that net metering is a net benefit for non-NEM customers.[2] I fundamentally disagree with their findings, and argue that NEM is not a net benefit; it is, in fact, a tariff that much of the time results in a subsidy to NEM customers and a cost shift onto non-NEM customers. As Executive Director of the Institute for Electric Innovation, a non-lobbying organization focused on trends in the electric power industry, I have followed this debate and written about it for several years.

Much of the talk about NEM focuses too often on the “value” of the energy that is sold back to the grid by a NEM customer. In reality, the amount of energy sold back to the grid is relatively small. The real issue is the failure of NEM customers to pay fully for the grid services that they use while connected to the grid 24/7, as shown in Figure 1.[3] Customers need to constantly use the grid to balance supply and demand throughout the day, and the cost of these grid services can be sizeable. In fact, for a typical residential customer in the United States with an average electricity bill of $110 per month, the actual cost of grid services can range from $45 to $70 per month–however, the customer doesn’t see that charge.[4] That means, in the extreme, if a customer’s energy use “nets” to zero in a given month because the customer’s private solar system produced exactly what the customer consumed, that customer would pay $0 even though that customer is connected to the local electric company’s distribution grid and is utilizing grid services on a continuous around-the-clock basis.[5]

Although exactly netting to zero energy in a month is highly unlikely, this example demonstrates the point that the customer would pay nothing, despite using grid services at a cost ranging from $45 to $70 per month. Over the course of one year, this customer could receive a subsidy resulting from NEM of between $540 and $840. Over the life of a private rooftop solar system, which ranges from 20 to 25 years, this is a significant subsidy resulting from NEM.

Granted, this is an extreme example, and most NEM customers will pay for some portion of grid services. However, the fundamental source of the NEM subsidy is the failure of NEM customers to pay fully for the grid services that they use 24/7, and the cost of these services can be quite substantial. When a NEM customer doesn’t pay for the grid, the cost is shifted onto non-NEM customers.[6] It is a zero-sum game; plain and simple. This is the elephant in the room.

This issue was directly addressed by Austin Energy when the company implemented a “buy-sell” arrangement for the private rooftop solar customers in its service territory. The rationale for the buy-sell approach is that the customer buys all of the energy that is consumed on-site through the electric company’s retail tariff and sells all of the energy produced by their private rooftop solar system at the electric company’s avoided cost. This addresses the “elephant in the room” because, by buying all energy consumed at the retail tariff, the customer does pay for grid services that are largely captured through the retail tariff. It is an unfortunate fact that under ratemaking practices today in the United States, the majority of fixed costs (i.e., grid and other costs) are captured through a volumetric charge.

Hence, I fundamentally disagree with the Muro/Saha paper–NEM does need to be reformed. NEM is not a net benefit; it is a tariff that the much of the time results in a cost shift onto non-NEM customers. One of the first studies to quantify the magnitude of the NEM subsidy was conducted by Energy+Environmental Economics (E3) for the California Public Utilities Commission (CPUC) in 2013. There was no mention of this analysis for the CPUC in the Muro/Saha paper. The E3 study estimated that NEM would result in a cost shift of $1.1 billion annually by 2020 from NEM to non-NEM customers if current NEM policies were not reformed in California.[7] A cost shift of this magnitude–paid for by non-NEM customers–was unacceptable to California regulators. As a result, California regulators set to work to reform rates in their state; many other states followed suit and conducted similar investigations of the magnitude of the NEM subsidy.

In reviewing NEM studies, Muro and Saha chose to focus on a handful of studies that show that net metering results in a benefit to all customers. In this small group of NEM studies, they included a study that E3 conducted for the Nevada Public Utilities Commission (PUC) in 2014–perhaps the most well-known and cited of the five studies included in the Muro/Saha paper. Very soon after the E3 Nevada study was published, the cost assumptions for the base-case scenario which showed a net benefit of $36 million to non-NEM customers (assuming $100 per MWh for utility-scale solar) were found to be incorrect, completely reversing the conclusion. The $36 million benefit associated with NEM for private rooftop solar turned into a $222 million cost to non-NEM customers when utility-scale solar was priced at $80 per MWh.[8] Today, based on the two most recent utility-scale contracts approved by the Nevada PUC, utility-scale solar has an average lifetime (i.e., levelized) cost of $50 per MWh, meaning that the NEM cost shift would be far greater today. In February 2016, the Nevada PUC stated that “the E3 study is already outdated and irrelevant to the discussion of costs and benefits of NEM in Nevada…”[9] Hence, because the E3 study for the Nevada PUC that the Muro/Saha paper included has been declared outdated and irrelevant to the discussion and because costs for utility-scale solar have declined significantly, that study does not show that NEM provides a net benefit.

No doubt there is an intense debate underway about NEM for private rooftop solar, and much has changed in the past two years in terms of both NEM policies and the growth of private solar projects:

• First, several state regulatory commissions now recognize that the NEM cost shift is both real and sizeable and that all customers who use the grid, including NEM customers, need to pay for the cost of the grid. As a result, many electric companies have proposed and state regulatory commissions have approved increases in monthly fixed charges over the past few years; this partially addresses the issue of NEM customers paying for the cost of the grid services that they use.
• Second and related, getting the pricing right for distributed energy resources of all types is important because we expect those resources to grow significantly in the future. Work is underway in this area and it is one focus of the New York Reforming the Energy Vision proceeding; but there is still much to be done.

By focusing on a select group of studies that show that NEM benefits all customers (as stated by the authors); by excluding the E3 study for the CPUC which was fundamental to the NEM cost shift debate; and by not providing an update on the NEM debate today, I believe that the Muro/Saha paper is misleading.

In the second part of their paper, Muro and Saha suggest some helpful regulatory reforms such as moving toward rate designs that “can meet the needs of a distributed resource future” and moving “toward performance-based rate-making (PBR).” Some electric companies have already implemented PBR or some type of formula rate and PBR is under discussion in several states.[10] Lawrence Berkeley National Labs is looking closely at this and related issues in its Future Electric Utility Regulation series of reports currently underway.[11]

Mura and Saha also suggest decoupling as a way forward–I disagree. In my view, decoupling is a not solution for private rooftop solar. Revenue decoupling is currently used to true-up revenues that would otherwise be lost due to declining electricity sales resulting from electric company investments in energy efficiency (EE). Decoupling explicitly shifts costs from participating EE customers to non-participating EE customers causing the same cost-shifting problem that is created by NEM. However, a fundamental difference is that the magnitude of the cost shifting onto non-NEM customers is on a much larger scale than the cost shifting due to EE. A recent study revealed that decoupling rate adjustments for EE are quite small–about two to three percent of the retail rate.^[12] In contrast, as described earlier in this paper, a NEM customer could shift a significant cost onto non-NEM customers (and the NEM cost shifting is essentially invisible to customers, which is one reason that NEM customers do not believe they are subsidized).[13]

Finally, Muro and Saha suggest that electric companies should invest in a more digital and distributed power grid. In fact, electric companies across the United States are doing just that. In 2015, electric companies invested $20 billion in the distribution system alone and this is expected to continue. Over the past five to six years, electric companies invested in the deployment of nearly 65 million digital smart meters to about 50 percent of U.S. households. In addition, electric companies are investing in thousands of devices to make the power grid smarter and more state-aware. Today, in states such as California, Hawaii, and Arizona, electric companies are investing to enable and integrate the distributed energy resources that are growing exponentially. And, in some states–where regulation allows–electric companies are offering rooftop solar or solar subscriptions to their customers.

No doubt, the electric power industry is undergoing a period of profound transformation–our power generation resource mix is getting cleaner and more distributed; the energy grid is becoming more digital; and customers have different expectations.[14]

Collaboration, good public policy, and appropriate regulatory policies are critical to a successful transformation of the power sector. In the context of this paper, this means reforming NEM so that private rooftop solar customers who use the energy grid pay for the grid. One straightforward approach is to require NEM customers to pay a higher monthly fixed charge thereby reducing the cost shift.[15] Ultimately the challenge is to make the transition of the electric power industry–including the significant growth in private rooftop solar and other distributed energy resources–affordable to all customers.

Lisa Wood is a nonresident senior fellow in the Energy Security and Climate Initiative at Brookings. She is also the executive director of the Institute for Electric Innovation and vice president of The Edison Foundation whose members include electric companies and technology companies.

       

Editors’ Note: Science diplomacy can help countries solve on-the-ground challenges and improve standards of living for their citizens, writes David Hajjar. But it can also lay groundwork for improving relations through functional, scientific cooperation that is less politicized. This post originally appeared on Lawfare.

In the Middle East, governments and non-state actors alike have tried all forms of diplomacy to solve the challenges they face, with mixed results: shuttle diplomacy by the United States between the Israelis and Palestinians worked for a time, great-power diplomacy over the Syrian civil war largely hasn’t, and direct negotiations with unsavory groups like the Taliban have moved in fits and starts. 

But progress can come from unlikely sources, and science diplomacy—whereby experts collaborate scientifically to address common problems and build constructive international partnerships—has more potential than is often recognized. Science diplomacy can of course help countries solve on-the-ground challenges and improve standards of living for their citizens. But it can also lay groundwork for improving relations in a region often defined by tension (if not outright conflict) through functional, scientific cooperation that is less politicized. 

Efforts in science and technology, on the one hand, and diplomacy on the other, can achieve more if they are thoughtfully merged—rather than siloed. Science diplomacy, therefore, can contribute to peace- and security-building in the Middle East (and with the United States) in unique ways. 

Science and global governance

Across the world, science diplomacy has helped set the stage for advancing foreign policy and global governance goals.

The 2015 nuclear deal between Iran and the P5+1 illuminated how negotiating over and collaborating on science and technology issues can be an important gateway to achieving significant foreign policy goals. Direct (and often very technical) diplomacy between U.S. Secretary of Energy Ernest Moniz and the head of the Atomic Energy Organization of Iran, Ali Akbar Salehi, was key to achieving the framework agreement, as was collaboration between Iranian and Western nuclear scientists more broadly. Provided that the agreement is thoroughly enforced, it’s a major victory for global nuclear nonproliferation efforts—and much credit goes to effective science diplomacy. 

Global efforts to combat climate change are another area in which science diplomacy has had a real impact on policy. The United Nations’ Intergovernmental Panel on Climate Change has become a model for critical science policy research and recommendations. The 2015 conference in Paris brought together hundreds of political leaders and experts to examine the scientific evidence that the globe is warming, discuss remedies, and chart a path forward that can help slow environmental damage. So, science diplomacy was again central—this time in shaping and implementing the global climate governance framework. 

Another area where we have observed substantive gains from science diplomacy is the global management of infectious diseases. The Zika outbreak in Latin America, Ebola epidemic in West Africa, dengue in the Caribbean and Asia, MERS in the Gulf region and in South Korea, and the global threat of pandemic influenza all underscore that international cooperation is key to fighting modern plagues, which spread more rapidly in an era of constant global travel. In some cases more than in others, political leaders have devoted considerable resources to promoting international scientific cooperation—whether in clinical monitoring, medical interventions, research into pathogen biology and diagnostics, and treatments (including vaccine development). In fact, the global response to severe acute respiratory syndrome (SARS) is an example where international collaboration helped identify affected populations and coordinate treatment through the WHO Global Alert and Response System (which has identified new cases in Europe, the Middle East, Australia, Canada, Vietnam, Taiwan, and Hong Kong). The system’s main goal is to send supplies and medical specialists (including epidemiologists), design clinical trials, provide diagnostic tests, identify modes of transmission, and provide treatment. This coordinated response effort has controlled the pandemic.

Science in a fraught region

In the Middle East, opportunities abound for science diplomacy. Not only can this type of approach help solve practical, quality-of-life challenges—from energy to health and beyond—it can bring together expert communities and bureaucracies. In the process, it can contribute to more normalized people-to-people and government-to-government relations. Even at the height of the Cold War, for example, U.S. and Russian nuclear scientists and other experts worked together to monitor each other’s nuclear facilities; even though Moscow and Washington had nuclear-armed intercontinental ballistic missiles aimed directly at each other, bureaucratic cooperation on technical issues became a normal part of the relationship and helped enhance transparency and trust.

In the energy sector, for example, innovation in science and technology will play a crucial role in helping to transition Middle Eastern states in the region away from a dependence on fossil fuels—a broad goal of the Paris accords and a specific strategic goal of states like Saudi Arabia and Iran. Notwithstanding the sectarian disagreements between Iran and Saudi Arabia, both need to address their fast-growing demand for electricity; they need not be in competition with each other. Saudi Arabia currently fuels its own 10 percent annual rise in electricity needs with crude oil, owing to domestic natural dry gas reserves. Iran’s vast gas reserves could be used to meet the kingdom’s growing energy needs, but Iran’s decaying gas fields need $250 billion in major repairs. Many think that if Saudi Arabia used its investment power to revitalize Iran’s gas industry, it would secure the energy it needs to meet demands. The economic benefits of cooperation on energy could promote better relations. Another area of cooperation that can drive the local economies is the Arab Gulf’s first major cross-border enterprise, the Dolphin Gas Project, which was started in 2007. The project involves the transportation of natural gas from Qatar to Oman and to the UAE. Finally, international cooperation between Oman and Iran is developing, where Oman intends to import natural gas from Iran for industrial development. This would require investing in an underwater pipeline from the Iranian coast to Oman. The UAE could do the same to build its economy: import natural gas from Iran, since the pipelines exist. The technical know-how for all these initiatives already exists—to date the main stumbling block has been overcoming regional politics.

Qatari Oil Minister Abdullah bin Hamad al-Attiyah (L) and Dolphin Energy Chief Executive Ahmed Ali Al Sayegh hold a news conference about the inauguration of the Dolphin Energy plant in Doha May 12, 2008. Photo credit: Reuters.

In health, there is also room for mutually-beneficial cooperation. Back in 1996, the U.S. State Department’s Bureau of Near Eastern Affairs helped establish the Middle East Cancer Consortium—that effort continues to help train the next generation of scientists and medical professionals in cancer biology in the region. Other programs have focused on vaccine development for childhood diseases; preventing HIV, malaria, and tuberculosis infections; ending childhood malnutrition; and managing unwanted pregnancies. Programs like these have yielded important advances in public health and have enhanced cooperation between countries like the Palestinian Authority, Egypt, Cyprus, Turkey, and Israel with the United States.

And in a unique cross-sectoral approach, Jordan is host to a promising initiative called the Synchrotron Light for Experimental Science and Application in the Middle East (SESAME). Modeled after the European Organization for Nuclear Research (CERN), SESAME is a partnership between Bahrain, Egypt, Israel, Iran, Jordan, Pakistan, the Palestinian Authority, and Turkey that aims to create research career opportunities that will limit “brain drain” from the region and serve as a model for scientific collaboration.

STEM education: The root of science diplomacy

Science diplomacy has the potential to deliver real dividends that extend beyond the science and technology spaces themselves. When states cooperate on functional, non-politicized (or at least less politicized) issues—whether at the level of non-state scientific communities or at the level of state bureaucracies focused on energy, health, or other issues—they become more accustomed to working together and trusting each other. This can gradually have spillover effects into politics and security arenas.

Science diplomacy doesn’t just happen, though—it requires real efforts on behalf of policymakers and experts. One crucial step is advancing STEM education (science, technology, engineering, and mathematics) to build more robust and diverse expert communities. This is something that President Obama emphasized in his speech at Cairo's Al-Azhar University in 2009. He identified possible areas of cooperation, both within the region and with the United States, including researching and piloting new sources of energy, creating “green” jobs, enhancing communication and informatics, sharing medical information, generating clean water, and growing new crops. 

In some countries in the region, particularly in the Gulf, there are signs of new investment in STEM education and related efforts. For example, Qatar has pledged to spend 3 percent of its GDP on scientific research, and the United Arab Emirates (UAE) has decided to create the world’s first sustainable city. Saudi Arabia created the King Abdullah University of Science and Technology (KAUST) with a $20 billion endowment, $200 million of which has been used to attract scientists and educators from the West. Saudi Arabia, Qatar, and the UAE continue to build and sustain partnerships with European and American universities. 

Interest in science among students and the general citizenry in many Middle Eastern countries remains low, which is problematic at a time when the region’s young people need to compete in a world increasingly centered around STEM. More governments in the region—perhaps with U.S. help—need to increase efforts to attract their young people to STEM education and careers.

International cooperation on STEM issues—led by science diplomats—can strengthen relationships between Middle Eastern states and with the United States. Science and technology disciplines transcend politics, borders, and cultures, and are thus an important bridge between nations. During a time of strained geopolitical relationships, we can focus on making progress in health and disease, food and water security, and other areas—and thereby enhance domestic stability and international security in the process. 

       

       

       

       

       

       

       

Emerging economies may chafe at international agreements calling for sustainable development, but Nonresident Fellow Nathan Hultman says many governments are putting plans for sustainability and green innovation in place out of self-interest, and cooperating with neighbors across the globe.

 

Video

• Nathan Hultman: Global Progress in Sustainable Development

       

       

       

       

       

       

Although there has been some progress in forming a national unity government in Libya, “unity” is a rather inapplicable word for the country. In reality, friction between various political actors remains high. Ultimately, perhaps a form of disunity—confederation, rather than centralization—is the best model for Libya.

Libyan politics: A primer

During the summer of 2014, the Libyan leadership, after an initial hint of cooperation, split into two governments: 

• One, headquartered in Tobruk and based on a secular matrix, was recognized internationally. It received support from the House of Representatives and was abetted by General Khalifa Haftar and his so-called National Libyan Army. Externally, Egypt, the United Arab Emirates, and Russia have supported this government because of its anti-Islamist ideology. In May 2014, Haftar launched "Operation Dignity" against the Islamist militias, supported by the Zintan brigades (consisting of the Civic, al-Sawaiq, and al-Qaaqa brigades), and the militias coming from the ethnic minorities of Tebu and Fezzan.
• The other, headquartered in Tripoli, was Islamic in nature. It was supported by the new General National Congress (GNC) and was part of the Libya Dawn group of pro-Islamist militias (which included groups from Misrata, Amazigh, and Tuareg). Qatar, Sudan, and Turkey have supported this government for different reasons, including to earn a more prominent place on the global stage or to support the Muslim Brotherhood. 

But it gets more complicated, since it wasn’t just the Tobruk- and Tripoli-based governments that competed to fill the power vacuum post-Gadhafi. The constellation of militias and brigades has changed continuously. There are Salafist groups such as:

• Ansar al-Sharia Libya (or ASL, located between Benghazi and Derna); 
• Muhammad Jamal Network (between Benghazi and Derna);
• Al-Murabitun (in the southeast, around Ghat, Ubari, Tasawah, and Murzuq);
• Al-Qaida in the Islamic Maghreb (or AQIM, in the southwest and northeast of Libya); and
• Ansar al-Sharia Tunisia (or AST, located between Derna and Ajdabiya). 

Then in 2015, an Islamic State (or ISIS) cell—made up of about 3,000 Tunisians, Yemenis, Algerians, and Libyans, especially former supporters of the Gadhafi regime and members of Ansar al-Sharia—began to take hold in the city of Sirte, Gadhafi's hometown. Sirte is in an oil-rich desert area with tremendous strategic value, lying between the two regions of Tripolitania and Cyrenaica. And Misratan militias treated Sirte ruthlessly after Gadhafi’s fall, prompting many locals to welcome ISIS. So it was no accident that ISIS chose that spot, or that it stepped into the Libyan power vacuum more broadly: Libya is strategically important for eventually expanding across North Africa; it’s a launching point for criminal trafficking in the Mediterranean; and there is a potential to exploit huge energy resources, as ISIS has done to a degree in Iraq. 

Then in December 2015 in Morocco, the Government of National Unity (GNA) signed an agreement by which Fayez Serraj became prime minister. But General Haftar and the government in Tobruk didn’t support the move, and the security environment across the country is still abysmal. Despite the assurances from United Nations Support Mission in Libya (UNSMIL) Special Envoy Martin Kobler that Libya would achieve stability, Libya is still seriously fragmented. 

Today, the real fight is not even between Cyrenaica and Tripolitania, per se, because the two regions—along with Fezzan—are so divided internally. Serraj was barely allowed to arrive in Tripoli this March, for instance—only thanks to the intervention of the international community. The GNC (with Prime Minister Khalifa Gwell and President Nouri Abusahmain) immediately dubbed Serraj’s cabinet "illegal," but then a month later decided to disband in favor of Serraj’s GNA. The government in Tobruk, led by President of the House of Representatives Aguila Saleh Issa, has still not given his full endorsement.

Bright spots?

In spite of these political frictions, there have been small signs of progress. Foreign ministers from other countries and even the prime minister of Malta have arrived in Tripoli as a sign that the new political situation is formalizing. And while embassies remain closed, there is a sense that things are moving in a positive direction. Given this, in late April Serraj asked the international community to intervene in order to secure oil wells, theoretically protected by Jadran Ibrahim and his Petroleum Facilities Guard (PFG), a powerful allied militia in Tripoli. But while the international community has seemed ready—including the Italian government, which has taken a leadership role—accusations of local weakness and Western meddling complicate the Libyan political arena. 

ISIS, meanwhile, is suffering setbacks, having been attacked in Sirte from the south, west, and east by a collection of GNA forces, Misrata militia brigades, and the PFG. The GNA forces are currently in the center of Sirte, clashing with ISIS and gaining terrain every day. ISIS seems to be weaker than many thought (indicating that estimates of its numbers were wrong) and now may be fleeing south—to Fezzan—where its strategy can be more fluid and less based on territorial control. 

Re-considering the fragmentation problem

The persistent fragmentation in Libya is what is most worrying. Internal divisions are the product of decades of Gadhafi’s reckless governing—he kept his citizens from each other and from the rest of the world and deprived them of any solid governmental or administrative structure that could keep the country stable in the event of a "post-regime" moment. And looking even further back, it’s important to remember that Tripolitania and Cyrenaica were never aligned, even during the two decades of rebellion against Italy. The Italians used the old "divide et impera" (divide and conquer) strategy, digging real "furrows of blood"—in the words of British scholar Edward E. Evans-Pritchard in 1949—between Libyan tribes. 

And today? A serious agreement between the main political factions—the Government of National Unity and the House of Representatives—seems out of reach. Meanwhile, few of the fundamental institutions required for the development and governance of a modern country are in place. Libya has invested little in education, and both corruption and unemployment are off the charts. Despite immense energy resources, the economy is contracting. Oil production has declined from 500,000 barrels per day in 2013 to 300,000 in January 2016, and not because deposits have depleted. And tourism, it goes without saying, isn’t taking place. 

Fayez Serraj, Libyan prime minister-designate under the proposed unity government, attends a meeting with officials of municipal council of Tripoli in Tripoli, Libya. Photo credit: Reuters/Ismail Zitouny.

Instead, there have been thousands of deaths and a massive outflow of refugees. While UNSMIL’s efforts have been commendable, the international community should seriously consider how to do more in Libya. It’s better to devise and implement an intervention plan now than wait for a true emergency in Libya. The international community must think about and articulate a real strategy, not merely implement tactical operations. Given the dramatically deteriorated security situation today, it seems impossible to imagine a non-security related intervention, even in defense of the soldiers called to the simple mission of protecting the new coalition government. 

One approach to consider is helping Libyans build a confederal state, divided into three large regions: Tripolitania, Cyrenaica, and Fezzan (or perhaps more if the Libyan people deem it appropriate). Perhaps it is time that such provinces become more autonomous—following different paths as they choose, based on their unique ethnic, social, religious, and political origins. This is an extreme solution, of course. But it is clear that the international community, which had been so much a part of the Libyan revolution, cannot now permit the failure of Libya as a state.

The paradox of deconstructing to construct, in this case, can work. The long-advocated national-level solution of political unity does not, in fact, seem possible. Instead, a confederation of the three regions built on the original disposition of tribes and natural borders could probably assure a deeper stability. Regional governments could better protect local interests in security, economic reconstruction, and governance. The international community should thus start from the bottom, emphasizing local solutions, supporting local actors, and helping to empower Libyans to choose their leaders at a local level. This is not to rule out a central government someday, but would mean that such a government would be somewhat less influential. It’s an incredibly difficult and long plan, but probably the only one that can work. 

         

Introduction

The global community has set itself the challenge of meeting the Millennium Development Goals (MDGs) by 2015 as a way to combat world poverty and hunger. In 2007, the halfway point, it is clear that many countries will not be able to meet the MDGs without undertaking significantly greater efforts. One constraint that needs to be overcome is that development interventions—projects, programs, policies—are all too often like small pebbles thrown into a big pond: they are limited in scale, short-lived, and therefore have little lasting impact. This may explain why so many studies have found that external aid has had weak or no development impact in the aggregate, even though many individual interventions have been successful in terms of their project- or program-specific goals.

Confronted with the challenge of meeting the MDGs, the development community has recently begun to focus on the need to scale up interventions. Scaling up means taking successful projects, programs, or policies and expanding, adapting, and sustaining them in different ways over time for greater development impact. This emphasis on scaling up has emerged from concern over how to deploy and absorb the substantially increased levels of official development assistance that were promised by the wealthy countries at recent G8 summits. A fragmented aid architecture complicates this task; multilateral, bilateral, and private aid entities have multiplied, leading to many more—but smaller— aid projects and programs and increasing transaction costs for recipient countries. In response, some aid donors have started to move from project to program support, and in the Paris Declaration, official donors committed themselves to work together for better coordinated aid delivery.

The current focus on scaling up is not entirely new, however. During the 1980s, as nongovernmental organizations (NGOs) increasingly began to engage in development activities, scaling up emerged as a challenge. NGO interventions were (and are) typically small in scale and often apply new approaches. Therefore, the question of how to replicate and scale up successful models gained prominence even then, especially in connection with participatory and community development approaches. Indeed, the current interest among philanthropic foundations and NGOs in how to scale up their interventions is an echo of these earlier concerns.

In response to this increased focus on scaling up—and its increased urgency—this policy brief takes a comprehensive look at what the literature and experience have to say about whether and how to scale up development interventions.

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Abstract

Scaling up of development interventions is much debated today as a way to improve their impact and effectiveness. Based on a review of scaling up literature and practice, this paper develops a framework for the key dynamics that allow the scaling up process to happen. The authors explore the possible approaches and paths to scaling up, the drivers of expansion and of replication, the space that has to be created for interventions to grow, and the role of evaluation and of careful planning and implementation. They draw a number of lessons for the development analyst and practitioner. More than anything else, scaling up is about political and organizational leadership, about vision, values and mindset, and about incentives and accountability—all oriented to make scaling up a central element of individual, institutional, national and international development efforts. The paper concludes by highlighting some implications for aid and aid donors.

An annotated bibliography of the literature on scaling up and development aid effectiveness was created by Oksana Pidufala to supplement this working paper. Read more »

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EXECUTIVE SUMMARY

Fragile states present one of the greatest challenges to global development and poverty reduction. Despite much new learning that has emerged from within the development community in recent years, understanding of how to address fragility remains modest. There is growing recognition that donor engagement in fragile states must look beyond the confines of the traditional aid effectiveness agenda if it is to achieve its intended objectives, which include statebuilding, meeting the needs of citizens, and managing risk more effectively. Current approaches are constrained by relying heavily on small-scale interventions, are weakened by poor coordination and volatility, and struggle to promote an appropriate role for the recipient state.

Scaling up (i.e., the expansion, replication, adaption and sustaining of successful policies and programs in space and over time to reach a greater number of people) is highly relevant to fragile settings, both as an objective and as a strategic approach to development. As an objective, it reinforces the logic that the scale of the challenges in fragile states demands interventions that are commensurate in purpose and equal to the task. As a strategy, it encourages donors to identify and leverage successes, and to integrate institutional development more explicitly into projects and programs. In addition, scaling up can assist donors in addressing the priority areas of improved project design and implementation, sustainability and effective risk management.

Successful scaling up in fragile states almost certainly occurs less often than is possible and does not always involve a systematic approach. Donors should therefore look to more systematically pursue scaling up in fragile states and evaluate their performance with specific reference to this objective. This can be done by incorporating relevant elements of a scaling up framework into operational policies, from strategy development through to program design and monitoring.

Contrary to expectations, there are compelling examples of successful scaling up in fragile states. While the conditions prevailing in fragile states create serious obstacles in terms of “drivers” (the forces that push the scaling up process forward) and “spaces” (the opportunities that need to be created, or potential obstacles that need to be removed for interventions to grow), and in terms of the operational modalities of donors, these can be overcome through the careful design and delivery of programs with a clear focus on creating scaling up pathways, and through close partnership and sustained engagement of governments, communities and foreign partners.

Case study evidence suggests that the pathways taken to reach scale in fragile states demand different approaches by donors. Donors need to adopt greater selectivity in determining which areas or sectors for scaling up are justified—a strategy that has also assisted some donors in managing risk. More investment and time are required in upfront analysis and building the evidence for successful scaling up pathways. In some cases, donors require longer time horizons to achieve scale, although demand from government or beneficiaries has sometimes forced donors to move immediately to scale, allowing little or no time for piloting. Regardless of the pace of scaling up, donors that were most successful were engaged early and then remained engaged, often far beyond the replication phase of scaling up, to increase the likelihood of interventions being sustained. Other common characteristics of successful scaling up were simple project design and a focus on the institutional aspects of the scaling up pathway.

Case studies also point to the crucial role of drivers in moving the scaling up process forward in fragile states. Proven ideas and practical models have often been picked up in fragile states, contrary to the expectation that actors may be less responsive to recognizing and acting on the utility of promising results. Leaders undoubtedly have a role to play in supporting scaling up, although there are clear dangers that must be avoided, including avoiding the perception that donors are picking (political) winners by nominating leaders, and tying the survival of projects too closely to the fortunes of a leader’s political career. Incentives were found to be one of the most important drivers in fragile states, and there is a good case to be made for donors introducing new inducements, greater transparency or similar reforms to strengthen the role incentives play. Finally, and in contrast to the standard scaling up framework, community demand was found to be an important driver in many fragile states, both in demanding the expansion of small-scale projects and by facilitating the community’s own resources to support the scaling up process.

The greatest challenge to scaling up in fragile states is the limited spaces these environments provide. This is especially the case in respect to those spaces which concern aspects of governance: political, institutional and policy spaces. When working in fragile states, donors must recognize that spaces for scaling up are almost always more constrained, but look for ways to expand upon them. Some of the most successful examples of scaling up used creative approaches to build space quickly or used existing capacity to the fullest possible extent. Also relevant are the lessons of robust analysis, greater realism and cost control. The case studies confirm the importance of two additional spaces in fragile states. For example, security space often imposed horizontal obstacles to scaling up which could not realistically be overcome while ownership space served as a good indication of the perceived legitimacy of the scaling up process and the likelihood that interventions would be sustained longer term.

Case studies also affirm the importance of emphasizing robust project design and implementation, and the close linkages between the scaling up agenda and the role of risk management and sustainability in fragile states. While sustainability presented a significant problem for many of the projects and programs reviewed, a more focused approach around scaling up may assist donors in addressing sustainability concerns. This would entail adopting a longer-term perspective beyond the immediate confines of any individual project, looking for available drivers and supportive spaces, and focusing on effective implementation and consistent monitoring and evaluation (M&E). Any intervention introduced on a small scale that scores well in sustainability serves as a possible candidate for scaling up.

Similarly, many of the methods used by donors for managing risk—an emphasis on analysis, scenario planning, realism and making use of specialized aid instruments—are equally relevant for supporting scaling up in fragile countries. A persuasive argument can be made that the adoption of a more explicit scaling up approach by donors can form part of a risk management strategy in fragile states. Scaling up can enable donors to more ambitiously tackle development risks without allowing institutional and project risks to grow unchecked. Ultimately, a donor approach that combines good risk management and scaling up requires strong leadership and well-aligned incentives.

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Development ministers and experts will meet at the Fourth High Level Forum on Aid Effectiveness in Busan, Korea, in November 2011 to assess their efforts to improve the impact of aid. A recent survey by the Organisation for Economic Co-operation and Development (OECD) shows that little progress has been made since they met in Accra in 2008 for their Third High Level Forum. The many good intentions to improve coordination among donors, to enhance the alignment of aid programs with the priorities of aid recipients, and to develop effective partnerships in practice have turned out to be difficult to implement.

If anything, the challenge has become greater: the number of aid agencies keeps rising, as does the number of aid-supported projects, while average project size continues to drop. According to the OECD, more than half of the 90,000 official aid projects implemented annually are now well below $100,000 in size. With so many small interventions, most of them one-time, without links to each other, driven by the short-lived preferences of individual agencies and individuals in agencies, it is no surprise that the lofty goals of aid ministers go unrealized and that the cumulative impact of the many well-intentioned small aid projects is minimal at best.

It doesn’t have to be that way. There are examples of successful development programs that have lifted millions of people out of poverty, have greatly improved health conditions and have generated new business and employment opportunities. Examples such as the Mexican government’s national program of cash transfers to poor households (“Progresa- Oportunidades”) which conditions assistance on whether children attend school and mothers take their infants for health check-ups; the multi-donor program to eradicate the deadly river-blindness disease in West-Africa; the community based microcredit and employment programs of Grameen Bank and BRAC in Bangladesh; the Chinese government’s program for the development of the loess plateau with support of the World Bank; or the program of rural poverty reduction in the highlands of Peru supported by the International Fund for Agricultural Development (IFAD) – these are just a few examples of cases where the impact of development programs has been at a scale such that it made a real and lasting difference in the lives of millions of people. And success at scale is also possible in fragile and conflict-affected states as a recent review by the Brookings Institution for the Australian aid agency AusAID has shown.

This raises three questions that development ministers should consider as they prepare for and meet in Busan: What made these success stories possible? Why are they the exception rather than the rule? What needs to be done the make scaling up the norm? Let us take these questions in turn.

What made these success stories possible? Each case has its own ingredients of success, but three dimensions are common to them all:

• The programs pursued a scaling up pathway towards a long-term goal: Few successful programs followed a blueprint for long-term scaling up from the start, but they all built on the recognition that if the early steps were successfully piloted, subsequent steps needed to systematically replicate and scale up what works, adapting the approach in the light of lessons learned at each of the earlier project. A key element in this connection is that the long-term objective of scale impact is part of the program concept from the beginning; that monitoring and evaluation are designed to test not only whether an idea works, but also to measure progress against the long-term goal; and that an effort is made to identify the drivers, to create the spaces and to chart a suitable scaling up pathway for programs to move from small pilot to impact at scale.
  
  
• The programs benefitted from strong and sustained drivers for scaling up: Specifically, they had strong leadership with a clear vision of the need for large scale impact, with ideas that were suited to the challenge, ready to learn from experience, willing to stay engaged for the long haul, championing the cause, building partnerships with other like-minded actors and politically savvy in overcoming obstacles. This leadership could come from public officials, such as the President of Mexico and his Deputy Minister of Finance in the case of “Progresa”, from private individuals, such as the founders of Grameen Bank and BRAC, from a community of national experts and community leaders, as in the case of the Peru Highlands Development Program, from outside aid donors, as in the case of the West-African River- Blindness program, or be part of a wellestablished system of experimentation with replication of success as established in China’s approach to economic growth.
  
  
• The programs created the space for sustained growth: As programs expanded successfully they managed to open up financial and fiscal space by keeping costs down and finding suitable financing mechanisms; they pursued policy reforms that created favorable legal and regulatory conditions; they created the institutional space by identifying appropriate organizational approaches and building institutions for managing the programs at scale; they adapted approaches to the specific cultural realities; and they created political coalitions and operational partnerships that made it possible to grow and sustain the initiative. In the case of “Progresa- Oportunidades” the Mexican government designed a program with a long-term goal of universal coverage of all poor, but started with carefully designed pilots, which were subjected to detailed evaluation against control groups and adapted as needed during the 5-10 year scale-up phase. It created the required fiscal and financial space by abandoning other less successful social programs and by seeking the support of international financial institutions. The government also insulated “Progresa-Oportunidades” from political controversy by carefully monitoring and documenting its positive impacts and by legally assuring that it did not get caught up in party politics. Finally, it designed an institutional approach suitable for phased nation-wide scale-up with minimal bureaucratic obstacles.

Why are these success stories the exception rather than the rule? The first explanation for the lack of systematic and effective focus on scaling up lies in the nature of governmental and bureaucratic incentives and the resulting planning and implementation mechanisms in the developing countries themselves. Typically, governmental plans set out broad targets, policies and implementation modalities, but they generally do not link specific interventions, projects and programs or individual agency budgets and investment plans with the longer-term goals set forth in national or sectoral plans. Moreover, whenever governments or heads of agencies change, the new leadership has a strong tendency to discard the programs supported by the former incumbents and instead to pursue new ideas and new programs. Finally, the practice of methodically evaluating the impact of programs is poorly understood in most countries, and in any case is not well appreciated, since politicians and agencies like to claim success, but prefer not to acknowledge failures in their programs. Contrast this with the incentives for scaling up in the private sector: In a competitive market a successful new initiative, i.e., one that makes a profit, will be replicated and scaled up either by the firm that pioneered it, or by competitors who see the opportunity to garner some of the potential profit for themselves.

The second explanation can be found in the way aid agencies work. While some donors help governments with advice and technical assistance to develop a longer-term national, sub-national and sectoral plans and improved budgeting and investment planning mechanisms, the aid agencies’ own operational modalities and incentives tend to operate just like those of governments: Their operational policies, programming, management and staffing do not encourage support for systematic scaling up. On the contrary, they tend to focus on innovative initiatives and even discourage replication of successful projects and programs. They do not reward effective monitoring and evaluation against longer-term objectives. They rotate managers and staff frequently and with little attention to ensure appropriate hand-over. And the incentives for staff are to start new projects rather than focusing on implementing and building on ongoing ones. And while partnerships, coordination and handing off programs to the clients are encouraged at the level of ministers and agency heads, in practice staff have little incentive to pursue these avenues, since they take time, effort and even budgetary resources, increase risks of delay and of loss of institutional identity and control, and since fiduciary requirements for procurement and disbursements are not harmonized among donors.

What needs to be done to make scaling up the norm? Let us start with aid agencies. Donors have an obligation to do no harm, and it can be argued that their proliferation of small, one-time, uncoordinated and unevaluated interventions do more harm than good. They certainly represent an opportunity forgone, namely the opportunity to support a systematic focus on scaling up successful development interventions. Indeed, this represents an obligation that should be reflected in the mission statements of all official aid organizations, as well as in those of the larger non-governmental organizations and foundations that provide development assistance A recent assessment of donor performance in terms of their attention to scaling up concluded that donors need to address five critical gaps in their operation approach:

1. Institutional information gap: Aid agencies should review and develop their institutional approaches to scaling up.
2. Evaluation gap: Evaluations of donor projects should include an assessment of the scaling up practices of donors.
3. Incentives gap: Donors need to develop internal and external incentives (e.g., operational policies and staff incentives; replication funds, competitions) to help drive the scaling up process.
4. Partnership gap: Donors should expand the use of programmatic approaches and instruments with joint funding of programs designed to bring donors together so they can help scale up successful interventions;
5. Ownership gap: Ultimately, scaling up is a country’s job; donors need to help by setting an example, build capacity and hand off to agents in the country.

In their turn, the governments of developing countries need to make scaling up of successful interventions an explicit part of their national planning and programming, need to implement rigorous monitoring and evaluation as learning and accountability mechanisms for the political and agency leadership, and need to find ways to ensure that successful programs do not fall victim of the electoral cycle.

The good news is that progress is being made. There is now a well established body of evidence that scaling up can and does work, even in fragile states. There exists a framework for analyzing, planning monitoring and evaluating scaling up approaches, building on the scaling up pathway, drivers and incentives concepts as summarized above. Examples of governments focused on scaling up success show that it is possible to pursue this avenue to development, with China the outstanding case in point. And some aid agencies have begun to focus systematically on scaling up in their operational mission, strategy, policies, processes and incentives, among them IFAD, the Global Fund to Fight AIDS, Tuberculosis and Malaria, and the Bill and Melinda Gates Foundation. The United Nations Development Program has made scaling up an explicitcriterion in its evaluation of its programs. And the Gesellschaft für Internationale Zusammenarbeit (GIZ) recently issued practical guidelines for scaling up.

What is needed now, and what development ministers and agency heads should focus on in Busan and beyond, are the following three important priorities to ensure that an operational focus on scaling up becomes the rule, not the exception, in the way governments and aid agencies work:

1. Developing country governments commit themselves to introduce the scaling up objective and practice into their own planning, implementation, evaluation and accountability mechanisms.
2. Official donors and large private donors commit to introduce the objective and practice of scaling up into their mission statements, operational policies and evaluation practices.
3. Donors specifically commit to assist development partners through their technical and financial assistance to implement systematic approaches and incentive mechanisms that help drive the scaling up of successful development interventions. Scaling up success is not rocket science. It is a simple, intuitively appealing concept. And yet in practice it has been an orphan in the development literature and practice. Fortunately, this is now changing. We do not need complex models and metrics, nor do governments and aid agencies need sophisticated operational instruments. What we need is for scaling up to become the accepted goal at the political and institutional level. We need a clear vision of scaling up pathways, an assessment of the needed drivers and spaces for scaling up. And we need a readiness to evaluate progress against ultimate and intermediate goals and to adjust the scaling up pathway in light of the lessons learned.

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A key objective of the United Nations Development Programme (UNDP) is to assist its member countries in meeting the Millennium Development Goals (MDGs). UNDP pursues this objective in various ways, including through analysis and advice to governments on the progress towards the MDGs (such as support for the preparation and monitoring Poverty Reduction Strategies, or PRSs, in poor countries), assistance for capacity building, and financial and technical support for the preparation and implementation of development programs.

The challenge of achieving the MDGs remains daunting in many countries, including Tajikistan. To do so will require that all development partners, i.e., the government, civil society, private business and donors, make every effort to scale up successful development interventions. Scaling up refers to “expanding, adapting and sustaining successful policies, programs and projects on different places and over time to reach a greater number of people.” Interventions that are successful as pilots but are not scaled up will create localized benefits for a small number of beneficiaries, but they will fail to contribute significantly to close the MDG gap.

This paper aims to assess whether and how well UNDP is supporting scaling up in its development programs in Tajikistan. While the principal purpose of this assessment was to assist the UNDP country program director and his team in Tajikistan in their scaling up efforts, it also contributes to the overall growing body of evidence on the scaling up of development interventions worldwide.

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Editor's Note: The World Bank’s Independent Evaluation Group (IEG) recently published a self-evaluation of its activities. Besides representing current thinking among evaluation experts at the World Bank, it also more broadly reflects some of the strengths and gaps in the approaches that evaluators use to assess and learn from the performance of the international institutions with which they work. The old question “Quis custodet ipsos custodes?” – loosely translated as “Who evaluates the evaluators?” – remains as relevant as ever. Johannes Linn served as an external peer reviewer of the self-evaluation and provides a bird’s-eye view on the lessons learned.

An Overview of the World Bank’s IEG Self-Evaluation Report

In 2011 the World Bank’s Independent Evaluation Group (IEG) carried out and published a self-evaluation of its activities. The self-evaluation team was led by an internal manager, but involved a respected external evaluation expert as the principal author and also an external peer reviewer.

The IEG self-evaluation follows best professional practices as codified by the Evaluation Cooperation Group (ECG). This group brings together the evaluation offices of seven major multilateral financial institutions in joint efforts designed to enhance evaluation performance and cooperation among their evaluators. One can therefore infer that the approach and focus of the IEG self-evaluation is representative of a broader set of practices that are currently used by the evaluation community of international financial organizations.

At the outset the IEG report states that “IEG is the largest evaluation department among Evaluation Capacity Group (ECG) members and is held in high regard by the international evaluation community. Independent assessments of IEG’s role as an independent evaluation function for the Bank and IFC rated it above the evaluation functions in most other ECG members, international nongovernmental organizations, and transnational corporations and found that IEG follows good practice evaluation principles.”

The self-evaluation report generally confirms this positive assessment. For four out of six areas of its mandate IEG gives itself the second highest rating (“good”) out of six possible rating categories. This includes (a) the professional quality of its evaluations, (b) its reports on how the World Bank’s management follows up on IEG recommendations, (c) cooperation with other evaluation offices, and (d) assistance to borrowing countries in improving their own evaluation capacity. In the area of appraising the World Bank’s self-evaluation and risk management practices, the report offers the third highest rating (“satisfactory”), while it gives the third lowest rating (“modest”) for IEG’s impact on the Bank’s policies, strategies and operations. In addition the self-evaluation concludes that overall the performance of IEG has been “good” and that it operates independently, effectively and efficiently.

The report makes a number of recommendations for improvement, which are likely to be helpful, but have limited impact on its activities. They cover measures to further enhance the independence of IEG and the consistency of evaluation practices as applied across the World Bank Group’s branches – the World Bank, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) –; to improve the design of evaluations and the engagement with Bank management upstream for greater impact; and monitoring the impact of recent organizational changes in IEG in terms of results achieved. The report also recommends that more be done to evaluate the Bank’s analytical work and that evaluations draw on comparative evidence.

Assessment

In terms of the parameters of self-evaluation set by the prevailing practice among the evaluators on international financial agencies, the IEG self-evaluation is accurate and helpful. From my own experience as an operational manager in the Bank whose activities were evaluated by IEG in years past, and as a user of IEG evaluations (and of evaluations of other international aid organizations) for my research on aid effectiveness, I concur that IEG is independent and effective in meeting its mandate as defined. Moreover, the self-evaluation produces useful quantitative evidence (including survey results, budget analysis, etc.) to corroborate qualitative judgments.

However, the self-evaluation suffers from a number of limitations in approach and gaps in focus, which are broadly representative of the practices prevalent among many of the evaluation offices of international aid agencies.

Approach of the IEG self-evaluation

The core of the self-evaluation report is about the evaluation process followed by IEG, with very little said about the substance of IEG’s evaluations. The following questions could have usefully been raised, but were not: do evaluations cover the right issues with the right intensity, such as growth and poverty; environmental, governance, and gender impacts; regional dimensions versus exclusive country or project focus; effectiveness in addressing the problems of fragile and conflict states; effectiveness in dealing with global public goods; sustainability and scaling up; etc. Therefore the report does not deal with the question of whether IEG effectively responds in its evaluations to the many important strategic debates and issues with which the development community is grappling.

Related to this limitation is the fact that the report assessed the quality of IEG’s mostly in terms of (a) whether its approach and processes meet certain standards established by the Evaluation Cooperation Group; and (b) how it is judged by stakeholders in response to a survey commissioned for this evaluation. Both these approaches are useful, but they do not have any basis in professional assessments of the quality of individual products. This is equivalent to IEG evaluating the World Bank’s projects on the quality of its processes (e.g., appraisal and supervision processes) and on the basis of stakeholder surveys, without evaluating individual products and their impacts.

Gaps in the Self-Evaluation and in Evaluation Practice

Careful reading of the report reveals six important gaps in the IEG self-evaluation, in the prevailing evaluation practice in the World Bank, and more generally in the way international financial organizations evaluate their own performance. The first three gaps relate to aspects of the evaluation approach used and the second three gaps relate to lack of focus in the self-evaluation on key internal organizational issues:

1. Impact Evaluations: The report notes that IEG carries out two to three impact evaluations per year, but it sidesteps the debate in the current evaluation literature and practice as to what extent the “gold standard” of randomized impact evaluation should occupy a much more central role. Given the importance of this debate and divergence of views, it would have been appropriate for the self-evaluation to assess IEG’s current practice of very limited use of randomized evaluations.

2. Evaluation of Scaling Up: The report does not address the question of to what extent current IEG practice not only assesses the performance of individual projects in terms of their outcomes and sustainability, but also in terms of whether the Bank has systematically built on its experience in specific projects to help scale up their impact through support for expansion or replication in follow-up operations or through effective hand-off to the government or other partners. In fact, currently IEG does not explicitly and systematically consider scaling up in its project and program evaluations. For example, in a recent IEG evaluation of World Bank funded municipal development projects (MDPs) , IEG found that the Bank has supported multiple MDPs in many countries over the years, but the evaluation did not address the obvious question whether the Bank systematically planned for the project sequence or built on its experience from prior projects in subsequent operations. While most other evaluation offices like IEG do not consider scaling up, some (in particular those of the International Fund for Agricultural Development and the United Nations Development Program) have started doing so in recent years.

3. Drawing on the Experience of and Benchmarking Against Other Institutions: The self-evaluation report does a good job in benchmarking IEG performance in a number of respects against that of other multilateral institutions. In the main text of the report it states that “IEG plans to develop guidelines for approach papers to ensure greater quality, in particular in drawing on comparative information from other sources and benchmarking against other institutions.” This is a welcome intention, but it is inadequately motivated in the rest of the report and not reflected in the Executive Summary. The reality is that IEG, like most multilateral evaluation offices, so far has not systematically drawn on the evaluations and relevant experience of other aid agencies in its evaluations of World Bank performance. This has severely limited the learning impact of the evaluations.

4. Bank Internal Policies, Management Processes and Incentives: IEG evaluations traditionally do not focus on how the Bank’s internal policies, management and incentives affect the quality of Bank engagement in countries. Therefore evaluations cannot offer any insights into whether and how Bank-internal operating modalities contribute to results. Two recent exceptions are notable exceptions. First, the IEG evaluation of the Bank’s approach to harmonization with other donors and alignment with country priorities assesses the incentives for staff to support harmonization and alignment. The evaluation concludes that there are insufficient incentives, a finding disputed by management. Second, is the evaluation of the Bank’s internal matrix management arrangements, which is currently under way. The self-evaluation notes that Bank management tried to quash the matrix evaluation on the grounds that it did not fall under the mandate of IEG. This is an unfortunate argument, since an assessment of the institutional reasons for the Bank’s performance is an essential component of any meaningful evaluation of Bank-supported programs. While making a good case for the specific instance of the matrix evaluation, the self-evaluation report shies away from a more general statement in support of engaging IEG on issues of Bank-internal policies, management processes and incentives. It is notable that IFAD’s Independent Office of Evaluation appears to be more aggressive in this regard: It currently is carrying out a full evaluation of IFAD’s internal efficiency and previous evaluations (e.g., an evaluation of innovation and scaling up) did not shy away from assessing internal institutional dimensions.

5. World Bank Governance: The IEG self-evaluation is even more restrictive in how it interprets its mandate regarding the evaluation of the World Bank’s governance structures and processes (including its approach to members’ voice and vote, the functioning of its board of directors, the selection of its senior management, etc.). It considers these topics beyond IEG’s mandate. This is unfortunate, since the way the Bank’s governance evolves will substantially affect its long-term legitimacy, effectiveness and viability as an international financial institution. Since IEG reports to the Bank’s board of directors, and many of the governance issues involve questions of the board’s composition, role and functioning, there is a valid question of how effectively IEG could carry out such an evaluation. However, it is notable that the IMF’s Independent Evaluation Office, which similarly reports to the IMF board of directors, published a full evaluation of the IMF’s governance in 2008, which effectively addressed many of the right questions.

6. Synergies between World Bank, IFC and MIGA: The self-evaluation report points out that the recent internal reorganization of IEG aimed to assure more effective and consistent evaluations across the three member branches of the World Bank Group. This is welcome, but the report does not assess how past evaluations addressed the question of whether the World Bank, IFC and MIGA effectively capitalized on the potential synergies among the three organizations. The recent evaluation of the World Bank Group’s response to the global economic crisis of 2008/9 provided parallel assessments of each agency’s performance, but did not address whether they work together effectively in maximizing their synergies. The reality is that the three organizations have deeply engrained institutional cultures and generally go their own ways rather than closely coordinating their activities on the ground. Future evaluations should explicitly consider whether the three effectively cooperate or not. While the World Bank is unique in the way it has organizationally separated its private sector and guarantee operations, other aid organizations also have problems of a lack of cooperation, coordination and synergy among different units within the agency. Therefore, the same comment also applies to their evaluation approaches.

Conclusions

Self-evaluations are valuable tools for performance assessment and IEG is to be congratulated for carrying out and publishing such an evaluation of its own activities. As for all self-evaluations, it should be seen as an input to an independent external evaluation, a decision that, for now, has apparently been postponed by the Bank’s board of directors.

IEG’s self-evaluation has many strengths and provides an overall positive assessment of IEG’s work. However, it does reflect some important limitations of analysis and of certain gaps in approach and coverage, which an independent external review should consider explicitly, and which IEG’s management should address. Since many of these issues also likely apply to most of the other evaluation approaches by other evaluation offices, the lessons have relevance beyond IEG and the World Bank.

Key lessons include:

• An evaluation of evaluations should focus not only on process, but also on the substantive issues that the institution is grappling with.
• An evaluation of the effectiveness of evaluations should include a professional assessment of the quality of evaluation products.
• An evaluation of evaluations should assess:
  o How effectively impact evaluations are used;
  o How scaling up of successful interventions is treated;
  o How the experience of other comparable institutions is utilized;
  o Whether and how the internal policies, management practices and incentives of the institution are effectively assessed;
  o Whether and how the governance of the institution is evaluated; and
  o Whether and how internal coordination, cooperation and synergy among units within the organizations are assessed.

Evaluations play an essential role in the accountability and learning of international aid organizations. Hence it is critical that evaluations address the right issues and use appropriate techniques. If the lessons above were reflected in the evaluation practices of the aid institutions, this would represent a significant step forward in the quality, relevance and likely impact of evaluations.

       

       

       

Last month’s decision by the Palestinian Authority to schedule municipal elections in early October hardly registered in the West Bank and Gaza Strip, much less here in Washington. In light of Hamas’ recent decision to take part in the process, however, those elections have suddenly taken on new meaning. While the election of some 414 village, town, and city councils across the West Bank and Gaza Strip will not change the face of the Palestinian leadership or alter the diplomatic impasse with Israel, local elections have the potential to unlock the current paralysis within Palestinian politics.

Although Palestinian law calls for local elections to take place every four years, they have only been held twice since the creation of the Palestinian Authority (PA) in 1993, only one of which could be deemed genuinely competitive. The first and only local elections to take place in both the West Bank and Gaza Strip were held in 2004-05, in which Hamas—in its first foray into electoral politics—made major gains. Local elections were again held in 2012, although this time Hamas boycotted the process, preventing the vote from taking place in Gaza and allowing Fatah to declare a sweeping, if somewhat hollow, victory. 

Hamas’ decision to take part in this year’s local elections was therefore something of a surprise. Indeed, Hamas initially expressed dismay at the announcement, accusing the leadership in Ramallah of acting without consulting the other parties. Moreover, should the elections proceed as planned on October 8, they would be the first competitive electoral contest in the occupied territories since Hamas defeated Mahmoud Abbas’s ruling Fatah faction in the 2006 legislative election. Those elections triggered an international boycott of the PA which eventually led to the split between Fatah and Hamas and the current political paralysis.

If nothing else, Hamas’ entry into the elections averts another needless internal crisis in Palestinian politics. A boycott by Hamas would likely have further entrenched the political and geographic division between the Fatah-dominated West Bank and Hamas-ruled Gaza Strip, while dealing yet another blow to the beleaguered National Consensus Government, which despite being accepted by both factions in April 2014 has yet to physically return to Gaza. Movement on the reconciliation track could also help push the long-stalled reconstruction of Gaza, which has yet to recover from the devastating war of 2014.

Hamas has little to lose from participating in an election that is unlikely to significantly alter the political landscape one way or the other...[and Fatah] has little to gain from “winning” another electoral process that is largely uncontested.

What explains Hamas’ apparent change of heart? For one, Hamas may believe it has an advantage over Fatah, which continues to suffer from widespread perceptions of corruption and incompetence—a perception reinforced by the collapse of the peace process as well as the unprecedented unpopularity of President Abbas. Hamas may also view the upcoming vote as a way to gauge its current standing and future prospects in anticipation of long-awaited legislative and presidential elections. Either way, Hamas has little to lose from participating in an election that is unlikely to significantly alter the political landscape one way or the other. 

Hamas’ decision to participate in the elections is welcome news for Palestinian voters eager to see the return of competitive elections and a revival of political life after years of stagnation. It even helps Fatah, which has little to gain from “winning” another electoral process that is largely uncontested. More important, as the party that lost both parliamentary elections and a civil war in 2006-07 and that remains the chief proponent of a failed process, Fatah desperately needs a political victory of some kind as well as a basis on which to stake its claim to legitimacy and continued grip on power.

That said, it is important not to overstate the significance of local elections, which in the end will do nothing to address the deeper problems facing Palestinians in the occupied territories, whether from Israel’s continued occupation and its ever-expanding settlement enterprise or the ongoing political dysfunction within their own ranks. On the other hand, the prospect of the first competitive Palestinian elections in a decade represents a small but significant ripple in the otherwise stagnant waters of Palestinian politics.

       

Editor’s note: This post is adapted from a forthcoming full-length case study; the second in a series from the Engelberg Center’s Merkin Initiative on Physician Payment Reform and Clinical Leadership designed to support clinician leadership of health care delivery, payment, and financing reform. The case study will be presented during the Merkin Initiative’s “MEDTalk” event on July 9 from 10:30 AM to 12:30 PM EDT, featuring live story-telling and knowledge-sharing from patients, providers, and policymakers.

Oncology practices and hospitals across the nation struggle with providing sustainable, comprehensive, and coordinated cancer care. Clinical leaders with strategies and models to improve the quality and value of health care often don’t know how to navigate the landscape of payment and delivery reform options to sustain their innovations.

We use a case study approach to investigate and tell the story of the New Mexico Cancer Center (NMCC), an independent cancer center that is experimenting with innovative ways to improve patient-centered oncology care. We identify challenges for creating sustainable and supportive payments models, and we share the broader strategic and policy lessons for adopting alternative payment models.

The Clinical Scenario: Living With Cancer

Vicky Bolton, a 58-year-old full-time medical legal coordinator from Albuquerque, has stage 4 adenocarcinoma lung cancer. She started chemotherapy in 2003 and has consistently received treatments over the last 11 years. Vicky is one of 13 million Americans currently living with cancer, with more than 1.6 million new diagnoses added each year.

Although Vicky’s condition is currently stable, she is at high risk for venous thrombosis (blood clots), life-threatening infections, and other complications, which put her at high risk for repeated hospitalizations. In the past six months, she has taken advantage of “after hours” care on three occasions as an outpatient at NMCC. Fortunately, each of her providers and services — oncology, radiation therapy, labs, x-rays, and internal medicine — are centralized in a single location at NMCC, reducing the need for emergency room (ER) visits or hospitalizations for these episodes.

The Challenge: Controlling Spending While Improving Patient-Centered Care

Cancer is the second leading cause of death in the U.S. Forty-one percent of Americans will be diagnosed with cancer during their lives. Cancer care is also expensive, accounting for $125 billion of total health care spending annually. In 2011, Medicare alone spent nearly $35 billion in fee-for-service (FFS) payments for cancer care, representing 9 percent of all Medicare FFS payments.

The high costs of cancer care are driven by issues that plague the entire health system: uncoordinated care delivery, duplication of services, fragmentation, and volume-based payments. A common impact of these drivers in oncology is the use of the ER to relieve symptoms associated with adverse effects of chemotherapy or other treatments that can also result in hospitalization.

For example, research shows that the most common reasons for cancer patient ER admissions are pain, respiratory distress, nausea, and vomiting. More than half of the ER visits occurred on weekends or in the evening, and over 60 percent resulted in hospital admission. This suggests that if a patient’s symptoms could be managed at home or in the community, costly hospital admissions could be avoided. ER visits, where patients are exposed to germs and infections as they wait — often hours — to be admitted, can have catastrophic outcomes for patients that are actively in treatment since they have weakened immune systems and are more prone to infections.

In addition to the inherent issues with fee-for-service (FFS) payments — with payments incentivizing volume of procedures rather than the value of care delivered — the current payment system further exacerbates problems: If a practice provides higher-value care to patients at a lower cost to the overall system (that is, they perform fewer services and have lower revenue), the financial winner is the payer who reimburses fewer services, not the practice (which merely has less revenue). This combination of the misaligned incentives of FFS and the lack of financial benefit for improving care while reducing costs means that many practices simply cannot afford to make the transformations needed without other funding mechanisms.

The Real World: How Has An Independent Cancer Center Responded To These Challenges?

NMCC delivers care to roughly 2,700 patients and provides care to one in three New Mexicans with cancer. The changes that the center has made have focused on reducing the impact of fragmentation of care on their patients (Table 1).

A key innovation was enhancing comprehensive after-hours and weekend care on site and creating a telephone and urgent care triage program to avoid expensive emergency room and inpatient care, which NMCC termed the COME HOME model.

As part of its redesign process in 2012, NMCC – along with six community oncology practices — secured a $20 million Center for Medicare and Medicaid Innovation (CMMI) Health Care Innovation Award (HCIA), for a three-year period. The award has an explicit aim of reducing ER visits by 50 percent and hospitalizations by 20 percent to justify the program costs.

Table 1: Care Redesign Elements Undertaken by NMCC

The Key Levers: How Can COME HOME Be Sustained?

On the heels of the Affordable Care Act (ACA) and numerous quality and payment focused initiatives in the private sector, health care organizations need to enhance the competitiveness and efficiency of their systems in the marketplace.

Alternative payment models (APMs) such as Accountable Care Organizations (ACOs), bundled payments, and patient-centered oncology medical homes (PCOMH) are just a few of the initiatives supported by public and private payers to align care redesign and payment reform and encourage continuous improvement. (Clinical pathways, a strategy recently embraced by WellPoint, offer PCOMH-like incentives to encourage adherence to practice guidelines, a strategy primarily geared to encourage higher-value chemotherapy practice.)

Broader or larger case-based payments may also provide stronger incentives to limit costs, to help assure that promising delivery reforms actually lead to cost reduction, but this exposes oncologists to greater levels of financial risk, as shown in Table 2. Consequently, implementing payment reforms that are viewed as feasible and desirable by both providers and payers is difficult.

Table 2: Comparison of Alternative Payment Models for Oncology

The Path Ahead: How Can These Models Assist NMCC?

NMCC currently receives approximately $70,000 per month from the CMMI grant and has not yet identified a clear strategy to sustain the delivery reforms in the COME HOME care model past the end of the grant (July 2015). As for payment reform options, NMCC has been unable to contract as part of a comprehensive ACO due to local health care market conditions.

Clinical pathways are geared primarily to guidelines and chemotherapy adherence, and are not designed to provide funding for after-hours care or triage programs that are intended to achieve offsetting savings through avoiding costly complications. Possible remaining options include:

• PCOMH: Using the data it gathers, NMCC intends to quantify the additional costs the COME HOME model requires, and the savings that it achieves. Based on that estimate, NMCC could suggest a per-member per-month (PMPM) payment from a private insurer to cover the costs of providing higher quality care. To encourage participation, NMCC could also enter into a risk-sharing agreement, in which overall costs of inpatient care and ER visits would be compared against a target. The PMPM payment could be at-risk if the targets are not achieved after a certain period of time.

• Bundled Payments: NMCC could potentially use the medical home approach with risk sharing (described above) as a first, interim step toward a bundled payment system, NMCC’s long-term preferred model. Computing actuarially sound expected costs for the bundled payments would require merging claims data with clinical data (for example, ICD-9 codes fail to distinguish between subtypes of breast cancer that have radically different treatments). A bundled payment pilot might be performed for high volume cancers, such as breast and lung.

Lessons Learned

The experience of innovative pioneers like NMCC can shed some light on potential barriers to conceptualizing and implementing sustainable clinical redesign. The lessons learned have been sorted into three main categories: relationships with payers and networks, payment model selection, and data collection and quality improvement considerations.

Relationships with payers and networks. Though counterintuitive, merely demonstrating significant value from care design, perhaps from lower utilization of inpatient and emergency department utilization, does not automatically create a financial pathway for sustainable delivery reform. To do so, innovative providers should consider involving lead payer partners early on to help identify end-points of interest to payers and potential payment strategies that may emerge later.

Providing support for health care delivery reforms requires new activities by payers towards aligning their payments with value, rather than volume and intensity of services. However, fragmented health care markets face the challenge of the “free rider” problem: payers may be unwilling to shoulder delivery transformation costs that may benefit other payers’ clients while they wait for CMS or others to make the financial investment, pay for the program evaluation, and enact policy change). Other challenges include payer inertia and long lag times between care redesign and subsequent data demonstrating results.

Large ACOs and other integrated payer-provider plans, including those large enough to form Medicare Advantage plans, are moving forward on negotiating payment and delivery reforms. This may be more difficult for innovative, smaller practices, even if they can provide higher-value clinical services. In turn, this may have anti-competitive consequences, such as discouraging delivery innovation that leads to “demand destruction” of high-cost hospital-based services. Private and public payers should be particularly interested in developing models that enable smaller, specialized providers like oncology practices to undertake key delivery reforms.

Sustainable Payment Model Selection. While substantial attention has been paid to primary care focused APMs, specialty-focused APMs are needed for practices like NMCC. Their development should be a high priority for public and private payers. Clinical transformation grants, such as those offered by CMMI, should include clear pathways for transitioning to APMs if initial cost savings targets or projections are met. Otherwise, delivery system innovations are at high risk of failure despite evidence of improved value.

Data Collection and Quality Improvement Considerations. Timely sharing of actionable information from claims and other administrative data remains a major challenge, with complex and varied procedures for obtaining claims from payers; smaller practices are particularly challenged in interpreting the claims data. Some states, such as Maryland, Massachusetts, Vermont, and Colorado (among others) are proceeding with creating all-payer claims databases. (Maryland, for example, offers almost instantaneous provider feedback from claims through their CRISP database.)

Others, such as Minnesota, are using “distributed” approaches in which multiple payers and systems produce measures in consistent ways. As NMCC’s early efforts illustrate, practices can produce more clinically sophisticated performance measures. Strategies to achieve consistent methods for sharing key data on cost and quality need to be expanded to encourage quality improvement and payment reform.

      

Payment reform in health care is confusing, but the goal is simple: How can health care providers change their economic incentives to encourage value over volume? If you've wondered about how these new payment models work, we’re here to help. And if you want to see Dr. Patrick Conway, the head of the Center for Medicare and Medicaid Innovation, talk about it more in depth at our most recent MEDTalk event about oncology care reform, click here.

Where are we now?

Fee-for-Service. Traditionally, health care providers are paid in a "Fee-for-Service" (FFS) model. This is exactly what it sounds like: every time you have a blood test, a doctor's visit, a CT scan, or any other service, you (and your insurance company) pay separately for what you have received. Over the course of a long treatment or a chronic condition, that can add up to a huge expense.

The Fee-For-Service System

It is well known that FFS is draining the entire health care system. When paying for volume, a sick patient is worth more than a healthy patient , and this status quo results in uncoordinated care, duplication of services, and fragmentation. After all, the more doctors and providers do, the more they get paid.

Reformers hope to replace the traditional FFS model with something better, and they’ve come up with many different models of payment that could allow this to happen. (Note to reader:  these are simplified explanations; policy enthusiasts can learn much more about them through the Engelberg Center’s Merkin Initiative).

Here are four widely proposed and increasingly popular alternative payment models:

Accountable Care Organizations (ACOs) are groups of providers across different settings– primary care, specialty physicians, hospitals, clinics, and others – who chose to come together to jointly share responsibility for overall quality, cost, and care for a large patient population. These providers recognize that poorly coordinated care from these entities can lead to increased costs from things like redundant tests and overlapping care.

Accountable Care Organization Model

Here’s how it works in basic terms: the ACO physicians bill the way they always do, but the total costs get compared to an overall target. Plus, they have to measure some of their patient outcomes, to prove that they hit certain quality benchmarks. If costs are higher than the target, the ACO may get penalized. In the end, if they are under the cost target and satisfy their quality measures, they get a share of the savings.

By bringing all of these providers under the umbrella of an ACO, caregivers can all be on the same page, and the patients ideally receive coordinated care with a focus on prevention – since providers are encouraged to keep their patients healthy and not just earn more by doing more tests and procedures.

Bundles: A health care bundle estimates the total cost of all of the services a patient would receive per episode over a set time period for a certain problem, like a knee replacement or heart surgery. For example, a payer such as Medicare or an insurance company could calculate that a hypothetical 30-day bundle for a knee replacement surgery costs $10,000.

Without Bundled Payment...

The payer reduces the total cost of the episode by 2-3%, and hands the bundle over to the provider – in the knee surgery example, that becomes $10,000 minus 2%, so $9,800. The provider is then responsible for all costs of treatment – whether or not it exceeds the amount of money they were originally given. This encourages the provider (collaborating with the entire care team) to help the patient avoid preventable complications like a hospital readmission by better managing a patient’s care.

With a Bundled Payment...

If the provider keeps costs low, they can keep the margin on the bundle, while the insurance company already saved by reducing the cost of the episode by a small percentage when they created the bundle. So, in our example, if the provider was able to meet quality benchmarks and the total cost of the 30-day episode was $9,000, they get to keep the extra $800.

Patient-Centered Medical Homes set themselves apart by providing set monthly payments on top of existing funding models, in order to fund a highly coordinated team of primary care professionals, which may include, depending on the patient’s needs, physicians, nurse practitioners, medical assistants, nutritionists, psychologists, and possibly even specialists. The team works closely to build a strong relationship with each other,with their patients and their caregivers.

Patient-Centered Medical Home Model...

This extra money can be used to hire nurses or agencies to give special care and attention (by phone or home visits, for example) to high-risk patients, with the goals of reducing emergency room visits and other preventable problems in the long run. Other enhancements might include email communication with patients, more time to call and coordinate care between primary care doctors and specialists, and so on. In the end, the savings from better coordinated care make the extra monthly payments worthwhile.

Pathways, an idea which has gained traction in oncology care, provides a system of choices and decision making tools for providers and patients in order to prescribe the most effective and least costly treatment. For example, let’s say there are two cancer drugs proven to have the same effectiveness, with no differentiation in side effects, but one of them costs less than the other.

Same Effectiveness, Different Cost...

Like the medical home, the pathways model uses a “per-patient” add on fee (often much larger than for medical homes focused on primary care, since cancer patients need intensive treatment) that might encourage the provider to prescribe the less expensive of two equally effective treatments.

How Pathways Creat Savings...

 

 

 

 

 

 

When this is implemented on a broad scale, the savings could add up for payers, and defray the cost of the add-on fees.

Please feel free to use any of these images in your own work, presentations, or educational efforts, and to view and download the interactive versions here.  The images should be attributed to The Merkin Initiative on Clinical Leadership and Payment Reform at Brookings.