PEPFAR and the Costs of Cost-Benefit Analysis

Justin Sandefur

In the early aughts, economists said it was a bad use of money to send antiretroviral drugs to treat HIV in low-income countries. Twenty years later, we can ask why they got it wrong.

Twenty-one years ago, in the same State of the Union speech in which he made the case for invading Iraq, George W. Bush asked Congress for $15 billion for an ambitious new plan: to pay for antiretroviral drugs for 2 million people living with AIDS in Africa and the Caribbean.

The President’s Emergency Plan for AIDS Relief, or PEPFAR, went on to become probably the most celebrated American foreign aid program since the Marshall Plan. An evaluation by the National Academies’ Institute of Medicine estimates PEPFAR has saved millions of lives (PEPFAR itself claims 25 million). Total mortality rates across the 14 focus countries fell visibly within just a few years after the program was launched (see Figure 1). And the rollout of antiretrovirals — which PEPFAR played a major role in, both directly and as a catalyst to lower ARV prices — explains about a third of Africa’s economic growth resurgence in the 2000s. 

But at the time Bush first proposed the program, some economists balked. The conventional wisdom within health economics was that sending AIDS drugs to Africa was a waste of money. The dominant conceptual apparatus economists use to evaluate social policies — comparative cost-effectiveness analysis, which focuses on a specific goal like saving lives, and ranks policies by lives saved per dollar — suggested America’s foreign aid budget could’ve been better spent on condoms and HIV awareness campaigns, or on malaria and diarrheal disease prevention programs.

In a now infamous op-ed published in Forbes in 2005, before PEPFAR’s impacts were well documented, Brown University economist Emily Oster declared that “treating HIV doesn’t pay.” “It is humane to pay for AIDS drugs in Africa,” she wrote, “but it isn’t economical. The same dollars spent on prevention would save more lives.”

Oster’s argument was not that the lives of those with HIV weren’t worth the cost — that retroviral drug prices exceeded the “value of a statistical life,” as economists might phrase it — but rather that if we take the budget as fixed, the money could do more good if spent on other health programs.

Nor was Oster alone. Her basic reasoning reflected a broad professional consensus, which viewed antiretrovirals through the lens of comparative cost-effectiveness analysis, and deemed them of middling to poor value. In 2002, a year prior to Bush’s announcement of PEPFAR, a systematic review published in The Lancet found that ARVs were an order of magnitude less effective than other interventions in their impact on disability-adjusted life years, or DALYs — the standard measure of burden of disease and ill-health in a population: “A case of HIV/AIDS can be prevented for $11, and a DALY gained for $1” by improving the safety of blood transfusions and distributing condoms, whereas “antiretroviral therapy for adults, cost several thousand dollars per infection prevented, or several hundreds of dollars per DALY gained.”

ARVs were not only considered cost- ineffective compared to other forms of HIV prevention; they lagged behind most other global health priorities. In the 2006 edition of its authoritative volume on disease control priorities in developing countries, the World Bank looked at 60 different health interventions to address “high burden diseases” like HIV/AIDS, tuberculosis, and malaria that were killing large numbers of people. Evaluated on cost-effectiveness, antiretroviral treatment, the core of PEPFAR’s multibillion-dollar strategy, ranked 45th out of 60, far behind investments to prevent diarrhea and malaria, and behind eight other investments to reduce HIV/AIDS mortality.

Overall the World Bank review concluded antiretrovirals were “moderately cost-effective” in the settings where drug access and adherence were high, costing between $350 to $500 per disability-adjusted year of life saved, and “significantly poor value” in contexts where drug adherence was often poor.

Source: Eran Bendavid et al., “HIV Development Assistance and Adult Mortality in Africa,” JAMA 307, no. 19 (2012): 2060–2067.

Even well into the program, many economists viewed PEPFAR’s emphasis on treatment over prevention as a mistake. Mead Over, who helped draw the World Bank’s attention to the AIDS epidemic in the 1990s and served on PEPFAR’s scientific advisory board, emphasized this in 2010. “Given our fiscal crisis, we cannot do everything,” he wrote. “If we accept that AIDS patients currently on treatment have an entitlement to continued support, President Bush’s call to scale-up treatment likely means less money for the rest of PEPFAR’s mandate — which is to prevent infection so that fewer people will need treatment in the future.”

These arguments were reasonable on their face. Yet PEPFAR ignored them, and in doing so achieved one of the greatest public health victories of the past half century. With the benefit of hindsight, we can see that the arguments against free antiretroviral drugs rested on two basic errors.

First, proponents of specific prevention strategies acted on assumptions that lacked sufficient empirical backing. And understandably so. An approach that emphasized prevention over antiretroviral treatment appealed to economists’ tendency to look for economical solutions: ways to spend smarter rather than spend more. But the data to show that strategies such as treating other untreated sexually transmitted infections would work — reliably, at scale, across heterogeneous contexts — was never very strong. Much of the evidence that existed at the time ended up not replicating. Economists gave too little credence to doctors who were pointing to a different approach, based on antiretroviral treatment, that proved more effective and more scalable. 

Second, economists were stuck in an austerity mindset, in which global health funding priorities were zero-sum: $300 for a course of HIV drugs means fewer bed nets to fight malaria. But these trade-offs rarely materialized. The total budget envelope for global public health in the 2000s was not fixed. PEPFAR raised new money. That money was probably not fungible across policy alternatives. Instead, the Bush White House was able to sell a dramatic increase in America’s foreign aid budget by demonstrating that several billion dollars could, realistically, halt an epidemic that was killing more people than any other disease in the world.   

In sum, PEPFAR worked. Economists got it wrong. And 20 years later, with millions of lives saved, we haven’t had a real intellectual reckoning about why — and what lessons PEPFAR’s success might hold for the future. 

Evidence, absence, and hindsight 

The global health and development literature is littered with examples of programs that worked well in randomized trials but failed to replicate or fell apart when taken to scale.

Prioritizing prevention rather than treatment was the main alternative to antiretroviral treatment put forward by most serious critics of PEPFAR. And there was some evidence that foreign aid could have cheaply or effectively prevented HIV transmission in Africa. But it was very limited. A promising early randomized controlled trial failed to replicate, and null results were sometimes swept under the rug.

In a 2005 paper in the Quarterly Journal of Economics, Oster modeled the impact of various HIV prevention strategies as well as antiretroviral treatment. Specifically, the model suggested treating untreated sexually transmitted infections could prevent roughly 1 in 4 HIV infections “at a cost of less than $80 per infection, or around $3.67 per life year.” The message for PEPFAR was clear: “Although some policy-makers have focused on antiretroviral provision as the duty of rich countries and pharmaceutical companies…the results here indicate that this type of treatment should not be the first line of defense.”

Oster’s calculations were based on a randomized controlled trial conducted in Mwanza, Tanzania, in the 1990s, which found that better management of sexually transmitted infections led to a 40% reduction in HIV incidence. As the authors noted, it was “the first randomised trial to demonstrate an impact of a preventive intervention on HIV incidence in a general population.” 

Sadly, the results from that trial were an outlier relative to studies before and afterward. A 2019 review in the Journal of the International AIDS Society analyzed nine clinical trials that also looked at the synergy between HIV and STI prevention. Of those nine, the “successful prevention of HIV through treatment of STIs was only noted in Mwanza, Tanzania,” i.e., the one study Oster had relied on. A separate 2016 review of HIV prevention methods classified STI treatment as a method with the highest quality of evidence (multiple randomized trials) and the lowest level of results (consistent null effects).

Some of this disappointing evidence was already known during early PEPFAR debates, but ignored or dismissed, including by Oster. In her 2005 paper, Oster cited the successful trial in Tanzania, and explained why she chose to discount a separate trial in Uganda which found null results. She did not mention another trial in Côte d’Ivoire, published in the journal AIDS in 2001, that reached inconclusive findings, or two trials — one in Uganda published in The Lancet in 2003, and another in Kenya published in the Journal of the American Medical Association in 2004 — both of which found null results.

Was this evidence of absence or absence of evidence for cheap prevention strategies?

In his book Achieving an AIDS Transition, Mead Over hypothesized that some of these trials would have been unable to detect an effect on prevention even where it existed, because researchers’ duty of care required them to provide at least basic information on HIV prevention to the control group as well. “Because [HIV prevention researchers] have been ‘blinded’ by ethical constraints, they have not been able to measure the true benefits of the interventions,” Over wrote. 

The debate boiled down to whether those RCTs showed no impact, or the lack of impact showed those studies were done in a way that made their evidence invalid. Neither was a great basis for pushing an alternative to antiretroviral treatment. And ethical constraints were not the only reason these trials may have failed. As the 2019 review in the Journal of the International AIDS Society put it: “Failure to see population level prevention of HIV acquisition by more aggressive or mass treatment of STIs is best ascribed to the difficulty of providing effective drugs to the right people at the right time, and the difficulty of assuring that the trial participants are able to adhere to the antimicrobial regimens selected.” In short, implementation was hard, and compliance was low — both problems that PEPFAR was designed to address.

Meanwhile, treatment proved more effective than originally known. It not only brought people back from the brink of death, but —  crucially — it almost completely stopped HIV transmission. 

Of the 14 major approaches to HIV/AIDS prevention in The Lancet review from 2016, just six had been subject to multiple randomized controlled trials, and of those, just two had consistent positive impacts: medical male circumcision and pre-exposure prophylaxis, or PrEP, aka “treatment as prevention.”

In 2003, the impacts of male circumcision on HIV prevention remained unproven, and PrEP didn’t yet exist. Both are now central to PEPFAR’s work. The idea that programs could do either prevention or treatment revealed itself to be a false dichotomy. An ounce of prevention may indeed be worth a pound of cure. Economists love solutions that prioritize spending smarter over spending more. In this case, that led to a bias away from spending on things that doctors in the field said they could definitely do — basically bring patients back from the brink of death with ARV treatment — in favor of something that scant evidence suggested was possible at the time.

Budgets aren’t fixed

Economists’ standard optimization framework is to start with a fixed budget and allocate money across competing alternatives. At a high-level, this is also how the global development community (specifically OECD donors) tends to operate: foreign aid commitments are made as a proportion of national income, entirely divorced from specific policy goals. PEPFAR started with the goal instead: Set it, persuade key players it can be done, and ask for the money to do it.

Bush didn’t think like an economist. He was apparently allergic to measuring foreign aid in terms of dollars spent. Instead, the White House would start with health targets and solve for a budget, not vice versa. “In the government, it’s usually — here is how much money we think we can find, figure out what you can do with it,” recalled Mark Dybul, a physician who helped design PEPFAR, and later went on to lead it. “We tried that the first time and they came back and said, ‘That’s not what we want...Tell us how much it will cost and we’ll figure out if we can pay for it or not, but don’t start with a cost.’” 

Economists are trained to look for trade-offs. This is good intellectual discipline. Pursuing “Investment A” means forgoing “Investment B.” But in many real-world cases, it’s not at all obvious that the realistic alternative to big new spending proposals is similar levels of big new spending on some better program. The realistic counterfactual might be nothing at all.

In retrospect, it seems clear that economists were far too quick to accept the total foreign aid budget envelope as a fixed constraint. The size of that budget, as PEPFAR would demonstrate, was very much up for debate.

When Bush pitched $15 billion over five years in his State of the Union, he noted that $10 billion would be funded by money that had not yet been promised. And indeed, 2003 marked a clear breaking point in the history of American foreign aid. In real-dollar terms, aid spending had been essentially flat for half a century at around $20 billion a year. By the end of Bush’s presidency, between PEPFAR and massive contracts for Iraq reconstruction, that number hovered around $35 billion. And it has stayed there since. (See Figure 2)

Compared to normal development spending, $15 billion may have sounded like a lot, but exactly one sentence after announcing that number in his State of the Union address, Bush pivoted to the case for invading Iraq, a war that would eventually cost America something in the region of $3 trillion — not to mention thousands of American and hundreds of thousands of Iraqi lives. Money was not a real constraint.

A broader lesson here, perhaps, is about getting counterfactuals right. In comparative cost-effectiveness analysis, the counterfactual to AIDS treatment is the best possible alternative use of that money to save lives. In practice, the actual alternative might simply be the status quo, no PEPFAR, and a 0.1% reduction in the fiscal year 2004 federal budget. Economists are often pessimistic about the prospects of big additional spending, not out of any deep knowledge of the budgeting process, but because holding that variable fixed makes analyzing the problem more tractable. In reality, there are lots of free variables.

Feasibility won the White House

PEPFAR set out an ambitious goal, and enlisted celebrities and politicians across the political spectrum to rally behind that goal. By figures as disparate as U2 frontman Bono and conservative senator Jesse Helms, PEPFAR was sold on moral grounds, not material interests. There was little talk about policy alternatives or comparative cost-effectiveness.

But moral arguments don’t exist in an empirical vacuum. What sort of evidence was used by PEPFAR’s architects to make their moral case? In 2013, the U.S.-U.K. Fulbright Commission invited former director of the National Institutes of Health and Nobel-winning scientist Harold Varmus to give a lecture on diplomacy. Varmus interviewed some of the participants in the early PEPFAR planning meetings to better understand what kind of evidence mattered when deciding whether or not to go forward with the PEPFAR plan. Varmus wrote:

all agree that two kinds of testimony helped to convince the president’s representatives that the program should go forward. First, the evidence from those who had worked in the field that antiretroviral drugs and preventive measures could be deployed effectively and at reasonable cost, even in very poor settings, like Uganda and Haiti. Second, perhaps even more powerful, the visual demonstrations of how the new drug regimens could restore health — several participants alluded to this as “the Lazarus effect.”

In short, evidence on feasibility and efficacy won the case.

Intuitively, it’s easy to see how these types of evidence could trigger moral imperatives. Ask yourself why you didn’t give money to the homeless person you passed on the way to work today, and I suspect your answer has more to do with efficacy (he’ll waste it on booze) or feasibility (my $5 is not going to end homelessness; we need systemic solutions). If you really believed your $5 would help him, and this kind of charity would solve homelessness, would you balk at the cost (I need those $5 for Starbucks)?

Not all problems in global development can be solved by throwing money at them. But money is, effectively, what the White House had, and they happened to land on something that money could in fact buy: “a single pill that could save millions of lives.”

Source: U.S. Foreign Assistance Dashboard

Cost can’t be taken as exogenous 

PEPFAR was only possible because the price of antiretroviral drugs fell so dramatically in the late 1990s and early 2000s. The first HIV drug treatment regimens, including AZT, cost about $100,000 per patient per year circa 1993. By 1997, triple-drug regimens had brought the price down to about $20,000 per patient per year. By the time of Bush’s 2003 State of the Union announcement, treatment could be done for as little as $300. 

Traditional cost-effectiveness analysis compares the costs and benefits of various alternatives, which are taken as given, or exogenous to the model. In PEPFAR’s case though, the price of antiretroviral drugs wasn’t just evolving quickly; it was evolving partially in response to other policy variables. 

What drove the price decline? In her short history of the rise of antiretroviral drugs, Tamara Mann Tweel argues that prices fell in part due to political pressure on multinational pharmaceutical companies, but primarily because activists, policymakers, and producers in India, Brazil, and Thailand created a market for generic alternatives.  

Economists were mostly marginal players in this saga. The few who were centrally involved, like Jamie Love, who worked with Ralph Nader and the Consumer Project on Technology, were far outside the academic mainstream. And their quest to get generics into the market required overcoming one of economists’ most cherished institutions: property rights.

As of the 1980s, about 50 countries exempted pharmaceuticals from patent law, and others offered only limited patent protection. At that time, ensuring access to medicines was considered more important than enforcing intellectual property rights. But in 1995, just as the global AIDS epidemic was unfolding, the creation of the World Trade Organization ushered in a new global system of patent protection. Under the new Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS, all countries were now required to enforce patents on drugs for at least 20 years. 

Making antiretrovirals affordable required finding a way around TRIPS and promoting generic alternatives manufactured in the developing world. 

Most of this battle to spur generics and reduce HIV drug prices happened just prior to the advent of PEPFAR, and so belongs to a different history. But the promise of large international public procurement from PEPFAR and the newly created Global Fund to Fight AIDS, Tuberculosis and Malaria played an important role in the later stages. Surging demand for antiretrovirals led India to begin producing generic HIV drugs in the 2000s, and by 2006 — under pressure from the Clinton Foundation and others — PEPFAR switched to generics. By then, prices had fallen to $150 per patient per year.

Activists didn’t just help make HIV drugs cheaper; they also succeeded in placing them outside the realm of cost-benefit analysis, and into the realm of human rights.

Today, with cheaper and more effective drugs on the market, providing free HIV drugs in Africa probably looks better by traditional cost-effectiveness metrics than it did 20 years ago. But it’s hard to know, because nobody really asks that question anymore. The policy is now taken as a given. 

There is an obvious analogy to climate change here, and to the debate between economists, who have traditionally favored carbon taxes and cap-and-trade schemes, versus a newer crop of progressive activists pushing investment in green technology to bend the cost curve. The latter has proved to be a political winner in the U.S. The Inflation Reduction Act includes a raft of subsidies for clean energy and electric car manufacturing. But the path of investing in innovation rather than Pigouvian taxation and trade-offs may prove to be better economics as well. Analysts have consistently underestimated the speed of progress in battery technology, for instance. Given the pace of change, and the possibility that it is endogenous to our investment decisions, just choosing to tighten our belts looks crazy.

PEPFAR’s actual flaws were orthogonal to economists’ concerns 

PEPFAR may be the best American foreign aid program since World War II. But that doesn’t mean it’s perfect. Its faults just aren’t about spending too much money.

In its early years, PEPFAR’s messaging on HIV/AIDS prevention may have done actual harm. Evangelical lawmakers pushed for U.S. funds to promote the ABC strategy: practice abstinence until marriage, be faithful, and use condoms. According to one review, the ABC approach “demonstrated limited efficacy in changing behaviors, promoted medically inaccurate information, and withheld life-saving information about risk reduction.” By pushing this strategy on countries that couldn’t afford to say no to life-saving drugs, PEPFAR may have “undermined national efforts in Africa to create integrated youth HIV prevention programs.”

America exports its culture wars with its foreign aid. Decades later, there’s no easy fix for that.

In 2017 the Trump administration removed PEPFAR’s exemption to Ronald Reagan’s Mexico City policy, also known as the “global gag rule,” which prohibited federal money from flowing to organizations that offered abortions, or even referenced abortion as part of family planning advice. That created a huge financial incentive for NGOs across Africa to cut off access to reproductive health services in order to keep the PEPFAR checks coming.

Republican administrations periodically revive the global gag rule on abortion care, and Democratic presidents roll it back, but the core focus on HIV/AIDS treatment remains popular and bipartisan.

That balance remains delicate today. As of 2023, as Congress debated reauthorization of PEPFAR again, the best hope for the program was widely considered to be a clean, up-or-down vote to extend it as is for five more years. Privately, PEPFAR advocates noted that they were unlikely to propose any changes whatsoever, as the other side had things they’d like to “fix” about PEPFAR too.

It’s important to distinguish what was politically necessary and what was optimal from a policy perspective: PEPFAR had plenty of both.

There is no need to claim that “all is for the best in the best of all possible worlds,” like Voltaire’s fictional Dr. Pangloss. Perhaps PEPFAR really was the best thing America has done for global development in 75 years, and we can’t reasonably have expected there to be no compromises on the margins. Only Nixon could go to China, and only Bush could fund free HIV/AIDS drugs. But that shouldn’t stop us from acknowledging that program’s deficiencies and working to fix them.

Yes, PEPFAR was highly imperfect and involved lots of ugly political compromises. And yes, funding free HIV/AIDS treatment across Africa and the Caribbean was and remains great policy — not just “the best we could have hoped for from a GOP president” but perhaps the best thing America could’ve done with $100 billion. Full stop.

You don’t have to give up on cost-effectiveness or utilitarianism altogether to recognize that these frameworks led economists astray on PEPFAR — and probably some other topics too. Economists got PEPFAR wrong analytically, not emotionally, and continue to make the same analytical mistakes in numerous domains. Contrary to the tenets of the simple, static, comparative cost-effectiveness analysis, cost curves can sometimes be bent, some interventions scale more easily than others, and real-world evidence of feasibility and efficacy can sometimes render budget constraints extremely malleable. Over 20 years later, with $100 billion dollars appropriated under both Democratic and Republican administrations, and millions of lives saved, it’s hard to argue a different foreign aid program would’ve garnered more support, scaled so effectively, and done more good. It’s not that trade-offs don’t exist. We just got the counterfactual wrong.

Justin Sandefur is a senior fellow at the Center for Global Development. His research spans the economics of education and health, among other fields.

Published February 2024

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