Summary 

A number of biomanufactured products require amino acids and growth factors as inputs, but these small molecules and proteins can be very expensive, driving up the costs of biomanufacturing, slowing the expansion of the U.S. bioeconomy, and limiting the use of novel biomedical and synthetically produced agricultural products. Manufacturing costs can be substantially limiting: officials from the National Institutes of Health and the Bill & Melinda Gates Foundation point to the manufacturing costs of antibody drugs as a major bottleneck in developing and distributing treatments for a variety of extant and emerging infectious diseases. To help bring down the costs of these biomanufacturing inputs, the Biden-Harris Administration should allocate federal funding for a Grand Challenge to research and develop reduced-cost manufacturing processes and demonstrate the scalability of these solutions. 

Amino acids are essential but costly inputs for large-scale bioproduction. To reduce these costs, federal funding should be used to incentivize the development of scalable production methods resulting in production costs that are half of current costs. Specifically, the U.S. Department of Agriculture (USDA) and ARPA-H should jointly commit to an initial funding amount of $15 million for 10 research projects in the first year, with a total of $75. million over five years, in Grand Challenge funding for researchers or companies who can develop a scalable process for producing food-grade or pharmaceutical-grade amino acids or growth factors at a fraction of current costs. ARPA-H should also make funding available for test-bed facilities that researchers can use to demonstrate the scalability of their cost-saving production methods. 

Scaling up the use of animal cell culture for biosynthetic production will only be economically effective if the costs of amino acids and growth factors are reduced. Reducing the cost of bioproduction of medical and pharmaceutical products like vaccines and antimicrobial peptides, or of animal tissue products like meat or cartilage, would improve the availability and affordability of these products, make innovation and new product development easier and more cost effective, and increase our ability to economically manufacture bioproducts in the United States, reducing our dependence on foreign supply chains. 

For a better understanding of the use of amino acids and growth factors in the production of biologics and animal cell-based products, and to accurately forecast supply and demand to ensure a reliable and available supply chain for medical products, the Department of Defense (DoD) and USDA should jointly commission an economic analysis of synthetic manufacturing pathway costs for common bioproducts and include assessments of comparative costs of production for major international competitors. 

Challenge and Opportunity

Amino acids are necessary inputs when synthesizing protein and peptide products, including pharmaceutical and healthcare products (e.g., antibodies, insulin) and agricultural products (e.g., synthetic plant and animal proteins for food, collagen, gelatin, insecticidal proteins), but they are very expensive. Amino acids as inputs to cell culture cost approximately $3 to $50 per kg, and growth factors cost $50,000 per gram, meaning that their costs can be half or more of the total production cost. 

Biomanufacturing depends on the availability of reagents, small molecules, and bioproducts that are used as raw inputs to the manufacturing process. The production of synthetic bioproducts is limited by the cost and availability of certain reagents, including amino acids and small signaling proteins like hormones and growth factors. These production inputs are used in cell culture to increase yields and production efficiency in the biosynthesis of products such as monoclonal antibodies, synthetic meat, clotting factors, and interferon (proteins that inhibit tumor growth and support immune system function). While some bioproducts can be produced synthetically in plant cells or bacterial cells, some products benefit from production steps in animal cells. One example is glycosylation, a protein-modification process that helps proteins fold into stable structures, which is a much simpler process in animal cells than in bacteria or in cell-free systems. The viruses used in vaccine development are also usually grown in animal cells, though some recombinant vaccines can be made in yeast or insect cells. There are benefits and drawbacks to the use of plant, fungi, bacteria, insect, or animal cells in recombinant bioproduction; animal cells are generally more versatile because they mimic human processes closely and require less engineering than non-animal cells. All cells, whether they are animal, plant or bacteria, require amino acids and various growth factors to survive and function efficiently. While in the future growth factors may no longer be required, amino acids will always be required. Amino acids are the most costly necessary additive on a price per kilogram basis; the most costly of the supporting additives are growth factors. 

Growth factors are proteins or steroids that act as signaling molecules that regulate cells’ internal processes, while amino acids are building blocks of proteins that are necessary both for cell function and for producing new proteins within a cell. Cells require supplementation with both growth factors and amino acids because most cells are not capable of producing their own growth factors. Biosynthetic production in animal cells frequently uses growth factors (e.g., TGF, IGF) to increase yield and increase production speed, signaling cells to work faster and make more of a particular compound.

Pharmaceuticals

Although pharmaceutical products are expensive, relatively small demand volumes prevent market forces from exerting sufficient cost pressure to spur innovation in their production. The biosynthetic production of pharmaceuticals involves engineering cells to produce large quantities of a molecule, such as a protein or peptide, which can then be isolated, purified, and used in medicine. Peptide therapeutics is a $39 billion global market that includes peptides sold as end products and others used as inputs to the synthesis of other biological compounds. Protein and peptide product precursors, including amino acids and growth factors, represent a substantial cost of production, which is a barrier to low-cost, high-volume biomanufacturing.

For example, the production of antimicrobial peptides, used as therapeutics against antibiotic-resistant bacteria and viruses, is strongly constrained by the cost of chemical inputs. One input alone, guanidine, accounts for more than 25% of the approximately $41,000 per gram production cost of antimicrobial peptides. Reducing the cost of these inputs will have substantial downstream effects on the economics of production. Antimicrobial peptides are currently very expensive to produce, limiting their development as alternatives to antibiotics, despite a growing need for new antibiotics. The U.S. National Action Plan for Combating Antibiotic-Resistant Bacteria (CARB) outlines a coordinated strategy to accelerate the development of new antibiotics and slow the spread of antibiotic resistance. Reducing the cost to produce antimicrobial peptides would support these goals. 

The high costs of synthetic production limit the growth of the market for synthetic products. This creates a local equilibrium that is suboptimal for the development of the synthetic biology industry and creates barriers to market entry for synthetic products that could, at scale, address environmental and bioavailability concerns associated with natural sources. The federal government has already indicated an interest in supporting the development of a robust and innovative U.S.-based biomanufacturing center, with the passage of the CHIPS and Science Act and Executive Order 14081 on Advancing Biotechnology and Biomanufacturing Innovation for a Sustainable, Safe, and Secure American Bioeconomy. Reducing the costs of basic inputs to the biomanufacturing process of a range of products addresses this desire to make U.S. biomanufacturing more sustainable. There are other examples of federal investment to reduce the cost of manufacturing inputs, from USDA support for new methods of producing fertilizer, to Food and Drug Administration investment to improve pharmaceutical manufacturing and establish manufacturing R&D centers at universities, to USDA National Institute of Food and Agriculture (NIFA) support for the development of bioplastics and bio-based construction materials. Federal R&D support increases subsequent private research funding and increases the number of new products that recipients develop, a positive measure of innovation. 

The effort to reduce biomanufacturing costs is larger than any one company; therefore, it requires a coordinated effort across industry, academia, and government to develop and implement the best solution. The ability to cost-effectively manufacture precursors will directly and indirectly advance all aspects of biomanufacturing. Academia and industry are poised and ready to improve the efficiency and cost of bioproduction but require federal government coordination and support to achieve this essential milestone and to support the development of the newly emerging industry of large-scale synthetic bioproducts.  

Synthetic meat

Developing cost-effective protein and peptide synthesis would remove a substantial barrier to the expansion of synthetic medical and agricultural products, which would address current supply bottlenecks (e.g., blood proteins, antibody drugs) and mounting environmental and political challenges to natural sourcing (e.g., beef, soy protein). Over the past decade, breakthroughs in the manufacturing capability to synthetically produce biological products, like biofuels or the antimalarial drug artemisinin, have failed to reach cost-competitiveness with naturally sourced competitors, despite environmental and supply-chain-related benefits of a synthetic version. The Department of Energy (DoE) and others continue to invest in biofuel and bioproduct development, and additional research innovation may soon bring these products to a cost-competitive threshold. For bioproducts that depend on amino acids and growth factors as inputs, that threshold may be very close. Proof of concept research on growth factor and amino acid production, as well as techno-economic assessments of synthetic meat products, point to precursor amino acids and proteins as being substantial barriers to cost competitiveness of bioproduction—but close to being overcome through technological development. Potential innovators lack support to invest in the development of potentially globally beneficial technologies with uncertain returns.

Reducing the costs of these inputs for the peptide drug and pharmaceutical market could also bring down the costs of synthetic meat, thereby increasing a substantial additional market for low-cost amino acids and growth factors while alleviating the environmental burdens of a growing demand for meat. Israel has demonstrated that there is strong demand for such products and has substantially invested in its synthetic meat sector, which in turn has augmented its overall bioeconomy. 

Bringing the cost of synthetic meat from current estimates of $250 per kg to the high end of wholesale meat prices at $10 per kg is infeasible without reducing the cost of growth factors and amino acids as production inputs but would also reduce the water and land usage of meat production by 70% to 95%. Synthetic meat would also alleviate many of the ethical and environmental objections to animal agriculture, reduce food waste, and increase the amount of plant products available for human consumption (currently 77% of agricultural land is used for livestock, meat, and dairy production, and 45% of the world’s crop calories are eaten by livestock).

Bioeconomy initiatives and opportunity

Maintaining U.S. competitiveness and leadership in biomanufacturing and the bioeconomy is a priority for the Biden-Harris Administration, which has led to a national bioeconomy strategy that aims to coordinate federal investment in R&D for biomanufacturing, improve and expand domestic biomanufacturing capacity, and expand market opportunities for biobased products. Reducing the cost and expanding the supply of amino acids and growth factors supports these three objectives by making bioproducts derived from animal cells cheaper and more efficient to produce. 

Several directives within President Biden’s National Biotechnology and Biomanufacturing Initiative could apply to the goal of producing cost-effective amino acids and growth factors, but a particular stipulation for the Department of Health and Human Services stands out. The 2022 Executive Order 14081 on Advancing Biotechnology and Biomanufacturing Innovation for a Sustainable, Safe, and Secure American Bioeconomy includes a directive for the Department of Health and Human Services (HHS) to invest $40 million to “expand the role of biomanufacturing for active pharmaceutical ingredients (APIs), antibiotics, and the key starting materials needed to produce essential medications and respond to pandemics.” Protein and peptide product precursors are key starting materials for medical and pharmaceutical products, justifying HHS support for this research challenge. 

Congress has also signaled its intent to advance U.S. biotech and biomanufacturing. The CHIPS and Science Act authorizes funding for projects that could scale up the U.S. bioeconomy. Title IV of the Act, on bioeconomy research and development, authorizes financial support for research, test beds for scaling up technologies, and tools to accelerate research. This support could take the form of grants, multi-agency collaborative funding, and Small Business Innovation Research (SBIR) or Small Business Technology Transfer Program (SBTTP) funding. 

Biomanufacturing is important for national security and stability, yet much research and development are needed to realize that potential. The abovementioned funding opportunities should be leveraged to support foundational, cross-cutting capabilities to achieve affordable, accessible biomanufactured products, such as the production of essential precursor molecules. 

Plan of Action

To provide the catalyst for innovation that will drive down the price of components, federal funding should be made available to organizations developing cost-effective biosynthetic production pathways. Initial funding would be most helpful in the form of research grants as part of a Grand Challenge competition. University researchers have made some proof-of-concept progress in developing cost-effective methods of amino acid synthesis, but the investment required to demonstrate that these methods succeed at scale is currently not provided by the market. The main market for synthetic biomanufacturing inputs like amino acids is pharmaceutical products, which can pass on high production costs to the consumer and are not sufficiently incentivized to drive down the costs of inputs. 

Recommendation 1. Provide Grand Challenge funding for reduced-cost scalable production methods for amino acids and growth factors.

The USDA (through the USDA-NIFA Agriculture and Food Research Initiative [AFRI] or through AgARDA if it is funded) and ARPA-H should jointly commit to $15 million for 10 projects in the first year, with a total of $75 million over five years, in Grand Challenge¹ funding for researchers or companies who can develop a scalable process for producing food-grade or pharmaceutical-grade amino acids or growth factors at a fraction of current costs (e.g., $100,000 per kg for growth factors, and $1.50 per kg for amino acids), with escalating prizes for greater cost reductions. Applicants can also demonstrate the development of scalably produced bioengineered growth factors that demonstrate increased efficacy and efficiency. Grand Challenges offer funding to incentivize productive competition among researchers to achieve specific goals; they may also offer prizes for achieving interim steps toward a larger goal.

ARPA-H and USDA are well-positioned to spur innovation in cost-effective precursor production. Decreasing the costs of producing amino acids and growth factors would enable the transformative development of biologics and animal-cell-based products like synthetic meat, which aligns well with ARPA-H’s goal of supporting the development of breakthrough medical and biological products and technologies. ARPA-H aims to use its $6.5 billion in funding from the FY22 federal budget to invest in three-to-five-year projects that will support breakthrough technologies that are not yet economically compelling or sufficiently feasible for companies to invest internally in their development. An example technology cited by the ARPA-H concept paper is “new manufacturing processes to create patient-specific T-cells to search and destroy malignant cells, decreasing costs from $100,000s to $1000s to make these therapies widely available.” Analogously, new manufacturing processes for animal cell culture inputs will make biosynthetic products more cost-effective and widely available, but the potential market is still speculative, making investment risky.

AgARDA was meant to complement AFRI, in its model for soliciting research proposals, and being able to jointly support projects like a Grand Challenge to scale up amino acids and growth factors provides reason to fund AgARDA at its authorized level. Because producing cell-based meat at cost parity to animal meat would be an agricultural achievement, lowering the cost of necessary inputs to cell-based meat production could fall under the scope of AgARDA. 

Recommendation 2. Reward Grand Challenge winners who demonstrate scalability and provide BioPreferred program purchasing preference. 

Researchers developing novel low-cost and high-efficiency production methodology for amino acids and growth factors will also need access to facilities and manufacturing test beds to ensure that their solutions can scale up to industrial levels of production. To support this, ARPA-H should make funding available to Grand Challenge winners to demonstrate scaling their solutions to hundreds of kilograms per year. This is aligned with the test-bed development mandated by the CHIPS and Science Act. This funding should include $15 million to establish five test-bed facilities (a similar facility at the University of Delaware was funded at $3 million) and an additional $3 million to provide vouchers of between $10,000 and $300,000 for use at test-bed facilities. (These amounts are similar to the vouchers  provided by the California Department of Energy for its clean energy test-bed program.) 

To support the establishment of a market for the novel production processes, USDA should add to its BioPreferred program a requirement that federal procurement give preference to winners of the Grand Challenge when purchasing amino acids or growth factors for the production of biologics and animal cell-derived products. The BioPreferred program requires that federal purchases favor bio-based products (e.g., biodegradable cutlery rather than plastic cutlery) where the bio-based product meets the requirements for the purchaser’s use of that product. This type of purchasing commitment would be especially valuable for Grand Challenge winners who identify novel production methods—such as molecular “farming” in plants or cell-free protein synthesis—whose startup costs make it difficult to bootstrap incremental growth in production. Requiring that federal purchasing give preference to Grand Challenge winners ensures a certain volume of demand for new suppliers to establish themselves without increasing costs for purchasers. 

Stakeholder support for this Grand Challenge would include research universities; the alternative protein, peptide products, and synthetic protein industries; nonprofits supporting reduced peptide drug prices (such as the American Diabetes Association or the Boulder Peptide Foundation) and a reduction in animal agriculture (such as New Harvest or the Good Food Institute); and U.S. biomanufacturing supporters, including DoE and DoD. Companies and researchers working on novel methods for scalable amino acid and growth factor production will also support additional funding for technology-agnostic solutions (solutions that focus on characteristics of the end product rather than the method—such as precision fermentation, plant engineering, or cell-free synthesis—used to obtain the product). 

As another incentive, ARPA-H should solicit additional philanthropic and private funding for Grand Challenge winners, which could take the form of additional prize money or advance purchase commitment for a specified volume of amino acids or growth factors at a given threshold price, providing further incentive for bringing costs below the level specified by the Challenge. 

Recommendation 3. To project future demand, DoD should commission an economic analysis of synthetic manufacturing pathway costs for common bioproducts, and include assessments of comparative costs in major international competitors (e.g., China, the European Union, the United Kingdom, Singapore, South Korea, Japan). 

This analysis could be funded in part via BioMADE’s project calls for technology and innovation research. BioMADE received $87 million in DoD funding in 2020 for a seven-year period, plus an additional $450 million announced in 2023. Cost sharing for this project could come from the NSF Directorate for Technology, Innovation, and Partnerships or from the DoE’s Office of Science’s Biological and Environmental Research Program, which has supported techno-economic analyses of similar technologies, such as biofuels. 

EO 14081 also includes DoD as a major contributor to building the bioeconomy. The DoD’s Tri-Service Biotechnology for a Resilient Supply Chain program will invest $270 million over five years to speed the application of research to product manufacturing. Decreasing the costs of amino acids and growth factors as inputs to manufacturing biologics could be part of this new program, depending on the forthcoming details of its implementation. Advancing cost-effective biomanufacturing will transform defense capabilities needed to maintain U.S. competitiveness, secure critical supply chains, and enhance resiliency of our troops and defense needs, including medicines, alternative foods, fuels, commodity and specialty chemicals, sensors, materials, and more. China recently declared a focus on synthetic animal protein production in its January 2022 Five Year Plan for Agriculture. Our trade relationship with China, which includes many agricultural products, may shift if China is able to successfully produce these products synthetically.

Conclusion

To support the development of an expansive and nimble biomanufacturing economy within the United States, federal agencies should ensure that the necessary inputs for creating biomanufactured products are as abundant and cost-effective as possible. Just as the cost to produce an almond is greatly dependent on the cost of water, the cost to manufacture a biological product in a cell-based manufacturing system depends on the cost of the inputs used to feed that system. Biomanufactured products that require amino acids and growth factors as inputs range from the medically necessary, like clotting factors and monoclonal antibodies, to the potentially monumental and industry-changing, like cell-based meat and dairy products. Federal actions to increase the feasibility and cost-effectiveness of manufacturing these products in the United States will beneficially affect the bioeconomy and biotechnology industry, the pharmaceutical and biomedical industries, and potentially the food and agriculture industries as well.

Summary

The COVID-19 pandemic severely impaired State Department (DOS) processing capacity by interrupting operations at U.S. consulates and foreign posts, slashing revenue for consular services through the resultant collapse in collected fees, and straining preexisting staffing challenges. To respond to diminished capacity, the State Department used its authority to waive in-person interviews to efficiently process visas with the resources it had available, while protecting national security. Even after COVID-19 ends as an official public health emergency, its effects on visa processing capacity will  linger. In 2022, 48 percent of nonimmigrant visas were issued with an interview waiver, which was a vital component in rejuvenating the global talent mobility. Current visa interview waiver policies should remain  in place until U.S. visa processing fully rebounds and should become a permanent  feature of the State Department’s ongoing efforts to develop country-by-country consular policies that mitigate risk and avoid backlogs. 

Expanded use of interview waivers because of diminished processing capacity

Congress authorized interview waivers to allow the State Department to focus its scarce resources on potential threats. The State Department originally had complete discretion about who must make a “personal appearance” and who may be waived under the Immigration and Nationality Act of 1952.¹ Before the September 11th attacks, personal appearance waivers were relatively common,² but post-9/11 policy guidance, initially codified in regulation in 2003, restricted the use of waivers to certain circumstances.³ Congress codified these restrictions in the Intelligence Reform and Terrorism Prevention Act of 2004, which added an in-person interview requirement for all applicants between 14 and 79 except under particular circumstances.⁴ Namely, DOS can offer waivers for the in-person interview requirement to applicants renewing visas (who have already had interviews) and for designated low-risk applicants.⁵ 

The 2004 State Department waiver authorities that Congress left to the State Department contain three components. First, individual consular officers may waive in-person interviews in certain cases when the applicant “presents no national security concerns requiring an interview.” Second, the Secretary of State may waive interviews when it is in the national interest. Third, the Deputy Assistant Secretary for Visa Services has the authority to waive interviews when it is “necessary as a result of unusual or emergent circumstances.”⁶ 

In the wake of COVID-19, the State Department has strategically used these waivers to address growing backlogs. After a temporary suspension of visa processing at the beginning of the pandemic, DOS resumed limited visa processing in July 2020. However, limited capacity led to significant backlogs and wait times. A number of factors have contributed to lengthy backlogs: 

1. Interrupted operations at consulates and embassies: Many consular offices shut down temporarily or scaled back their services during peak pandemic times due to lockdown measures and health risks. This led to delays in application processes that spiraled into massive backlogs when normal functionality resumed.
2. Diminished revenue: As a fee-based agency, consular services lost the revenue associated with normal operations. Cuts to staff and resources left the agency with higher caseloads per officer. 
3. Limited resources before pandemic: Even before COVID-19, US consulates and embassies had inadequate resources to efficiently handle significant processing demands. This problem was exacerbated by pandemic-related disruptions.
4. Increased application volumes: Global travel resumed as vaccines became widely available. Families reuniting after extended time apart was a primary contributor to rising visa application volumes.  

The Department of State’s current policies focus on low-risk applicants, namely individuals who: have previously traveled to the United States; have biometrics on file for full screening and vetting; and either are the beneficiary of an approved petition from DHS confirming their eligibility for a visa classification or have already received a Certificate of Eligibility for a visa classification by an institution designated by DOS. 

On March 26, 2020, Secretary of State Pompeo announced that the DOS would expand the availability of waivers to certain H-2 applicants, marking the first expansion of visa waivers in response to reduced processing capacity.  In August 2020, Pompeo announced that applicants seeking a visa in the same category they previously held would be allowed to get an interview waiver if their visa expired in the last 24 months. Before this, the expiration period for an interview waiver was only 12 months. In December 2020, just two days before this policy was set to expire, DOS extended it through the end of March 2021. In March, the expiration period was doubled again, from 24 months to 48 months and the policy extended through December 31, 2021. In September of 2021, DOS also approved waivers through the remainder of 2021 for applicants of F, M, and academic J visas from Visa Waiver Program countries who were previously issued a visa.

In December 2021, DOS extended its then-existing policies (with some minor modifications) through December 2022. It also expanded its interview waiver policies by making first-time applicants for H-1, H-3, H-4, L, O, P, and Q visas — all classifications requiring petition adjudication by DHS — eligible for waivers if they are nationals of countries participating in the Visa Waiver Program and are a previous traveler to the United States through the Electronic System for Travel Authorization (ESTA). Applicants for H-1, H-3, H-4, L, O, P, and Q visas are also eligible for waivers if they have previously been issued any type of visa (meaning their  biometric data was on file with DOS), have never been refused a visa (unless the refusal was overcome or waived), and provided they have no apparent or potential ineligibility. Applicants who have been issued a valid Certificate of Eligibility for classification as an F-1 student or an exchange visitor on an academic J-1 program may also be issued a visa without an interview.  Moreover, the interview waiver policy that individuals renewing a visa in the same category as a visa that expired in the preceding 48 months may be eligible for issuance without an interview was announced as a standing policy of the State Department, and added to the department’s Foreign Affairs Manual for consular officers.  In December 2022, DOS announced another extension of these policies, which are set to expire at the end of 2023. 

In April 2023, President Biden signed a resolution ending the state of national emergency initiated by the pandemic. The public health emergency expires on May 11, 2023. 

As policymakers consider the future of interview waivers beyond the official COVID emergency, they should note that new waiver policies were a response to a profound reduction in processing capacity rather than as a direct public health measure. Even with an expanded use of waivers, backlogs are still significant. The average wait time is estimated to be about 100 days—well above pre-pandemic waits.  Even though the public health emergency has ended, we must retain current policies on interview waivers as long as processing delays persist. 

Interview Waivers Have Been Highly Effective

Interview waivers have positively contributed to effective visa processing. Recent data show a decline in global wait times for various applicant types, including students, exchange visitors, temporary workers requiring DHS petition approval, and B-1/B-2 visitors.⁷ Moreover, interview waivers have had a minimal impact on overstay rates. 

It should be noted that waivers are not granted at the expense of national security or public safety. Robust screening and vetting protocols persist even when interviews are waived. Preserving the waiver mechanism can help strike a balance between robust screening and vetting measures and the  procedural workflows that are vital for efficiently managing backlog cases.  Waived applicants typically consist of low-risk profiles or those who have previously been granted visas after comprehensive background checks, who are then subjected to the same screening and vetting checks and reviews as interviewed applicants based on their biometrics already on file.  The ability of State’s consular posts to receive visa applications without an interview, but not mandating that posts do so for all available categories,allows consular officials to take into account country-specific conditions.  

As the State Department recently noted: “These interview waiver authorities have reduced visa appointment wait times at many embassies and consulates by freeing up in-person interview appointments for other applicants who require an interview. Nearly half of the almost seven million nonimmigrant visas the Department issued in Fiscal Year 2022 were adjudicated without an in-person interview. We are successfully lowering visa wait times worldwide, following closures during the pandemic, and making every effort to further reduce those wait times as quickly as possible, including for first-time tourist visa applicants. Embassies and consulates may still require an in-person interview on a case-by-case basis and dependent upon local conditions.”⁸

Given that about half of all nonimmigrant visas were issued last year without an interview, discontinuing interview waivers following the end of the public health emergency will create undue strain on an already understaffed  consular workforce and hamper global mobility just as academic, industrial, and government travel is returning to pre-pandemic levels. The workload that previously took care of almost half of successful visa applications will instead increase pressure on a system that is poorly equipped to service the growing post-pandemic demand.

Interview waivers do not jeopardize security

As the State Department explained in 2015, “interview waiver options do not represent a reduced scrutiny of applicants; rather, they are intended to enhance the security of the visa process by allowing State to focus more of its resources on potential threats.” 

First, expanded use of interview waivers as a result of the pandemic only applies to low-risk applicants. The waivers are subject to important guardrails to safeguard security. They are not available to any applicant who: has previously been denied a visa; is listed in the Consular Lookout and Support System (CLASS); requires a Security Advisory Opinion or State Department clearance; is applying from a country they are not a national or resident of; or who is applying from a country designated a state sponsor of terrorism. Furthermore, they cannot be a member of any group that poses a security threat, has historically had an above average rate of visa denials, or poses a substantial risk of visa fraud. 

Second, applicants eligible for interview waivers remain subject to the background checks and all screening and vetting required for all nonimmigrants, including name checks and biometric screening. 

Third, the waivers are discretionary. Consular officers always have the option to interview an  applicant if they doubt their credibility or have any other questions about their eligibility following standard screening procedures.

Interview waivers maximize the security afforded by DOS for a given level of processing capacity by allowing the department to deploy its resources where they are most needed.

Recommendations

Current interview waivers should be extended until at least 80% of non-immigrant visa applicants in categories requiring USCIS petition approval or sponsor-issued Certificates of Eligibility can schedule an interview within three weeks. Existing waivers should not be lifted unless this benchmark for visa processing can be maintained. In 2012, the president established this benchmark as a target for DOS with regard to business and tourist visas. By 2015, the Department successfully brought wait times down with the help of numerous policy changes, including the use of interview waivers. This benchmark provides a reasonable criterion to define unusual or emergent circumstances related to visa processing justifying waivers. 

Consular management controls should include required annual reporting by consular posts to the State Department’s Bureau of Consular Affairs on the use of interview waivers.  Consular posts typically conduct a handful of validation studies each year for Visa Services leadership in Consular Affairs.  Each consular post should be tasked with reporting: whether the post utilized interview waiver authorities, and the reasoning for when the authorities were employed or not, what efficiencies or hurdles were encountered; and how the targeted use of interview waivers at the individual post can mitigate risks by allowing consular officials to focus attention on country-specific conditions.

Congress should authorize expanded interview waivers beyond the emergent circumstances of reduced processing capacity and task DOS with piloting other policies that would institutionalize efficient visa processing. Waivers are justified under current authority by the unusual circumstance of reduced processing capacity but may be helpful even when processing capacity has rebounded. Congress can and should make clear that it intends the national interest authorities left to the Secretary of State be utilized for the purpose of keeping processing times down. Congress can also help DOS pilot remote interviews for those  lowest risk applicants that remain ineligible for interview waivers or in countries where interview waivers are not an appropriate response for country conditions. Combining interview waivers with remote interviewing authority would allow the State Department to better choose how to deploy its resources while also maintaining thorough screening and vetting through biometrics.  Institutionalizing more certain and predictable timing on visa applications would help ensure the U.S. is attractive to international talent that is key to keeping the country competitive.

Conclusion

Despite reported improvements in pandemic conditions, visa backlogs continue to pose significant challenges at U.S. diplomatic missions around the world. The State Department should be allowed to broadly and flexibly use consular resources to collect and review screening and vetting results and complete all processing requirements without scheduling interviews. This will allow the Department to offer more timely options for qualified individuals seeking entry into the country. Maintaining interview waivers after the official expiration of the COVID-19 health crisis allows experts to focus on essential cases requiring more in-depth scrutiny, thus bolstering the security of our immigration system.

Lifting COVID-related restrictions does not automatically imply that all embassies or consulates will be able to immediately manage pre-pandemic levels of visa applications. Adjusting staffing resources and infrastructure could take time, especially when considering additional constraints from dealing with limited operational capacities. In these cases, visa interview waivers can help alleviate undue stress on embassy operations while providing flexibility to consular officers.

To increase protections for fair work, the U.S. Department of Labor (DOL) should create an Office of the Ombudsman for Fair Work. Gig workers are a category of non-employee contract workers who engage in on-demand work, often through online platforms. They have had historic vulnerabilities in the U.S. economy. A large portion of gig workers are people of color, and the nature of their temporary and largely unregulated work can leave them vulnerable to economic instability and workplace abuse. Currently, there is no federal mechanism to protect gig workers, and state-level initiatives have not offered thorough enough policy redress. Establishing an Office of the Ombudsman would provide the Department of Labor with a central entity to investigate worker complaints against gig employers, collect data and evidence about the current gig economy, and provide education to gig workers about their rights. There is strong precedent for this policy solution, since bureaus across the federal government have successfully implemented ombudsmen that are independent and support vulnerable constituents. To ensure its legal and long-lasting status, the Secretary of Labor should establish this Office in an act of internal agency reorganization.

Challenge and Opportunity

The proportion of the U.S. workforce engaging in gig work has risen steadily in the past few decades, from 10.1% in 2005 to 15.8% in 2015 to roughly 20% in 2018. Since the COVID-19 pandemic began, this trend has only accelerated, and a record number of Americans have now joined the gig economy and rely on its income. In a 2021 Pew Research study, over 16% of Americans reported having made money through online platform work alone, such as on apps like Uber and Doordash, which is merely a subset of gig work jobs. Gig workers in particular are more likely to be Black or Latino compared to the overall workforce.

Though millions of Americans rely on gig work, it does not provide critical employee benefits, such as minimum wage guarantees, parental leave, healthcare, overtime, unemployment insurance, or recourse for injuries incurred during work. According to an NPR survey, in 2018 more than half of contract workers received zero benefits through work. Further, the National Labor Relations Act, which protects employees’ rights to unionize and collectively bargain without retaliation, does not protect gig workers. This lack of benefits, rights, and voice leaves millions of workers more vulnerable than full-time employees to predatory employers, financial instability, and health crises, particularly during emergencies—such as the COVID-19 pandemic. 

Additionally, in 2022, inflation reached a decades-long high, and though the price of necessities has spiked, wages have not increased correspondingly. Extreme inflation hurts lower-income workers without savings the most and is especially dangerous to gig workers, some of whom make less than the federal minimum hourly wage and whose income and work are subject to constant flux.

State-level measures have as yet failed to create protections for all gig workers. In 2020, California passed AB5, legally reclassifying many gig workers as employees instead of independent contractors and thus entitling them to more benefits and protections. But further bills and Proposition 22 reverted several groups of gig workers, including online platform gig workers like Uber and Doordash drivers, to being independent contractors. Ongoing litigation related to Proposition 22 leaves the future status of online platform gig workers in California unclear. In 2022, Washington State passed ESHB 2076 guaranteeing online platform workers—but not all gig workers—the benefits of full-time employees. 

This sparse patchwork of state-level measures, which only supports subgroups of gig workers, could trigger a “race to the bottom” in which employers of gig workers relocate to less strict states. Additionally, inconsistencies between state laws make it harder for gig workers to understand their rights and gain redress for grievances, harder for businesses to determine with certainty their duties and liabilities, and harder for states to enforce penalties when an employer is headquartered in one state and the gig worker lives in another. The status quo is also difficult for businesses that strive to be better employers because it creates downward pressure on the entire landscape of labor market competition. Ultimately, only federal policy action can fully address these inconsistencies and broadly increase protections and benefits for all gig workers. 

The federal ombudsman’s office outlined in this proposal can serve as a resource for gig workers to understand the scope of their current rights, provide a voice to amplify their grievances and harms, and collect data and evidence to inform policy proposals. It is the first step toward a sustainable and comprehensive national solution that expands the rights of gig workers.

Specifically, clarifying what rights, benefits, and means of recourse gig workers do and do not have would help gig workers better plan for healthcare and other emergent needs. It would also allow better tracking of trends in the labor market and systemic detection of employee misclassification. Hearing gig workers’ complaints in a centralized office can help the Department of Labor more expeditiously address gig workers’ concerns in situations where they legally do have recourse and can otherwise help the Department of Labor better understand the needs of and harms experienced by all workers. Collecting broad-ranging data on gig workers in particular could help inform federal policy change on their rights and protections. Currently, most datasets are survey based and often leave out people who were not working a gig job at the time the survey was conducted but typically otherwise do. More broadly, because of its informal and dynamic nature, the gig economy is difficult to accurately count and characterize, and an entity that is specifically charged with coordinating and understanding this growing sector of the market is key.

Lastly, employees who are not gig workers are sometimes misclassified as such and thus lose out on benefits and protections they are legally entitled to. Having a centralized ombudsman office dedicated to gig work could expedite support of gig workers seeking to correct their classification status, which the Wage and Hour Division already generally deals with, as well as help the Department of Labor and other agencies collect data to clarify the scope of the problem.

Plan of Action

The Department of Labor should establish an Office of the Ombudsman for Fair Work. This office should be independent of Department of Labor agencies and officials, and it should report directly to the Secretary of Labor. The Office would operate on a federal level with authority over states.

The Secretary of Labor should establish the Office in an act of internal agency reorganization. By establishing the Office such that its powers do not contradict the Department of Labor’s statutory limitations, the Secretary can ensure the Office’s status as legal and long-lasting, due to the discretionary power of the Department to interpret its statutes.

The role of the Office of the Ombudsman for Fair Work would be threefold: to serve as a centralized point of contact for hearing complaints from gig workers; to act as a central resource and conduct outreach to gig workers about their rights and protections; and to collect data such as demographic, wage, and benefit trends on the labor practices of the gig economy. Together, these responsibilities ensure that this Office consolidates and augments the actions of the Department of Labor as they pertain to workers in the gig economy, regardless of their classification status.

The functions of the ombudsman should be as follows:

1. Establish a clear and centralized mechanism for hearing, collating, and investigating complaints from workers in the gig economy, such as through a helpline or mobile app.
2. Establish and administer an independent, neutral, and confidential process to receive, investigate, resolve, and provide redress for cases in which employers misrepresent to individuals that they are engaged as independent contractors when they’re actually engaged as employees.
3. Commence court proceedings to enforce fair work practices and entitlements, as they pertain to workers in the gig economy, in conjunction with other offices in the DOL.
4. Represent employees or contractors who are or may become a party to proceedings in court over unfair contracting practices, including but not limited to misclassification as independent contractors. The office would refer matters to interagency partners within the Department of Labor and across other organizations engaged in these proceedings, augmenting existing work where possible.
5. Provide education, assistance, and advice to employees, employers, and organizations, including best practice guides to workplace relations or workplace practices and information about rights and protections for workers in the gig economy.
6. Conduct outreach in multiple languages to gig economy workers informing them of their rights and protections and of the Office’s role to hear and address their complaints and entitlements.
7. Serve as the central data collection and publication office for all gig-work-related data. The Office will publish a yearly report detailing demographic, wage, and benefit trends faced by gig workers. Data could be collected through outreach to gig workers or their employers, or through a new data-sharing agreement with the Internal Revenue Service (IRS). This data report would also summarize anonymized trends based on the complaints collected (as per function 1), including aggregate statistics on wage theft, reports of harassment or discrimination, and misclassification. These trends would also be broken down by demographic group to proactively identify salient inequities. The office may also provide separate data on platform workers, which may be easier to collect and collate, since platform workers are a particular subject of focus in current state legislation and litigation.

Establishing an Office of the Ombudsman for Fair Work within the Department of Labor will require costs of compensation for the ombudsman and staff, other operational costs, and litigation expenses. To reflect the need for a reaction to the rapid ongoing changes in gig economy platforms, a small portion of the Office’s budget should be set aside to support the appointment of a chief innovation officer, aimed at examining how technology can strengthen its operations. Some examples of tasks for this role include investigating and strengthening complaint sorting infrastructure, utilizing artificial intelligence to evaluate contracts for misclassification, and streamlining request for proposal processes.

Due to the continued growth of the gig economy, and the precarious status of gig workers in the onset of an economic recession, this Office should be established in the nearest possible window. Establishing, appointing, and initiating this office will require up to a year of time, and will require budgeting within the DOL.

There are many precedents of ombudsmen in federal office, including the Office of the Ombudsman for the Energy Employees Occupational Illness Compensation Program within the Department of Labor. Additionally, the IRS established the Office of the Taxpayer Advocate, and the Department of Homeland Security has both a Citizenship and Immigration Services Ombudsman and an Immigration Detention Ombudsman. These offices have helped educate constituents about their rights, resolved issues that an individual might have with that federal agency, and served as independent oversight bodies. The Australian Government has a Fair Work Ombudsman that provides resources to differentiate between an independent contractor and employee and investigates employers who may be engaging in sham contracting or other illegal practices. Following these examples, the Office of the Ombudsman for Fair Work should work within the Department of Labor to educate, assist, and provide redress for workers engaged in the gig economy.

Conclusion

How to protect gig workers is a long-standing open question for labor policy and is likely to require more attention as post-pandemic conditions affect labor trends. The federal government needs a solution to the issues of vulnerability and instability experienced by gig workers, and this solution needs to operate independently of legislation that may take longer to gain consensus on. Establishing an office of an ombudsman is the first step to increase federal oversight for gig work. The ombudsman will use data, reporting, and individual worker cases to build a clearer picture for how to create redress for laborers that have been harmed by gig work, which will provide greater visibility into the status and concerns of gig workers. It will additionally serve as a single point of entry for gig workers and businesses to learn about their rights and for gig workers to lodge complaints. If made a reality, this office will be an influential first step in changing the entire policy ecosystem regarding gig work. 

Maternal mortality is a crisis in the United States. Yet more than 60% of maternal deaths are preventable—with the right evidence-based interventions. Data is a powerful tool for uncovering best care practices. While healthcare data, including maternal health data, has been generated at a massive scale by the widespread adoption and use of Electronic Health Records (EHR), much of this data remains unstandardized and unanalyzed. Further, while many federal datasets related to maternal health are openly available through initiatives set forth in the Open Government National Action Plan, there is no central coordinating body charged with analyzing this breadth of data. Advancing data harmonization, research, and analysis are foundational elements of the Biden Administration’s Blueprint for Addressing the Maternal Health Crisis. As a data-driven technology, artificial intelligence (AI) has great potential to support maternal health research efforts. Examples of promising applications of AI include using electronic health data to predict whether expectant mothers are at risk of difficulty during delivery. However, further research is needed to understand how to effectively implement this technology in a way that promotes transparency, safety, and equity. The Biden-Harris Administration should establish an AI Center of Excellence to bring together data sources and then analyze, diagnose, and address maternal health disparities, all while demonstrating trustworthy and responsible AI principles.  

Challenge and Opportunity

Maternal deaths currently average around 700 per year, and severe maternal morbidity-related conditions impact upward of 60,000 women annually. Stark maternal health disparities persist in the United States, and pregnancy outcomes are subject to substantial racial/ethnic disparities, including maternal morbidity and mortality. According to the Centers for Disease Control and Prevention (CDC), “Black women are three times more likely to die from a pregnancy-related cause than White women.” Research is ongoing to specifically identify the root causes, which include socioeconomic factors such as insurance status, access to healthcare services, and risks associated with social determinants of health. For example, maternity care deserts exist in counties throughout the country where maternal health services are substantially limited or not available, impacting an estimated 2.2 million women of child-bearing age.

Many federal, public, and private datasets exist to understand the conditions that impact pregnant people, the quality of the care they receive, and ultimate care outcomes. For example, the CDC collects abundant data on maternal health, including the Pregnancy Mortality Surveillance System (PMSS) and the National Vital Statistics System (NVSS). Many of these datasets, however, have yet to be analyzed at scale or linked to other federal or privately held data sources in a comprehensive way. More broadly, an estimated 30% of the data generated globally is produced by the healthcare industry. AI is uniquely designed for data management, including cataloging, classification, and data integration. AI will play a pivotal role in the federal government’s ability to process an unprecedented volume of data to generate evidence-based recommendations to improve maternal health outcomes. 

Applications of AI have rapidly proliferated throughout the healthcare sector due to their potential to reduce healthcare expenditures and improve patient outcomes (Figure 1). Several applications of this technology exist across the maternal health continuum and are shown in the figure below. For example, evidence suggests that AI can help clinicians identify more than 70% of at-risk moms during the first trimester by analyzing patient data and identifying patterns associated with poor health outcomes. Based on its findings, AI can provide recommendations for which patients will most likely be at-risk for pregnancy challenges before they occur. Research has also demonstrated the use of AI in fetal health monitoring. 

Figure 1: Areas Where Artificial Intelligence and Machine Learning Is Used for Women’s Reproductive Health

Source: Davidson and Boland (2021). 

Yet for all of AI’s potential, there is a significant dearth of consumer and medical provider understanding of how these algorithms work. Policy analysts argue that “algorithmic discrimination” and feedback loops in algorithms—which may exacerbate algorithmic bias—are potential risks of using AI in healthcare outside of the confines of an ethical framework. In response, certain federal entities such as the Department of Defense, the Office of the Director of National Intelligence, the National Institute for Standards and Technology, and the U.S. Department of Health and Human Services have published and adopted guidelines for implementing data privacy practices and building public trust of AI. Further, past Day One authors have proposed the establishment of testbeds for government-procured AI models to provide services to U.S. citizens. This is critical for enhancing the safety and reliability of AI systems while reducing the risk of perpetuating existing structural inequities. 

It is vital to demonstrate safe, trustworthy uses of AI and measure the efficacy of these best practices through applications of AI to real-world societal challenges. For example, potential use cases of AI for maternal health include a social determinants of health [SDoH] extractor, which combines AI with clinical notes to more effectively identify SDoH information and analyze its potential role in health inequities. A center dedicated to ethically developing AI for maternal health would allow for the development of evidence-based guidelines for broader AI implementation across healthcare systems throughout the country. Lessons learned from this effort will contribute to the knowledge base around ethical AI and enable development of AI solutions for health disparities more broadly. 

Plan of Action

To meet the calls for advancing data collection, standardization, transparency, research, and analysis to address the maternal health crisis, the Biden-Harris Administration should establish an AI Center of Excellence for maternal health. The AI Center of Excellence for Maternal Health will bring together data sources, then analyze, diagnose, and address maternal health disparities, all while demonstrating trustworthy and responsible AI principles. The Center should be created within the Department of Health and Human Services (HHS) and work closely with relevant offices throughout HHS and beyond, including the HHS Office of the Chief Artificial Intelligence Officer (OCAIO), the National Institutes of Health (NIH) IMPROVE initiative, the CDC, the Veterans Health Administration (VHA), and the National Institute for Standards and Technology (NIST). The Center should offer competitive salaries to recruit the best and brightest talent in AI, human-centered design, biostatistics, and human-computer interaction.

The first priority should be to work with all agencies tasked by the White House Blueprint for Addressing the Maternal Health Crisis to collect and evaluate data. This includes privately held EHR data that is made available through the Qualified Health Information Network (QHIN) and federal data from the CDC, Centers for Medicare and Medicaid (CMS), Office of Personnel Management (OPM), Healthcare Resources and Services Agency (HRSA), NIH, United States Department of Agriculture (USDA), Housing and Urban Development (HUD), the Veterans Health Administration, and Environmental Protection Agency (EPA), all of which contain datasets relevant to maternal health at different stages of the reproductive health journey from Figure 1. The Center should serve as a data clearing and cleaning shop, preparing these datasets using best practices for data management, preparation, and labeling.

The second priority should be to evaluate existing datasets to establish high-priority, high-impact applications of AI-enabled research for improving clinical care guidelines and tools for maternal healthcare providers. These AI demonstrations should be aligned with the White House’s Action Plan and be focused on implementing best practices for AI development, such as the AI Risk Management Framework developed by NIST. The following examples demonstrate how AI might help address maternal health disparities, based on priority areas informed by clinicians in the field:   

1. AI implementation should be explored for analysis of electronic health records from the VHA and QHIN to predict patients who have a higher risk of pregnancy and/or delivery complications. 
2. Drawing on the robust data collection and patient surveillance capabilities of the VHA and HRSA, AI should be explored for the deployment of digital tools to help monitor patients during pregnancy to ensure adequate and consistent use of prenatal care.  
3. Using VHA data and QHIN data, AI should be explored in supporting patient monitoring in instances of patient referrals and/or transfers to hospitals that are appropriately equipped to serve high-risk patients, following guidelines provided by the American College of Obstetricians and Gynecologists.
4. Data on housing from HUD, rural development from the USDA, environmental health from the EPA, and social determinants of health research from the CDC should be connected to risk factors for maternal mortality in the academic literature to create an AI-powered risk algorithm.
5. Understand the power of payment models operated by CMS and OPM for novel strategies to enhance maternal health outcomes and reduce maternal deaths.

The final priority should be direct translation of the findings from AI to federal policymaking around reducing maternal health disparities as well as ethical development of AI tools. Research findings for both aspects of this interdisciplinary initiative should be framed using Living Evidence models that help ensure that research-derived evidence and guidance remain current.

The Center should be able to meet the following objectives within the first year after creation to further the case for future federal funding and creation of more AI Centers of Excellence for healthcare:

1. Conduct a study on the use cases uncovered for AI to help address maternal health disparities explored through the various demonstration projects.
2. Publish a report of study findings, which should be submitted to Congress with recommendations to help inform funding priorities for subsequent research activities.
3. Make study findings available to the public to help build public trust in AI.

Successful piloting of the Center could be made possible by passage of an equivalent bill to S.893 in the current Congress. This is a critical first step in supporting this work. In March 2021, the S.893—Tech to Save Moms Act was introduced in the Senate to fund research conducted by National Academies of Sciences, Engineering, and Medicine to understand the role of AI in maternal care delivery and its impact on bias in maternal health. Passage of an equivalent bill into law would enable the National Academies of Sciences, Engineering, and Medicine to conduct research in parallel with HHS to generate more findings and to broaden potential impact.

Conclusion

The United States has the highest rate of maternal health disparities among all developed countries. Yet more than 60% of pregnancy-related deaths are preventable, highlighting a critical opportunity to uncover the factors impeding more equitable health outcomes for the nation as a whole. Legislative support for research to understand AI’s role in addressing maternal health disparities will affirm the nation’s commitment to ensuring that we are prepared to thrive in a 21^st century influenced and shaped by next-generation technologies such as artificial intelligence.

Summary

Despite the World Health Organization’s (WHO) designation of medical oxygen as an essential medicine in 2017, oxygen is still not consistently available in all care settings. Shortages in medical oxygen, which is essential for surgery, pneumonia, trauma, and other hypoxia conditions in vulnerable populations, existed prior to the COVID-19 pandemic and persist today. By one estimate, pre-pandemic, only 20% of patients in low- and middle-income countries (LMICs) who needed medical oxygen received it. The pandemic tremendously increased the need for oxygen, further compounding access issues as oxygen became an indispensable treatment. During the peak of the pandemic, dozens of countries faced severe oxygen shortages due to patient surges impacting an already fragile infrastructure. 

The core driver of this challenge is not a lack of funding and international attention but rather a lack of infrastructure to buy oxygen, not just equipment. Despite organizations such as Unitaid, Bill & Melinda Gates Foundation, Clinton Health Access Initiative, UNICEF, WHO and U.S. Agency for International Development (USAID) prioritizing funding and provisions of medical oxygen, many countries still face critical shortages. Even fewer LMICs, such as Brazil, are truly oxygen self-sufficient. A broken and inequitable global oxygen delivery infrastructure inadvertently excludes low-income and rural area representation during the design phase. Furthermore, the current delivery infrastructure is composed of many individual funders and private and public stakeholders who do not work in a coordinated fashion because there is no global governing body to establish global policy, standards, and oversight; identify waste and redundancy; and ensure paths to self-sufficiency. As a result, LMICs are at the mercy of other nations and entities who may withhold oxygen during a crisis or fail to adequately distribute supply. It is time for aid organizations and governments to become more efficient and effective at solving this systemic problem by establishing global governance and investing in and enabling LMICs to become self-sufficient by establishing national infrastructure for oxygen generation, distribution, and delivery.

We propose transforming current interventions by centering the concept known as Oxygen as a Utility (OaaU), which fundamentally reimagines a country’s infrastructure for medical oxygen as a public utility supported by private investment and stable prices to create a functionable, equitable market for a necessary public health good. With the White House Covid Response Team shuttering in the coming months, USAID’s Bureau for Global Health has a unique opportunity to take a global leadership role in spearheading the development of an accessible, affordable oxygen marketplace. USAID should convene a global public-private partnership and governing coalition called the Universal Oxygen Coalition (UOC), pilot the OaaU model in at least two target LMICs (Tanzania and Uttar Pradesh, India), and launch a Medical Oxygen Grand Challenge to enable necessary technological and infrastructure innovation.

Challenge and Opportunity

There is no medical substitute for oxygen, which is used to treat a wide range of acute respiratory distress syndromes, such as pneumonia and pneumothorax in newborns, and noncommunicable diseases, such as asthma, heart failure, and COVID-19. Pneumonia alone is the world’s biggest infectious killer of adults and children, claiming the lives of 2.5 million people, including 740,180 children, in 2019. The COVID-19 pandemic compounded the demand for oxygen, and exposed the lack thereof, with increased death tolls in countries around the world as a result.

For every COVID-19 patient who needs oxygen, there are at least five other patients who also need it, including the 7.2 million children with pneumonia who enter LMIC hospitals each year. [Ehsanur et al, 2021]. Where it is available, there are often improperly balanced oxygen distribution networks, such as high-density areas being overstocked while rural areas or tertiary care settings go underserved. Only 10% of hospitals in LMICs have access to pulse oximetry and oxygen therapy, and those better-resourced hospitals tend to be in larger cities closer to existing oxygen delivery providers.

This widespread lack of access to medical oxygen in LMICs threatens health outcomes and well-being, particularly for rural and low-income populations. The primary obstacle to equitable oxygen access is lack of the necessary digital infrastructure in-country. Digital infrastructure provides insights that enable health system managers and policymakers to effectively establish policy, manage the supply of oxygen to meet needs, and coordinate work across a complex supply chain composed of various independent providers. Until replicable and affordable digital infrastructure is established, LMICs will not have the necessary resources to manage a national oxygen delivery system, forecast demand, plan for adequate oxygen production and procurement, safeguard fair distribution, and ensure sustainable consumption.

Oxygen can be delivered in a number of forms—via concentrators, cylinders, plants, or liquid—and the global marketplace encompasses many manufacturers and distributors selling in multiple nations. Most oxygen providers are for-profit organizations, which are not commercially incentivized to collaborate to achieve equal oxygen access, despite good intentions. Many of these same manufacturers also sell medical devices to regulate or deliver oxygen to patients, yet maintaining the equipment across a distributed network remains a challenge. These devices are complex and costly, and there are often few trained experts in-country to repair broken devices. Instead of recycling or repairing devices, healthcare providers are often forced to discard broken equipment and purchase new ones, contributing to greater landfill waste and compounding health concerns for those who live nearby.

Common contributing causes for fragmented oxygen delivery systems in LMICs include:

1. No national digital infrastructure to connect, track, and monitor medical oxygen supply and utilization, like an electrical utility to forecast demand and ensure reliable service delivery.
2. No centralized way to monitor manufacturers, distributors, and the various delivery providers to ensure coordination and compliance with local policy.
3. In many cases, no established local policy for oxygen and healthcare regulation or no means to enforce local policy.
4. Lack of purchasing options for healthcare providers, who are often forced to buy whichever oxygen devices are available versus the type of source oxygen that best fits their needs (i.e., concentrator or liquid) due to cumbersome tender systems and lack of coordination across markets.
5. Lack of trained experts to maintain and repair devices, including limited national standardized certification programs, resulting in the premature disposal of costly medical devices contributing to waste issues. Further, lack of maintenance fuels the vicious cycle of LMICs requiring more regular funding to buy oxygen devices, which can increase reliance on third parties to sustain oxygen needs rather than domestic demand and marketplaces.

Medical oxygen investment is a unique opportunity to achieve global health outcomes and localization policy objectives. USAID invested $50 million to expand medical oxygen access through its global COVID-19 response for LMIC partners, but this investment only scratches the surface of what is needed to deliver self-sustainment. In response to oxygen shortages during the peaks of the pandemic, the WHO, UNICEF, the World Bank, and other donors shipped hundreds of thousands of oxygen concentrators to help LMICs deal with the rise in oxygen needs. This influx of resources addressed the interim need but did not solve the persisting healthcare system and underlying oxygen infrastructure problems. In 2021, the World Bank made emergency loans available to LMICs to help them shore up production and infrastructure capabilities, but not enough countries applied for these loans, as the barriers to solve these infrastructure issues are complex, difficult to identify without proper data and digital infrastructure to identify supply chain gaps, and hard to solve with a single cash loan.

Despite heavy attention to the issue of oxygen access in LMICs, current spending does not go far enough to set up sustainable oxygen systems in LMICs. Major access and equity gaps still persist. In short, providing funding alone without a cohesive, integrated industrial strategy cannot solve the root problem of medical oxygen inequality. 

USAID recently announced an expanded commitment in Africa and Asia to expand medical oxygen access, including market-shaping activities and partnerships. Since the pandemic began, USAID has directed $112 million in funding for medical oxygen to 50 countries and is the largest donor to The Global Fund, which has provided the largest international sums of money (more than $600 million) to increase medical oxygen access in over 80 countries. In response to the pandemic’s impacts on LMICs, the ACT-Accelerator (ACT-A) Oxygen Emergency Taskforce, co-chaired by Unitaid and the Wellcome Trust, has provided $700 million worth of oxygen supplies to over 75 countries and catalyzed large oxygen suppliers and NGO leaders to support LMICs and national healthcare ministries. This task force has brought together industry, philanthropy, NGO, and academic leaders. While USAID is not a direct partner, The Global Fund is a primary donor to the task force.

Without a sea change in policy, however, LMICs will continue to lack the support required to fully diagnosis national oxygen supply delivery system bottlenecks and barriers, establish national regulation policies, deploy digital infrastructures, change procurement approaches, enable necessary governance changes, and train in-country experts to ensure a sustained, equitable oxygen supply chain. To help LMICs become self-sufficient, we need to shift away from offering a piecemeal approach (donating money and oxygen supplies) to a holistic approach that includes access to a group of experts , funding for oxygen digital infrastructure systems, aid to develop national policy and governance mechanisms, and support for establishing specialty training and certification programs so that LMICs can self-manage their own medical oxygen supply chain. Such a development policy initiative relies on the Oxygen as a Utility framework, which focuses on creating a functional, equitable market for medical oxygen as a necessary public good. When achieved successfully, OaaU facilitates one fair rate for end-to-end distribution within a country, like other public utilities such as water and electricity.

A fully realized OaaU model within a national economy would integrate and streamline most aspects of oxygen delivery, from production to distribution of both the oxygen and the devices that dispense it, to training of staff on when to administer oxygen, how to use equipment, and equipment maintenance. This proposed new model coordinates industry partners, funders, and country leaders to focus on end-to-end medical oxygen delivery as an affordable, accessible utility rather than an in-kind development good. OaaU centers predictability, affordability, and efficiency for each stakeholder involved in creating sustainable LMIC medical oxygen supply chains. At its core, OaaU is about increasing both access and reliability by providing all types of oxygen at negotiated, market-wide, affordable, and predictable prices through industry partners and local players. This new business model would be sustainable by charging subscription and pay-per-use fees to serve the investment by private sector providers, each negotiated by Ministries of Health to empower them to manage their own country’s oxygen needs. This new model will incorporate each stakeholder in an LMIC’s healthcare system and facilitate an open, market-based negotiation to achieve affordable, self-sufficient medical oxygen supply chains.

Initial investment is needed to create a permanent oxygen infrastructure in each LMIC to digitally transform the tender system from an equipment and service or in-kind aid model to buying oxygen as a utility model. An industry business model transformation of this scale will require multistakeholder effort to include in-country coordination. The current oxygen delivery infrastructure is composed of many individual funders and private and public stakeholders who do not work in a coordinated fashion. At this critical juncture for medical oxygen provision, USAID’s convening power, donor support, and expertise should be leveraged to better direct this spending to create innovative opportunities. The Universal Oxygen Coalition would establish global policy, standards, and oversight; identify waste and redundancy; and ensure viable paths to oxygen self-sufficiency in LMICs. The UOC will act similarly to electric cooperatives, which aggregate supplies to meet electricity demand, ensuring every patient has access to oxygen, on demand, at the point of care, no matter where in the world they live.

Plan of Action

To steward and catalyze OaaU, USAID should leverage its global platform to convene funders, suppliers, manufacturers, distributors, health systems, financial partners, philanthropy, and NGOs and launch a call to action to mobilize resources and bring attention to medical oxygen inequality. USAID’s Bureau for Global Health, along with the its Private Sector Engagement Points of Contact, and the State Department’s Office of Global Partnerships should spearhead the UOC coalition. Using USAID’s Private Sector Engagement Strategy and EDGE fund as a model, USAID can serve as a connector, catalyzer, and lead implementer in reforming the global medical oxygen marketplace. The Bureau for Global Health should organize the initial summit, calls to action, and burgeoning UOC coalition because of its expertise and connections in the field. We anticipate that the UOC would require staff time and resources, which could be funded by a combination of private and philanthropic funding from UOC members in addition to some USAID resources.

To achieve the UOC vision, multiple sources of funding could be leveraged in addition to Congressional appropriation. In 2022, State Department and USAID funding for global health programs, through the Global Health Programs (GHP) account, which represents the bulk of global health assistance, totaled $9.8 billion, an increase of $634 million above the FY21 enacted level. In combination with USAID’s leading investments in The Global Fund, USAID could deploy existing authorities and funding from Development Innovation Ventures’ (DIV) and leverage Grand Challenge models like Saving Lives at Birth to create innovation incentive awards already authorized by Congress, or the newly announced EDGE Fund focused on flexible public-private sector partnerships to direct resources toward achieving equitable oxygen access for all. These transformative investments would also serve established USAID policy priorities like localization. UOC would work with USAID and the Every Breath Counts Initiative to reimagine this persistent problem by bringing essential players—health systems, oxygen suppliers, manufacturers and/or distributors, and financial partners—into a unified holistic approach to ensure reliable oxygen provision and sustainable infrastructure support. 

Recommendation 1.  USAID’s Bureau for Global Health should convene the Universal Oxygen Coalition Summit to issue an OaaU co-financing call to action and establish a global governing body. 

The Bureau for Global Health should organize the summit, convene the UOC coalition, and issue calls to action to fund country pilots of OaaU. The UOC coalition should bring together LMIC governments; local, regional, and global private-sector medical oxygen providers; local service and maintenance companies; equipment manufacturers and distributors; health systems; private and development finance; philanthropy organizations; the global health NGO community; Ministries of Health; and in-country faith-based organizations.

Once fully established, the UOC would invite industry coalition members to join to ensure equal and fair representation across the medical oxygen delivery care continuum. Potential industry members include Air Liquide, Linde, Philips, CHART, Praxair, Gulf Cryo, Air Products, International Futures, AFROX, SAROS, and GCE. Public and multilateral institutions should include the World Bank, World Health Organization, UNICEF, USAID country missions and leaders from the Bureau for Global Health, and selected country Ministries of Health. Funders such as Rockefeller Foundation, Unitaid, Bill & Melinda Gates Foundation, Clinton Health Access Initiative, and Wellcome Trust, as well as leading social enterprises and experts in the oxygen field such as Hewatele and PATH, should also be included.

UOC members would engage and interact with USAID through its Private Sector Engagement Points of Contact, which are within each regional and technical bureau. USAID should designate at least two points of contact from a regional and technical bureau, respectively, to lead engagement with UOC members and country-level partners. While dedicated funds to support the UOC and its management would be required in the long term either from Congress or private finance, USAID may be able to deploy staff from existing budgets to support the initial stand-up process of the coalition.

Progress and commitments already exist to launch the UOC, with Rockefeller Philanthropy Advisors planning to bring fiscal sponsorship as well as strategy and planning for the formation of the global coalition to the UOC with PATH providing additional strategic and technical functions for partners. The purpose of the UOC through its fiscal sponsor is to act as the global governing body by establishing global policy, standards, oversight controls, funding coordination, identifying waste & redundancy, setting priorities, acting as advisor and intermediary when needed to ensure LMIC paths to self-sufficiency are available. UOC would oversee and manage country selection, raising funding, and coordination with local Ministries of Health, funders, and private sector providers.

Other responsibilities of the UOC may include: 

• Issue feasibility studies to assess technology gaps in target countries. This research would inform future challenges, contracts, prioritization, design, and focus.
• Advise LMICs on identifying barriers and knowing best next steps. 
• Establish an official framework of best practices for OaaU that includes core metrics of success and replicable models. 

The first UOC Summit will issue a call to action to make new, significant commitments from development banks, philanthropies, and aid agencies to co-finance OaaU pilot programs, build buy-in within target LMICs, and engage in market-shaping activities and infrastructure investments in the medical oxygen supply chain. The Summit could occur on the sidelines of the Global COVID-19 Summit or the United Nations General Assembly. Summit activities and outcomes should include:

• Announce the launch and secure financial commitments from public and private funds for piloting OaaU in at least one national context.
• Identify and prioritize criteria for selecting pilot locations (regions or nations) for OaaU and select the initial country(s) for holistic oxygen self-sufficiency investment.
• Create the UOC Board representing manufacturers, global health experts, LMIC leaders, funders, multilateral institutions, and health providers who are empowered to identify geographic areas most in need of oxygen investment, issue market-specific grants and open innovation competitions, and leverage pooled public and private funds.
• Research, prioritize, and select at least two models of OaaU within a national marketplace to focus attention of all stakeholders on fixing the oxygen marketplace.

Recommendation 2. The UOC should establish country prioritization based on need and readiness and direct raised funds toward pilot programs.

USAID should co-finance an OaaU pilot model through investments in domestic supply chain streamlining and leverage matched funds from development bank, private, and philanthropic dollars. This fund should be used to invest in the development of a holistic oxygen ecosystem starting in Tanzania and in Uttar Pradesh, India, so that these regions are prepared to deliver reliable oxygen supply, catalyzing broad demand, business activity, and economic development.

The objective is to deliver a replicable global reference model for streamlining the supply chain and logistics, eventually leading to equitable oxygen catering to the healthcare needs that can be rolled out in other LMICs and improve lives for the deprived. The above sites are prioritized based on their readiness and need as determined by the 2020 PATH Market Research Study supported by the Bill and Melinda Gates Foundation. We estimate that $495 million for the pilots in both nations would provide oxygen for 270 million people, which equates to less than $2 per person. The UOC should:

• Invest in local providers: This will generate economic development and high-paying jobs in-country and throughout the supply chain. 
• Spur localized innovation and digital transformation: Foster locally driven innovation by in-country and regional systems integrators, especially in digital transformation of oxygen generation, distribution, and delivery. Solutions should include new digital tools for aggregation of supply and demand and real-time command and control to radically improve access to medical oxygen on demand.
• Create an in-country deployment coalition for each pilot country: Because oxygen marketplaces are unique to each context, having a market-based deployment coalition in each country that involves private, public, and social sector partners is critical to coordinating the deployment of resources and maintaining implementation efforts. The deployment coalition could be operated out of or supervised by a USAID Country Mission.
• Provide pilot model funding to enable Ministries of Health and the deployment coalition to streamline and fix supply chains.
• Issue calls to action for interested parties and stakeholders to submit plans to address both the immediate medical oxygen needs in the country of choice and the long-term infrastructure barriers. These plans could help inform strategy for deploying resources and making oxygen infrastructure investments.

This effort will result in a sustainable oxygen grid in LMICs to produce revenue via subscription and pay-per-use model, reducing the need for aid organization or donor procurement investment on an annual basis. To create the conditions for OaaU, the UOC will need to make a one-time investment to create infrastructure that can provide the volume of oxygen a country needs to become oxygen self-sufficient. This investment should be backed by the World Bank via volume usage guarantees similar to volume usage guarantees for electricity per country. The result will shift the paradigm from buying equipment to buying oxygen.

Recommendation 3. The UOC and partner agencies should launch the Oxygen Access Grand Challenge to invest in innovations to reduce costs, improve maintenance, and enhance supply chain competition in target countries.

We envision the creation of a replicable solution for a self-sustaining infrastructure that can then serve as a global reference model for how best to streamline the oxygen supply chain through improved infrastructure, digital transformation, and logistics coordination. Open innovation would be well-suited to priming this potential market for digital and infrastructure tools that do not yet exist. UOC should aim to catalyze a more inclusive, dynamic, and sustainable oxygen ecosystem of public- and private-sector stakeholders.

The Grand Challenge platform could leverage philanthropic and private sector resources and investment. However, we also recommend that USAID deploy some capital ($20 million over four years) for the prize purse focused on outcomes-based technologies that could be deployed in LMICs and new ideas from a diverse global pool of applicants. We recommend the Challenge focus on the creation of digital public goods that will be the digital “command and control” backbone of a OaaU in-country. This would allow a country’s government and healthcare system to know their own status of oxygen supply per a country grid and which clinic used how much oxygen in real time and bill accordingly. Such tools do not yet exist at affordable, accessible levels in LMICs. However, USAID and its UOC partners should scope and validate the challenge’s core criteria and problems, as they may differ depending on the target countries selected.

Activities to support the Challenge should include:

• Assessing technology and cost gaps in target partner countries in healthcare infrastructure, with a particular focus on supply chains and oxygen provision. This research would inform the Challenge design and focus.
• Creating partnerships with LMICs to implement promising innovations in pilots and secure advanced market commitments from healthcare ministries, the private sector, and multilateral or private financing to ensure viable pathways to scale for solutions.
• Establishing an official framework of best practices for OaaU that includes core metrics of success and replicable models that interested healthcare ministries could use to develop a system in their own nations.

Conclusion

USAID can play a catalytic role in spearheading the creation and sustainment of medical oxygen through a public utility model. Investing in new digital tools for aggregation of supply and demand and real-time command and control to radically improve access to medical oxygen on demand in LMICs can unlock better health outcomes and improve health system performance. By piloting the OaaU model, USAID can prove the sustainability and scalability of a solution that can be a global reference model for streamlining medical oxygen supply chain and logistics. USAID and its partners can begin to create sustained change and truly equitable oxygen access. Through enhancing existing public-private partnerships, USAID can also cement a resilient medical oxygen system better prepared for the next pandemic and better equipped to deliver improved health outcomes.

References

1. Pneumonia in Children Statistics – UNICEF DATA
2. Ann Danaiya Usher (2021). Medical oxygen crisis: a belated COVID-19 response. The
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   an intervention to prevent childhood deaths due to pneumonia in low-resource settings:
   systematic review, meta-analysis and cost-effectiveness. BMJ Global Health Journals
4. AD Usher: Medical Oxygen crisis: a belated COVID-19 response (2021) The Lancet Global
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5. Nair H, Simoes EA, Rudan I, Gessner BD, Azziz-Baumgartner E, Zhang JS et al.
   (2013) Global and regional burden of hospital admissions for severe acute lower respiratory
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6. Liu L, Johnson HL, Cousens S, Perin J, Scott S, Lawn JE et al. (2012) Global, regional, and national causes of child mortality: An updated systematic analysis for 2010 with time trends since 2000. Lancet 379: 2151–61. 10.1016/S0140-6736(12)60560-1
7. UNEP report. Africa waste management outlook. (2018)
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Summary

By establishing a self-sustaining fund to incentivize pharmaceutical companies to develop new and improved treatment protocols using low-cost, off-patent and unmonopolizable therapies, billions of dollars in cost savings could be realized by US government payers and health insurers in a financially “de-risked” manner while improving quality of care —truly a win/win opportunity.  

Currently, pharmaceutical companies do not develop medical therapies unless they can enforce a monopoly price using patents. As a result, thousands of low-cost therapies, such as repurposed generic drugs, nutraceuticals, plant medicines, medical diets, lifestyle interventions, and dose de-escalation protocols, lack private financial incentives for development. Clinically validating the safety and efficacy of these affordable treatments would help many patients while saving billions of dollars. Meanwhile, the largest pharmaceutical companies are earning trillions of dollars in revenue for new patented drugs that often provide limited or no added benefit to patients, while causing significant financial burden on patients and the taxpayer. 

We can solve these misaligned incentives using new payment models such as interventional pharmacoeconomic (IVPE) randomized controlled trials (RCTs) that result in cost savings for healthcare systems, even if RCTs fail, by comparing the efficacy of low-cost therapies to expensive patented drugs. Further, outcomes-based financing mechanisms known as Advance Market Commitments or Pay-For-Success (PFS) contracts, can incentivize the successful development of new low-cost therapies, entirely funded by payer costsavings from reduced reliance on monopoly-priced drugs. 

We propose that the National Institutes of Health (NIH), National Center for Advancing Translational Sciences (NCATS) work together with payers such as Centers for Medicare & Medicaid Services (CMS) and the United States Department of Veterans Affairs (VA) to transfer a fraction of their costsavings from IVPE RCTs and AMCs to create a self-sustaining “prize” fund for development of low-cost therapies under the 2010 America COMPETES Reauthorization Act. 

With these new payment models, it is possible to create a scalable and sustainable business for a sponsor to develop affordable therapies, while improving patient outcomes and saving significant costs. For example,  every 10,000 patients treated under an IVPE RCT + AMC contract comparing off-patent ketamine to patented esketamine, which could be more effective for treatment-resistant depression, would save payers at least $1.8 billion over 10 years until the expiry of the esketamine patent, part of which can be paid back into the fund. The IVPE + AMC contract can also provide revenues of at least $250 million to a sponsor of the clinical trials for development, FDA-approval, and post-approval (Phase IV) pharmacovigilance studies for ketamine (see Appendix). 

Challenge and Opportunity

Patients urgently need more effective treatments that are readily accessible and affordable. For many Americans, treatments are prohibitively scarce or expensive, with an estimated 42% of newly-diagnosed cancer patients losing all of their assets within 2 years. As national health expenditures continue to rise and drug R&D productivity continues to stagnate, it is crucial to rethink private-public alignment by implementing improved incentive design systems to support better health and economic outcomes.

Generic medicines have substantial potential for addressing healthcare costs and improving R&D productivity: low-cost generic drugs saved the U.S. healthcare system $1.67 trillion in the last decade. Thousands of FDA-approved generic drugs—as well as 50,000+ nutraceuticals, plant medicines, diets, lifestyle interventions, and dose de-escalation regimens (collectively known as unmonopolizable therapies)—could be studied to treat diseases significantly cheaper and faster than developing new patented drugs. It costs an estimated $1 billion-plus and takes more than 10–15 years to get a newly patented drug to market, whereas it is significantly cheaper and faster to find new uses for existing drugs and other unmonopolizable therapies that have known safety profiles and mechanisms of action from their use over many years.

However, it is often not economically viable for pharmaceutical companies to pay for clinical trials assessing unmonopolizable therapies, which can be prescribed off-label at relatively low-cost. Generic-drug companies are protected by “skinny labeling” legislation, which makes it difficult or impossible to enforce patents for new uses of generic drugs. While pharmaceutical companies can reformulate generic drugs and re-patent them to charge a monopoly price, this might only be commercially viable if the reformulation is better than the original generic. And where a reformulation involves a combination of generic drugs, compounding pharmacies can prescribe the drug using the original low-cost generics. 

Due to this market failure, there is a lack of funding for large and robust clinical trials for such low-cost therapies; the chance of the original formulation of a generic drug obtaining FDA approval for a new use approaches zero when it goes generic. The same problem applies to funding large clinical trials for nutraceuticals, medical diets, lifestyle interventions, and novel dosing regimens, where it is almost impossible to stop doctors and patients accessing these therapies. Patients who desperately need more treatment options are unable to realize the benefits that existing off-patent, unmonopolizable, or low-cost therapies might offer, and there may be significant harm to the public due to such gaps in patent incentives. 

Increased direct grant funding for clinical trials can also create suboptimal outcomes. During the height of the COVID-19 pandemic in 2020, the Pepcid AC (famotidine) COVID-19 Study raised red flags weeks after a $21 million grant was awarded to study its effects as a potential therapy. Concerns over study integrity, outcome measures, and even administrative protocols were all brought to light. Ironically, such grant funding can lead to even more risk and wasted taxpayer funds, such as $150 million of federal funding on the dietary supplement curcumin studied in more than 120 clinical trials, with no tangible evidence that it is an effective treatment for any medical condition. Further, conservative estimates of publicly funded clinical trials for repurposing phospholipidosis-inducing CADs to treat COVID-19, including hydroxychloroquine, may be over $6 billion. Other than the large and pragmatic RECOVERY and TOGETHER trials initiated by the United Kingdom, which discovered that dexamethasone significantly reduced mortality in COVID patients on respiratory support, funding smaller, low-powered clinical trials did not lead to the development of significantly beneficial COVID therapies for patients. A risk-transferring market mechanism to fund large clinical trials would have been more efficient—or at least not have exposed taxpayers to the risk of failed clinical trials. IVPE RCTs are paid from cost savings, and AMC contracts only pay out when pre-specified requirements are met, so taxpayers and health insurers do not pay for any failures.

To quickly and affordably improve the lives of millions of patients, we propose that Congress should appropriate, and the Biden-Harris Administration should direct, the NIH, CMS, and VA with the support of the NCATS Repurposing Drugs program, to establish a self-sustaining fund utilizing IVPE RCTs and AMCs to fund clinical trials for affordable therapies generating cost savings (“IVPE + AMC Fund”), using their federal authorization to establish market rewards or “prizes” under the 2010 America Competes Reauthorization Act. Private health insurers are fragmented and have limited incentives to reduce the costs of the $4 trillion p/a US healthcare industry in order to justify the high premiums charged to their US customers, while providers earn more revenue by charging higher fees. However, there is some movement away from fee-for-service and towards PFS contracts and Value Based Pricing (VBP). There is also a significant risk of lawsuits (including personal liability for decisionmakers) under ERISA legislation and the Consolidated Appropriations Act of 2021, which impose a fiduciary duty on self-insured employers to reduce healthcare spend. Taxpayer-funded payers such as CMS, VA, United States Army and large self-insured employers can use IVPE RCTs and AMCs to incentivize development of low-cost therapies as a fiduciary and financial risk management mechanism. Their net cost savings would far exceed the cost of administering the IVPE + AMC Fund. 

In particular, IVPE RCTs compare equivalence or superiority of a low-cost repurposed generic drug to an expensive patented drug normally funded by a payer. For example, there was a recent proposal to establish a self-sustaining IVPE fund to determine the optimal minimum dose for expensive oncology drugs to save costs while reducing side-effects. The price difference between the low-cost and expensive intervention can far exceed the cost of running the RCT, which means it pays for itself in cost savings, even if the RCT fails. And if the RCT shows the low-cost treatment provides at least the same standard of care as the patented drug, this can save payers billions of dollars until the patent expires. If some of these cost savings are transferred back into an IVPE + AMC Fund, this will create a scalable business model for developing new low-cost therapies. 

The self-sustaining nature of the IVPE + AMC Fund could be demonstrated, for example, by providing market rewards up to $100 million (which can be pooled between federal agencies) to reimburse a sponsor recruiting patients into IVPE trials comparing low-cost and expensive therapies. The reimbursement amount should ideally be less than the cost of the expensive therapy and the resulting guaranteed payer cost savings from the low-cost therapy substituting the expensive therapy could be paid back to increase the size of the fund. The IVPE clinical trial would require ethics approval and provide valuable data to “de-risk” whether the low-cost therapy works, without requiring additional taxpayer support. AMCs then would act as a “pull” mechanism to reward sponsors of large Phase III Randomized Controlled Trials (RCTs) that result in FDA approval with higher reimbursement price for an otherwise low-cost therapy that would substitute the expensive therapy. For example, a sponsor can partner with a generic drug manufacturer to guarantee supply of a repurposed generic in return for sharing revenue under an AMC. The sponsor can then submit bioequivalence and efficacy RCT data under the 505(b)(2) pathway to obtain a new “label” for the new use, which also provides a 3-year period of data exclusivity. Alternatively, a sponsor can leverage the revenue from the AMC to develop a nominal reformulation (e.g. new mechanism of administration or dose) to disincentivize generic substitution and obtain a 5-year period of data exclusivity under the 505(b)(1) New Drug Application pathway. The sponsor can earn additional revenue from the sale of the repurposed generic or RCT data to other healthcare systems, with the payers backing the IVPE + AMC Fund receiving a lower price or royalties. Payer cost savings from substituting an expensive therapy with the lower-cost therapy can be paid back into the IVPE + AMC Fund to ensure long-term sustainability. 

AMC contracts are already implemented in various other contexts to address market failures. For example, so-called Social Impact Bonds (SIBs), a type of AMC contract, have been used to help fund projects preventing homelessness and prisoner recidivism, with over $700 million in SIBs raised to date. Operation Warp Speed used AMCs to incentivize vaccine development through FDA approval and lab-to-patient stages. Similar methodologies to IVPE RCTs have also been used to prove that a low  dose of bevacizumab (Avastin) could treat age-related macular degeneration rather than patented ranibizumab (Lucentis), which was estimated to save Medicare Part B $18 billion over 10 years. 

Therefore, an IVPE + AMC Fund can generate billions of dollars in revenue from payers due to cost savings through the development of new low-cost therapies that reduce reliance on expensive therapies. It can also address misaligned incentives under the patent system by encouraging pharmaceutical companies to (1) “de-link” profits from maximizing sales of a monopoly-priced drug, (2) ensure that patented drugs are value for money rather than pursuing “evergreening” strategies such as patenting slight modifications of generic drugs to extend the period of monopoly pricing, and (3) pursue the most effective therapies rather than the most patentable. AMCs can also be used to incentivize development of low-cost therapies to address unmet medical needs if an expensive comparator treatment is not available or otherwise, the IVPE methodology can compare usual care. 

A Market Failure Caused by a Tragedy of the Commons

Thousands of potentially safe and effective off-patent and low-cost therapies are currently ignored due to misaligned incentives under the patent system. Core to this tragedy is that the clinical trial data validating the safety and efficacy of treatment protocols is what is valuable to healthcare payers and patients, not whether the drug’s active ingredient is new. In essence, treatment protocols involving new uses for off-patent and unmonopolizable therapies are nonrivalrous and “highly non-excludable” public goods. The co-author Savva Kerdemelidis’s 2014 master’s thesis concluded that because the patent system provides inadequate incentives for the pharmaceutical industry to develop such “unmonopolizable therapies,” alternative “prize-like” incentives are needed. This allows payers to put a price on clinical trial data validating the efficacy of these new and more affordable treatment protocols.

Scaling the Development of Low-Cost Therapies with IVPE RCTs and AMCs

IVPE RCTs and AMCs (see definition in FAQ section) recognize that the value of a therapeutic intervention is not the cost of an active ingredient but the clinical trial data showing it is safe and effective in a particular patient population. To accelerate the development of unmonopolizable therapies through the clinical and regulatory pipeline, we propose that payers—specifically government agencies such as CMS and VA as well as health insurers responsible for pharmaceutical reimbursement (ideally a consortium of payers)—support IVPE RCT pilots to de-risk early-stage clinical research and the use of AMC contracts through the IVPE + AMC Fund. The AMC will incentivize a sponsor fund the Phase III studies need to obtain FDA approval and conduct post-approval (Phase IV) pharmacovigilance studies. It will be self-sustaining if a percentage of savings from the availability of low-cost therapies is paid back into the IVPE + AMC Fund.  

The total amount of outcome payments under an AMC drawn from the IVPE + AMC Fund can be calculated with reference to the level of clinical impact or Quality-Adjusted Life-Years (QALYs) generated, disability-adjusted life-years (DALYs) reduced, or even future cost savings from allowing a low-cost therapy to be substituted for an expensive one or reduce hospitalisation costs. For example, the number of QALYs resulting from an approved unmonopolizable therapy can be calculated in advance by a committee of pharmacoeconomic experts under a similar process to the United Kingdom National Health System’s Subscription-Style-Payment (SSP) model for incentivizing development of new antibiotics. Under an SSP, a fixed amount is paid annually according to the total QALY value of the new therapy, as assessed by an elected, independent Medical Evaluation Committee. Similarly, CMS in Louisiana implemented a “Netflix-subscription” model to guarantee supply of low-cost generic drugs to treat Hepatitis C by agreeing to a fixed annual payment in advance. Pay-for-performance and value-based-payment (VBP) contracts are similar to AMC contracts and often negotiated with payers to provide more cost-effective delivery of healthcare services, where rewards are based on certain conditions being met. Accordingly, using AMC contracts to reward successful RCTs is not a novel mechanism that will require a significant administrative burden for federal agencies to implement. It may only require changing a few sentences in an existing VBP contract to refer to a repurposed generic drug or low-cost therapy.  

The following example describes how the IVPE + AMC model works:

1. A payer (e.g., CMS) agrees to an IVPE RCT with a sponsor comparing the equivalence or superiority of a repurposed generic drug or low-cost therapy to a patented drug (or expensive standard of care). The payer can reimburse the low-cost therapy at a higher price or per-patient price sufficient to cover the costs of the IVPE RCT. If the higher reimbursement is at a lower price than the patented drug or expensive treatment, it will guarantee cost savings for the payer, even if the RCT fails. If the IVPE RCT is successful, the payer agrees to a AMC worth, say, at least $100 million to purchase a  minimum quantity of the repurposed generic drug in advance or reimbursing the sponsor at the higher price, subject to a sponsor obtaining FDA approval and being responsible for post-approval pharmacovigilance. Notably, because the IVPE RCT is funded from immediate cost savings due to the price difference between the low-cost therapy and patented drug, both parties are financially de-risked. (See Appendix 1 for an example of the IVPE + AMC model using the example of generic ketamine vs. patented esketamine to treat depression.) 
2. The sponsoring pharmaceutical company raises $50 million to conduct the clinical trials needed for FDA approval, on the basis of the agreement to transfer cost savings under the IVPE RCT and the $100 million AMC, subject to FDA approval and post-approval (Phase IV) pharmacovigilance studies showing continued safety and efficacy. 
3. If the IVPE RCT is successful and the generic drug or low-cost therapy is shown to be equivalent to or better than the expensive patented drug, the AMC is triggered: sponsors are guaranteed minimum sales of $100M and also have a “branded” generic or low-cost therapy with new label and data exclusivity for three years by filing an abbreviated new drug application (ANDA) with the FDA. A new drug application (NDA) with five years of data exclusivity is possible if the generic or low-cost therapy contains a new active ingredient. They can also obtain a method of use patent on the optimal treatment protocol, which provides some commercial benefit and leverage to negotiate AMCs with other payers. A payer’s cost savings from updating their reimbursement guidelines to substitute a low-cost generic drug for the expensive patented drug will exceed the $100 million outcome payments under the AMC, which can be used to top-up the IVPE + AMC Fund to make it self-sustaining. In the case that clinical trials fail, the sponsor loses their investment, unless payers agree to transfer part of their cost savings for the duration of the IVPE RCTs to reimburse the sponsor. This is truly a win-win arrangement to fund new RCTs with very limited commercial risks compared to traditional drug development. The main task is finding repurposed generic drugs or low-cost interventions that could reduce reliance on expensive patented drugs by having at least the same safety and efficacy. There are many low-hanging fruits that are already medically “de-risked” (see generic drug repurposing use cases section below). 

Once the repurposed generic or low-cost therapy receives FDA approval and market authorization, the insurer can then market the approved therapy to prescribing medical doctors. Doctors in turn can prescribe the treatment protocol to their patients, who benefit from improved health. Moreover, this payment model that generates revenue from RCT data resulting in costsavings helps redress the conflict of interest and information asymmetry between government and healthcare payers and pharmaceutical companies, who are now incentivized to develop the most effective therapies for the lowest cost. 

Financial and Health Impact of the IVPE + AMC Fund

According to the Office of Management and Budget and the Office of Science and Technology Policy, prize competitions benefit the federal government by allowing federal agencies to:

1. Pay only for success
2. Establish ambitious goals and shift technological and other risks to prize participants 
3. Increase the number and diversity of individuals, organizations, and teams tackling a problem, including those who have not previously received federal funding
4. Increase cost effectiveness, stimulate private-sector investment, and maximize the return on taxpayer dollars
5. Motivate and inspire the public to tackle scientific, technical, and societal problems

There are additional reasons why implementing a self-sustaining IVPE + AMC Fund as a prize-like “pull” incentive to reward development of low-cost therapies is more efficient and scalable than providing grant funding or “push” incentives (although the approaches can be complementary and push incentives can be superior when likely outcomes are known to the grantor). First, IVPE RCTs de-risk sponsors if the payer cost savings are shared by ensuring payer reimbursement of the low-cost therapy is sufficient to cover the costs of the RCT. Under an AMC contract, there is a transfer of risk from payers to the market: payers are not willing to take on the risk and expense of large RCTs, the responsibility of marketing to patients and doctors, and managing adverse events or product recalls. In turn, the market is comfortable taking on this risk and expense, as long as investors can obtain a standard rate of return (e.g., 10-20% p/a). Second, payers and government agencies are often not as well-qualified or equipped as the pharmaceutical industry, which has access to the most experienced staff and latest technological advances, including artificial intelligence. Third, grant programs have high administration costs, both for grantors and grantees, while the latter are not incentivized to deliver successful outcomes. By comparison, the markets are incentivized to fail fast and efficiently allocate capital to those best able to deliver results for the lowest cost. Lastly, repurposed off-patent and unmonopolizable therapies could outcompete patented drugs by providing improved health outcomes for a lower cost to payers. Pharmaceutical companies may also benefit from IVPE RCTs and AMC contracts versus developing novel molecules, due to decreased risk, costs, and time to market.  

The IVPE + AMC Fund creates a clinical trial data marketplace that incentivizes the funding of large-scale clinical trials of unmonopolizable therapies such as low-cost generic drugs that can result in billions, if not trillions, of dollars in healthcare savings for health insurers and governments and, moreover, provide better treatment options and outcomes for patients. Those cost savings can then be reinvested in additional IVPE + AMC Funds to incentivize further development of treatment protocols. Accordingly, the IVPE + AMC model not only incentivizes investment in unmonopolizable therapies, it can also be used to generate a sustainable and scalable business model for additional investment into low-cost therapies that also help improve access to healthcare in the Global South. 

Many Generic Drug Repurposing or Low-Cost Therapy Candidates Exist

Use Case 1: Metastatic Cancer

Hundreds of non-cancer generic drugs have already been tested by researchers and physicians in preclinical and clinical studies for cancer, some up to Phase II trials, and show promise. For example, repurposing the off-patent NSAID ketorolac as a prevention treatment resulting in 10% reduction in breast cancer recurrence would cost $5 million annually (100,000 cases at $50 per case for ketorolac and its administration). The savings could be over $1 billion annually (10,000 patients at approximately $100,000 per patient for the treatment of metastatic disease). These savings would be dwarfed by the cost savings available under an IVPE fund comparing low doses of expensive patented cancer drugs with their standard dose, which can result in fewer side-effects for patients, including nivolumab, abiraterone, trastuzumab, ibrutinib, paclitaxel, and pembrolizumab. The latter (Keytruda) is the top-selling blockbuster drug, with annual sales in excess of $15B; dosing Keytruda by weight could reduce use by 25% in approved indications such as lung cancers. 

Use Case 2: Major Depressive Disorder & Treatment-Resistant Depression

Depression is the leading cause of disability in the United States for people between the ages of 15 and 44. An estimated 12-month prevalence of medication-treated major depressive disorder (MDD) in the United States was 8.9 million adults, and 2.8 million had treatment-resistant depression (TRD). A growing body of evidence has shown that infusions of generic ketamine can be a viable and affordable therapy for both forms of depression, which cost the United States over $320 billion in 2018. Generic ketamine has been used as a general anesthetic since the Vietnam War and costs less than $2 per dose. However generic ketamine is not authorized to treat any form of depression. The patented and FDA-approved s-ketamine or esketamine, has a price at $850 per dose and is used for TRD and MDD with suicidal ideation. 

To date, many clinical trials show that generic ketamine is more effective. Moreover, a 2020 study indicated that esketamine is unlikely to be cost-effective for management of treatment-resistant depression in the United States unless its price falls by more than 40%. And recently, the UK payer NICE declined to reimburse esketamine. With approximately nine million American adults living with treatment-resistant depression, successfully repurposing generic ketamine using the self-sustaining IVPE + AMC Fund could save many lives through improved access and standard of care—and save healthcare payers hundreds of millions of dollars in monopoly prices.

Plan of Action

The IVPE + AMC Fund can be established through the America COMPETES Reauthorization Act of 2010 (P.L. 111-358), which encourages prize competitions by authorizing the head of any federal agency to carry out a competition that has the potential to stimulate innovation and advance the agency’s mission. In 2016, the 21st Century Cures Act (P.L. 114-255) directed the director of the NIH to support prize competitions that would realize significant advancements in biomedical science or improve health outcomes, especially as they relate to human diseases or conditions. IVPE + AMC contracts can act like a “prize-like” incentive that is designed to address market failures but also lower healthcare treatment costs for federal agencies  (e.g., CMS or VA)  by incentivizing the discovery and validation of evidence that low-cost interventions such as repurposed generic drugs may be equivalent to or more effective than expensive interventions such as patented drugs. 

In short, we propose that the IVPE + AMC Fund be established and operate as follows:

The IVPE + AMC Fund is established through the America COMPETES Reauthorization Act of 2010 (P.L. 111-358) to support backing of IVPE RCTs by payers as a self-funding mechanism and authorize outcome payments of up to $100 million under an AMC for successful clinical trials of a repurposed generic drug, nutraceutical, and/or other low-cost unmonopolizable therapy to treat a specific indication of high unmet medical need and cost burden (e.g. cancer, treatment resistant depression, glioblastoma, Crohn’s Disease, Alzheimer’s).

The IVPE + AMC Fund is furthermore supported by Section 2002 of The 21st Century Cures Act (Division A of P.L. 114-255), which requires the director of the NIH, under authorities in 15 U.S.C. §3719, to support prize competitions for one or both of the following goals:

1. Identify and fund areas of biomedical science that could realize significant advancements through a prize competition; and 
2. Improve health outcomes, particularly with respect to human diseases and conditions that are serious and represent a significant disease burden in the United States. The prize competition may also target human diseases and conditions for which public and private investment in research is disproportionately small relative to federal government expenditures for prevention and treatment activities and those diseases and conditions with potential for a significant return on investment via reduction in federal expenditures.

The director of the NIH elects a Medical Evaluation Board, which oversees and manages the prize purpose held by the IVPE + AMC Fund as follows:

1. Determining the minimum reimbursement price to sponsors for patients receiving a low-cost therapy under an IVPE RCT which is less than the price of an expensive patented drug or intervention that it substitutes. Then determine the minimum purchase order or outcome payments under an AMC contract relative to total QALY / DALY improvement or cost savings, subject to large Phase 3 RCTs resulting in FDA-approval of the low-cost therapy, and further subject to ongoing safety and efficacy shown in Phase 4 pharmacovigilance studies. 
2. The Medical Evaluation Board will be required to collect information on the effect of the IVPE + AMC Fund on advancing biomedical science or improving health outcomes and the effect of the innovations on federal expenditures.

Initially, we propose that Congress should fund the NIH with $2 million to establish a pilot IVPE + AMC Fund program in partnership with the NIH Office of Acquisition Management and Planning and NCATS. The focus of this would be to create a menu of “de-risked” low-cost therapies suitable for reimbursement under an IVPE + AMC Fund, and feasibility studies to show projected cost savings for payers such as CMS and VA and patient access benefits based on existing NCATS translational efforts, including generic drugs or dose de-escalation interventions by comparing them to expensive patented interventions under the IVPE model. For example, for treatment of age-related macular degeneration, generic drugs such as bevacizumab (Avastin) could save Medicare Part B $18 billion over 10 years compared with ranibizumab (Lucentis). Or compare the cost of prescribing the generic fluvoxamine to treat Covid at $6000 per QALY with molnupiravir at $55,000 per QALY, substituting sirolimus for nab-sirolumus to treat locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumors (PEComa), or substituting sirolimus for everolimus in various cancers. Significant cost savings from IVPE RCT de-escalation studies comparing a lower dose of an expensive cancer drug to the standard treatment can fund the development of new unmonopolizable therapies. For example, this includes savings from low-dose nivolumab for head and neck cancer, low-dose abiraterone, and trastuzumab, ibrutinib, paclitaxel, and pembrolizumab for various other cancers, as noted above. The key to this pilot would be a sufficient evidence-based evaluation process to generate a menu of low-cost IVPE use cases. Ideally, at scale the IVPE + AMC Fund would cover a wide expanse of market failures, but we recommend the low-hanging fruit of repurposing generic drugs and dose de-escalation studies for specialist oncology drugs before expanding to other types of unmonopolizable therapies, including medical diets such as ketogenic diet, non-pharmaceutical, and lifestyle interventions that can reduce reliance on expensive therapies.

Conclusion

An IVPE + AMC Fund established under the America COMPETES Act can provide a more flexible, self-sustaining and cost-effective payment model for developing affordable and effective medical therapies, as opposed to the pharmaceutical industry’s traditional model of charging a monopoly price for new patented drugs. Establishing IVPE RCTs that compare low-cost treatments with expensive treatments generates immediate cost savings for payers from reduced reliance on monopoly-priced drugs as well as future cost savings if clinical guidelines are updated to recommend the low-cost treatment. AMC contracts incentivize FDA-approval and help correct misaligned incentives under the patent system by ensuring rewards are de-linked from maximizing the sales of a single monopoly-priced drug. 

If our proposed self-sustaining IVPE + AMC Fund can be implemented, this will create new incentives to leverage the biotech innovations of the last 40 years and optimize the efficient delivery of healthcare, including genetic engineering, personalized medicine (informed by blood tests and low-cost DNA sequencing), artificial intelligence, decentralized clinical trials, and telemedicine. The pharmaceutical industry is not to blame if they can only rely on the patent system to obtain a return on investment for funding medical innovation. New outcomes-based payment models are needed to develop more affordable and effective treatments that can pull the practice of medicine into the 21st century and address significant health inequities. 

Appendix

IVPE RCT + AMC Financial Model Example

This IVPE RCT + AMC financial model uses generic ketamine and patented esketamine as an example of how to leverage immediate and future cost savings by comparing a low-cost intervention to an expensive intervention to incentivize funding of RCTs for unmonopolizable therapies.

The unregulated use of algorithmic decision-making systems (ADS)—systems that crunch large amounts of personal data and derive relationships between data points—has negatively affected millions of Americans. These systems impact equitable access to education, housing, employment, and healthcare, with life-altering effects. For example, commercial algorithms used to guide health decisions for approximately 200 million people in the United States each year were found to systematically discriminate against Black patients, reducing, by more than half, the number of Black patients who were identified as needing extra care.

One way to combat algorithmic harm is by conducting system audits, yet there are currently no standards for auditing AI systems at the scale necessary to ensure that they operate legally, safely, and in the public interest. According to one research study examining the ecosystem of AI audits, only one percent of AI auditors believe that current regulation is sufficient. 

To address this problem, the National Institute of Standards and Technology (NIST) should invest in the development of comprehensive AI auditing tools, and federal agencies with the charge of protecting civil rights and liberties should collaborate with NIST to develop these tools and push for comprehensive system audits. 

These auditing tools would help the enforcement arms of these federal agencies save time and money while fulfilling their statutory duties. Additionally, there is a pressing need to develop these tools now, with Executive Order 13985 instructing agencies to “focus their civil rights authorities and offices on emerging threats, such as algorithmic discrimination in automated technology.”

Challenge and Opportunity

The use of AI systems across all aspects of life has become commonplace as a way to improve decision-making and automate routine tasks. However, their unchecked use can perpetuate historical inequities, such as discrimination and bias, while also potentially violating American civil rights.

Algorithmic decision-making systems are often used in prioritization, classification, association, and filtering tasks in a way that is heavily automated. ADS become a threat when people uncritically rely on the outputs of a system, use them as a replacement for human decision-making, or use systems with no knowledge of how they were developed. These systems, while extremely useful and cost-saving in many circumstances, must be created in a way that is equitable and secure. 

Ensuring the legal and safe use of ADS begins with recognizing the challenges that the federal government faces. On the one hand, the government wants to avoid devoting excessive resources to managing these systems. With new AI system releases happening everyday, it is becoming unreasonable to oversee every system closely. On the other hand, we cannot blindly trust all developers and users to make appropriate choices with ADS.

This is where tools for the AI development lifecycle come into play, offering a third alternative between constant monitoring and blind trust. By implementing auditing tools and signatory practices, AI developers will be able to demonstrate compliance with preexisting and well-defined standards while enhancing the security and equity of their systems. 

Due to the extensive scope and diverse applications of AI systems, it would be difficult for the government to create a centralized body to oversee all systems or demand each agency develop solutions on its own. Instead, some responsibility should be shifted to AI developers and users, as they possess the specialized knowledge and motivation to maintain proper functioning systems. This allows the enforcement arms of federal agencies tasked with protecting the public to focus on what they do best, safeguarding citizens’ civil rights and liberties.

Plan of Action

To ensure security and verification throughout the AI development lifecycle, a suite of auditing tools is necessary. These tools should help enable outcomes we care about, fairness, equity, and legality. The results of these audits should be reported (for example, in an immutable ledger that is only accessible by authorized developers and enforcement bodies) or through a verifiable code-signing mechanism. We leave the specifics of the reporting and documenting the process to the stakeholders involved, as each agency may have different reporting structures and needs. Other possible options, such as manual audits or audits conducted without the use of tools, may not provide the same level of efficiency, scalability, transparency, accuracy, or security.

The federal government’s role is to provide the necessary tools and processes for self-regulatory practices. Heavy-handed regulations or excessive government oversight are not well-received in the tech industry, which argues that they tend to stifle innovation and competition. AI developers also have concerns about safeguarding their proprietary information and users’ personal data, particularly in light of data protection laws.

Auditing tools provide a solution to this challenge by enabling AI developers to share and report information in a transparent manner while still protecting sensitive information. This allows for a balance between transparency and privacy, providing the necessary trust for a self-regulating ecosystem.

Solution Technical Requirements

A general machine learning lifecycle. Examples of what system developers at each stage would be responsible for signing off on the use of the security and equity tools in the lifecycle. These developers represent companies, teams, or individuals.

The equity tool and process, funded and developed by government agencies such as NIST, would consist of a combination of (1) AI auditing tools for security and fairness (which could be based on or incorporate open source tools such as AI Fairness 360 and the Adversarial Robustness Toolbox), and (2) a standardized process and guidance for integrating these checks (which could be based on or incorperate guidance such as the U.S. Government Accountability Office’s  Artificial Intelligence: An Accountability Framework for Federal Agencies and Other Entities).¹ 

Dioptra, a recent effort between NIST and the National Cybersecurity Center of Excellence (NCCoE) to build machine learning testbeds for security and robustness, is an excellent example of the type of lifecycle management application that would ideally be developed. Failure to protect civil rights and ensure equitable outcomes must be treated as seriously as security flaws, as both impact our national security and quality of life. 

Equity considerations should be applied across the entire lifecycle; training data is not the only possible source of problems. Inappropriate data handling, model selection, algorithm design, and deployment, also contribute to unjust outcomes. This is why tools combined with specific guidance is essential. 

As some scholars note, “There is currently no available general and comparative guidance on which tool is useful or appropriate for which purpose or audience. This limits the accessibility and usability of the toolkits and results in a risk that a practitioner would select a sub-optimal or inappropriate tool for their use case, or simply use the first one found without being conscious of the approach they are selecting over others.”

Companies utilizing the various packaged tools on their ADS could sign off on the results using code signing. This would create a record that these organizations ran these audits along their development lifecycle and received satisfactory outcomes. 

We envision a suite of auditing tools, each tool applying to a specific agency and enforcement task. Precedents for this type of technology already exist. Much like security became a part of the software development lifecycle with guidance developed by NIST, equity and fairness should be integrated into the AI lifecycle as well. NIST could spearhead a government-wide initiative on auditing AI tools, leading guidance, distribution, and maintenance of such tools. NIST is an appropriate choice considering its history of evaluating technology and providing guidance around the development and use of specific AI applications such as the NIST-led Face Recognition Vendor Test (FRVT).

Areas of Impact & Agencies / Departments Involved

Security & Justice
The U.S. Department of Justice, Civil Rights Division, Special Litigation SectionDepartment of Homeland Security U.S. Customs and Border Protection U.S. Marshals Service 

Public & Social Sector
The U.S. Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity

Education
The U.S. Department of Education

Environment
The U.S. Department of Agriculture, Office of the Assistant Secretary for Civil RightsThe Federal Energy Regulatory CommissionThe Environmental Protection Agency

Crisis Response
Federal Emergency Management Agency 

Health & Hunger
The U.S. Department of Health and Human Services, Office for Civil RightsCenter for Disease Control and PreventionThe Food and Drug Administration

Economic
The Equal Employment Opportunity Commission, The U.S. Department of Labor, Office of Federal Contract Compliance Programs

Infrastructure
The U.S. Department of Transportation, Office of Civil RightsThe Federal Aviation AdministrationThe Federal Highway Administration

Information Verification & Validation
The Federal Trade Commission, The Federal Communication Commission, The Securities and Exchange Commission.

Many of these tools are open source and free to the public. A first step could be combining these tools with agency-specific standards and plain language explanations of their implementation process.

Benefits

These tools would provide several benefits to federal agencies and developers alike. First, they allow organizations to protect their data and proprietary information while performing audits. Any audits, whether on the data, model, or overall outcomes, would be run and reported by the developers themselves. Developers of these systems are the best choice for this task since ADS applications vary widely, and the particular audits needed depend on the application. 

Second, while many developers may opt to use these tools voluntarily, standardizing and mandating their use would allow an evaluation of any system thought to be in violation of the law to be easily assesed. In this way, the federal government will be able to manage standards more efficiently and effectively.

Third, although this tool would be designed for the AI lifecycle that results in ADS, it can also be applied to traditional auditing processes. Metrics and evaluation criteria will need to be developed based on existing legal standards and evaluation processes; once these metrics are distilled for incorporation into a specific tool, this tool can be applied to non-ADS data as well, such as outcomes or final metrics from traditional audits.

Fourth, we believe that a strong signal from the government that equity considerations in ADS are important and easily enforceable will impact AI applications more broadly, normalizing these considerations.   

Example of Opportunity

An agency that might use this tool is the Department of Housing and Urban Development (HUD), whose purpose is to ensure that housing providers do not discriminate based on race, color, religion, national origin, sex, familial status, or disability.

To enforce these standards, HUD, which is responsible for 21,000 audits a year, investigates and audits housing providers to assess compliance with the Fair Housing Act, the Equal Credit Opportunity Act, and other related regulations. During these audits, HUD may review a provider’s policies, procedures, and records, as well as conduct on-site inspections and tests to determine compliance. 

Using an AI auditing tool could streamline and enhance HUD’s auditing processes. In cases where ADS were used and suspected of harm, HUD could ask for verification that an auditing process was completed and specific metrics were met, or require that such a process be undergone and reported to them. 

Noncompliance with legal standards of nondiscrimination would apply to ADS developers as well, and we envision the enforcement arms of protection agencies would apply the same penalties in these situations as they would in non-ADS cases.

R&D

To make this approach feasible, NIST will require funding and policy support to implement this plan. The recent CHIPS and Science Act has provisions to support NIST’s role in developing “trustworthy artificial intelligence and data science,” including the testbeds mentioned above. Research and development can be partially contracted out to universities and other national laboratories or through partnerships/contracts with private companies and organizations.

The first iterations will need to be developed in partnership with an agency interested in integrating an auditing tool into its processes. The specific tools and guidance developed by NIST must be applicable to each agency’s use case. 

The auditing process would include auditing data, models, and other information vital to understanding a system’s impact and use, informed by existing regulations/guidelines. If a system is found to be noncompliant, the enforcement agency has the authority to impose penalties or require changes to be made to the system.

Pilot program

NIST should develop a pilot program to test the feasibility of AI auditing. It should be conducted on a smaller group of systems to test the effectiveness of the AI auditing tools and guidance and to identify any potential issues or areas for improvement. NIST should use the results of the pilot program to inform the development of standards and guidelines for AI auditing moving forward.

Collaborative efforts

Achieving a self-regulating ecosystem requires collaboration. The federal government should work with industry experts and stakeholders to develop the necessary tools and practices for self-regulation.

A multistakeholder team from NIST, federal agency issue experts, and ADS developers should be established during the development and testing of the tools. Collaborative efforts will help delineate responsibilities, with AI creators and users responsible for implementing and maintaining compliance with the standards and guidelines, and agency enforcement arms agency responsible for ensuring continued compliance.

Regular monitoring and updates

The enforcement agencies will continuously monitor and update the standards and guidelines to keep them up to date with the latest advancements and to ensure that AI systems continue to meet the legal and ethical standards set forth by the government.

Transparency and record-keeping

Code-signing technology can be used to provide transparency and record-keeping for ADS. This can be used to store information on the auditing outcomes of the ADS, making reporting easy and verifiable and providing a level of accountability to users of these systems.

Conclusion

Creating auditing tools for ADS presents a significant opportunity to enhance equity, transparency, accountability, and compliance with legal and ethical standards. The federal government can play a crucial role in this effort by investing in the research and development of tools, developing guidelines, gathering stakeholders, and enforcing compliance. By taking these steps, the government can help ensure that ADS are developed and used in a manner that is safe, fair, and equitable.

Black, Indigenous, and other people of color (BIPOC) are underrepresented in labor unions. Further, people working in the gig economy, tech supply chain, and other automation-adjacent roles face a huge barrier to unionizing their workplaces. These roles, which are among the fastest-growing segments of the U.S. economy, are overwhelmingly filled by BIPOC workers. In the absence of safety nets for these workers, the racial wealth gap will continue to grow. The Biden-Harris Administration can promote racial equity and support low-wage BIPOC workers’ unionization efforts by creating a National Bargaining in Good Faith Fund.

As a whole, unions lift up workers to a better standard of living, but historically they have failed to protect workers of color. The emergence of labor unions in the early 20th century was propelled by the passing of the National Labor Relations Act (NLRA), also known as the Wagner Act of 1935. Although the NLRA was a beacon of light for many working Americans, affording them the benefits of union membership such as higher wages, job security, and better working conditions, which allowed many to transition into the middle class, the protections of the law were not applied to all working people equally. Labor unions in the 20th century were often segregated, and BIPOC workers were often excluded from the benefits of unionization. For example, the Wagner Act excluded domestic and agricultural workers and permitted labor unions to discriminate against workers of color in other industries, such as manufacturing. 

Today, in the aftermath of the COVID-19 pandemic and amid a renewed interest in a racial reckoning in the United States, BIPOC workers—notably young and women BIPOC workers—are leading efforts to organize their workplaces. In addition to demanding wage equity and fair treatment, they are also fighting for health and safety on the job. Unionized workers earn on average 11.2% more in wages than their nonunionized peers. Unionized Black workers earn 13.7% more and unionized Hispanic workers 20.1% more than their nonunionized peers. But every step of the way, tech giants and multinational corporations are opposing workers’ efforts and their legal right to organize, making organizing a risky undertaking.

A National Bargaining in Good Faith Fund would provide immediate and direct financial assistance to workers who have been retaliated against for attempting to unionize, especially those from historically disadvantaged groups in the United States. This fund offers a simple and effective solution to alleviate financial hardships, allowing affected workers to use the funds for pressing needs such as rent, food, or job training. It is crucial that we advance racial equity, and this fund is one step toward achieving that goal by providing temporary financial support to workers during their time of need. Policymakers should support this initiative as it offers direct payments to workers who have faced illegal retaliation, providing a lifeline for historically disadvantaged workers and promoting greater economic justice in our society.

Challenges and Opportunities

The United States faces several triangulating challenges. First is our rapidly evolving economy, which threatens to displace millions of already vulnerable low-wage workers due to technological advances and automation. The COVID-19 pandemic accelerated automation, which is a long-term strategy for the tech companies that underpin the gig economy. According to a report by an independent research group, self-driving taxis are likely to dominate the ride-hailing market by 2030, potentially displacing 8 million human drivers in the United States alone.

Second, we have a generation of workers who have not reaped the benefits associated with good-paying union jobs due to decades of anti-union activities. As of 2022, union membership has dropped from more than 30% of wage and salary workers in the private sector in the 1950s to just 6.3%. The declining percentage of workers represented by unions is associated with widespread and deep economic inequality, stagnant wages, and a shrinking middle class. Lower union membership rates have contributed to the widening of the pay gap for women and workers of color.

Third, historically disadvantaged groups are overrepresented in nonunionized, low-wage, app-based, and automation-adjacent work. This is due in large part to systemic racism. These structures adversely affect BIPOC workers’ ability to obtain quality education and training, create and pass on generational wealth, or follow through on the steps required to obtain union representation.

Workers face tremendous opposition to unionization efforts from companies that spend hundreds of millions of dollars and use retaliatory actions, disinformation, and other intimidating tactics to stop them from organizing a union. For example, in New York, Black organizer Chris Smalls led the first successful union drive in a U.S. Amazon facility after the company fired him for his activities and made him a target of a smear campaign against the union drive. Smalls’s story is just one illustration of how BIPOC workers are in the middle of the collision between automation and anti-unionization efforts. 

The recent surge of support for workers’ rights is a promising development, but BIPOC workers face challenges that extend beyond anti-union tactics. Employer retaliation is also a concern. Workers targeted for retaliation suffer from reduced hours or even job loss. For instance, a survey conducted at the beginning of the COVID-19 pandemic revealed that one in eight workers perceived possible retaliatory actions by their employers against colleagues who raised health and safety concerns. Furthermore, Black workers were more than twice as likely as white workers to experience such possible retaliation. This sobering statistic is a stark reminder of the added layers of discrimination and economic insecurity that BIPOC workers have to navigate when advocating for better working conditions and wages. 

The time to enact strong policy supporting historically disadvantaged workers is now. Advancing racial equity and racial justice is a focus for the Biden-Harris Administration, and the political and social will is evident. The day one Biden-Harris Administration Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government seeks to develop policies designed to advance equity for all, including people of color and others who have been historically underinvested in, marginalized, and adversely affected by persistent poverty and inequality. Additionally, the establishment of the White House  is a significant development. Led by Vice-President Kamala Harris and Secretary of Labor Marty Walsh, the Task Force aims to empower workers to organize and negotiate with their employers through federal government policies, programs, and practices. 

A key focus for the Task Force is to increase worker power in underserved communities by examining and addressing the challenges faced by workers in jurisdictions with restrictive labor laws, marginalized workers, and workers in certain industries. The Task Force is well-timed, given the increased support for workers’ rights demonstrated through the record-high number of petitions filed with the National Labor Relations Board and the rise in strikes over the past two years. The Task Force’s approach to empowering workers and supporting their ability to organize and negotiate through federal government policies and programs offers a promising opportunity to address the unique challenges faced by BIPOC workers in unionization efforts.

The National Bargaining in Good Faith Fund is a critical initiative that can help level the playing field by providing financial assistance to workers facing opposition from employers who refuse to engage in good-faith bargaining, thereby expanding access to unions for Black, Indigenous, and other people of color. In addition, the proposed initiative would reinforce Equal Employment Opportunity Commission (EEOC) and National Labor Relations Board (NLRB) policies regarding employer discrimination and retaliation. The Bargaining in Good Faith Fund will provide direct payments to workers whose employers have retaliated against them for engaging in union organizing activities. The initiative also includes monitoring cases where a violation has occurred against workers involved in union organization and connecting their bargaining unit with relevant resources to support their efforts. With the backing of the Task Force, the fund could make a significant difference in the lives of workers facing barriers to organizing.

Plan of Action

While the adoption of a policy like the Bargaining in Good Faith Fund is unprecedented at the federal level, we draw inspiration from successful state-level initiatives aimed at improving worker well-being. Two notable examples are initiatives enacted in California and New York, where state lawmakers provided temporary monetary assistance to workers affected by the COVID-19 pandemic. Taking a cue from these successful programs, we can develop federal policies that better support workers, especially those belonging to historically disadvantaged groups.

The successful implementation of worker-led, union-organized, and community-led strike assistance funds, as well as similar initiatives for low-wage, app-based, and automation-adjacent workers, indicates that the Bargaining in Good Faith Fund has strong potential for success. For example, the Coworker Solidarity Fund provides legal, financial, and strategic support for worker-activists organizing to improve their companies, while the fund invests in ecosystems that increase worker power and improve economic livelihoods and social conditions across the U.S. South.

New York state lawmakers have also set a precedent with their transformative Excluded Workers Fund, which provided direct financial support to workers left out of pandemic relief programs. The $2.1 billion Excluded Workers Fund, passed by the New York state legislature and governor in April 2021, was the first large-scale program of its kind in the country. By examining and building on these successes, we can develop federal policies that better support workers across the country.

A national program requires multiple funding methods, and several mechanisms have been identified to establish the National Bargaining in Good Faith Fund. First, existing policy needs to be strengthened, and companies violating labor laws should face financial consequences. The labor law violation tax, which could be a percentage of a company’s profits or revenue, would be directed to the Bargaining in Good Faith Fund. Additionally, penalties could be imposed on companies that engage in retaliatory behavior, and the funds generated could also be directed to the Bargaining in Good Faith Fund. New legislation from Congress is required to enforce existing federal policy.

Second, as natural allies in the fight to safeguard workers’ rights, labor unions should allocate a portion of their dues toward the fund. By pooling their resources, a portion of union dues could be directed to the federal fund.

Third, a portion of the fees paid into the federal unemployment insurance program should be redirected to Bargaining in Good Faith Fund. 

Fourth, existing funding for worker protections, currently siloed in agencies, should be reallocated to support the Bargaining in Good Faith Fund more effectively. To qualify for the fund, workers receiving food assistance and/or Temporary Assistance for Needy Families benefits should be automatically eligible once the NLRB and the EEOC recognize the instance of retaliation. Workers who are not eligible could apply directly to the Fund through a state-appointed agency. This targeted approach aims to support those who face significant barriers to accessing resources and protections that safeguard their rights and well-being due to historical labor exploitation and discrimination.

Several federal agencies could collaborate to oversee the Bargaining in Good Faith Fund, including the Department of Labor, the EEOC, the Department of Justice, and the NLRB. These agencies have the authority to safeguard workers’ welfare, enforce federal laws prohibiting employment discrimination, prosecute corporations that engage in criminal retaliation, and enforce workers’ rights to engage in concerted activities for protection, such as organizing a union.

Conclusion

The federal government has had a policy of supporting worker organizing and collective bargaining since the passage of the National Labor Relations Act in 1935. However, the federal government has not fully implemented its policy over the past 86 years, resulting in negative impacts on BIPOC workers, who face systemic racism in the unionization process and on the job. Additionally, rapid technological advances have resulted in the automation of tasks and changes in the labor market that disproportionately affect workers of color. Consequently, the United States is likely to see an increase in wealth inequality over the next two decades.

The Biden-Harris Administration can act now to promote racial equity by establishing a National Bargaining in Good Faith Fund to support historically disadvantaged workers in unionization efforts. Because this is a pressing issue, a feasible short-term solution is to initiate a pilot program over the next 18 months. It is imperative to establish a policy that acknowledges and addresses the historical disadvantage experienced by these workers and supports their efforts to attain economic equity.

In pursuit of lower costs and improved decision-making, federal agencies have begun to adopt artificial intelligence (AI) to assist in government decision-making and public administration. As AI occupies a growing role within the federal government, algorithmic design and evaluation will increasingly become a key site of policy decisions. Yet a 2020 report found that almost half (47%) of all federal agency use of AI was externally sourced, with a third procured from private companies. In order to ensure that agency use of AI tools is legal, effective, and equitable, the Biden-Harris Administration should establish a Federal Artificial Intelligence Program to govern the procurement of algorithmic technology. Additionally, the AI Program should establish a strict data collection protocol around the collection of race data needed to identify and mitigate discrimination in these technologies.

Researchers who study and conduct algorithmic audits highlight the importance of race data for effective anti-discrimination interventions, the challenges of category misalignment between data sources, and the need for policy interventions to ensure accessible and high-quality data for audit purposes. However, inconsistencies in the collection and reporting of race data significantly limit the extent to which the government can identify and address racial discrimination in technical systems. Moreover, given significant flexibility in how their products are presented during the procurement process, technology companies can manipulate race categories in order to obscure discriminatory practices. 

To ensure that the AI Program can evaluate any inequities at the point of procurement, the Office of Science and Technology Policy (OSTP) National Science and Technology Council Subcommittee on Equitable Data should establish guidelines and best practices for the collection and reporting of race data. In particular, the Subcommittee should produce a report that identifies the minimum level of data private companies should be required to collect and in what format they should report such data during the procurement process. These guidelines will facilitate the enforcement of existing anti-discrimination laws and help the Biden-Harris Administration pursue their stated racial equity agenda. Furthermore, these guidelines can help to establish best practices for algorithm development and evaluation in the private sector. As technology plays an increasingly important role in public life and government administration, it is essential not only that government agencies are able to access race data for the purposes of anti-discrimination enforcement—but also that the race categories within this data are not determined on the basis of how favorable they are to the private companies responsible for their collection.

Challenge and Opportunity

Research suggests that governments often have little information about key design choices in the creation and implementation of the algorithmic technologies they procure. Often, these choices are not documented or are recorded by contractors but never provided to government clients during the procurement process. Existing regulation provides specific requirements for the procurement of information technology, for example, security and privacy risks, but these requirements do not account for the specific risks of AI—such as its propensity to encode structural biases. Under the Federal Acquisition Regulation, agencies can only evaluate vendor proposals based on the criteria specified in the associated solicitation. Therefore, written guidance is needed to ensure that these criteria include sufficient information to assess the fairness of AI systems acquired during procurement. 

The Office of Management and Budget (OMB) defines minimum standards for collecting race and ethnicity data in federal reporting. Racial and ethnic categories are separated into two questions with five minimum categories for race data (American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, and White) and one minimum category for ethnicity data (Hispanic or Latino). Despite these standards, guidelines for the use of racial categories vary across federal agencies and even across specific programs. For example, the Census Bureau classification scheme includes a “Some Other Race” option not used in other agencies’ data collection practices. Moreover, guidelines for collection and reporting of data are not always aligned. For example, the U.S. Department of Education recommends collecting race and ethnicity data separately without a “two or more races” category and allowing respondents to select all race categories that apply. However, during reporting, any individual who is ethnically Hispanic or Latino is reported as only Hispanic or Latino and not any other race. Meanwhile, any respondent who selected multiple race options is reported in a “two or more races” category rather than in any racial group with which they identified.

These inconsistencies are exacerbated in the private sector, where companies are not uniformly constrained by the same OMB standards but rather covered by piecemeal legislation. In the employment context, private companies are required to collect and report on demographic details of their workforce according to the OMB minimum standards. In the consumer lending setting, on the other hand, lenders are typically not allowed to collect data about protected classes such as race and gender. In cases where protected class data can be collected, these data are typically considered privileged information and cannot be accessed by the government. In the case of algorithmic technologies, companies are often able to discriminate on the basis of race without ever explicitly collecting race data by using features or sets of features that act as proxies for protected classes. Facebook’s advertising algorithms, for instance, can be used to target race and ethnicity without access to race data. 

Federal leadership can help create consistency in reporting to ensure that the government has sufficient information to evaluate whether privately developed AI is functioning as intended and working equitably. By reducing information asymmetries between private companies and agencies during the procurement process, new standards will bring policymakers back into the algorithmic governance process. This will ensure that democratic and technocratic norms of agency rule-making are respected even as privately developed algorithms take on a growing role in public administration.

Additionally, by establishing a program to oversee the procurement of artificial intelligence, the federal government can ensure that agencies have access to the necessary technical expertise to evaluate complex algorithmic systems. This expertise is crucial not only during the procurement stage but also—given the adaptable nature of AI—for ongoing oversight of algorithmic technologies used within government. 

Plan of Action

Recommendation 1. Establish a Federal Artificial Intelligence Program to oversee agency procurement of algorithmic technologies. 

The Biden-Harris Administration should create a Federal AI Program to create standards for information disclosure and enable evaluation of AI during the procurement process. Following the two-part test outlined in the AI Bill of Rights, the proposed Federal AI Program would oversee the procurement of any “(1) automated systems that (2) have the potential to meaningfully impact the American public’s rights, opportunities, or access to critical resources or services.”

The goals of this program will be to (1) establish and enforce quality standards for AI used in government, (2) enforce rigorous equity standards for AI used in government, (3) establish transparency practices that enable public participation and political accountability, and (4) provide guidelines for AI program development in the private sector.

Recommendation 2. Produce a report to establish what data are needed in order to evaluate the equity of algorithmic technologies during procurement.

To support the AI Program’s operations, the OSTP National Science and Technology Council Subcommittee on Equitable Data should produce a report to establish guidelines for the collection and reporting of race data that balances three goals: (1) high-quality data for enforcing existing anti-discrimination law, (2) consistency in race categories to reduce administrative burdens and curb possible manipulation, and (3) prioritizing the needs of groups most affected by discrimination. The report should include opportunities and recommendations for integrating its findings into policy. To ensure the recommendations and standards are instituted, the President should direct the General Services Administration (GSA) or OMB to issue guidance and request that agencies document how they will ensure new standards are integrated into future procurement vehicles. The report could also suggest opportunities to update or amend the Federal Acquisition Regulations. 

High-Quality Data

The new guidelines should make efforts to ensure the reliability of race data furnished during the procurement process. In particular:

1. Self-identification should be used whenever possible to ascertain race. As of 2021, Food and Nutrition Service guidance recommends against the use of visual identification based on reliability, respect for respondents’ dignity, and feedback from Child and Adult Care Food Program) and Summer Food Service Program participants.
2. The new guidelines should attempt to reduce missing data. People may be reluctant to share race information for many legitimate reasons, including uncertainty about how personal data will be used, fear of discrimination, and not identifying with predefined race categories. These concerns can severely impact data quality and should be addressed to the extent possible in the OMB guidelines. New York’s state health insurance marketplace saw a 20% increase in response rate for race by making several changes to the way they collect data. These changes included explaining how the data would be used and not allowing respondents to leave the question blank but instead allowing them to select “choose not to answer” or “don’t know.” Similarly, the Census Bureau found that a single combined race and ethnicity question improved data quality and consistency by reducing the rate of “some other race,” missing, and invalid responses as compared with two separate questions (one for race and one for ethnicity).
3. The new guidelines should follow best practices established through rigorous research and feedback from a variety of stakeholders. In June 2022, the OMB announced a formal review process to revise Statistical Policy Directive No. 15: Standards for Maintaining, Collecting, and Presenting Federal Data on Race and Ethnicity. While this review process is intended for the revision of federal data requirements, its findings can help inform best practices for collection and reporting requirements for nongovernmental data as well.

Consistency in Data Reporting 

Whenever possible and contextually appropriate, the guidelines for data reporting should align with the OMB guidelines for federal data reporting to reduce administrative burdens. However, the report may find that other data is needed that goes beyond the OMB guidelines for the evaluation of privately developed AI.

Prioritizing the Needs of Affected Groups

In their Toolkit for Centering Racial Equity Throughout Data Integration, the Actionable Intelligence for Social Policy group at the University of Pennsylvania identifies best practices for ensuring that data collection serves the groups most affected by discrimination. In particular, this toolkit emphasizes the need for strong privacy protections and stakeholder engagement. In their final report, the Subcommittee on Equitable Data should establish protocols to secure data and for carefully considered role-based access to it. 

The final report should also engage community stakeholders in determining which data should be collected and establish a plan for ongoing review that engages with relevant stakeholders, prioritizing affected populations and racial equity advocacy groups. The report should evaluate the appropriate level of transparency in the AI procurement process, in particular, trade-offs between desired levels of transparency and privacy.

Conclusion

Under existing procurement law, the government cannot outsource “inherently governmental functions.” Yet key policy decisions are embedded within the design and implementation of algorithmic technology. Consequently, it is important that policymakers have the necessary resources and information throughout the acquisition and use of procured AI tools. A Federal Artificial Intelligence Program would provide expertise and authority within the federal government to assess these decisions during procurement and to monitor the use of AI in government. In particular, this would strengthen the Biden-Harris Administration’s ongoing efforts to advance racial equity. The proposed program can build on both long-standing and ongoing work within the federal government to develop best practices for data collection and reporting. These best practices will not only ensure that the public use of algorithms is governed by strong equity and transparency standards in the public sector but also provide a powerful avenue for shaping the development of AI in the private sector.

Summary

Congress created the Development Finance Corporation (DFC) to finance private sector solutions to the most critical challenges facing the developing world. In parallel, the United States Agency for International Development (USAID) has committed to engaging the private sector and shifting more resources to local market providers to further the impact of U.S. foreign aid dollars. 

USAID is on the verge of awarding its largest-ever suite of foreign aid contracts, totaling $17 billion over the next ten years and comprising nine awards as part of the “NextGen Global Health Supply Chain” (GHSC) contracts. This is a continuation of previous global health supply chain contracts that date back to the 1960s that have grown exponentially in total value but have underperformed and not meaningfully transitioned responsibility for deployment to low- and middle-income country (LMIC) governments and LMIC-based organizations. 

Now is the time for USAID and the DFC to pilot new ways of working with the private sector that put countries on a path to high-impact, sustainable development that builds markets. 

We propose that USAID set aside $300 million of the overall $17 billion package – or less than 2 percent of the overall value – to create a Supply Chain Commercialization Fund to demonstrate a new way of working with the private sector and administering U.S. foreign aid. USAID and the DFC can deploy the Commercialization Fund to:

• Create and finance instruments that pay for results against certain well-defined success metrics, such as on-time delivery;
• Provide blended financing to expand the footprint and capabilities of established LMIC-based healthcare and logistics service providers that may require additional working capital to grow their presence and/or expand operations; and
• If successful, invite other countries to participate in this model, with the potential for replication to other geographies and sectors where there are robust private sector markets, such as in agriculture, water, and power.

USAID and the DFC can pilot this new model in three countries where there are already thriving and well-established private markets, like Ghana, Kenya, and Nigeria. 

Challenge and Opportunity

The world is facing an unprecedented concurrence of crises: pandemics, war, rising food insecurity, and a rapidly warming climate. Low- and middle-income countries (LMICs) are deeply affected, with many having lost decades’ worth of gains made toward the Sustainable Development Goals in only a few short years. We now face the dual tasks of regaining lost ground while ensuring those gains are more durable and lasting than before. 

The Biden Administration recognizes this pivotal moment in its new U.S. Strategy Toward Sub-Saharan Africa. The Strategy acknowledges the continent’s growing importance to U.S. global priorities and lays out a 21st-century partnership to contribute to a strong and sustainable global economy, foster new technology and innovation, and ultimately support the long-envisioned transition from donor-driven to country-driven programs. This builds on past U.S. foreign aid initiatives led by administrations of both political parties, including Administrator Mark Green’s Journey to Self Reliance and Administrator Raj Shah’s USAID Forward initiatives. Rather than creating a new flagship program, the U.S. Strategy Toward Sub-Saharan Africa focuses on improved implementation and better integration of existing initiatives to supercharge results. Such aims were echoed repeatedly during the U.S.-Africa Leaders Summit in December 2022.

To realize a new vision for U.S.-Africa partnerships, the Biden Administration should more effectively fuse the work of USAID and the DFC. A key policy rationale for the DFC’s creation in 2018 was to counter China’s Belt and Road Initiative (BRI) and growing economic influence in frontier markets. By combining this investment arm with USAID’s programmatic work, Congress hoped to accelerate major development impact. However numerous mismatches between USAID and DFC priorities have limited and sometimes actively undermined Congress’ goals. In the worst cases, USAID dollars have been used to pay international aid contractors to perform work in places where existing market providers could. Rather than bolster markets, this can distort them.

This memo lays out a new approach to development rooted in better USAID-DFC collaboration, where the work of both agencies contributes to the commercialization of sectors ready to transition from aid-dependent models to commercial and trade-enabled ones. In these sectors, USAID should work to phase out its international aid contractor-led model and instead scale up the work of existing market participants, including by paying them for results. This set of recommendations also advances USAID priorities outlined in the Agency’s new Acquisition and Assistance Strategy and proposed implementation plan, as well as USAID’s policy framework, which each call for working more closely with the private sector and transitioning to more pay-for-performance models.

The global health supply chain is ideal for USAID and the DFC to test the concept of a commercialization fund because of the sector’s discrete metrics and robust existing logistics companies. Investing in cheaper, more efficient evidence-driven solutions in a competitive marketplace can improve aid effectiveness and better serve target populations with the health goods like PPE, vaccines, and medications they need. This sector receives USAID’s largest contracts, with the Agency spending more than $1B each year on procurement and logistics to get the right health products to the right place, at the right time, and in the right condition across dozens of countries. In the logistics space, only about 25%¹ of USAID’s expenditure supports directly distributing commodities to health facilities in target nations; the other 75% is spent on fly-in contractors who oversee that work. Despite this premium, on-time and in-full distribution rates often miss their targets, and stockouts are still common, according to USAID’s reports and audits.²

A Commercialization Fund can directly address policy goals such as localization or private-sector engagement by building resilient health supply chains through a marketplace of providers that ensures patients and providers access the supplies they need on time. In addition to improving sustainability and results and cutting costs, a well-structured Commercialization Fund can improve global health donor coordination, crowd-in new investments from other funders and philanthropy that want to pay for outcomes, and hasten the transition from donor-led aid models to country-led ones.

Plan of Action

USAID should create the Global Health Supply Chain Commercialization Fund, a $300 million initiative to purchase commercial supply chain services directly from operators, based on performance or results. USAID should pilot using the Commercialization Fund to pay providers in three countries where there are already thriving and well-established private logistics markets, such as Kenya, Nigeria, and Ghana. In these countries, dozens of logistics and healthcare providers operate at scale, serving millions of people.

With an initial focus on health logistics, USAID should use $300 million from its yet-to-be-awarded suite of $17 billion NextGen Global Health Supply Chain contracts to provide initial funding for the Commercialization Fund. If successful, the Commercialization Fund will create an open playing field for competition and crowd-in high-impact technology, innovation, and more market-based actors in global health supply chains. This fund will build upon existing efforts across the Agency to identify, incubate, and catalyze innovations from the private sector. 

To quickly stand up this Commercialization Fund and select vendors, Administrator Power should utilize her “impairment authority.” Though typically applied to emergencies, the “impairment authority” has been used previously during global health events like the COVID-19 pandemic and the Ebola response and could be used to achieve a specific policy priority such as localization and/or transforming the way USAID administers its global health supply chains. (See FAQ for more information regarding this authority).

The creation of this Fund, which can be fully budget-neutral, requires the following steps:

Step 1. USAID and DFC take administrative action to design and capitalize the $300 million, five-year, cross-cutting, and disease-agnostic Supply Chain Commercialization Fund. A joint aid effectiveness “tiger team” within USAID and the DFC should:

1. Spearhead the design and implementation framework for the Fund and stipulate clear, standardized key performance indicators (KPIs) to indicate significant improvements in health supply chain performance in countries where the Commercialization Fund operates.
2. Select three countries to adopt the Commercialization Fund, chosen in coordination with overseas USAID Missions and the DFC. Countries should be selected and prioritized based on factors such as analyses of health systems’ needs, the existence of local supply chain service providers, and countries’ desire to manage more of their own health supply chains. As a follow-on to the U.S.-Africa Leaders Summit, we recommend USAID and the DFC direct initial Commercialization Fund funds to support activities in Africa where there are already thriving and well-established private markets such as Ghana, Kenya, and Nigeria.
3. Set pricing for each KPI and product in each Commercialization Fund country market. For example, pay-for-performance indicators could include percent of on-time deliveries. USAID and the DFC should set high expectations for performance, such as 95+ percent on-time delivery, especially in geographies where existing market providers can already deliver against similarly rigorous targets in other sectors. USAID bureaus and missions, partner country governments, and in-country private sector healthcare and logistics leaders, as well as supply chain and innovative financing experts, should be consulted during this process. 
4. Choose funding mechanisms that pay for results (see Step 2 for details).
5. Provide blended financing to vendors that may need additional resources to scale their footprint and/or increase their capabilities.
6. Select a third-party auditor(s) to audit the results upon which providers are paid.

Step 2: USAID structures financial instruments to pay service providers against results delivered in selected Commercialization Fund countries

USAID should pay Commercialization Fund providers to deliver results, consistent with the KPIs set in Step 1 by the joint aid effectiveness “tiger team.” Pay-for-performance contracts can also provide incentives and/or price assurances for service providers to build infrastructure and expand to areas they don’t traditionally serve.

Structuring pay-for-performance tools will favor providers that can demonstrate their ability to deliver superior and/or more cost-effective results relative to status quo alternatives. Preference should be given to providers that are operational in the target country where there is existing market demand for their services, as evidenced by factors such as whether the host country government, national health insurance program, or consumers already pay for the providers’ services. USAID should work with the host country government(s) to select vendors to ensure strong country buy-in.

To maximize performance and competition, USAID should explicitly not use cost-reimbursable payment models that reimburse for effort and optimize for compliance and reporting. The red tape associated with these awards is so cumbersome that non-traditional USAID service providers cannot compete.³

USAID should consider using the following pay-for-performance modalities:

• Fixed-price, milestone-based awards that trigger payment when a service provider meets certain milestones, such as for each delivery made with a 95% on-time rate and with little-to-no product spoilage or wastage. Using fixed-price grants and contracts in this way can effectively make them function as forward-contracts that provide firms with advanced price assurances that, as long as they continue to deliver against predetermined objectives, the U.S. Government will pay. Fixed-amount grants and contracts are easier for non-traditional USAID partners to apply for and manage than more commonly-used “cost reimbursement” awards that reimburse vendors for time, materials, and effort and have enormous compliance costs. Because pay-for-results awards only pay upon proof of milestones achieved, they also increase accountability for the U.S. taxpayer.
  
  As USAID’s proposed acquisition and assistance implementation plan points out, “‘pay-for-result’ awards (such as firm fixed price contracts or fixed amount awards) can substantially reduce burdens on [contracting officers] and financial management staff as well as open doors for technically strong local partners unable to meet U.S. Government financial standards.”
  
• Innovation Incentive Awards (IIAs) that pay providers retroactively after they meet certain predetermined results criteria. This award authority, expanded by Congress in December 2022, enables USAID to pre-publish its willingness to pay up to $100,000 for certain well-defined, predetermined results; then pay retroactively once a service provider can demonstrate it met the intended objective.
  
  Unlike a fixed-price award, which establishes a longer-term relationship between USAID and the selected vendor, USAID can use the IIA modality to provide vendors with one-time spot payments. However, USAID could still use this payment modality to move more money at scale provided a vendor(s) can successfully meet multiple objectives (e.g. USAID could make multiple $100,000 payments for multiple on-time deliveries).
  
• USAID could pursue Other Transaction Authority (OTA) opportunities without additional authorization, but the Agency may also benefit from consultation with the White House, the Office of Management and Budget (OMB), and The Office of Information & Regulatory Affairs (OIRA), as well as Congress, to secure additional authorities or waivers to disburse Commercialization Fund resources using innovative pay-for-results tools, including OTA, which other federal agencies have used to invite greater private sector participation from nontraditional U.S. Government partners.

Step 3: USAID and DFC should provide countries with additional technical assistance resources to create intentional pathways for selected countries to contribute to the design and management of program implementation. 

To ensure these initiatives support countries’ needs and facilitate country ownership and increase voice, USAID should also consider establishing a supra-agency advisory board to support the success of the Commercialization Fund modeled after DFC’s Africa Investment Advisor Program that seats a panel of experts that can continually advise both agencies on strategic priorities, key risks, and award structure, etc. It could also model elements of the Millennium Challenge Corporation’s compact model to ensure participating countries have a hand in the design of relevant aspects of the Commercialization Fund. 

USAID should additionally provide participating Commercialization Fund countries with Technical Assistance resources to ensure that host country governments can eventually take on larger management responsibilities regarding the administration of Commercialization Fund pay-for-performance contracts.

Step 4: As needed, USAID and the DFC should collaborate to provide sustainable pathways for blended financing that allows existing market providers to access working capital to scale their footprint. 

While the DFC and USAID have worked on blended finance deals in the past, the Biden Administration should explicitly direct the two agencies to work together to identify and scale the footprints and capabilities of logistics and healthcare providers in targeted Commercialization Fund countries.

Many of the existing healthcare and logistics providers that could potentially manage a greater share of global health supply chains could need additional financing to expand their operations, increase working capital, or grow their capabilities, but they often find themselves in a chicken or the egg problem to secure financing from financial institutions like the DFC. 

Traditional banks and DFC investment officers often consider these companies to be potentially risky investments because their revenue in health supply chains is not assured, especially because one of the largest healthcare payers in many LMICs is the U.S. Government, but USAID (and other global health donors) have historically funded international aid contractors to manage countries’ health supply chains, not local firms or alternative service providers. However, at the same time, USAID and other donors have not relied more on existing logistics service providers to manage health supply chains because many of these providers do not operate at the scale of larger international aid contractors.

To break this cycle, and to enable the DFC and other lenders to offer better financing terms to firms that need it to grow their capabilities or secure working capital, USAID could provide identified firms with more blended finance deals, including guaranteed eligibility to receive pay-for-performance revenue using the funding modalities described above. It could also provide unrestricted early-stage and/or phased funding to cover operational costs associated with working with the U.S. Government.

Increasing available credit to firms via the DFC and using a USAID pay-for-performance contract as collateral would also enhance firms’ overall ability to raise credit from other sources. This assurance, in turn, reduces the cost of capital for receiving firms, resulting in more significant, impactful investments from private capital in the construction of other supply chain infrastructure, including warehouses, IT systems, and shipping fleets.

Step 5: Pending success, USAID and the DFC should replicate the Commercialization Fund in additional countries. Congress should codify the Commercialization Fund into law and authorize larger-scale commercialization funds in additional geographies and sectors as part of the BUILD Act reauthorization in 2025.

While this initial Commercialization Fund will focus on building sustainable, high-performing global health supply chains in three LMICs, the same blueprint could be leveraged in other countries and in other sectors where there are robust private sectors, such as in food or power.

1. Congress should require USAID and DFC to report overall Commercialization Fund performance every six months for a minimum of three years.
2. If the Commercialization Fund proves successful after the first year, USAID and the DFC should proactively invite other countries to participate to expand this model to other geographies, where appropriate.
3. If successful with healthcare supply chains, the Commercialization Fund should also be expanded to cover additional sectors and geographies and included in the BUILD Act 2025 reauthorization.

Conclusion

Continued reliance on traditional aid in commercial-ready sectors contributes to market failures, limits local agency, and minimizes the opportunity for sustainable impact.

As a team of researchers from the Carnegie Endowment’s Africa Program pointed out on the heels of the U.S.-Africa Leaders Summit, “A persistent humanitarian approach to Africa…creates pathologies of unhelpful dependency, insufficient focus on the drivers of inclusive growth, and perverse incentives for the continuation of the status quo by a small coterie of connected beneficiaries.” Those researchers identified 18 new initiatives announced at the Summit supported with public money in economic sectors that can facilitate trade, investments, entrepreneurship, and jobs creation, signaling an unprecedented readiness in this Administration to prioritize trade alongside aid. 

The Commercialization Fund outlined in this memo — a market-shaping mechanism designed to correct market failures that conventional aid models can perpetuate — has the potential to become a model for accelerating the transition of other key economic sectors away from the status quo and toward innovation, investment, impact, and long-term sustainability.

Now is the time to ensure lending models offered by private companies are fair and transparent. Access to affordable credit greatly impacts quality of life and can potentially impact housing choice. Over the past decade, algorithmic decision-making has increasingly impacted the lives of American consumers. But it is important to ensure all forms of algorithmic underwriting are open to review for fairness and transparency, as inequities may appear in either access to funding or in credit terms. A recent report released by the U.S. Treasury Department speaks to the need for more oversight in the FinTech market. 

Challenge and Opportunity

The financial services sector, a historically non-technical industry, has recently and widely adopted automated platforms. Financial technology, known as “FinTech”, offers financial products and services directly to consumers by private companies or in partnership with banks and credit unions. These platforms use algorithms that are non-transparent but directly affect Americans’ ability to obtain affordable financing. Financial institutions (FIs) and mortgage brokers use predictive analytics and artificial intelligence to evaluate candidates for mortgage products, small business loans, and unsecured consumer products. Some lenders underwrite personal loans such as auto loans, personal unsecured loans, credit cards, and lines of credit with artificial intelligence. Although loans that are not government-securitized receive less scrutiny, access to credit for personal purposes impacts the debt-to-income ratios and credit scores necessary to qualify for homeownership or the global cash flow of a small business owner. Historic Home Mortgage Disclosure Act (HMDA) data and studies on small business lending demonstrate that disparate access to mortgages and small business loans occurs. This scenario will not be improved through unaudited decision automation variables, which can create feedback loops that hold the potential to scale inequities.

Forms of discrimination appear in credit approval software and can hinder access to housing. Lorena Rodriguez writes extensively about the current effect of technology on lending laws regulated by the Fair Housing Act of 1968, pointing out that algorithms have incorporated alternative credit scoring models into their decision trees. These newly selected variables have no place in determining someone’s creditworthiness. Inputs include factors like social media activity, retail spending activity, bank account balances, college of attendance, or retail spending habits. 

Traditional credit scoring models, although cumbersome, are understandable to the typical consumer who takes the time to understand how to impact their credit score. However, unlike credit scoring models, lending platforms can input a data variable with no requirement to disclose the models that impact decisioning. In other words, a consumer may never understand why their loan was approved or denied, because models are not disclosed. At the same time, it may be unclear which consumers are being solicited for financing opportunities, and lenders may target financially vulnerable consumers for profitable but predatory loans. 

Transparency around lending decision models is more necessary now than ever. The COVID-19 pandemic created financial hardship for millions of Americans. The Federal Reserve Bank of New York recently reported all-time highs in American household debt. In a rising interest rate environment, affordable and fair credit access will become even more critical to help households stabilize. Although artificial intelligence has been in use for decades, the general public is only recently beginning to realize the ethical impacts of its uses on daily life. Researchers have noted algorithmic decision-making has bias baked in, which has the potential to exacerbate racial wealth gaps and resegregate communities by race and class. While various agencies—such as the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), Financial Crimes Enforcement Network, Securities and Exchange Commission, and state regulators—have some level of authority over FinTech companies, there are oversight gaps. Although FinTechs are subject to fair lending laws, not enough is known about disparate impact or treatment, and regulation of digital financial service providers is still evolving. Modernization of policy and regulation is necessary to keep up with the current digital environment, but new legislation can address gaps in the market that existing policies may not cover.

Plan of Action

Three principles should guide policy implementation around FinTech: (1) research, (2) enforcement, (3) incentives. These principles balance oversight and transparency while encouraging responsible innovation by community development financial institutions (CDFIs) and charitable lenders that may lead to greater access to affordable credit. Interagency cooperation and the development of a new oversight body is critical because FinTech introduces complexity due to technical, trade, and financial services overlap. 

Recommendation 1: Research. The FTC should commission a comprehensive, independent research study to understand the scope and impact of disparate treatment in FinTech lending. 

To ensure equity, the study should be jointly conducted by a minimum of six research universities, of which at least two must be Historically Black Colleges and Universities, and should be designed to understand the scope and impact of fintech lending. A $3.5 million appropriation will ensure a well-designed, multiyear study. A strong understanding of the landscape of FinTech and its potential for disparate impact is necessary. Many consumers are not adequately equipped to articulate their challenges, except through complaints to agencies such as the Office of the Comptroller of Currency (OCC) and the CFPB. Even in these cases, the burden of responsibility is on the individual to be aware of channels of appeal. Anecdotal evidence suggests BIPOC borrowers and low-to-moderate income (LMI) consumers may be the target of predatory loans. For example, an LMI zip code may be targeted with FinTech ads, while product terms may be at a higher interest rate. Feedback loops in algorithms will continue to identify marginalized communities as higher risk. A consumer with lesser means who also receives a comparative triple-interest rate will remain financially vulnerable due to extractive conditions. 

Recommendation 2: Enforcement. A suite of enforcement mechanisms should be implemented.

• FinTechs engaged in mortgage lending should be subject to Home Mortgage Disclosure Act (HMDA) reporting on lending activity and Community Reinvestment Act (CRA) examination. When a bank utilizes a FinTech¹, a vendor CRA assessment should be incorporated into the bank’s own examination process. Credit unions should also be required to produce FinTech vendor CRA exams during their examination process. CRA and HMDA requirements would encourage FinTech to make sure they are lending broadly. 
• Congress should codify’ FinTechs’ role as the “true lender” whenever a FinTech’s  underwriting model is used by an FI partner to clarify FinTech responsibility to all applicable state, local, and federal interest caps, fair lending laws, etc., as well as liability when they do not meet existing standards. Federal regulatory agency guidelines must also be updated to clarify the bank or credit union’s Fintech partner’s shared responsibility when a FinTech model for underwriting violates UDAAP or fair lending guidelines. 
• A previously proposed OCC FinTech charter should be adopted but made optional. However, when a FinTech chooses to adopt the OCC charter, the charter should give FinTechs interstate privileges covered under the Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994. This provision should also require FinTechs to fulfill state licensing requirements in each state in which they operate, eliminating their current ability to bypass licensing by partnering with regulated FIs. 
• Companies engaged in any financing activity or providing automated lending software to regulated FIs must be required to disclose decision models to the FI’s examiner upon request. FinTech data disclosure must not be limited to federally secured loans such as small business or mortgage loans but include secured and unsecured loan products made to consumers such as auto, personal, and small dollar loans. When consumers obtain a predatory product in these categories, the loans can have a severe impact on debt-to-income/back-end ratios and credit scores of borrowers, preventing them from obtaining homeownership or causing them to receive less favorable terms. 

Recommendation 3: Incentives. Develop an ethical FinTech certification that denotes a FinTech as responsible lender, such as modeled by the U.S. Treasury’s CDFI certification. 

The certification can sit with the U.S. Treasury and should create incentives for FinTechs demonstrated to be responsible lenders in forms such as grant funding, procurement opportunities, or tax credits. To create this certification, FI regulatory agencies, with input from the FTC and National Telecommunications and Information Administration, should jointly develop an interagency menu of guidelines that dictate acceptable parameters for what criteria may be input into an automated decision model for consumer lending. Guidelines should also dictate what may not be used in a lending model (example: college of attendance). Exceptions to guidelines must be documented, reviewed, and approved by the oversight body after being determined to be a legitimate business necessity. 

Conclusion

Now is the time to provide policy guidance that will prevent disparate impact and harm to minority, BIPOC, and other traditionally marginalized communities as a result of algorithmically informed biased lending practices. 

Summary

Economic development planning shouldn’t be this hard. Our planning system in the United States is highly disjointed, both from the bottom up and from the top down, and this negatively impacts our ability to build functioning, aligned, and specialized innovation ecosystems. Today, there is no single document or directive that outlines America’s economic priorities from an R&D, commercial, or economic development perspective. In addition, the organizations that carry out our economic development planning rarely include deep analysis of innovation ecosystems and opportunities for cluster development in their plans. 

The elements of a coherent innovation plan have started to appear in policy publications: for example, the 2022 National Security Strategy document outlines the need for a “modern industrial and innovation strategy,” and the biotechnology executive order, the CHIPS and Science Act, and the National Network for Critical Technology Assessment all send strong signals that a short list of industries, industrial capabilities, and strategic supply chains are critical to our country’s continued prosperity. However, while these signals might be strong, they are not yet clear and not yet strategically framed. The Office of Science and Technology Policy, in consultation with other federal agencies and non-governmental organizations, will bring together a national competitiveness plan from these disparate efforts in the coming months. Today, proponents of innovation would do well to think about the next step of this challenge: once a national competitiveness plan exists, how will it be implemented and who will lead the charge? 

Across the country, a network of regional development organizations (RDOs) regularly create and maintain economic development plans (called comprehensive economic development strategies, or CEDS) on a regional basis. At the same time, the federal government’s emphasis on building innovation ecosystems and developing regional innovation clusters has unleashed billions of dollars in funding for cluster-aligned projects. One might assume that these efforts are highly aligned and that CEDS created and maintained by RDOs provide the analysis and foundation for cluster development efforts. In reality, cluster development efforts rarely begin with a CEDS for a few key reasons: (1) CEDS are not aligned with a clear national competitiveness strategy; (2) the RDOs that create CEDS often have limited capacity to assess innovation ecosystems and even more limited resources with which to improve their capacity or conduct their analysis; and (3) existing CEDS are often hard to find (even for community members in the RDO’s district). 

Creating a better planning system will require clear, top-down guidance about competitiveness priorities, which is on its way. It will also require more sophisticated, focused, and better supported local economic planning. The U.S. Economic Development Administration (EDA) manages existing processes that allow for certification of RDOs and the regular production of CEDS. Additional guidelines and incentives should be structured into these programs in order to build our national capacity for strategic planning around shared competitiveness priorities and to ensure that regional planning processes incorporate a cohesive national framework. This will allow local cluster development efforts to best capitalize upon their respective comparative advantages, setting up communities for success as they develop plans to build stronger local economies, create better jobs, and promote sustainable growth.

Challenges

Challenge 1: Innovation ecosystem development is a form of economic development activity for which both funding and planning are highly fragmented. 

Innovation is a key part of economic development and is driven by young, dynamic firms, leading to higher levels of job creation and productivity gains. As such, the federal government has consistently taken an active role in incentivizing startup creation and growth, especially in high-tech industries. Historically, public sector tools for supporting innovation ecosystem development and startup creation have included grants, grand challenges, prize competitions, tax incentives, and loan assistance, among other mechanisms. In recent years, investments have promoted the growth of high-tech and advanced industry clusters in geographic areas outside of traditional innovation hubs like Silicon Valley in California or Boston’s Route 128 in Massachusetts. For example:

• The EDA’s Build Back Better Regional Challenge (BBBRC) awarded $1 billion to encourage cities and regions to develop regional development plans centered around expansion of industry hubs. The 21 winners supported the development of several high-priority industries by strengthening their underlying production, talent, and capital access capabilities.
• The EDA also administers programs like the Good Jobs Challenge (GJC) and Build to Scale (B2S), which enhance innovation capacity by strengthening local workforces and providing access to catalytic capital. Recently, the GJC awarded $500 million to 32 cities, colleges, and workforce organizations to expand local industry talent hubs, and B2S provided $47 million across 51 grants to a range of universities and accelerators.
• The Department of Energy (DoE)’s Regional Clean Hydrogen Hubs will establish 6 to 10 hubs to produce, process, deliver, store, and use clean hydrogen across a range of industrial applications. 
• The Department of Defense (DoD)’s Defense Manufacturing Community Support Program invests in workforce development, skills, R&D, and small business support to aid the defense innovation base in communities across the United States.

Many federal agencies provide funding for innovation ecosystem development activities. In 2018, the DoE spent $10 billion on R&D alone, and the passage of the Inflation Reduction Act (IRA) will add hundreds of billions of grant and loan support for commercialization of green technologies such as solar, wind, hydrogen, and carbon capture and storage. Beyond the DoE, the DoD’s DARPA, the Department of Homeland Security (DHS) Science & Technology Directorate, the National Science Foundation (NSF), and a host of other government agencies distribute billions in innovation funding, which has been recently buttressed by the American Rescue Plan, Inflation Reduction Act, CHIPS and Science Act, and the Infrastructure Investment and Jobs Act. These are all supported by smaller, but critically important, matching investments at the state level.

In short, innovation ecosystem development is economic development, and the federal government understands that. It has a clear national interest in prioritizing the development of certain industries in order to generate positive spillovers, correct market failures, and preserve national competitiveness. State governments and regional bodies have an interest in promoting the economic well-being of specific communities. So why is reconciling these interests across the country so difficult? The answer lies more in game theory than in politics. 

Challenge 2: Communities focus their ideas for developing innovation clusters in just a few industries and fail to give enough thought and analysis to their comparative advantage and their role in national competitiveness as they make these choices. 

When a region decides to assess its potential to develop an innovation cluster, its leaders must first decide which cluster to develop, turning to the information that is mostly easily accessible to them. This generally includes lagging metrics describing the region’s present-day economy (such as location quotient, industry-level employment, and skills concentration). In many regions of the country that do not already have a strong cluster, these metrics look very similar. It is also data that answers the wrong question. When seeking to build a cluster, regions should not just ask “What are our strengths today?” or “What industries have gotten the most press lately?” Instead, regions should ask “In which growing or emerging industries might our community have a comparative advantage?” Asking the wrong question also leads regions to end up proposing cluster efforts in a few industries (e.g., biotechnology, advanced manufacturing, and semiconductors), rather than picking a goal for cluster development in an industry that is comparatively underserved yet still vitally important (e.g., green tech, water tech, or aerospace). Even a modest concentration of assets in an underserved industry might position a region as a leading hub, and 40% of American regions cannot build identical hubs at the same time. 

For example, too many National Science Foundation Engines proposals are centered around semiconductor and microelectronic clusters. Funding to create semiconductor hubs is limited to a small number of places: recently, Commerce Secretary Gina Raimondo announced that the Department of Commerce would spend the $50 billion of CHIPS Act funds to develop at least two semiconductor hubs. However, given the scale and cost of developing semiconductor manufacturing facilities, as well as the required workforce, infrastructure, and other public services investments, only two or three additional hubs will likely be developed. Consequently, the vast majority of the 23 regions and cities that have submitted Engines applications focused on semiconductors and microelectronics will waste time and money while incurring significant opportunity costs chasing clusters that they are ill-suited to build. More importantly, however, this distracts cities and regions from making longer-term plans that they can stick to, which is essential to the long-term investments in infrastructure, education and training, housing, and land permitting, among others, that are needed to promote innovation.

While we have the systems and processes to support a massive push to integrate competitiveness priorities into local development plans, both the system and the organizations it funds have limited bandwidth and even more limited resources. Policymakers must also balance the need for increased attention to national competitiveness with the tradition of local control that is core to the American way. There is no appetite for central planning in the United States, but there is a desperate need for clear, shared priorities that allow each region to determine how their community can best serve a higher, patriotic purpose.

Challenge 3: The organizations responsible for economic planning (RDOs) need to improve their internal capacity to plan for innovation ecosystem development, which will require additional resources. 

It is easy to imagine a world in which RDOs take the lead on improving the quality of CEDS planning, and efforts led by the National Association for Development Organizations (NADO) Research Foundation are in place to do just that. In addition to managing an EDA-funded community of practice for RDOs, which includes maintaining resources and conducting webinar trainings, the NADO Research Foundation independently maintains CEDS Central, an excellent repository of best practices. While these resources and their consistent use demonstrate communities’ desires to plan well, they alone have not yet led to the widespread use of CEDS as a means of detailed cluster analysis and planning. 

When looking at any one individual RDO, it is easy to see why. RDOs (also called Councils of Governments, Economic Development Districts, Regional Development Districts, or Regional Planning Organizations) have incredibly broad planning responsibilities and limited staffing and resources. The CEDS that they manage reflect these broad remits and often include elements related to broadband access, transportation, aging population services, housing, education, and employment and economic growth. As a result, there is very little capacity to create clear and detailed innovation plans. Of the organizations whose plans NADO listed as exemplary on their CEDS Central site, the average total staff size was 17 with an average of three employees dedicated to economic development. Moreover, no employees were dedicated to innovation ecosystems, entrepreneurship, or cluster development. 

In order for RDOs to build their capacity for creating regional cluster development plans, they must train and hire staff with new capabilities. This is nearly impossible for these organizations to do on their own, given their current financial resources and the breadth of demands on their time. Changing that will require dedicated funding for new staff and training, as well as a clear directive to prioritize this work. 

Challenge 4: Many regional, local, state, and nongovernmental stakeholders participate in de facto economic planning activities. However, these are not universally integrated with RDO efforts, and transparency is a key barrier. 

The innovation funding picture is further complicated by a long tail of regional, local, and state players. There are over 520 RDOs in the United States. However, only 23 RDOs have published digital CEDS, indicating that these critical planning documents are not yet widely produced, or at least not widely shared, by local and regional stakeholders. In addition, there is no publicly accessible central repository of active CEDS. Providing such a resource could facilitate greater community alignment and better understanding of communities’ comparative advantage across the country. 

In addition, a wide range of private and social sector bodies participate in innovation planning and regional development. Incubators such as the Boston-based MassVentures provide venture funding but also support technology transfer, mentorship, and small business innovation research (SBIR) support. Industry trade organizations, local chambers of commerce, and large nonprofits lobby for regulatory change, help their constituents navigate government resources, and encourage informal planning. Without meaningful transparency in the CEDS process, these groups will struggle to align their activities with regional plans.

Transparency alone will not fix a highly fragmented system, but it will give groups that are inclined to seek alignment the opportunity to do so. It also allows the opportunity for more federal programs (including EDA’s own innovation programs) to require that applicants speak to alignment with their regional CEDS in more detailed ways during the application process and include alignment with CEDS as an evaluation criterion when applications are reviewed. 

Opportunity

R&D is at the core of innovation, and the United States has excelled compared to its peers and competitors. Both the European Union and China have struggled to reach the benchmark level of 2% of gross domestic product (GDP) invested in R&D, giving the United States a huge edge in cutting-edge technologies such as biotechnology, clean tech, and software. However, the decline in public R&D spending, which was over 1% of GDP in the 1970s but is now down to ~0.7%, has significant repercussions for competitiveness in emerging technologies that require significant public investment to overcome developmental hurdles. For example, China was first to launch a quantum encryption satellite, and by 2030 China is projected to have 25% of semiconductor manufacturing capacity, compared to just 10% in the United States.

To be clear, the United States retains a large quantitative and qualitative advantage in R&D and innovation, buttressed by a world-leading university system and large and growing private investments. Gross expenditures are increasing in the United States. However, private sector R&D is largely geared toward commercialization rather than developments in basic science given different incentives and time horizons. Economists have long recognized the market failures in early-stage R&D: private sector firms do not consider the positive social spillovers in investment, leading to suboptimal investment levels. The government is better able to justify the total social impact of investing in innovation.

Increasing the amount of public R&D and ecosystem spending, which includes workforce development and infrastructure, is crucial to accelerating American innovation. The $500 million appropriated in the FY23 omnibus spending bill for EDA’s Regional Technology and Innovation Hubs is a good start, but this is only a fraction of the amount proposed by the CHIPS Act. However, there is bipartisan agreement in favor of regional cluster building, most recently demonstrated by the December 2022 House Subcommittee on Research and Technology hearing on Building Regional Innovation Economies.

In addition to growing the cumulative effectiveness of national innovation spending, regionally based cluster development plans will distribute economic prosperity more equitably. In 2021, the United States invested nearly $350 billion in venture capital dollars. However, nearly $250 billion went to just three states: California, New York, and Massachusetts. While these three states are home to some of the nation’s largest, most productive, and best-educated cities, other regions also have budding clusters and compelling competitive advantages that deserve more financial and human capital. A well-structured innovation roadmap that starts with national priorities, incorporates local advantages, and encourages transparency will help public, private, and nonprofit stakeholders at the regional level develop long-term investment plans. In turn, this will enable a greater number of regions and individuals to reap the economic benefits of innovation, create good jobs, and increase standards of living.

Plan of Action

Recommendation 1: Direct, align, and coordinate innovation ecosystem development activities more clearly at the federal level. 

Better coordination of innovation spending starts at the top. Regions, states, and cities would benefit from greater clarity in the direction of U.S. priorities regarding innovation. This is especially true for technologies and sectors that are critical to national competitiveness, require significant upfront R&D, and have large spillover benefits.

• Publish an innovation roadmap every four years at the national level. The White House and key federal departments should work together to publish a comprehensive innovation roadmap every four years, shortly after the beginning of a President’s term. To enable the rapid development of the national roadmap, presidential campaigns should make place-based innovation policy a core part of their campaign and transition team structures. This document should be refreshed every year in conjunction with major events, such as the State of the Union and the publication of the National Security Strategy. At a minimum, the OSTP should include such a roadmap within their Quadrennial Science and Technology Review (Sec. 10613).
• Fund continuous assessment of critical technology areas and their needs. The NSF should continue its funding for efforts like the National Network for Critical Technology Assessment to ensure that our understanding of the specific needs within these industries remains current and technically relevant.
• The White House or Office of Management and Budget should regularly convene innovation ecosystems and cluster development program managers across the federal government. Ensuring that federal programs work together to facilitate local alignment and engagement with CEDS can help serve an ongoing alignment function. It can also prevent local fragmentation caused by funding of competing or misaligned efforts across agencies. 
• Key stakeholders should include the National Economic Council, Domestic Policy Council, and the National Security Council. The Departments of Commerce and Treasury and the Small Business Administration should also have major roles. In addition, other agencies should be involved in specific components of the innovation plan (such as the Departments of Labor and Education for workforce development). 

Recommendation 2: Direct RDOs to include detailed innovation and cluster planning in the CEDS process. The EDA should update CEDS Content Guidelines to require that plans address opportunities to build innovation ecosystems and develop local clusters, as they have to require that plans include resilience measures. These plans should include:

• A clear description of a selected area of cluster emphasis and a data-informed rationale for making that choice.
• An overall strategic direction.
• An asset capacity assessment relative to the selected cluster. 
• A high-level operational plan that outlines major initiatives.
• A description of active coalition members and their roles.
• A framework for evaluating progress, including key metrics. 

Recommendation 3: Give RDOs the resources needed to include detailed innovation and cluster planning in the CEDS process. Congress should authorize annual funds to support the placement of senior innovation and cluster leaders in RDOs as Regional Competitiveness Officers (RECOs). This program should be administered by the EDA or its designee and be modeled on the Economic Recovery Corps fellowships. This will build staff capacity to help coordinate the development of regional strategies that cut across state and city lines such that innovation planning becomes a regular facet of economic development policy.

• This funding should be prioritized in regions that applied to the Build Back Better Regional Challenge or the Good Jobs Challenge but did not win an award. 
• RECOs should be responsible for leading community efforts to create plans for innovation ecosystem and cluster support and facilitate broad engagement in community efforts to seek federal grants to implement these plans. 

The EDA should provide innovation ecosystems and cluster research training through its existing community of practice for RDOs to invest in developing innovation strategies as a component of their CEDS process.  

Recommendation 4: Facilitate local alignment through greater CEDS transparency and require that federally funded cluster development initiatives to ask applicants to demonstrate alignment with their regional CEDS as they apply. 

• The EDA should coordinate with RDOs to create and maintain a publicly accessible national database of CEDS and their accompanying innovation strategies. This will facilitate greater transparency and coordination among regional players working to identify ideas already in the market and coordinate resources appropriately. The database can also serve a critical transparency function and answer currently unanswerable questions like “How many U.S. regions are working to build biotech or semiconductor clusters?” 
• Federal cluster development programs across all agencies should require applicants to articulate their alignment with their regional CEDS. Staff and external reviewers should be instructed to consider the degree of alignment as a key criterion for all regional cluster-based programs. 
• Regions, states, and cities should ground their economic development in transparent and publicly available CEDS goals and strategies. Smaller entities and political designations that offer planning grants, support grants, and other resources could integrate alignment with the CEDS into their criteria for assessment.

Conclusion

The approach proposed here will facilitate the development of a coordinated national approach to innovation policy. Adopting this approach will help regions make better investments in their industry clusters, help private sector investors more productively channel funding into strategically vital areas, and accelerate the growth of high-quality jobs. Strengthening innovation planning will benefit all Americans by accelerating economic development, expanding local economic clusters, and generating middle-class employment that builds communities.