Report No. PID9252 Project Name Honduras-Health Sector Region Latin America and Caribbean Region Sector Other Public Sector Management;Basic Health Project ID HNPE53575 Borrower(s) REPUBLIC OF HONDURAS Implementing Agency Address MIN. OF HEALTH & IHSS Secretaria de Salud Tegucigalpa, M.D.C. Honduras, C.A. Contact Person: Dr. Jose Manuel Matheu Amaya, Health Vice-Minister, Tel: 504-222-8520 Fax: 504-238-4141 Environment Category C Date PID Prepared May 3, 2000 Projected Appraisal Date August 31, 2000 Projected Board Date November 30, 2000 1. Country and Sector Background Regulation in the health sector: The lack of adequate regulation of the health sector has important implications for the quality of health service delivery in Honduras. This is true of both the public and the private and social security subsectors. Accreditation of providers and certification of professionals is not well developed or non existent, and quality standards cannot be appropriately required and monitored. Private sector participation in the health system is growing and the absence of appropriate regulation increases the risk of multiplying health care delivery facilities and providers that do not follow minimum quality standards. MOH's ability to design and enforce sector regulation is weak. Government strategy aims to develop such capacity and to implement the most important pieces of regulation in the next five years. This project, complementing other agencies' efforts, will help to develop the most important pieces of regulation to ensure public and private health care quality provision.MOH resource allocation of public resources: The GOH is trying to modernize its extremely centralized financial system in order to improve budget allocation and execution at all government levels. The Modernization of the State Program has supported many of these activities and the MOH is one of the pilot agencies where a plan to improve financial resource management has started. Recent initiatives by the MOH have made considerable progress to address these issues, but continued support is required to improve accountability at local levels, shift from historical to program budgeting, and create appropriate incentives for providers to improve efficiency by linking resources transferred to results and outcomes. This project will support these MOH activities through training and technical assistance.Financial sustainability in the Honduran Social Security Institute: There is a significant and increasing deficit in all areas of the IHSS. Social security contributions are based on 7.5 percent of payroll, among the lowest in Latin America. More importantly, the presence of an income ceiling (U$45 per month) for the calculation of contributions has not only eroded IHSS revenues in real terms, while expenditures have increased even more than general inflation, but has also increased inequity. The budget cuts that have been required over the past several years have forced the IHSS to eliminate nearly all variable costs, including inter alia drugs, supplies, and maintenance, as well as all investment. This has cut further the service level and quality of care provided at IHSS facilities. IHSS is in a vicious circle in which poor performance has led the private sector to resist increases in income ceilings, changes to the contribution rate and other adjustments needed to ensure sustainability. In turn, the reduced funding exacerbates the financial crisis and prevents the IHSS from making the service improvements that are required. The revenue reductions in IHSS have been partially subsidized by pension funds, given the lack of separation between risks and the weak accounting controls that allow leakage from pensions to health; if present arrangements are not changed the system faces inevitably a collapse once the resources in the pension regime are depleted by "loans" to the health regime. The project would support the development and implementation of a reform plan for the IHSS, with a view to ensuring its future financial sustainability and effectiveness. Health service delivery. Efficiency and Quality: Although Honduras has made considerable progress improving access to health services, health indicators still lag behind those of many countries in the region. Despite an important infant mortality reduction and improvements in life expectancy, maternal mortality is still very high. There are important shortcomings in the provision of health care services that need to be addressed urgently. Perceived quality of private facilities is much higher than that of public facilities. Hospital performance is characterized by low occupancy rates, long lengths of stay, and low ambulatory activity. A large percentage of admissions could have been treated outside the hospital. Among the underlying factors are centralized management and lack of autonomy, appropriate regulation, poor managerial training, poor incentives structure, deteriorated infrastructure, a deficient supply of medical inputs and obsolete information systems. Despite improvements in pharmaceutical policy in the early 1990s, there are sizeable obstacles to overcome regarding quality assurance, procurement and supply chain management and pricing. One of the principal complaints by consumers of public services, and medical professionals at these facilities, is the lack of pharmaceuticals and medical supplies. The shortages have been driven by problems in supply chain management and pricing in the MOH and the recent expenditure cuts in IHSS have forced a dramatic reduction in pharmaceutical expenditure. Improving efficiency and quality of health service delivery is one of the major goals of this administration. This project will support the design and implementation of innovative management and health service delivery schemes in both the IHSS and the MOH facilities. A basic package of maternal and child health care services has been designed and public/private contracts for its provision will be supported through this project. Supervision and evaluation of contractual arrangements is key for its demonstration effect and future expansion of the health care benefit package. As an urgent measure and because of its demonstration effect, the project will first support the modernization of the "Hospital de Especialidades del IHSS" - (former 1 Hospital Materno") , for which a detailed plan has already been designed. The project will also finance quality improvements via short run investments on pharmaceuticals and improving infrastructure and equipment - 2- maintenance. In the medium term, at least four public hospitals who currently provide services to the IHSS, will participate on a management improvement plan. 2. Objectives The proposed project will support the Republic of Honduras reform program aimed at extending and improving health care coverage. The project will improve access to health care services, especially to the low income population served today by the MOH that will be increasingly insured by the IHSS, and it will develop the management capacity of healthcare providers in both the IHSS and the MOH which will improve service delivery and quality of care. The project will support ongoing country efforts to achieve these goals, such as designing an appropriate regulatory framework and strengthening the MOH's regulatory capacity, improve efficiency of public health budget allocation, developing sustainable financing mechanisms for the IHSS and modernizing its organization and administration, and finally implementing innovative mechanisms to improve health service delivery in both the public and IHSS sub sectors. This project will support the Government of Honduras (GOH) in the implementation of an integrated health reform strategy where the public, private and social security sub sectors are major actors; it will provide technical assistance for the analytical work necessary for key policy decisions and will support consensus building and demonstration effect experiences to restore public confidence in the public and social security sub sectors. 3. Rationale for Bank's Involvement N/A 4. Description The proposed project includes two main components to address the health sector goals set forth in the previous sections, regarding the changes in regulation, financing, organization and delivery.I. Technical Assistance for Policy Design and Implementation (estimated US$ 8 million). This component would provide financing to develop the strategies, mechanisms and instruments required to achieve the objectives set forth in the Policy Activity Summary in the areas of regulation, financing, institutional development and health service provision. The component would finance local and foreign technical assistance, information systems and training in health policy, study tours, and the development of a communication strategy to support the reform program. All technical assistance, training, turn-key information systems and policy development related activities would be financed from this component. The component would be executed under the close supervision of the IDA to enforce high quality standards in the execution of technical assistance contracts. II. Innovative Investment Fund (estimated US$ 15 million). The primary aim of this component would be to establish a financing vehicle called the Fund or IIF, which would provide a clear linkage to the policy objectives identified in the Policy Activity Summary and support implementation. Compliance with these policy objectives would serve as a "trigger" to release resources to the investment fund. This Fund would be used to finance pilot projects, maintenance, essential drugs and supplies, emergency equipment and to subsidize the extension of coverage through at least 3 pilot projects and to provide the seed capital needed to implement a contract management model with the IHSS hospitals. Oversight of the - 3 - fund would be the responsibility of a Sector Reform Board (SRB). The design of the fund contemplates three release dates for the funds, each linked with the specific policy objectives in the four functional areas: regulation, financing, organization and delivery. Each disbursement to the Fund would be targeted to specific investment objectives, agreed with the government and summarized in the operational manual. III. Project Management and Evaluation (Est. US$2 million). The project management component will support the day-to-day operations of the Project Coordinating Unit and monitoring and evaluation studies. This will involve the financing of consultants, computers, and other office equipment.The following table of project components summarizes the main components, the areas where investments will be targeted, the indicative costs, percent of total financing and distribution of external and local financing. I. Technical Assistance for Policy Design and Implementation. This component aims to support compliance with the criteria used to disburse funds to the investment fund (component II). II. Innovative Investment Fund The innovative investment fund will focus on linking policy changes in the IHSS and the MOH with the investments needed to guarantee financial sustainability of IHSS and to provide improvements in the quality of healthcare services. III. Project Management The project management component will support the day-to-day operations of the Project Coordinating Unit and monitoring and evaluation studies. 5. Financing Total ( US$m) GOVERNMENT 3 IBRD IDA 22 Total Project Cost 25 6. Implementation The Honduran Social Security Institute and the Ministry of Health will execute the proposed project over a 5 year time frame. 7. Sustainability Proposed reforms would be successful in the medium and long term as long as policy decisions are based on good quality technical work. The calculation of Government debt to IHSS, the design of benefit packages and wage contribution rates appropriate for financial sustainability are a must. The technical assistance component of the proposed program aims to obtain excellent technical work on these crucial areas. Thus, technical and administrative sustainability will be provided through the appointment of new personnel, training, technical assistance and close supervision The goal is to build local institutional capacity and consensus among important sector players as well as to enhance project ownership. A complete fiscal impact and economic evaluation would be ready before appraisal. 8. Lessons learned from past operations in the country/sector N/A 9. Program of Targeted Intervention (PTI) Y -4 - 10. Environment Aspects (including any public consultation) Issues There are no specific environmental issues. This project emphasizes extension of health care insurance coverage and important institutional changes. Quality improvements on health care delivery are expected through the Innovative Investment Fund; however none of them contemplate new construction nor major rehabilitation of infrastructure. 11. Contact Point: Dr. Jose Manuel Matheu Amaya Vice Minister Secretaria de Salud Tegucigalpa, D.C. Honduras, C.A. Telephone: 504-222-8520 Maria-Luisa Escobar, Task Manager The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202-477-1234 Fax: 202-522-1202 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending June 23, 2000. - 5 -