Nicaragua-Health Sector Modernization Project. Social Security Institute (INSS)

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Sector Project ID Borrower Implementing Agency Report No. PID6346 Nicaragua-Health Sector Modernization Project Latin America and the Caribbean Health NIPA35753 Republic of Nicaragua Date this PID Prepared April 29, 1998 Appraisal Date January 23, 1998 Project Board Date June 2, Country and Sector Background: The Ministry of Health (MINSA) and Social Security Institute (INSS) Nicaragua has currently 4.4 million inhabitants, half of whom live in rural areas. Population growth is 2.9w p. a. with fecundity of over 5 children per woman. Life expectancy is 66.2 years. Nicaragua continues to be at an early stage of the epidemiological transition, with one of the highest infant and maternal mortality rates in the region (53/1000 and 160/100,000 respectively), and high fertility rates (especially in the rural areas). Poverty is rampant: 22t of households are considered to be in extreme poverty and 22t poor, leaving only 56t of households in the "non-poor" category. There is still a high degree of unmet demand for family planning, documented particularly in underserved rural areas. The high mortality rate is further advanced by maternal and early child malnutrition, which ranges from 23t for the urban poor to 36t for the rural poor. In many respects, the Nicaraguan health sector continues a process of transformation. Considerable advances have been made in a short time to establish a decentralized and improved health care delivery system that has resulted in measurable benefits for the underserved population in rural areas, and in valuable first experiences with decentralization, hospital autonomy and management agreements. Strong emphasis was given to integrate primary health care, to improve the procurement, stock management and distribution of pharmaceuticals and to rehabilitate a dilapidated infrastructure at all service levels. The Ministry of Health (MINSA) has made inroads in decentralizing services and resources to the SILAIS (Health Districts), introducing performance contracts, revamping administrative and accounting systems, including a new budget allocation system, and achieving considerable progress with regard to resource management and mobilization. INSS has started the process of establishing itself as a financier and purchaser of services. This has stimulated the creation of over 30 privately run medical enterprises (EMPs), paid on a per-capita basis by INSS to serve the insured. Considering the limited amount of resources available for health (in absolute dollar amounts and as a percentage of GDP) these first reform initiatives can be considered a success. The main sector issues to be addressed are as follows:

2 Weak institutions: The publicly financed health care system that covers 70%- of the population is institutionally weak, plagued by low service quality and inefficiencies. Effective policy-making, planning and management is hampered by the lack of useful process indicators linked to a viable financial and accounting information system. Planning and management is characterized by ad-hoc decisions without taking into consideration long-term effects. Burden of Disease and nutritional deficit: It is estimated that Nicaragua loses about 850,000 DALYS per year (Disability Adjusted Life Years), 55%- of which are attributable to premature death, the rest due to temporal or permanent disability. Almost half of premature deaths are attributable to infectious diseases, a third to chronic diseases and the rest to injuries and external causes. DALYS lost due to disabilities are caused 53%- of the time by chronic ailments, 27%- by injuries and 20 %- by communicable diseases. Surveys reveal that those in the most extreme poverty consume only 45%- of recommended daily calorie intake, and that over 27%- of children below age 5 suffer from some form of malnutrition. In some regions, however this proportion reaches almost 40%-. Other surveys revealed severe deficiencies of micronutrients and vitamins. Human resources: The system is overstaffed with 23,000 workers that often have the wrong skills mix, are underpaid and demotivated. As a result of the recent government change, practically all central MINSA personnel, all hospital directors, all SILAIS directors and many municipal health posts were replaced. When MINSA divested the education of nurses to the university system, the imbalance in the nurse-physician ratio (currently standing at 0.38:1) became even greater. Decentralization: In the past administration first steps in transferring functions and responsibilities to the SILAIS and hospitals were successfully initiated. But many issues related to decentralization need to be revisited. Only 20%- of the health budget (goods and services) have thus far been decentralized to the SILAIS and hospitals, and in many cases, the amount that is actually allocated is less than the amount budgeted. There is a weak link between the local levels in municipalities and SILAIS and central level departments in MINSA. At the same time there exist difficulties in integrating hospitals into the SILAIS network (those deal with primary care and public health issues), since hospitals receive the lion's share of the budget and are considered more prestigious working environments. Legal void: At this point there exists no legal framework to sustain the health reforms initiated up to now. The law that introduced the "Sistema Unico de Salud" effectively merges the activities of MINSA and INSS, but fails to acknowledge the existence of a private sector. Reforms introduced by the past government are mostly based on ministerial decrees. A series of new health laws is lined up for discussion in the Health Commission of Congress, but most of them need substantial revisions and updates before they could be considered. There are no clear rules of the game with respect to 'Juntas Directivas' for SILAIS and hospitals, hospital autonomy, decentralized decision-making, new resource allocation mechanisms, the new relationship between MINSA or INSS, and the private sector. The law that governs pharmaceuticals dates back to 1927 and has not been updated since. All together there are 7 laws under revision that concern the health sector. These laws would need to be technically/legally revisited, brought up to current standards and practices and negotiated with important stakeholders and - 2 -

3 the Health Commission before being submitted for passage in Congress. Social Security: During the past administration, INSS established itself as a purchaser and financier of services from both the private sector and MINSA. This has led to the creation of over 30 "HMO-type" private providers, paid by INSS on a per-capita basis. Private insurance schemes currently cover only 90,000 people. But those providers (Empresas Medicas Previsionales (EMPs)) are of uneven quality. This is despite the fact that a recent opinion poll of EMP clients confirmed broad acceptance and support for these institutions. Neither MINSA as regulating agency nor INSS as purchaser have as of yet established and exercised strict mechanisms for accreditation of EMPs, and neither institution closely monitors service quality and standard practices. Hospitals: The hospital network is still in disarray. This is true despite the fact that improvements in infrastructure, equipment and management are visible as compared to four years ago. First steps toward better administration, management and financing were affected by the change in administration and the dismissal of nearly the entire trained staff in leadership positions. Private markets, created during the past administration, are flourishing, contributing anywhere from 10W-40; of total hospital revenues. However, serious market failures exist. This is aggravated by the lack of strict rules of the game and the absence of an incentive system that ties the allocation of the public budget to productivity indicators. MINSA's role as purchaser of services is still ill-defined. Hospital autonomy, governance through the Directive Councils, issues of accountability, accreditation and supervision, and evidence-based treatment protocols, were all initiated by the past administration and need to be revised and adjusted. Pharmaceuticals: Over the years, a network of private laboratories has entered Nicaragua and there is ample drug supply through private pharmacies. The CIPS (the public drug and medical supply agency), has improved its performance in terms of management, stock control and logistics. However, as in all of Central America, prices are high and often unaffordable for the poor. 2. Program and Project Objectives: The Health Sector Modernization Program (HSMP), of which this project is the first phase, seeks to improve the efficiency, effectiveness and equity of the Nicaraguan health system by: (i) strengthening first level care and nutrition; (ii) modernizing the hospital network; (iii) developing the institutional capacity of the Ministry of Health; and (iv) supporting the social security reform. To reach its goals, the program aims to implement sector reforms and targeted investments over a period of nine years through a phased approach, by gradually and geographically expanding some program activities to the whole country, and deepening and consolidating others. 3. Project Description: The project would be implemented over a four-year period starting in September, 1998 and would have five components. These components include: (a) Primary Care and Nutrition, covering (i) the extension of the integrated PHC model; (ii) targeted nutrition (pilot); (iii) a network of women's centers and institutional delivery (pilot); (iv) epidemiological surveillance; and -3 -

4 (v) monitoring and evaluation. (b) Hospital Network Modernization, covering (i) management agreements; (ii) hospital rehabilitation fund; and (iii) hospital management demonstration project. (c) Modernization of MINSA, covering (i) pharmaceuticals and medical supplies; (ii) new organizational and regulatory framework; (iii) health financing; (iv) strategic planning; (v) management information systems; and (vi) human resources. (d) Social Security Reform, covering (i) institutional modernization of INSS; (ii) expansion of health insurance; and (iii) scaling up of workmen's compensation pilot. (e) Project management. 4. Project Financing: Project costs are estimated at US$32 million. Bank financing will amount to US$24 million, Government of Nicaragua financing will amount to US$1.5 million, the Norwegian Agency for Development (NORAD) will finance US$3 million and the Nordic Development Fund will finance US$3.5 million. 5. Project Implementation: The executing agencies are the Ministry of Health (MINSA) and the Social Security Institute (INSS). 6. Project Sustainability: In the project's context, the following features will support sustainability of investments: (a) the project will not finance new hospital infrastructure (the single most important factor for increased recurrent costs) and only in exceptional cases will the project finance new first level infrastructure. Ambulatory services will be favored over inpatient treatment, further reducing incremental recurrent costs. The project will also refrain from creating staff positions. Likewise, cost recovery will continue to generate resources at hospital facilities from private wards catering to those who are able to pay. 7. Lessons Learned from Past Operations in the Country/Sector: a) Adjust for institutional capacity. The project technical staff will be placed in the relevant line offices of MINSA, and coordinated by a project administration office in the PCU. Likewise, the annual review meetings will allow annual programs to build on experiences and adapt to changing circumstances and institutional capabilities.. b) Foster adequate cooperation between government institutions. The project will engage other ministries in addressing intersectoral issues such as nutrition, health education and reproductive health. The project will respect the separate identity of INSS by designing a separate PCU manager for the INSS component, but it will support strengthened technical coordination between both institutions. The project will also coordinate directly with the future pension reform project, will help forge an agreement with MIFIN to support MINSA budget allocation system and its ongoing budget decentralization process, and will seek to obtain an agreement that the institutional restructuring (ARI) of MINSA to be undertaken under the auspices of the reform of the state project (UCRESEP) is consistent with the institutional reforms supported under this project. c) Introduce flexibility, clarity and simplicity in project design. The design will introduce transparency by making the objectives of each component as independent, measurable, and monitorable as possible, and by agreeing on broad issues during annual review meetings that will be translated into key actions as the program is implemented. -4-

5 c) Use explicit, measurable progress and end-result indicators. Progress, implementation and impact indicators will be defined for the project, and will be monitored throughout project implementation. The new APL lending instrument will allow an annual review of lessons learned to be incorporated in the programming of activities and strategies for the subsequent year, and the introduction of trigger indicators will allow the program to automatically progress to a second phase. d) Allow for adequate monitoring and supervision. The project will include close follow-up in the field and continuity of consultant and Bank staff supervision, so that necessary adjustments can be made in a timely fashion, and emphasis is put on critical issues identified at local levels (especially as to service delivery and the adequate implementation of the PHC model). d) Support adequate donor coordination. The project will help MINSA strengthen donor coordination by conducting annual review meetings with MINSA and donors in order to review project implementation, as well as the coming year's investment matrix and project annual programs which will incorporate both donor and MINSA resources. e) Investments must be realistic and sustainable. This project would address this risk and assure long-term sustainability by rationalizing health expenditures developing an alternative financing system and increasing the efficiency of health services. This should provide long term savings, enabling the government in the long haul to stabilize public health expenditures e) Ensure government commitment to the continuity of the reform. the project will agree with the government to protect the reform process in the future by maintaining core teams intact for at least the duration of the administration. The government will also agree to retain staff who have been trained with project resources. e) Maximize effectiveness of project administration. 8. Poverty Category: N/A 9. Environmental Aspects: Rehabilitation/expansion of existing facilities and the disposal of medical waste (should the credit finance proposals for this), are the only project activities that may have any notable environmental impacts. Therefore, every subproject involving rehabilitation of medical facilities related to medical waste disposal will undergo an environmental evaluation. If it is determined that negative aspects will occur, appropriate mitigation measures will be designed and implemented. The hospital management demonstration project will address the issue of appropriate management of medical waste in a low income country context. The proposed hospital rehabilitation fund is expected to generate a positive environmental impact on the margin by financing updated, less polluting and more energy efficient equipment such as efficiency sterilization, water heating and air conditioning equipment. 10. Program Objective Categories: The primary categories are Institution- Building, Physical Investment and Policy. Contact Point: Elizabeth Cajina -5 -

6 Complejo Dra. Concepcion Palacio Modulo 1 puerta No.409 Managua, Nicaragua Tel. (505) Fax. (505) Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending May 8,