Project Name. PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2077 National Program Support for Health (BACKUP TTL=TIENZO)

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2077 National Program Support for Health (BACKUP TTL=TIENZO) Region EAST ASIA AND PACIFIC Sector Health (60%);Health insurance (30%);Central government administration (10%) Project ID P Borrower(s) REPUBLIC OF THE PHILIPPINES Implementing Agency Department of Health Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 22, 2006 Date of Appraisal March 10, 2006 Authorization Date of Board Approval June 13, Country and Sector Background Over the past several decades, the Philippines has not enjoyed the overall high levels of growth of other East Asian countries. With a higher population growth rate of 2.6 percent (compared to 1.7 percent in the region) over the period, the Philippines has had a correspondingly modest 1.4 percent average annual per capita GDP growth rate. This compares to an average increase of 5.4 percent in per capita GDP for seven East Asian comparator countries over the same period. Coupled with the low growth, inequality remains high in the country, thereby constraining efforts towards poverty reduction. The richest 5 percent of households account for nearly one third of national income, while the poorest 20 percent accounts for under 6 percent. The highest poverty incidences in 2003 were found in the Autonomouos Region in Muslim Mindanao (ARMM) at 61 percent and Western Mindanao at 49 percent, followed closely by Bicol and Eastern Visayas at around 45 percent. Reviews of the health status of Filipinos consistently point to relatively high levels of total fertility, maternal mortality and infant mortality for a country at its income level (US$1,080 in 2003). With a total fertility rate of 3.5 children per woman (NDHS estimate 2003), infant mortality rate of 29 infant deaths per 1,000 live births (NDHS estimate, 2003) and a maternal mortality rate of 180 maternal deaths per 100,000 live births (1995), the Philippines faces outstanding challenges in securing improvement in these important indicators of health status. Access to health services is seen to be inequitable, the poor are seen to suffer the most from poor access and from chronic poverty due to the effects of catastrophic health costs. Infant and underfive mortality rates are 2.3 and 2.7 times higher, respectively for households in the poorest 20 percent compared to those in the riches 20 percent. The average life expectancy of adults in the ARMM region in 2000, is ten years lower than that the national level and is at the comparable national level reached in The above situation can in part be attributed to the inequity and inefficiency of the Philippines health system in terms of both financing and service delivery arrangements. Two reform

2 measures adopted in the 1990 s created both opportunities and implementation challenges for the goal of achieving equitable and efficient health service financing and delivery. In the context of the 1991 Local Government Code, the responsibility for health care provision was devolved to the local government. Improving the health status of the country now requires close partnership between the DOH and the LGUs. In 1995, the Government adopted the National Health Insurance Act (R.A.7875) that provided for the creation of national coverage with social health insurance, implemented by the Philippines Health Insurance Corporation (PHIC), with coverage of the poor through an Indigent Program (IP), to be financed jointly from national and local taxes. Full implementation of the Act requires joint commitment from national and local governments, and PHIC. By 2003, the national government budget financed 16.7% of health expenditure, local governments financed 17.5% and social health insurance financed 9.5%. Both of these reforms were introduced in the context of a health system with substantial private financing (54.90% of expenditure is from private sources; 44.9% from out-of-pocket) and private delivery (around 51% of doctors have private practice; around 48% (check exact figure) of hospital beds are private). Health Sector Reform Agenda In 1998, the DOH-led Health Sector Reform Agenda (HSRA) was launched with the aim of optimizing the potential of the decentralization and social health insurance initiatives to improve access and achieve public health goals, as well as rationalizing health services delivery and to improve the quality and organization of services. The comprehensive package of reforms aims to provide affordable health care services, promote development of effective local health systems (particularly the delivery of local primary health services), strengthening the autonomy and hence financial sustainability of government hospitals, expand the coverage of the national health insurance program and reform health regulations to improve compliance with safety and quality standards. The HSRA included five major reform areas: 10 hospital reform, 2) public health, 3) local health systems, 4) regulatory and 5) health financing. The implementation of the reforms has been slow, hampered by limited capacity of the DOH to lead and support a reform process involving agencies outside its direct control (LGUs, PHIC, private sector), and bottlenecks and poor coordination in mobilization of development finance for health. FOURmula One for Health By 2005, political support for the reforms from the national leadership, deeper understanding of the requirements of implementing such initiatives and growing interest and support from development partners led to the formulation of a new implementation strategy for the HSRA, known as FOURmula ONE for Health 1. The strategy is directed at using the HSRA in support of the health systems goals identified by the Millenium Development Goals and the Medium Term Philippine Development Plan of : (a) Better Health Outcomes; (b) More responsive health system; and 1 Department of Health Administrative Order No.l , dated August 30,2005, entitled Implementing Guidelines for Fourmla One for Health as Implementation Framework for Health Reforms.

3 (c) More equitable health care financing In the medium term, the HSRA implementation strategy will work to: o Secure more, better and sustained financing for health; o Assure the quality and affordability of health goods and services; o Ensure access to and availability of essential and basic health packages and o Improve performance of the health system. The FOURmula ONE for Health strategy organized the critical reform initiatives into four implementation components, namely Health Financing, Health Regulation, Health Service Service Delivery (covering both public health and hospital reforms), and Good Governance in Health (in terms of DOH s internal management and also in DOH s sectoral management role of providing leadership, coordination and stewardship to the whole health system). The National Health Insurance Program (NHIP) is to serve as the main lever to effect desired changes and outcomes in each of the four implementation components. The main functions of the NHIP including enrollment, accreditation, benefit delivery, provider payment and investment to be employed to leverage the attainment of the targets for each of the reform components. Sector Development Approach for Health The development finance support for the reforms is to be implemented under a sector-wide approach known as the Sector Development Approach for Health (SDAH) which encompasses a management perspective that covers the entire health sector and an investment portfolio that encompasses all sources. 2. Objectives The project development objectives are: Sustainable, equitable expansion in enrolment of the poor in the NHIP Indigent Program, and increased effectiveness in targeting the Indigent Program Increased impact of DOH on health MDGs and health system performance, through performance-oriented budget management reform and sector wide aid coordination 3. Rationale for Bank Involvement The CAS mentioned the Bank s support for the government s comprehensive health sector review which was been the basis of the Health Sector Reform Agenda. Because so many development partners were involved in the health sector, in the CAS cycle, the Bank committed to supporting the DOH in organizing international donor assistance under the umbrella of the Health Sector Reform Agenda. As part of the Bank s support to the sector s reforms, preparation work for a Health Sector Reform Project in four convergence provinces was initiated, with a particular focus on combining reform elements so as to improve access for the poor to primary care, essential drugs and first level referral hospital services. By 2005, the Philippines fragile fiscal position, served as a trigger to review development initiatives being supported by the Bank. Delays in implementation in the Bank s portfolio were

4 in part attributable to lack of budget space to cover project expenditures financed by the Bank. This led to the CAS focusing on closer alignment between Bank Group support and national budget priorities, and support for less complex and more achievable reform. This led to the shift away from financing a discrete health sector reform project towards a national program support loan for health sector reform (NPSHSR), which would finance budget lines in the regular national government budget for health that are important for reform, in conjunction with agreement about the associated reform objectives and implementation activities. 4. Description The Project components are selected priorities from a larger set of Fourmula One flagship programs, projects and activities of the DOH: 1: Health Financing (Est. US$40 million loan finance) 1.1 Budget reforms of DOH and attached agencies (Nil loan. Parallel grant support.) will be the basis for planning, budgeting, utilizing funds and monitoring other Project components, harmonized with DOH s own management processes. a. Development of a medium term HSEF. b. Establishing a system for budget allocation, utilization and performance monitoring (linked to the DOH s OPIF nationally, and LGU scorecards at local level). 1.2 Expansion of the National Health Insurance Program. (US$40M) The loan will support equitable expansion of the NHIP Indigent Program and increased support value, by financing the national subsidy for indigent premiums for LGUs that use community based poverty mapping to identify and enroll poor families. 2. Health Service Delivery (Est. US$48.5 million loan finance) 2.1 Health Facilities Development (Nil loan finance. Parallel grant support.) The program will support development of governance structures for public hospitals. 2.2 Public Health a. Disease free zone initiative. (US$4.5M) The loan will finance procurement of public health drugs, vaccines and commodities (excluding pesticides) and information/education materials to support eradication of malaria, schistosomiasis, rabies, leprosy and filiarisis. b. Intensified disease prevention and control. (US$44M) The loan will finance public health commodities, including EPI and hepatitis B vaccines, tuberculosis control drugs and laboratory supplies, subject to progress in logistics. The loan will finance a pilot performance awards scheme for LGUs that achieve defined performance targets in service agreements with DOH for delivery of immunization and TB control programs. LGUs may use awards for nondevolved expenditures in their public health plans. Budget space for the awards will be generated through the budget reforms under Component A.1. 3: Regulation of pharmaceuticals (Nil loan finance. Parallel grant support.) Strengthening of the Bureau of Food and Drugs (BFAD), and development of certification ( Quality Seals ) for pharmacies and for generic drugs. The program will support further capacity building and policy development in BFAD, for a transition to income retention, and further progress in raising BFAD s service performance standards. 4: Governance (Est. US$15 million loan finance) 4.1 Sector management a. National Human Resources for Health Program (US$5M) The loan will finance training, stipends and salaries for the DOH s programs for deploying doctors to rural areas with

5 shortages, including doctors to the barrio s and resident physician and medical specialist pools programs, which will be integrated and strengthened. b. Sectoral Development Approach for Health (US10M) The loan will finance the DOH counterpart contribution for the EC s Health Sector Reform grant for 16 local convergence provinces implementing Fourmula 1 locally over the next five years. The EC grant and the DOH counterpart will jointly finance LGU health reform implementation plans, with DOH funds used for non-devolved activities in the plans (local capacity building, monitoring and evaluation, etc), according to the EC s Technical and Administrative Provisions for Philippines Health Sector Policy Support Program as already approved by the ICC in September, A performance-linked tranche in the EC grant design will be related to substantive milestones and results. c. Sectoral Monitoring and Evaluation (Nil loan finance. Parallel grant finance.) An LGU scorecard system will be implemented in 16 convergence sites, and used as an element of the criteria for the performance-linked tranche of the EC grant program. 4.2 Internal Management Reform in DOH. (Nil loan finance. Parallel grant finance) a. Procurement and logistics reform will address past inefficiencies in materials management to ensure efficient supply of public health commodities under Component 2. b. Financial management reform will be consolidated through engas rollout, ebudget systems development, development of the Finance Service, stronger inventory controls, financial and procurement information system integration, development of internal audit. 5. Financing Source: ($m.) BORROWER (including EC grant of US$1.2million) 86.0 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Total Implementation The project will be implemented by the DOH, in partnership with the PHIC as an integral part of the sector-wide approach for Fourmula One implementation. DOH s Sectoral Management and Coordination Team (SMC team), under the leadership of an Assistant Secretary, will be responsible for overall program management. The PHIC will implement Component 1.2. The SEMP2 arrangements for procurement and financial management will be adopted. A Technical Coordination Group will coordinate the relevant bureaus within DOH and PhilHealth. The Health Planning Committee will provide multi-sectoral oversight of implementation for the Fourmula One program. 7. Sustainability Sustainability of the operation is viewed as high for several reasons. The NPSHSR has been designed to be financed within the existing and projected budget ceilings of the DOH and PHIC, and to be implemented by DOH and PHIC regular management structures and staffing arrangements. Recognizing that reform implementation does entail additional resource requirements, the DOH is using the HSEF process to reallocate resources within its budget

6 ceiling to support incremental costs of reform implementation. Additionally, the DOH recently approved changes to its management structure in order to assign clear responsibility for reform coordination and for regional DOH support to reform implementation. The DOH is undertaking a process of staff rationalization and restructuring to align staff resources and skills with the reform objectives. 8. Lessons Learned from Past Operations in the Country/Sector The project design builds on the critical success factors in the two previous Social Expenditure Management Projects, which recognized the need, given the fiscal constraint the GRP faces, to focus on increasing the efficiency, effectiveness and impact of existing national Government expenditure on health. Traditional investment projects in health and other sectors require of additional budget space for new expenditures. As a result, in recent years, traditional projects in the Philippines have been small and slow disbursing. The project design also draws on lessons from experience with implementation of health system reform, in other Bank client countries. Specifically, the project seeks to avoid the risks of excessive complexity, and stakeholder conflict by focusing on achieving incremental progress and consolidation in a few key areas that are already moving forward, and are most directly linked to achievement of improved financial protection and public health outcomes for the poor. The project design also works through mainstream government institutions, to ensure ownership and sustainability of the reform agenda, and through coordination with other donor support, provides resources for strengthening institutional capacity for reform implementation in the DOH and in participating LGUs. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [ ] [X ] Natural Habitats (OP/BP 4.04) [ ] [X ] Pest Management (OP 4.09) [ ] [X] Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [X] Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [X] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP/GP 7.60) * [ ] [X] Projects on International Waterways (OP/BP/GP 7.50) [ ] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

7 10. List of Factual Technical Documents Benefit Package PhilHealth Pro-Poor Benefit Package by Aleli de la Paz-Kraft, Melchor Lucas, Jr. Ricardo Bitran, May 2004 Premium Cost Analysis Enhanced Benefit Package by AMI Risk Consultants, Inc., as of September 2003, submitted on June 25, 2004 PhilHealth Pro-Poor Benefit Package Third Deliverable: Implementation Issues by Aleli de la Paz-Kraft, Melchor Lucas, Jr. Ricardo Bitran, May 2004 Local Health Systems Development Consolidated Team Report For the Local Health Systems Development Team: The Prototype Master Plan by John W. Peabody MD, PhD, Team Leader, June 26, 2004 Consolidated Team Report For the Local Health Systems Development Team: The Transition Plan For the Prototype Master Plan by John W. Peabody MD, PhD, Team Leader, June 26, 2004 The Socio-Political Feasibility of Implementing the Pangasinan Master Local Health System Development Plan, by Eddie Dorotan The Socio-Political Feasibility of Implementing the Misamis Occidental Master Local Health System Development Plan, by Eddie Dorotan The Socio-Political Feasibility of Implementing the Capiz Master Local Health System Development Plan, by Eddie Dorotan The Socio-Political Feasibility of Implementing the Agusan Master Local Health System Development Plan, by Eddie Dorotan Misamis Occidental Local HealthSystems Assessment Report and Development Plan, Maria Corazon Valenzuela-Teoxon, MD, MPH Pangasinan Local HealthSystems Assessment Report and Development Plan, Maria Corazon Valenzuela-Teoxon, MD, MPH Capiz Local HealthSystems Assessment Report and Development Plan, Maria Corazon Valenzuela-Teoxon, MD, MPH

8 Agusan del Sur Local HealthSystems Assessment Report and Development Plan, Maria Corazon Valenzuela-Teoxon, MD, MPH Capiz Health Care Financing and Social Health Insurance Plan, by Marilyn Noval-Gorra, Nov Contact point Contact: Loraine Hawkins Title: Lead Health Specialist Tel: (632) Fax: (632) For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: wb C:\Documents and Settings\wb248919\My Documents\WB OPERATIONS\HSRP\appraisal\draft PIDs appraisalfeb22.doc 02/22/2006 3:33:00 PM