Morocco - Health Financing and Management Project

Document of THE WORLD BANK Report No. 18629-MOR PROJECT APPRAISAL DOCUMENT FORA PROPOSED LOAN IN THE AMOUNT EQUAL TO FRF 400.300 MILLION TO THE KINGDOM OF MOROCCO FORA HEALTH FINANCING AND MANAGEMENI' PROJECT November 19, 1998 Human Development Sector Middle East and North Africa Region  CURRENCY EQUIVALENTS Currency Unit = MAD US$1.00 = MAD 9.25 MAD 1.00 = US$0.10 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS BAJ Barnamaj Al Aoulaouiyat Al Ijtimaiya (Arabic abbreviation of the Social Priorities Program) CAS Country Assistance Strategy CHU Teaching Hospital (Centre Hospitalier Universitaire) CNSS (Caisse Nationale de Securite Sociale) CNOPS (Caisse Nationale des Organismes de Prevoyance Sociale) CON Consultation COL Collaboration DRC (Direction de la Reglementation et du Contentieux) EU European Union FP Family Planning Services GDP Gross Domestic Product GTZ German Agency for Technical Cooperation HSDS Health Sector Development Strategy ICR Implementation Completion Report IGF (Inspection Ginerale des Finances)- IMF International Monetary Fund IS Information Sharing MCH Maternal and Child Health MOF Ministry of Finance MSC Multisectoral Steering Committee MIS Management Information System MNSHD Middle East and North Africa Human Development Sector MOH Ministry of Health NA Not Applicable or Not Available NGO Nongovernmental Organization NHIS National Health Insurance System PAD Project Appraisal Document PCD Project Concept Document PCU Project Coordination Unit PRISS Health Investment Project (Projet de Rehabilitation et d 'Investissement dans le Secteur de la Sante) SEGMA (Service Etatique Gere de Maniere Autonome) SIL Specific Investment Loan Vice President: Kernal Dervis Country Director: Christian Delvoie Sector Director: Jacques Baudouy Task Team Leader: Maryse Pierre-Louis  Kingdom of Morocco Health Financing and Management Project CONTENTS Project Financing Data ...................................................1l A. Project Development Objective ....................................................2 1. Project development objective and key performance indicat:ors ...................2................2 B. Strategic Context ....................................................2 1. Sector-related CAS goal supported by the project .................................... , . 2 2. Main sector issues and Government strategy for development of the Health sector .....2 3. Sector issues to be addressed by the project and strategic choices ................................4 C. Project Description Summary .......................5 1. Project components .................5 2. Key policy and institutional reforms supported by the project ......................................6 3. Benefits and target population ..........................................................6 4. Institutional and implementation arrangements ..........................................................6 D. Project Rationale ................................................................7 1. Project alternatives considered and reasons for rejection ..............................................7 2. Major related projects financed by the Bank and/or other development agencies ........8 3. Lessons learned and reflected in proposed project design .............................................9 4. Indications of borrower commitment and ownership ....................................................9 5. Value'added of Bank support in this project ............................................................... 10 E. Summary Project Analyses ............................................................... 10 1. Economic ............................................................... 10 2. Fiscal impact ...................... 10 3. Technical ..................... 10 4. Social ................... , 11 5. Enviromnental assessment ........................ 11 6. Participatory approach ............................ l F. Sustainability and Risks ............................11 1. Sustainability ........................... 11 2. Critical risks ........................... 12 3. Possible controversial aspects ........................... 13  G. Main Loan Conditions ......................... 13 1. By Negotiations .................. 13 2. By Board presentation .................. 13 3. Agreements .............; 13 4. At Negotiations ............. 13 H. Readiness for Implementation ........................ 14 L Compliance with Bank Policies ........................ 14 Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 2a: Organizational Models for the Hospital Network Annex 2b: Scenarios regarding the financing mechanisms Annex 3: Estimated Project Costs Annex 4: Economic Analysis Annex 5: Financial Summary Annex 6: Procurement and Disbursement Arrangements Annex 7: Project Processing Budget and Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Morocco at a Glance  INTERNATIONAL BANK FOR RECoNSTRUCTIoN AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIAIION Middle East and North Africa Regional Office Human Development Sector Project Appraisal Documenlt Kingdom of Morocco Health Financing and Management Project Date: November 19, 1998 [ iO Draf [XI i Final Task Teamn Leader: Maryse Pierre-Louis Country Director: Christian Delvoic Project ID: 5525 l Sector: Health POC: Lending Instrument: SIL PTI: [ Yes |[X]| INo Project Financing Data [xl Loan [ Credit [ Other [Specifyl For Loans/Credits/Others: Amount: FRF 400,300,000.00 (US$66.0 million equivalent) Proposed Terms: [1 Multicurrency [XI] Single currency Grace period (years): 5 years [XI Variable [ Fixed [X PIBOR based Years to maturity: 20 years l Commitment fee: 0.75% _ Financing plan (US$m): Source Local Foreign Total Government 9.7 0.4 10.1 Cofmanciers European Commission 0.0 0.0 0.0 IBRD/IDA 26.0 40.0 66.0 Other (specify) ____l TotalOther (specify) 35.7 40.4 76.1 Other (specify) _ Borrower: Government of Morocco (Ministry of Finance) Guarantor: N/A Responsible agency(ies): Ministry of Public Health (MOH) Estimated disbursements (Bank FY/US$M): 1999 | 2000 2001 2002 2003 Annual _1.6 9.9 ___ 18.6 13.6 22.3 Cumulative 1.6 1 11.5 30.1 43.7 66.0 Expected effectiveness date: 09/01/98 Closing date: 06/30/2003  Page 2 A: Project Development Objective I. Project development objectives and key performance indicators (see Annex l; see Annex 2forprojectscope): The project would support hospital and Ministry of Health (MOH) management reforms in the context of the Health Sector Strategy and of the new Regionalization Law in conjunction with the development of new financing mechanisms. The project objectives are: (a) To improve the efficiency and the quality of care in project (public) hospitals (14) by strengthening strategic planning capacity and introducing organizational and management tools and quality control mechanisms. (b) To mobilize additional resources, while preserving equity, by assisting the government in introducing new financing mechanisms. (c) To strengthen MOH's policy formulation and sector management capacity by assisting MOH in adjusting and performing its mandate in the context of the Regionalization Law and providing MOH administrative staff with the management tools and skills required. The project includes three closely linked and interdependent components: (a) strengthening hospital management and improving the quality of hospital services; (b) improving sector financing; and (c) strengthening policy and decision making capacity. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goals supported by the project: CAS document number: 16219-MOR, dated January 8, 1997 CAS strategic objectives supported by the project include: (i) Establishment of a firm basis for sustained improvement in economic and social performance. (ii) Implementation of an ambitious social development agenda addressing health sector efficiency and inequity and consequent social disparities. (iii) Rationalizing public expenditures and mobilizing domestic savings for investment. Preparation and implementation of the proposed project is part of the CAS base case lending scenario. 2. Main sector issues and Government strategyfor development of the health sector: a) Sector Issues: Background: Over the past three decades, Morocco made steady progress in the health sector life expectancy at birth increased by more than 50%, the infant mortality rate dropped by a third, national immunization programs and vigorous campaigns increased coverage from 5% in the early 1970s to approximately 86% today, and the supply of infrastructure and services increased sharply. The population:physician ratio dropped by three times, nurses and paramedical staff increased by thirty times, and the number of functional hospital beds doubled. Regional disparities in the availability of both hospital and ambulatory services remain. In addition, private sector service provision is minimal. Although 50% of physicians are in the private sector, most are concentrated in Rabat and Casablanca. The Government has not yet developed a comprehensive incentive framework to encourage private or public physicians to settle in rural areas. The public sector provides the majority of services in urban and rural areas. Provision of services by the private sector is done through 192 clinics (representing 18% of the country's bed capacity) and 3,461 medical offices (for office visits, radiology and laboratory exams). Low physical access and poor quality of services, combined with limited awareness and education among the population result in low and disparate social indicators. The Basic Health Project/BAJ is helping the Government to address poor basic health conditions in the thirteen poorest provinces. Major sector issues include underfunded health care, inefficiency of the health system, inequity and insufficient coverage of the poor, weak management capacity, and require a complete restructuring of the sector in the medium to long term. Underfunded Health Care. The Moroccan health care system is underfunded and the population is undercovered by insurance. Government budgetary allocations for health are amnong the lowest compared to countries with similar level of per-capita income. In 1997, total health expenditures amounted to about 4.0% of GDP and per capita health spending, at  Page 3 about US$40, was less than half that in neighboring Tunisia. Private household contributions in 1996 accounted for 44% of total recurrent health expenditures and donor funds for barely 2%. Only about 15% of the population is covered by insurance of any kind, with 11% of the population covered by public schemes (for people employed in the formal sector) and 4% covered by twenty private companies. The need for a viable financing strategy aimed at increasing resource mobilization is thus urgent, especially in the context of macroeconomic constraints which will limit increases in government allocations, and of an aging population for which health care is becoming more expensive. Inefficiency of the Health System. The hospital network receives approxirmately 56% of public resources devoted to health (based on 1997-98 budget). It provides poor services and experiences endemic shortages of drugs, equipment, and qualified personnel. Partly as a result, the occupancy rate in public hospitals is 56%, compared to at least 80% in the private sector. While administrative and personnel related recurrent expenditures account for 72% of the MOH budget, public spending for health promotion, hygitne and disease prevention where marginal gains from public spending are often the highest, amounts to less than 1% (financing of these activities is done through the investrnent budget where it represents 23% of this budget). Inequity and Insufficient Coverage of the Poor. Large disparities in both health status and access to services prevail between geographic areas and income groups. The allocation of resources discriminates against poorer rural areas since the ambulatory network which is the primary means of delivery in rural areas accounts for less than 30% of MOH recurrent budget. Finally, in both rural and urban areas, access to modem health care and the willingness to seek it are much higher in households with higher income. Weak Management Capacity. The quality of care and effectiveness of the health system are constrained by weak management capacity. Institutional roles and responsibilities for management and decision-making are both poorly defined and overly centralized. This is especially so with regard to facility management and allocation of resources. Facility managers, who are often the best placed to make informed decisions on the optimal use of resources, have insufficient authority nor the necessary skills to perforrn key management functions. Basic skills in planning, programming and budgeting are lacking throughout the health system. Finally, the lack of policy framework and planning and the absence of reliable data for decision-making inhibit sector effectiveness further. The MOH has to ensure that the decentralization of competencies and functions is consistent with the newRegionalization Law and that facility autonomy will increase hospital effectiveness. This will require a specific internal articulation ofMOH's own role and careful coordination with its regional and facility counterparts (governors, regional medical officers and hospital directors). Effective performance by MOH of its own role in this new regime will also require improvement of its own institutional capacity. Government Strategy. This project seeks to support the Government's effort to implement an articulated and sustainable Social Development Strategy. As part of project preparation, a Health Sector Strategy has been developed (it will be finalized by negotiations). It will translate broad orientations into action plans and prospective resource allocation within the next five years. The objectives of this strategy are centered around two themes: (i) strengthen and expand preventive and basic curative care, especially targeted at women and children in rural areas; and (ii) carry out structural reforms to ensure the sustainability of the first theme. The project, by improving hospital efficiency and implementing new health financing strategies will address the second theme directly. In the long term, by facilitating the reallocation of resources toward basic health care, the project will address the first theme. A logical framework of the sector strategy was agreed upon during appraisal. Long-term orientations include increasing the private sector role in delivery of services from its current share of less than 10% and to establish private institutional financing mechanisms to supplement the public institutional sources which characterize the system today.  Page 4 3. Sector issues to be addressed by the project and strategic choices to be made: The proposed project would address the following issues in the context of at broad reform program being developed by the: Government and supported by the Bank, as part of its sector strategy. (i) Inefficiency. This issue will be addressed through improvements in facility level and central management information systems, hospital organization management, technical capacities of hospital personnel and the rationalization of future hospital investments and maintenance. Contracting arrangements between MOH and hospitals based on agreed performance indicators are also expected to have a significant impact on efficiency. (ii) Underfunded Health Care. This issue will be addressed by assisting the government in introducing a reform of current financing mechanisms including: development and implementation of a National Health Insurance Scheme (NEIS) with mandatory enrollment for employees of the-ormal public and private sector; testing mechanisms aimed at better targeting and subsidizing the poor including development of a Solidarity Fund to cover indigent patients, and the adjustnent of fee schedules in public hospitals. (iii) Weak Institutional Capacity. This issue will be addressed through: the definition of the MOH mandate within the context of the Regionalization Law; forrnulation and institutionalization of a National Health Account system, which is an important tool for policy analysis and formulation; definition and establishment of mechanisms and procedures for human resource planning, inter-regional coordination, and allocations of resources, and information systems to implement, monitor and adjust sector strategy on a continuous basis; the definition of mechanisms and procedures to link regional and local authorities (i.e. Governors and local communes) to the decision-making process within the context of the Regionalization Law; the definition of a package of cost-effective services; and the strengthening of MOH monitoring and evaluation tools. (iv) Low Quality. This issue will be addressed through improving the integration of services within selected hospitals; physical rehabilitation of priority facilities; replacement of priority equipment; provision of technical training to hospital medical and paramedical staff; and the definition and implementation of quality control mechanisms and hospital management criteria focusing on quality. (v) Inequity. Improvement in the quality of services provided in hospitals is expected to give the poor a better chance to benefit from quality care. Introduction of a fund to remunerate hospitals for care provided now at no charge to indigents (the Solidarity Fund) will increase hospital resources and decrease the prevalence of operational deficits in facilities, thereby contributing to improvements in the quality of care. As the reform is implemented, cost control in the hospital sector and the improvement in hospital efficiency will allow the Government to allocate more resources to basic care in rural areas. The project focuses on rationalization of the public hospital sector. Because the hospital sector consumes the bulk of sector resources, efficiency gains would contribute (along with the introduction of financing and management mechanisms) not only to overall system sustainability but would also facilitate the reallocation of resources toward basic services. The project would focus on. the public sector because there is virtually no private sector health provision in rural areas and most major cities (most of the private sector is concentrated in the areas of Rabat and Casablanca). The project also focuses on health financing mechanisms in an effort to mobilize additional resources, improve resource allocation and sustain sector gains.  Page 5 C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): Cost Including Contin- Bank gencies % of Financing % Bank Component Category (IUS$m) Total (US$m) Financing Component 1: Strengthening Hospital Policy; 72.2 94.8 62.5 86.6 Management and Improving Service Capacity Quality through: a technical assistance and Building; training program, reorganization of hospitals, Physical development of quality control mechanisms, physical rehabilitation and equipment and provision of material and support for implementing activities. Component 2: Improving Health Sector Policy, 2.1 2.8 1.7 80.4 Financing through a technical assistance and Capacity training program to assist the Government in Building introducing a mandatory health insurance for the formal sector employees and a solidarity scheme for indigents and through operational support for these activities (materials, workshops, information campaigns, surveys, etc.). Component 3: Strengthening Policy and Capacity 1.8 2.4 1.8 99.1 Decision-Making Capacities through Building technical assistance and training to assist MOH in implementing its sector strategy and through adjust to the regionalization law and support for organizing workshops aimed at building consensus among key stakeholders and at carrying out surveys and analyses. Total 76.1 100.0 66.0 86.7  Page 6 2. Key policy and institutional reforms supported by the project: (a) Management and Financial Autonomy of hospitals; (b) Introduction of Financing Mechanisms aimed at mobilizing resources and at promoting equity; (c) The implementation of the Regionalization Law (promulgated in April 1997) in the Health Sector. 3. Benefits and target population: The project would provide the following benefits: - At the local level: (i) improved services in selected hospitals will have an impact on the health status of the targeted population (approximately 7 million people); (ii) the development of regional hospital development plans would result in a better coordination of hospital and basic healthcare and ensure a more efficient use of resources; - At the National level: (i) the project will initiate the process of hospital reforms which will be expanded nationwide; (ii) the development and implementation of new financing mechanisms will increase equity and mobilize additional resources for the sector; (iii) the project will result in stronger institutional capacity at the central level and will improve overall sector management. 4. Institutional and implementation arrangements: (a) Executing agency: The MOH Directorate of Hospital and Ambulatory Care (DHSA), the regional and provincial delegations as well as the hospital directors at the regional and provincial level, will have primary implementation responsibility. The Directorates of Equipment and Maintenance (DEM), Human Resources (DRH), will oversee specific investments needed to carry out the project activities, such as civil works, training, maintenance programs, etc. (b) Project coordination and management: The Project Coordination Unit (PCU) will be responsible for overall coordination of all project activities. The MOH has experience in implementing Bank financed projects, and is currently implementing the Health Sector Investment Project and the Basic Health Project/BAJ. However, significant changes are needed in the PCU in light of the complex nature of the proposed project, which involves a large number of high level actors within and outside MOH and will require dynamic and pro-active project management. MOH's project management capacities have been improved under the two ongoing Bank financed projects. Accountants have been recruited and a computerized system to monitorDPRF's financial management was established. The feasibility of integrating management of the proposed project with this existing system has been assessed at appraisal. Because the PCU will need a director with leadership qualities and strong management skills, the Bank's non objection will be needed for the recruitment of this person based on agreed terms of reference. The project manager and the PCU staff will be recruited from the civil service pool and their performance will be assessed annually. Therefore, sustainability of the PCU is not an issue. By relocating the PCU in the office of the MOH Secretary General, it will have authority to deal with the large number of key players involved within and outside MOH. (c) Project oversight (policy guidance, etc.): The Ministry of Health will organize regular and frequent meetings together with CNSS, CNOPS, Ministries of Social Affairs, of Interior, of Finances, representatives of Associations of Pharmacists and Physicians, private insurers and of regional health directorates. The Bank will be entitled to consult the minutes of these meetings as necessary and to request a meeting with the above-  Page 7 mentioned agencies, during supervision missions as it sees fit. Furthermore, regular and frequent meetings will take place with the main directorates involved in the project (DPRF, DHSA, DRH, DRC, DEM). (d) Accounting, financial reporting and auditing arrangements: The PCU will be responsible for the preparation of financial statements, including a current and cumulative Summary of Sources (IBRD loan, EU Grant and Government funds) and Uses of funds by project component and subcomponent and by categories of expenditures (Works, Goods, Consultant services). Project accounts will be audited annually by IGF. The financial management of the project will be handled by the unit currently in charge of the implementation of the two ongoing Bank-financed projects (LN 3171-MOR and LN 4025-MOR). During the preparation mission in March 1997, a financial assessment of this unit was carried out by a financial management specialist. This assessment concluded that: (a) internal controls were acceptable overall but accounting and management information systems should be stre,igthened; and, (b) procurement and monitoring functions performed by the unit should be improved. Further to this assessment the following actions have been taken: (a) two accountants have been recruited to follow up on expenses, and disbursements categories; (b) a staff of the unit has been specifically designated to follow up on procurement and contracts management; (c) a new computerized system to facilitate financial management and monitoring is being introduced. In order to monitor expenses related to the projects, the purchase of this software to record data and generate financial statements is underway and the overall system should be operational, prior to loan effectiveness; (d) the elaboration of semi-annual reports by the unit has been agreed upon; and, (e) on-the-job and formal training of personnel has been agreed upon. Finally, the project unit will be headed by a high caliber professional with a strong profile in project and financial management. (e) Monitoring and evaluation arrangements: The PCU will submit semi-annual technical and financial progress reports on the three project components. The Bank will meet twice a year with the PCU and the major stakeholders involved in the reforms as agreed upon in para 4 (c). An early project implementation review is scheduled during the first 18 months of implementation in order to assess the impact of the upcoming political changes on the pace of project implementation and check if any substantive modification in implementation arrangements have occurred and propose corrective actions. (f) The project's implementation schedule includes a transition phase of 24 months. During this phase, the hospital reform component activities will be introduced in five hospitals (Hopital Hassan II d'Agadir, H6pital de Beni- Mellal, Hopital Mohamed V de Meknes, Hopital Mohamed V de Safi, Hbpital Hassan II de Settat), in order to allow the system to adjust to the proposed changes. During the first year of this phase, agreements presented in para G3, page 13 will have to be met. D: Project Rationale 1. Project alternatives considered and reasons for rejection: (detailed scenarios regarding the financing mechanisms are presented in annex 2b) Several alternatives were considered with respect to the scope of the proposed reforms, as follows: (a) Develop universal insurance coverage. With present economic conclitions and the limited adaptive capacity of the Moroccan health system, this alternative was rejected as not affordable nor manageable for the time being. Formal public and private sector workers will be included in the mandatory health insurance scheme to be developed under the project while the Solidarity scheme will address insurance coverage of the absolute poor. Extending coverage to the rest of the population will be addressed at a later date. (b) Include civil service reforms and broader participation of the private sector in service provision. The prevailing political economy is not conducive to extensive civil service reforms. During the next fiscal year, the Bank will finalize an Economic Memorandum focusing on the role of the State in Morocco. Discussion of the Memorandum's conclusions with national authorities will serve as a preparatory step for civil service reforms in the health sector. Likewise, increasing the share of private provision in rural areas will require development by the Government of a comprehensive incentive framework to stimulate rural development.  Page 8 (c) Incorporate more targeted programs to address absolute poverty in the rural sector. The Bank is covering important aspects of these programs through the Social Priorities Program (which includes a Basic Health Project, a Basic Education Project and a National Promotion Project) in the 13 poorest provinces of the country. A follow- up program is currently being discussed with the Government, contingent upon the successful implementation of the BAJ program. The long-term sustainability of these programs in the rural sector depends on improving the efficiency of the hospital sector which consumes a sizable portion of public resources and on mobilizing additional resources through new health financing mechanisms. Monitoring of public expenditures prograns to assess shifts in reallocation of resources towards basic health services and the rural poor will be carried out as part of the Bank's macro-economic program. 2. Major related projectsfinanced by the Ba_k and/or other development agencies (completed, ongoing and planned): Latest Forn 590 Ratings (Bank-financed Sector Issue Project projects only) Bank-financed IP DO Improve primary health care program in three provinces on Health Sector Development Project, Loan a pilot basis no 2572-MOR (US$ 28.8 M* /1986-93) Reestablish sustainable health program in the country and Health Investment ProjectlPRISS, Loan n