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HEALTH SECTOR REFORM AND PUBLIC-PRIVATE

PARTNERSHIPS IN NEPAL

Adrian Blair

Harvard Business School

Social Enterprise Summer Fellow

August 2004

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Abbreviations ADRA Adventist Development and Relief Agency AIDS Acquired Immune Deficiency Syndrome APHIN Association of Private Health Institutions of Nepal, BCC Behaviour Change Communication BCI Behaviour Change Interventions CTEVT Council for Technical Education and Vocational Training DDC District Development Committee DHO District Health Office DHS Department of Health Services EC European Commission EU European Union EDP External Development Partner FCHV Female Community Health Volunteer FNCCI Federation of Nepalese Chambers of Commerce FP Family Planning FPAN Family Planning Association of Nepal JHU John Hopkins University JICA Japan International Cooperation Agency HMG His Majesty's Government HMIS Health Management Information Systems HSR Health Sector Reform ICPD International Conference on Population and Development IMF International Monetary Fund MDG Millennium Development Goal MoF Ministry of Finance MoH Ministry of Health NCASC National Centre for AIDs and STD Control NDHS Nepal Demographic Health Survey PFP Private For Profit PHCC Primary Health Care Centre PNFP Private Not For Profit PPP Public Private Partnership PSI Population Services International RH Reproductive Health UNFPA United Nations Population Fund VCT Voluntary Counselling and Testing VDC Village Development Committee WB World Bank WHO World Health Organisation

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Executive Summary Billions of Rupees are spent every year on improving health in Nepal. Yet not enough has been achieved.1 The hypothesis underlying this paper is that better outcomes could flow from the same limited pool of resources if the government, Private Not for Profit (PNFP), and Private For Profit (PFP) sectors worked together differently. The paper examines the status quo, and HMG's strategy and progress so far, and makes recommendations for the future roles of each sector in the future, particularly with respect to Reproductive Health (RH). Part One analyses the current situation: the existing split of provision and financing between public, PNFP (including Social Marketing), and PFP organisations in the health sector, and strengths and weaknesses of each. It finds that financing is dominated by the private sector; provision of pharmaceutical supplies is dominated by the PFP sector; and primary care is dominated by the public sector. Part Two turns to the future, and Public Private Partnerships (PPPs). It opens with a look at why PPPs are, and ought to be, such a high priority in Nepal. It then examines HMG's Health Sector Reform (HSR) strategy, outlining how in theory the government would like to work with the private sector (meaning, collectively, PFP and PNFP organisations). It finds that HMG's plans for private sector involvement have become less ambitious since they were originally articulated in 2002. The following high-level recommendations are given for HMG's future interaction with the private sector: 1) Develop a clear, public view of which functions are best carried out by which sectors; 2) Contract out management of sub-health posts to private hospitals on a trial basis; 3) Use power over contracting partners to rigorously enforce free provision for the poor.

But do not set prices; 4) Hire management from the PFP sector with experience of managing contractors; 5) Partner with private medical colleges to provide incentives to encourage work in rural

areas. Part Three applies the principles of HSR to the area of Reproductive Health (RH). It examines the status quo, and finds that it diverges significantly from the government's HSR strategy. The system is over-centralised and dominated by government provision. The following recommendations are made for RH: 1 For example, according to NDHS (2001), 28,000 children per year die of diarrheal diseases. HIV/AIDS had claimed 213 lives cumulatively to July 2004

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1) HMG should specify precisely which parts of its budget for RH it intends to contract

out to Social Marketing and other private sector organisations; 2) HMG should use resources saved via contracting out of RH services to develop its

capacity in mystery client monitoring, and publish an annual report; 3) PNFP social marketing organisations should lead the way in contracting out to the

PFP sector, partnering with PFP companies for distribution of contraceptive supplies, and PFP pharmacies for provision to clients, via "social franchising";

4) EDPs assisting HMG in procurement of contraceptive supplies should increase

pressure to contract out RH services; 5) HMG and PNFP organisations should focus subsidised contraceptive supplies on

rural areas, allowing the PFP sector to serve urban communities.

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Terminology Language in this area is often confusing. In particular, the term "private sector" is ambiguous, sometimes meaning exclusively "for-profit companies", but often meaning "anything not run by the government." This document follows the terminology used by Dr. Ram Neupane in his three recent papers on PPPs in Nepal (as well as much other academic literature on PPPs): PNFP - Private not-for-profit. Includes local NGOs, INGOs, and Social Marketing organisations. Does NOT include bilateral or multilateral donors such as USAID and the UN system, which are considered part of the public sector. PFP - Private for-profit. For-profit businesses both inside and outside the health sector. Includes pharmacies, for-profit hospitals, individual health practitioners running a private practice for profit (who may be government employees at certain times of day), and for-profit companies of all kinds. Private sector - a collective term, referring to all PNFP and PFP organisations - ie. includes non-profit as well as for-profit organisations. Public sector - All services operated by government employees during regular working hours. Note that in the health sector these are generally not free services; the same staff may run PFP facilities at different times of day; and the funding may come from External Development Partners (EDPs) rather than HMG itself. The EDPs themselves - both bilateral and multilateral - are also governmental organisations, and therefore are also classified as public sector.

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PART ONE: THE STATUS QUO Part One gives an overview of the existing division of roles and resources between the public, PNFP, and PFP sectors, before discussing the current strengths and weaknesses of public and private sector provision. For each sector, access to and quality of services are the key dimensions of performance considered. 1. Current public / private split The critical distinction here is between financing and provision of care. In general, the available data in Nepal is abundant with respect to the former, but vague and unreliable regarding the latter. a) Financing Health financing in Nepal is overwhelmingly non-governmental. Chart 1 shows how private funding (from individuals and donors) is set to account for 78% of the total in 2004/05. Chart 1: Funding sources for health in Nepal, 2004/052

MoH from HMG

MoH from foreign donors

Direct assistance from foreign donors

Other private spending (mostly out-of-pocket)

Other public sector

The most recent MoH figures estimate that total health expenditure in Nepal remains low by international standards, at $16.80 per capita.3 However, this estimate assumed

2 Sources as per table below 3 MoH (2004), p.31. There seems to be widespread uncertainty about this figure. One government official, assuming the current figure was $10.50 as per MoH (2002)a, p.2, claimed the target was $12 annually per capita by 2009.

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spending by the MoH of $2.35 per capita. In fact, MoH spending in 2004/05 is projected to be $3.35 per capita (42% of which comes from foreign grants or loans).4 The total per capita estimate has therefore been revised up to $17.80. Table 1 summarises these estimates. Table 1: Health expenditure in Nepal, 2004/055

Expenditure source Total ($m)Per capita

($) %

MoH from HMG 52 1.95 11%MoH from foreign donors 37 1.40 8%Other public sector (MoD, MoF, MOESC) 14 0.53 3%Public sector total 103 3.88 22%

Direct assistance from foreign donors 61 2.31 13%Other private spending (mostly out-of-pocket) 307 11.61 65%Private sector total 368 13.92 78%

Total 471 17.80 100%

The public sector figures in the table above have three components: Funds domestically generated by HMG, allocated to the MoH directly through the MoF "Red Book"; funds contributed to HMG's "Red Book" by foreign donors; and money spent on health by ministries other than the MoH (for example, money spent by the Ministry of Defence on healthcare for troops). Direct assistance from foreign donors has been classified as private sector finance, as it does not pass through the government financial system, and is not controlled by HMG.6 Much of this is channelled to local PNFP organisations, although the exact proportion is unclear. The vast majority of private spending, however, comprises out-of-pocket contributions by people buying medicines and treatment. b) Provision Data on public sector provision in Nepal is comprehensive, but the for the PNFP and in particular the PFP sectors it is scarce. This is not unusual - according to a survey of private provision in 35 developing countries, "a striking indicator [of the lack of attention

4 MoF (2004)a, Report 16, page 6-59. Assumes population of 26,469,569, as per BUCEN (2002). 5 MoH (2004), p.30; MoF (2004)a, Report 16, page 6-59; BUCEN (2002); Author's estimates. The estimate that most private spending is out-of-pocket comes from MoH (2002)a, p.2 6 This is classified as public sector spending in MoH (2004), p.32. The figure of $61m for 2004/05 assumes the most recent MoH estimate of $58m for 2002/03 given in MoH (2004), p.37 increased in line with overall health spending.

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given to PFP services] is the paucity of basic data available on private healthcare provision."7 One might expect provision of health services in Nepal to mirror financing, and therefore (given the above) to be dominated by the private sector. But in practice this is not necessarily true. Although it is normal in developing countries for private provision to dominate (particularly in ambulatory treatments, which account for the majority of health spending in low-income countries), there is no statistical link between the proportion of healthcare services privately financed and the proportion privately provided.8 Two things complicate the picture further. First, around 75% of public sector doctors and 40-50% of nurses in Nepal engage in "dual practice", meaning that outside regular hours they undertake PFP work.9 (according to one government official interviewed, "all of the doctors do private practice"). Second - as in all countries - clients flow easily between public and private sectors, for example picking up a prescription from a government hospital and taking it to a PFP pharmacy. One way of looking at provision is simply the number of physical facilities operated by each sector. Drawing on a variety of estimates, Table 2 below gives this information. Table 2: Health facility numbers in Nepal by sector10

Faclitiy type Number

Public sectorSub Health Post 3,132Health Post 705Primary Health Care Centre 178Hospital 79

PFP sectorRetail pharmacies 12,339Wholesale pharmacies 2,038Private hospitals 106Technical schools 38Medical colleges 9

PNFP sectorClinics / hospitals 291Technical schools 13

7 Hanson & Berman (1997), p.2 8 Hanson & Berman (1997), p.17 9 MacDonagh & Neupane (2003), p.13 10 Public sector figures from DHS (2003); PFP and PNFP estimates derived from Company Register, APHIN, CTEVT, and Nepal Medical Council, all quoted in MacDonagh & Neupane (2003) p.11, combined with figures on private sector services in DHS (2003)

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If accurate, these figures have four important implications:

• The PFP sector is significantly larger overall than the PNFP; • The PFP sector dominates in services provided by pharmacies, namely provision

of drugs, and advice and treatment of minor conditions; • The public sector (followed by the PNFP sector) dominates in-patient care; • The PFP sector plays a major role in medical training.

However, on their own these numbers reveal nothing about the actual amount of activity taking place in each sector. DHS Health Management Information System (HMIS) data tracks the public sector in detail, but many private sector institutions do not participate, and those that do provide less information.11 So the estimate from HMIS data that 92% of patients are treated in public sector facilities is likely to be an overestimate (or at least an upper bound of what is plausible). This and various other estimates for each sector are given in Table 3 below. Table 3: Provision of health services in Nepal by sector12

Public sector:80% of provision is public sector Unofficial (verbal) MoH estimate56% of rural population use public health facilities MoH (2004), p.3092% of patients are treated in public facilities DHS (2003), using HMIS reports63% of hospital beds are in the public sector MoH (2002)b"The public sector is currently the lesser partner both in the financing and provision of health services." MoH (2002)a, p.17

PFP sector:60% of hospital beds are in the PFP sector Unofficial (verbal) APHIN estimate10,000 private sector health professionals in Nepal, out of 33,000 total Himalayan Times, 22 July 2004

"Most curative care visits, even in rural areas, occur in drug shops and private provider offices" MoH (2004), p.15

"Even in remote areas, medicine shops are among the most common of commercial establishments" JHU (1999)

PNFP sector:14.5% of OPD visits in 2003 were in PNFP facilities Neupane (2004)b, p.25"An insignificant proportion of hospital beds" Unofficial APHIN estimate"Eye care services are entirely provided by NGOs" Unofficial MoH estimate

Estimate Source

11 For example - according to DHS (2003) - in 2001-02 the average Health Post provided 11.6 reports per month; the average I/NGO provided 8.6. 12 Unofficial APHIN estimates from Interview 17. Unofficial MoH estimates from Interview 3.

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The disparity between many of the estimates probably stems from complications already mentioned: since the same patient and the same provider will often move between sectors in the course of a single afternoon, the potential for confusion and double-counting is immense. Despite the internal contradictions, what conclusions can be drawn from these numbers? Three things seem clear. First, the PFP sector (in the form of APHIN) and MoH agree on the importance of PFP drug stores, in both urban and rural areas. Second, there is a real difference of opinion (which cannot be explained away by double-counting) regarding the number of PFP hospital beds. APHIN claims the PFP proportion is 60% and rising, having increased from just 20% in the early 1990s. The MoH believes the majority are public. This may be because MoH information systems have yet to catch up with the increase referred to by APHIN; or APHIN's figure may underestimate the true extent of government coverage. Third, although the PNFP sector does not form a significant portion of overall health provision, it dominates certain specialist areas. Eye care in particular was mentioned by many of the people interviewed. Figures from the MoF support this - the eight INGOs listed in table 4 will spend nearly $2m on eye care in 2004/05. Table 4: INGO provision of eye care, 2004/0513

Organisation Annual expenditure ($ '000)

Christoffel Blinden Mission (NNJS) 1,307Foundation Eye Care Himalaya Netherlands 189Association for the Opthalmic Cooperation Asia 105Seva Foundation 78Himalayan Cataract Project 59Nepal Eye Programme 58Nepal Eye Programme 58Swiss Red Cross 51Total 1,906

The MoF listing of INGOs is not comprehensive, but the fact that more of the organisations listed in it were involved in eye care than in any other area suggests that PNFP services are particularly widespread in this field. 2. Difficulties With the Status Quo: The Public Sector The numbers above on provision and financing reveal little about the quality of and ease of access to services. Information on this is more limited, diffuse and unstructured,

13 MoF (2004)c

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deriving from academic surveys rather than the government itself. Piecing together the evidence available suggests that in the public sector access is more of a problem than quality (at least for the 88% of Nepal's population living in rural areas14). Poor supplies of drugs and trained manpower, combined with inadequate incentives and monitoring, mean that adequate services are often not available at the right time. • Staffing A study of rural women's access to care from government health posts in five districts revealed the following:15

− In Sindhupalchowk, women reported poor attendance by doctors, rude staff, and lack of medicines;

− In Rupandehi, women were satisfied with care for minor illnesses, but not for

severe conditions. In addition, they were often treated impolitely;

− In Kailali, women felt discriminated against on grounds of caste and wealth. Personnel would apparently sell good medicines to the rich and give inappropriate or out of date leftovers to the poor;

− In Dadeldhura, "all groups of women expressed their total dissatisfaction with

their health post services." Trained personnel were rarely present, and staff were impolite to women.

A John Hopkins University study in Mustang district found that village governments in Mustang had banned private medicine shops to prevent resale of free government medical supplies. This had the unintended effect of making access to medicine more difficult, as "very few of the governmental health posts are adequately staffed".16 • Supplies In addition, the JHU team found that "in rural areas, many ... health posts and sub-health posts are out of medicines most of the time".17 According to the WHO, in remote areas only 40% of government facilities have essential drugs.18 This problem may be linked to the incentive dual practitioners have to sell drugs through their profitable private practice instead of giving them away at their public facility.

14 UNDP (2003) 15 Samanata (2001) 16 JHU (1999) 17 JHU (1999) 18 WHO website - http://w3.whosea.org/cntryhealth/nepal/nepresources.htm - accessed 5 August, 2004.

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• Coverage The JHU study identified a link between the retention rate of FCHVs and the quality of local health posts - "towns with many dropouts seemed to have health posts that were essentially non-functional with almost no staff". In Lower Mustang, for example, all but one of an original group of ten FCHVs trained had given up their duties. Chart 2 below, plotting the number of FCHVs per thousand people against the corresponding number of sub-health posts for each district in Nepal, bears out the JHU findings. Chart 2: Number of Sub-Health Posts and FCHVs per thousand inhabitants, 75 districts19

0

1

2

3

4

5

6

7

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40

Sub Health Posts

FCH

Vs

The chart shows how, because of lack of support from local sub-health posts and VDCs, areas with most need for FCHVs (those with underperforming health posts) tend to be those where FCHVs are least numerous. Mis-allocation of resources appears to characterise public sector services in general. While shortages of manpower are experienced in remote areas, a recent World Bank study estimated at least 30% under-utilised human resource capacity at the MoH itself.20 Although 56% of the rural population uses district hospitals, PHCCs and health posts, these facilities receive just 3% of public funding to health facilities. The majority of funds instead go to secondary and tertiary hospitals.21 Rural areas account for 85% of the population, but only 51% of total public expenditure on health services.22

19 DHS (2003) 20 WB (2004), quoted in MoH (2004), p.36 21 MoH (2004), p.30 22 MoH (2004), p.44

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• Opening hours Public sector facilities open for shorter hours than their private sector counterparts, and anecdotal evidence suggests staff engaging in dual practice may leave facilities occasionally during the day to tend their for-profit facility. One senior DHS official was confident that sub-health posts are open during their official hours (9am-2pm), but not necessarily with a trained paramedic on duty. Monitoring opening hours is the responsibility of the local District Health Office (DHO), which each sub-health post in a district reports to. So if a particular DHO is relatively inactive (as some are, according to interviews with government officials), there is little incentive for a sub-health post to open at the correct times. • Incentives Public health staff have a fixed pay scale, increasing according to seniority, with no bonuses for exceptional performance. Hardship allowances exist in certain rural areas. One government official compared salaries in Nepal unfavourably with Bhutan (where he claimed paramedics received the equivalent of Rs.16,000/mth, compared to just 4,000 in Nepal). There may be a link between this and the problem of short opening hours and long waiting times. Poor public sector pay combined with dual practice creates an incentive for public sector staff to increase waiting times at their public facility in order to encourage more people to use their for-profit facility. 3. Difficulties With the Status Quo: The Private Sector Private medical facilities (mostly PFP, as per Part One above) face a different set of issues to their public sector counterparts. Problems with staffing, supplies, opening hours, and incentives are generally minimal, due to the profitable nature of the business. The main problems they face are with issues of quality rather than access to care. Quality Some government officials expressed the view that in reality care in the private sector is no better than the public sector - clients just think it is, because service is friendlier and waiting times shorter. Little widespread evidence exists to put this claim to the test. Both the Association of Private Health Institutions of Nepal (APHIN) and the Government agree that some private practitioners are more concerned with money than providing quality care. They are poorly qualified, and exploit patients, either through

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overcharging or "overmedicalisation" (whereby patients are given - and charged for - more treatment than is necessary). However, their estimates of the prevalence of this vary greatly. APHIN suspect 15-20% of private providers fall into this category; several government personnel interviewed suspected it was the majority. There is insufficient evidence to adjudicate. Regulation / monitoring DHOs are charged with monitoring PFP and PNFP as well as government facilities, though little is known about their efficacy at doing this. HMG sets minimum standards, but has insufficient legal authority to enforce them, and few resources with which to monitor activities of private providers. For example, in HIV/AIDS prevention, the National Centre for Aids and STD Control (NCASC) recommends a standard 10 days training before a practitioner can carry out Voluntary Counselling and Testing (VCT). But the only mechanism for enforcing this is a series of talks with the private (mainly PNFP) sector.

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PART TWO - PUBLIC PRIVATE PARTNERSHIPS IN HEALTH Part Two outlines reasons for the necessity of PPPs in Nepal, before analysing HMG's Health Sector Reform (HSR) strategy and making recommendations for future interaction between public and private sectors. 1. Why are PPPs necessary? PPPs are necessary in Nepal for two principal reasons: money, and equity. Effective PPPs would help resolve the government's "funding gap", and correct the inequality in distribution of healthcare (often caused by duplication of services between public and private sectors). a) The Funding Gap HMG's problem is summarised in Table 5 below. Table 5: HMG funding gap, 2004/05 - 2008/0923

5-year EstimateAmount

($m)

Available resources... - High case 856 - Base case 663 - Low case 535

Estimated health sector costs 1,049

Funding gap... - Best case 193 - Base case 386 - Worst case 514

The three different cases assume varying levels of GDP growth, foreign assistance, and share of MoF budget. Together they imply a need for around $200-500m of additional funding over the next 5 years (or $40-$100m annually), if the government is to meet its Millennium Development Goal (MDG) commitments. What can HMG do? The shortfall is unlikely to be met via extra Red Book funding, given the commitment to the IMF to maintain domestic borrowing below 2% of GDP by 2006/07.24 The "Health Sector Programme Support Project" (HSPSP) - a probable new

23 MoH (2004), ps. 38 and 40 24 MoH (2004), p.42

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grant of $86m (in instalments over the next 5 years) from the World Bank and DFID - will only cover around 22% of the base case funding gap. The government is piloting a VDC-level Community Insurance Scheme in 2 areas, but if successful this will generate a relatively low amount over the next 5 years.25 So one of the most promising routes available to the government is in effect to delegate some of the actions necessary to achieve the MDGs to the PFP and PNFP sectors, and hence enable it to achieve more with less. c) Equity Nepal's health system (both public and private) displays 3 types of inequity: practitioners are concentrated in high-income areas; private and public sectors do not complement one another geographically; and cheap services intended for the poor end up going to the rich. This section briefly explores each in turn. • Practitioners are concentrated in high-income areas Chart 3 below illustrates the correlation between the number of doctors per thousand people in each district and monthly per capita income. Chart 3: Number of doctors per thousand people and per capita monthly income by district26

0.00

0.05

0.10

0.15

0.20

0.25

0.30

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000

Monthly per capita income (Rs.)

Doc

tors

per

'000

peo

ple

25 According to interviews with MoH personnel 26 No. of doctors from MacDonagh & Neupane (2003), Annex 3; population from DHS (2003); unofficial per capita income estimates by district provided by Nepal Lever Ltd. (Interview 12.)

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On average, the richest 50% of districts have over four times as many doctors per head as the poorest 50%.27 The reality is likely to be more unequal than these crude district-level figures suggest, as within each district practitioners are concentrated in (richer) urban centres. • Private and public sectors do not complement each other geographically; Instead of the private sector filling in gaps in public provision (or vice-versa), the DHS data in Chart 4 below suggests the activity of one has a very slight positive correlation with the activity of the other. Chart 4: Number of private and public sector treatments per capita, by district28

0.00

0.05

0.10

0.15

0.20

0.25

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20

Public treatments per capita

Priv

ate

treat

men

ts p

er c

apita

This may occur because of the phenomenon of dual practice: if 75% of public sector doctors also practice privately, more public treatments imply more private ones. Whatever the explanation, the result is that some districts receive little of either public or private sector care, whilst others get lots of both. • Free or subsidised services go to people who can pay

27 The 38 richest districts have 0.19 doctors per '000. The 37 poorest have 0.04. 28 DHS (2003)

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The third type of inequity occurs when free or heavily subsidised services needed by the very poor go to people who are able to pay. This occurs in both public, PNFP, and private sectors. In the public sector, the same (subsidised) fees are generally charged to all regardless of income. Similarly, the PNFP sector distributes medical supplies at subsidised prices payable by the poor, but much of it ends up being bought by people who could pay more. In public hospitals, where different charges are typically levied for different levels of service (a private cabin, for instance, will cost more than the paying ward, which in turn will cost more, and have shorter queues than, a free ward), anecdotal evidence suggests that family, friends, or friends-of-friends of hospital staff may end up getting access to a paying ward free, or getting into a free ward without a wait (meaning the less well-connected poor have to wait longer for a bed). A JHU study found that "only a fraction of the population uses the government system each year." The poor often use traditional practitioners or family remedies, or if the problem is severe go into debt to obtain care from the PFP sector. The poorest "just die".29 (Or, in the words of one public sector official interviewed, "if you can't buy you have to die.") A similar problem occurs in PFP hospitals. The government encourages private hospitals to give 10% of their care to the poor, free-of-charge (though definitions of this vary, and it does not appear to be enforced). In fact, private medical staff interviewed estimated that considerably more than 10% is provided either free or at reduced rates, again to patients with personal connections to hospital staff. This is in effect a form of passive discrimination against the poor (assuming friends and family of PFP hospital doctors - some of the best paid people in Nepal - are on the whole richer than average). 2. HMG's Health Sector Reform strategy and its implications for PPPs This section briefly outlines key elements of the HSR strategy, before discussing its implementation. The two relevant documents here are the 5-year HSR Strategy, which runs from 2002/03 - 2006/07, and the 5-year Nepal Health Sector Programme - Implementation Plan, which runs from July 2004 - July 2009. a) The HSR Strategy30

HMG's HSR strategy represents a fundamental change in its approach to healthcare. It proposes replacing the traditional regime of top-down, centralised management and a health budget not sufficiently allocated to the most essential services with 29 JHU (1999) 30 Based on MoH (2002)a

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decentralisation and a focus on essential services for those most in need . The strategy has three key programme outputs: • Essential Health Care Services (EHCS)

A package of 20 EHCS was approved by the Cabinet in September 1999. However, initially focus is on 4 areas: safe motherhood and FP; child health; control of communicable diseases; and strengthened out patient care.31 Full coverage of these services will be aimed at in 15 districts initially over the first 3 years of the programme (2002/03 - 2004/05), before being extended across all 75 districts in years 4 and 5 (current coverage is estimated at around 70%). This will be supported by a national BCC programme. A "sector-wide approach" is promised, meaning that EDP-supported programmes of PNFP organisations will be an integral part of achieving these objectives. In addition, "where appropriate, NGOs and private providers will be contracted to provide the services".

• Decentralisation

Local bodies will be encouraged to manage health facilities in their areas, at VDC and DDC levels. Again, a phased approach will be taken, with all districts covered by the end of 2005/06. The HSR strategy also suggests willingness in certain areas to hand over management of government facilities entirely to the PNFP or PFP sectors: "in remote districts, the NGO / private sector will be invited to submit proposals".32

• Enhanced role of private sector The role of PFP and PNFP organisations will be "recognised and developed with participative representation at all levels." This has four parts:

- Sustainable finance (an increased proportion from the private sector and alternative financing mechanisms, such as social insurance);

- Avoidance of duplication in provision of EHCS (with contracting out where appropriate);

- Ensuring common standards for both private and public sectors; - Working with the private sector on supplies of pharmaceuticals and new

technology.

31 MoH (2002)a, p. 15 32 MoH (2002)a, p.17. This is in part motivated by the political situation. MoH (2004) p.19: "Conflict in some parts of the country could adversely affect service delivery...[district authorities should]...ensure service continuity through the most appropriate means, eg. local NGOs and the private sector."

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b) Implementation of HSR33 The 2002 strategy document is in general more ambitious than the 2004 Implementation Plan (although this may change - only a June 2004 draft copy was available at the time of writing). This section sets out a selection of actions the government plans to take to achieve each of the strategic objectives above, and discusses how effective these are likely to be. • Implementation of Essential Health Care Services (EHCS) Access: The MoH plans to improve access to the poor by introducing "poverty criteria" (yet to be specified) to identify poor clients. They will introduce an "equity based formula" to improve resource allocation to underserved districts. A "safety net" will also be tested for the poor to access services. Drug supplies: The "Community Drug Programme" will be expanded, enabling public facilities to charge for essential drugs (in order to help replenish supplies) except for the very poor. BCC: "Adequate funding" will be given for BCC, using multiple communication channels. "Integration of BCC across all EHCS package" will be achieved. Each of proposal looks effective in theory, but without more detail it is difficult to evaluate the plans. Specifying "poverty criteria", for example, is relatively straightforward. But getting local staff to implement them fairly requires an extensive monitoring system, the need for which is not acknowledged in the Implementation Plan. MoH staff interviewed were not prepared to go into this level of detail, beyond the broad principles set out in the Implementation Plan. It is clear, however, that the 2004 Implementation Plan is less ambitious than the 2002 strategy. Whereas the strategy explicitly committed to contracting out to the private sector to deliver EHCS, in the EHCS section of the Implementation Plan (where one would expect to find more detail on how this is to be done) it is not mentioned.34 The strategy aimed for "full coverage of the essential services at all levels" across all districts within 5 years. The implementation plan target is for "60% of health facilities to provide minimum level of acceptable standards of quality EHCS." (No target for % coverage of the population was provided in the June 2004 draft.) • Implementation of Decentralisation The government's full "Strategy of Decentralisation", promised by July 2004, was not available at the time of writing. However, 2 actions have been identified in MoH (2004): 33 Based on MoH (2004) 34 MoH(2004), pages 9-12

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Local management of sub-health posts: So far, 1,200 VDC-level committees (called "Village Development Health Management Committees", each comprising 8-10 unpaid volunteers) have been appointed in 26 districts to manage sub-health posts.35 Expansion to all districts is planned. Hospital autonomy: Hospital Development Boards have already been set up for all hospitals above district level, as well as for 12 district hospitals. The aim is to expand autonomy further in the future. Autonomy also incorporates encouraging hospitals to charge, and use the income to improve services. Again, it is difficult to evaluate these plans without the next level of detail being available. Autonomy only works in practice where certain conditions are in place. In particular, the people authority is devolved to must have the requisite skills and incentives to carry out their new duties effectively; and the MoH must have the ability to monitor what they are doing. In the case of local VDC management committees, more information is required, including:

- What was the basis of selection? - How will a group of 8 local volunteers acquire the skills needed to oversee

procurement of supplies, monitor staff performance, ensure the rich pay charges and the poor do not, etc.?

- What sticks and carrots exist to ensure that the (unpaid and unelected) management committees perform well?

The soon-to-be-released "Strategy of Decentralisation" may answer these and other questions. In the meantime, the only description research for this paper uncovered relating to the performance to date of local VDC management committees describes "absence of local government at the VDC level, lack of management skills, and problems related to drug supply".36 • Implementation of Contracting out As with EHCS and decentralisation, the 2004 Implementation Plan gives few details on contracting out. This detail is effectively to be determined by a consultation exercise in Year 1 (2004/05), during which "a strategy for partnership with NGOs and the private sector will be developed". Years 2 and 3 will be spent "building capacity in MoH", "enabling the private sector and NGOs to prepare for potential opportunities", and "developing specific modalities of

35 According to interviews with MoH management. 36 Neupane (2004)a, p.17

22

partnership at central and district level".37 In 2007/08 and 2008/09 contracting out will begin to take place, with new public-private service provider agreements. This is a more relaxed timetable than the 2002 HSR strategy specified, when it set a target of full EHCS in 15 districts by 2004/05, involving contracting out to the private sector where appropriate. Attitudes to contracting out amongst government staff interviewed varied. One senior DoHS official said that HMG gives little money to the PNFP sector (except small amounts each year to specialist areas like eye care), and nothing except supplies of drugs / vaccines to the PFP sector, and are not intending to increase this in the future. The only possible additional funding to the private sector would be indirect transfers, for example via tax reductions on medical equipment. An FHD official, by contrast, was happy with the idea of the government paying the private sector - even PFP organisations - to serve rural areas. Simply getting the job done was his main priority. A third official discussed approvingly several examples of the MoH funding the PNFP sector. He said the government provides Rs. 5m per year to Patan hospital (managed by an NGO). A similar arrangement exists with Lamjung hospital. The government pays salaries, but does not manage the staff. In addition, ancillary services for hospitals like cleaning and food services are starting to be contracted out. c) Why is implementation difficult for HMG? Table 6 below summarises selected differences between the 2002 Strategy and the 2004 Implementation Plan, showing how the implementation of the innovative theoretical case for PPPs presented by HMG in its 2002 HSR has been slower than originally intended. Table 6: Summary of differences between HSR Strategy and Implementation Plan38

37 MoH (2004), p.16 38 MoH (2004) and MoH (2002)a

23

Strategy (2002) Implementation Plan (2004)

EHCS

1. Full coverage by 2006/07, supported through contracting out

60% of facilities providing EHCS of acceptable quality by 2009No mention of contracting out

Decentralisation

1. All sub-health posts in local hands by 2006-07. Sub-health posts being delegated to local VDC committees

2. Some services in remote areas contracted to private sector No mention of contracting out

Role of Private Sector

1. Greater share of financing from the private sector 2004/05: Consultation2. No public-private duplication in provision of EHCS by 2006/07, with contracting out where appropriate 2005-2007: Capacity building

3. Co-operation on medical supplies 2007-2009: Service agreements

Why might this be? As discussed above, one of the main reasons for the attraction of PPPs was that they looked like part of a solution to the "funding gap" - a way of achieving the MDGs within HMG's overall "resource envelope". Yet if done properly, the three key outputs of HSR - provision of EHCS through the private sector, decentralisation to local bodies, and contracting out - each involve HMG giving money away to the private sector or local management bodies. This has led to reluctance to pursue reform this far - hence the delay of widespread contracting out until 2007 (at the earliest). This apparent paradox - of giving money away in order to save money - is resolved when the other, more difficult component of contracting out services is fully recognised. Contracting out only saves money when the government stops doing whatever has been contracted out. This invariably involves some organisational upheaval, including laying off (not reassigning) staff. Only then (assuming the contracting organisation is more efficient than the government was) is more output achieved with the same input. This is something not described in the Implementation Plan, but needs to be fully worked out in future government thinking. For every Rupee given to outsourcing partners in exchange for their services, at least one Rupee must be cut from existing government services. The government could also support the private sector indirectly, and expand access to private sector healthcare, via full tax relief for medical equipment and supplies, on condition that a share of the benefits are passed on to consumers in the form of lower prices . This is relatively common in low-income countries. A survey of 22 developing countries revealed that 15 (or 68%) provided some kind of tax relief for health supplies.

24

Of these 15 countries, 13 (87%) did so for public providers, 10 (67%) for PNFP providers, and 8 (53%) for PFP providers.39 3. Recommendations for future PPPs This section makes five specific recommendations to the MoH for the part PPPs could play in the management of Nepal's health facilities. An underlying principle behind most of these recommendations is the need for clear incentives. Ultimately, no amount of consultation sessions or moral encouragement will do much to mobilise the private sector. Both PFP and PNFP actors cannot be expected to do anything that is not very clearly in their best interests. In addition to these actions by HMG, EDPs could lead the way by contracting out work to the PFP sector, either directly or via their traditional PNFP partners. Recommendation 1: Develop a clear, public view of which functions are best carried out by which sectors In the long-term, HMG should specialise in activities where, by virtue of its scale, political power, or other characteristics, it can operate more efficiently than the private sector. These may include:

- Training of staff; - Procurement of land and buildings; - Procurement of medical equipment and supplies; - Standard setting and monitoring.

The PNFP sector might specialise in:

- BCC activities (via Social Marketing organisations); - Specialist clinics for particular conditions (expanding the current eye care

model to other conditions) Areas where the PFP sector might have a comparative advantage include:

- Management of field staff; - Maintenance of buildings and equipment; - Ancillary services; - Distribution of supplies.

A detailed list along the lines of the above needs to be developed by HMG, via consultation with the private sector. It would specify areas of service which the

39 Leighton (1999), p.13. The 22 countries surveyed were: Bolivia, Brazil, Cambodia, Djibouti, Dominican Republic, Eritrea, Ghana, Guatemala, Indonesia, Jordan, Kenya, Madagascar, Malawi, Morocco, Mozambique, Nicaragua, Philippines, Senegal, Tanzania, Uganda, Zambia, and Zimbabwe.

25

government plans specialise in, and areas it will get out of entirely over the next 5 years. The National Health Accounts (due to be published for the first time in September 2004) provide an excellent opportunity to set and monitor high-level targets for the PFP / PNFP / Public sector split within each activity type. This would yield two important benefits. First, it would send a strong market signal to PFP entrepreneurs to develop capabilities in services the government will need. Second, it would focus and channel the government's general desire to collaborate with the private sector into specific areas, showing staff exactly where PPPs should and should not be attempted. Recommendation 2: Contract out management of Sub-Health Posts in 1 or 2 districts to private hospitals on a trial basis Sub-health posts are the backbone of the primary healthcare system in Nepal, and the only health facilities many people in poor rural areas have access to. The local management committees currently being implemented by the government may be the best way to manage them - but other methods may work as well or better. Through trial and error - using different methods in different areas - the government could learn what works best. Representatives of the private medical sector interviewed expressed a strong interest in running this type of service. The government could transfer the existing budget of sub-health posts to a PFP hospital, and monitor services via mystery client testing. It could then reduce the budget by an agreed percentage each year, encouraging the management team to produce efficiency gains. Currently, PHCCs, health posts, and sub-health posts report to the local District Health Office (DHO). Each DHO reports to one of 5 regional directorates, who in turn report to minister of health. The local DHO could therefore be tasked with monitoring the service of the private hospital in charge. Recommendation 3: Partner with private medical colleges to encourage work in rural areas As discussed above, lack of qualified staff is one of the most common complaints among users of rural public sector health services. Yet private hospitals report a surplus of potential recruits, with an increasing number of graduates from private medical colleges.40 The main reason for this is different salary levels. But there is still potential for the government to partner with private medical colleges to provide incentives to work in 40 One manager at Om hospital said they had a waiting list of at least 50 doctors wanting to sign on. A representative of APHIN confirmed that this is the case in most other private hospitals.

26

rural areas. For example, the government could provide a subsidy to partially cover tuition fees for advanced medical training for any newly-graduated junior doctors prepared to spend 6 months or a year working in a rural sub-health post. Without strong performance in this position, they would not receive the subsidy. Recommendation 4: Rigorously enforce access for the poor. But do not set prices. The ability to charge market rates for services is critical to PFP sector involvement. The government should not attempt to interfere with this process. The only way to make this consistent with provision of free services to the very poor is to make it in the contracting partner's interests to do so. This means, once the government's "poverty criteria" mentioned above are agreed, any contractor found (via mystery client monitoring) to be violating them could have its contract terminated immediately. If the government has successfully fostered competition between private providers to run sub-health posts, the threat of termination would be entirely credible. Governments in other parts of the world have used mechanisms like this, paradoxically, to give them greater ability to enforce regulations with the contractor's staff than they ever had with their own. Switching contractors can be easier for a government than summary dismissal of a unionised public sector worker found violating a regulation - meaning workers for private contractors have a stronger incentive to comply. Recommendation 5: Hire people from PFP organisations experienced in managing contractors HMG is right to recognise that significant capacity building is required within the public sector before contracting out of services to the private sector can work properly. However, this might be possible in less than the 2 years specified in the Implementation Plan if employees were hired from the PFP sector with extensive experience of managing contractors.

27

PART THREE: APPLICATIONS TO REPRODUCTIVE HEALTH Part Three applies the principles of the 2002 HSR strategy to the area of Reproductive Health (RH). First, it examines the current provision of Family Planning (FP) and HIV/AIDS prevention services by public, PFP and PNFP organisations. Next, it identifies gaps between this and the HSR principles. Finally, it recommends actions to rectify these gaps. 1. Current provision of RH services by sector As with health services overall, data sources for reproductive health in Nepal are not internally consistent. This section sets out data from three sources, and attempts to triangulate between them to identify areas of agreement. The most recent data available on overall provision of FP and HIV/AIDS services come s from an unpublished June 2004 report by Dr. Ram Neupane. Figures from this are given below. Table 7: Total public and private beneficiaries of FP and HIV/AIDS services in 200341

Service Public Sector Private Sector

Family Planning 1,807,124 1,568,58154% 46%

STD / HIV / AIDS 39,185 248,30714% 86%

The most recent data on public and private provision of particular method types comes from an April 2004 EngenderHealth Nepal study. Results of this are shown in table 8. Table 8: Public and private provision by method type - EngenderHealth figures42

41 Neupane (2004)b, p.26. The author informed me verbally that the columns in this draft document labelled "I/NGOs" include PFP provision. 42 EngenderHealth (2004), p.4

28

Method typeGovernment %

of provision Private Sector % of provision

Norplant 63% 37%

IUCD 68% 33%

Pill 85% 15%

Depo Provera 83% 17%

The 2001 NDHS gives data on more method types, and separates private sector provision into PNFP and PFP. Relevant figures from this are given in Table 9 below: Table 9: Public and private provision by method type, NDHS figures43

Method typeGovernment %

of provision PNFP Sector %

of provisionPFP Sector % of

provision

Female VSC 86% 7% 1%

Male VSC 81% 11% 1%

Condom 46% 4% 46%

Norplant 52% 42% 6%

IUCD 64% 11% 19%

Pill 55% 8% 33%

Depo Provera 86% 5% 8%

All Methods 79% 8% 8%

Conclusions In showing an almost equal split between government and private sector FP services, Dr. Neupane's (draft) 2004 study is out of line with previous data (all other sources suggest a system heavily dominated by government provision). It is not possible to say with certainty at this point whether Dr. Neupane's study has indeed picked up on a recent

43 NDHS (2001), p.86. "Other source" includes shops, and is assumed to be PFP. So PFP provision is the sum of "private medical sector" and "other source".

29

expansion of the private sector, or has been distorted by flaws in HMIS data (on which it is partially based). The other two data sources above give an approximate idea of which sectors dominate provision of each method. Chart 5 below gives an overview of this information. Chart 5: Summary of provision of each method by sector44 = Major provider = Minor provider = Minimal provider The government is a major provider of all methods - it fact it seems to dominate provision of contraceptive methods to a greater degree than it does medical services overall. The PFP sector specialises in methods requiring the least trained medical care. (IUCD is the exception to this. It has the lowest level of overall use, and a higher proportion of urban acceptors than any other method45. Many wealthier women apparently have IUCDs inserted in private urban clinics.) PNFP provision tends to be long-term methods requiring a trained practitioner. Family Health Division (FHD) officials interviewed all agreed that the government was currently the dominant provider of all methods, though they expected private provision to expand fast. One said he would not be surprised if private provision expanded to 50% or more in future. However, the FHD has no official target for this. 2. Divergence between the status quo and HSR principles This section examines how the current provision of RH services diverges from the two key principles set out in the 2002 HSR strategy: decentralisation, and an increased role for the private sector. It then takes a more detailed look at HMG's HIV/AIDS strategy, and its consistency with HSR. a) Decentralisation

44 Estimates based on tables above 45 EngenderHealth (2004), p.4

PFP

PNFP

Public

DepoPillIUCDNorplantCondomsVSCProvider

PFP

PNFP

Public

DepoPillIUCDNorplantCondomsVSCProvider

30

Decentralisation is of critical importance in RH. Method mix and reasons for non-use differ widely at district level.46 Programmes therefore need to be designed from the "bottom up", taking into account local conditions. This is not yet occurring with government services. The central level MoH budget for FP and HIV/AIDS in 2004/05 is $3.8m.47 No budget has been specifically allocated to these areas at district level. District level funds should instead come from the "Integrated District Health Program", though the amount allocated to FP and HIV/AIDS via this is not clear. Overall, 93% of the MoH 2004/05 budget is allocated to the central level. For example, pricing of government contraceptive products at the moment is determined centrally. Most government products are free, with a nominal fee being paid for registration at the facility. Public sector VSC providers give a (centrally determined) financial incentive to all clients. This leads to a system which does not maximise either welfare or revenue. Welfare is not maximised because there are often insufficient free supplies left - particularly at rural sub-health posts - for the people who can least afford them. Revenue is not maximised because many segments of the market are willing to pay for contraceptives. When asked to pick a price that "most people can afford", 52% of 20-24 year olds surveyed in a study for PSI picked a price of Rs.5 or above for a 3-pack of condoms.48 A 1999 study for FPAN found average willingness to pay of Rs. 25 per shot of injectable contraceptive, and Rs. 79 for STD care.49 FPAN is imposing a "service charge" for condoms on a trial basis in 12 districts from January 2005 in response to widespread misuse of free products. The government is apparently considering charging through vending machines.50 Officials I spoke to said public sector charges would be introduced eventually, but were unlikely within the next 12 months. b) Increased role of private sector HMG is committed to increasing the role of the private sector in RH through both HSR and the 1994 International Conference on Population and Development (IPCD) in Cairo, to which it is a signatory. The Declaration agreed in Cairo states that "provision of reproductive health-care services should not be confined to the public sector but should involve the private sector and non-governmental organisations ... and include, where appropriate, effective strategies for cost recovery."51 The objectives include:52 46 See PSI (2003)a 47 MoF (2004)a, Report 16, page 6-62 48 PSI (2003)b, p.8 49 Prasai (1999) 50 "Condoms no longer to be doled out as freebies", Kathmandu Post, 10 July 2004, p.1 51 ICPD (1994), clause 7.26 52 ICPD (1994), clauses 15.16, 15.17, 15.18, 15.19, and 15.20

31

• Mechanisms to exchange ideas between NGOs and governments; • Governments removing barriers to private sector involvement; • Financial and other assistance from PFP sector to NGOs; • Employers ensuring employees' needs for RH services are met.

Yet Nepal's current RH system is characterised by lack of co-operation between public and private sectors, and few functioning PPPs. Lack of co-operation Part of HMG's role in RH is to set guidelines and ensure they are adhered to by both public and private sectors. For public sector facilities, the Quality of Care Management Unit within the FHD (supported by USAID) is trained to provide technical support at facility level. It employs 5 people to prepare guidelines and make supervisory field visits. The Unit focuses on 27 USAID-supported districts. However, monitoring of private sector facilities is a problem, as PSSN - the body tasked with monitoring private sector services - is apparently no longer functioning. The result can be lack of knowledge among private providers regarding what the government rules are. For example, government programme guidelines (according to FHD staff) state that oral contraceptives are only allowed to be sold by trained practitioners in drug stores, not by general stores ("paan shops") lacking medically trained staff. Yet many private sector providers are not aware of this particular restriction. More frequent communication between different sectors could resolve issues such as this. Lack of communication is particularly serious between the government and PFP sectors. One example is the consultation exercise conducted in preparation of the National HIV/AIDS Strategy (2002-2006). Of 283 organisations listed, only a handful were from the PFP sector (mainly media organisations).53 Few functioning PPPs PPPs do exist in RH in Nepal. The FHD claims to be offering a full range of FP services via co-operation at district level with MSI. These currently operate in 25 locations, and 30 more are planned. The EU and UNFPA have formed partnerships with local VDCs and community-based organisations to deliver RH services (including 20,295 outreach clinics between 1999 and 2002).54 However, there is still some uncertainty surrounding them at central government level. One official interviewed said "specifically for FP, the government is not supporting the private sector [and has no plans to expand its role]." Officials were particularly sceptical

53 NCASC (2003)a 54 UNFPA (2003)

32

about the willingness of both PFP and PNFP organisations to provide services in remote rural areas.

An official interviewed at the NCASC had a more limited conception of PPPs. Examples quoted to date included using private companies to make t-shirts for the December 1 World AIDS Day, partnering with companies to make branded key-rings for condom promotion, and food provided by the PFP sector at condom promotion events (as Chaudhary Group recently did). Plans for the future role of the PFP sector included private companies donating food for truck drivers at educational events, and encouraging companies to put stickers on trucks with safe-sex messages. There is a divergence between the limited practice and conception of PPPs to date in RH services, and the HSR vision of actual services (not ancillary functions like food or cleaning) being contracted out to PFP and PNFP organisations. c) Consistency between HIV/AIDS Strategy and HSR HMGs core statement of current HIV/AIDS prevention strategy is given by the National Centre for AIDs and STD Control (NCASC) in its National Strategy for HIV/AIDS Control (2002-06)55. The means for translating this into action are specified in the National Operational Plan for HIV/AIDS Control (2003-07).56 Although "multi-sectoral engagement" was the first of 8 "Guidelines and Principles" underlying the National Strategy, none of the 12 consultation sessions held in early 2003 to develop the Operation Plan involved either the PFP or PNFP sectors.57 The Strategy sets a clear high-level objective: to have reversed the spread of HIV by 2015. The Operational Plan groups the means of achieving this into six areas. In descending order of cost, these are:58

• Targeted prevention (primarily BCI aimed at high risk groups) - 66% of proposed 2003-07 budget;

• Care and support - 22%; • Management - 6%; • Nationwide mass-communication - 3%; • Surveillance and Research - 2%; • Policy, legislation and advocacy - 0.5%.

For each high-level activity area, detailed sub-activity and cost breakdowns are given, together with a list of potential partners.59

55 NCASC (2003)a 56 NCASC (2003)b 57 NCASC (2003)b, ps.4-5 58 NCASC (2003)b, p. 18 59 The activities incorporate interventions proposed by the Global Fund to Fight AIDS, TB and Malaria

33

The extensive list of potential partners in the Operational Plan illustrates the limited application to date of the government's high-level HSR objectives. The majority of the specific organisations identified are different branches of the government itself.60 Potential PNFP partners are referred to frequently, but in general terms (as NGOs, INGOs, or Social Marketing). Few specific organisations are mentioned. PFP organisations are mentioned once (using the ambiguous term "private sector").61 The impression given is that little is known about the precise capabilities of PNFP and PFP organisations. The Implementation Plan referred to in the Operational Plan - urgently needed to specify precisely which of HMG's partner organisations will be responsible for each activity - has yet to be agreed. The need effectively to mobilise additional resources from PFP and PNFP organisations is so urgent because funding for the Plan is behind schedule. Table 10 below illustrates the shortfall between the HIV/AIDS funding requirements for fiscal year 2004/05 (which "can be viewed as a minimum estimate of the resources required to meet the programme objectives"62) and actual funds committed from HMG and foreign donors (in this case the WHO and the Global Fund). The gap between these is the amount required from the private sector. Table 10: HIV/AIDs funding required from partnerships, 2004-0563

Funding requirements and sources2004-05

($m)

NCASC requirement 16.6

MoH HIV/AIDS funding from HMG 0.1MoH funding from WHO 0.3

MoH funding from Global Fund 1.9Total MoH HIV/AIDS Funding 2.2

Shortfall (required from PPPs) 14.7

So some 86% of spending over the current fiscal year will have to come from outside the "Red Book" through PNFP and PFP organisations. It is not clear how much of this $14.7m shortfall will actually be forthcoming. This illustrates the importance of giving the private sector sufficient incentives to increase its involvement, if Nepal's HIV/AIDS objectives are to be met.

60 NCASC (2003)b, ps. 19-25. Government organisations mentioned include MoHA; MoH; MoD; MoLD; MoPE; MoLT; MoICS; MoES; MoWCSW; VDCs; and Municipalities. 61 NCASC (2003)b, p. 21. 62 NCASC (2003)b, p.1 63 MoF (2004)a, Report 16, pages 6-60 and 6-62; MoF (2004)b, Report 72, p.49; NCASC (2003)b, p.18. An average of the NCASC's 2004 and 2005 estimates has been taken for comparison with the MoF's "fiscal year 04/05" figures.

34

3. Recommendations Five recommendations are provided below which together will help bridge the gap between the status quo and the HSR vision. This is intended as a starting point, and by no means an exhaustive list. Recommendation 1: HMG should specify precisely which parts of its budget for RH it intends to contract out to Social Marketing and other private sector organisations For example, the National Health Education, Information and Communication Service and the National Health Education, Information and Communication Centre collectively have a budget of $0.9m in 2004/05.64 The MoH should, on a trial basis, see if more output can be achieved with this money by channelling it through organisations in the Social Marketing sector, which specialise in precisely this type of intervention. Recommendation 2: HMG should use resources saved via contracting out of RH services to develop its capacity in mystery client monitoring Having specified what it will do less of, HMG will free up resources to expand its capacity in areas it chooses to specialise in. One of these areas is enforcing minimum standards in the private sector. "Mystery client" monitoring is one of the most effective ways of doing this. This needs to become a core competence of HMG as private sector RH services expand. An annual nationwide report providing the results of these surveys would foster healthy competition among providers. Recommendation 3: PNFP social marketing organisations should lead the way in contracting out to the PFP sector PNFP social marketing organisations can prove to HMG that contracting out works in practice by partnering with the PFP sector to distribute supplies, and with PFP pharmacies to serve clients (via "social franchising"). Specific contractual mechanisms developed in doing this (eg. fixed-price rather than cost-reimbursible contracts, to give PFP partners a clear financial incentive to minimise costs and over-deliver) could then be replicated by HMG when contracting out itself. Personnel involved in the contracting out process for PNFPs could be seconded to HMG to speed up the public sector capacity building process. Recommendation 4: EDPs assisting HMG in procurement of contraceptive supplies should increase pressure to contract out RH services 64 MoF (2004)a, Report 16, pages 6-63 and 6-65

35

EDPs could insist on contracting out of distribution to the PFP or PNFP social marketing sectors as a condition of funding commodity supplies. This would initially be done on an experimental basis, to compare the efficiency of different sectors. Recommendation 5: HMG and PNFP organisations should focus resources for contraceptive distribution on rural areas, allowing the PFP sector to serve urban communities Unmet need for contraception is significantly higher in rural than in urban areas.65 The revenue sacrificed in providing subsidised product to urban areas is also greater, as ability to pay is higher. HMG and PNFP organisations should therefore focus distribution of subsidised products on rural areas. 65 See PSI (2003)a

36

Printed Sources BUCEN-IDB (2002) - International Database; United States Census Bureau (BUCEN), International Programs Center, December 2002. DHS (2003) - Annual Report 2001/2002; HMG Nepal, 2003 EC/UNFPA (2002) - Reproductive Health Atlas: A Presentation of Selected RH Indicators 1998-2002; EC/UNFPA Reproductive Health Initiative, 2002 EngenderHealth (2004) - Contraceptive Use Patterns in Nepal: Norplant, IUCD, Oral Pill, and Injectables; EngenderHealth, Nepal, prepared by Dr. Ann Blanc, April 2004. Hanson & Berman (1997) - Private Health Care Provision in Developing Countries: A preliminary analysis of levels and composition; Kara Hanson and Peter Berman, Data for Decision Making Project, Harvard School of Public Health, Boston, assumed from footnote references to be 1997 ICPD (1994) - Programme of Action; Adopted at the International Conference on Population and Development, Cairo, 5-13 September 1994. JHU (1999) - Health Equity in Nepal: A Half-Century of Health Development in the Kali Gandaki Valley, Western Region; John Hopkins University School of Hygene and Public Health, 1999 Leighton (1999) - Health Sector Reform and Priority Health Services; Charlotte Leighton, ed., Partnerships for Health Reform Project, Abt Associates Inc., Bethesda, Maryland. Summer/Fall 1999. MacDonagh & Neupane (2003) - Private For Profit Maternity Services, Nepal Case Study; Sponsored by Options, DFID, Kings College London, DHS, and FHD. 12 December 2003. MoF (2004)a - Estimates of Expenditure for Fiscal Year 2004/05; HMG Ministry of Finance, 2004 MoF (2004)b - Source Book for Projects Financed With Foreign Assistance, Fiscal Year 2004/05; HMG Ministry of Finance, July 2004 MoF (2004)c - Information on INGOs Working in Nepal, Fiscal Year 2004/05; HMG Ministry of Finance, 2004 MoH (2002)a - Health Sector Strategy: An Agenda for Reform; His Majesty's Government, Ministry of Health, August 2002

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MoH (2002)b - Health Information in Brief; His Majesty's Government, Ministry of Health, 2002 MoH (2004) - Nepal Health Sector Programme - Implementation Plan, 2004-2009; His Majesty's Government, Ministry of Health, June 2004 (draft copy, apparently "95% final"). NCASC (2003)a - National Strategy for HIV/AIDS Control, 2002-2006; Ministry of Health, National Centre for AIDS and STD Control, January 2003. NCASC (2003)b - National Operation Plan for HIV/AIDS Control, 2003-2007; Ministry of Health, National Centre for AIDS and STD Control, July 2003. NDHS (2001) - Nepal Demographic & Health Survey; Prepared by FHD, New ERA, and ORC Macro, April 2002 Neupane (2004)a - Public Private Partnership in Health: Concepts and Strategic Framework; Prepared by Ram K. Neupane, Centre for Development and Management Studies, Kathmandu. Submitted to JICA and MoH, March 2004 Neupane (2004)b - Nepal: INGOs and NGOs in Health; unpublished working paper, submitted to MoH, June 2004. Prasai (1999) - Willingness and Ability to Pay for Selected Reproductive Health Care Services; By D.P. Prasai, FPAN Journal of Reproductive Health Vol. 1, No. 2:43-48, December 1999 PSI (2003)a - The Market for Family Planning in Nepal; Prepared for PSI by Adrian Blair, July 2003 PSI (2003)b - Price Range Preference Testing of Male Condom; Prepared for PSI by Solutions Consultant Pvt. Ltd., February 2003 Samanata (2001) - Study on Understanding the Access, Demand and Utilization of Health Service by Rural Women in Nepal and their Constraints; Submitted to the World Bank by Samanata, Institute for Social and Gender Equality, 16 June, 2001. UNDP (2003) - Human Development Report; United Nations Development Programme, 2003 UNFPA (2003) - Learning from RHI Partnerships, 1998-2002; Edited by Caroline Jane Kent WB (2004) - Costing of the Nepal Health Sector Program Implementation Plan with Unit Cost of Essential Health Care Services; World Bank, February 2004.

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Interviews His Majesty's Government 1. Dr. Mishra, Director of National Centre for Aids and STD Control. 19 July, 2004 2. Mr. Tek B. Dangi - Senior Public Health Administrator, Family Health Division,

Department of Health Services. 21 July, 2004 3. Dr. Babu Ram Marasini, Coordinator of Health Sector Reform, Ministry of Health.

23 July, 2004 4. Dr. Chataut - Director General, Department of Health Services. 28 July, 2004 5. Dr. Chand - Director, Family Health Division - 28 July 2004 Bilateral Donors 6. Jesse Brandt, Technical Advisor, Population Leadership Programme, USAID (and

others). 26 July, 2004 7. Susan Clapham - Health Services Specialist, DFID. 3 August, 2004 PNFP Sector 8. Rajeeb Lal Satyal, Managing Director, Social Marketing and Distribution. 19 July,

2004 9. Deepak Pyakvryal - Programme Director, Social Marketing and Distribution. 19

July, 2004 10. Shanker Pandey, Managing Director, Contraceptive Retail Sales Company. 20 July,

2004 PFP Companies with Extensive Rural Distribution 11. Rabindra M. Shrestha - CEO, Himalayan Snax & Noodles Pvt. Ltd. 21 July, 2004 12. R. Venkatesh Babu - National Sales Manager, Nepal Lever Ltd. 21 July, 2004. 13. Manoj Mishra - Head of Marketing, Pepsi Nepal. 27 July, 2004

39

14. Dinesh Singh - Head of Marketing, Bottlers Nepal (Nepal subsidiary of The Coca Cola Company). 28 July, 2004

PFP Health Sector 15. Dr. Ram Neupane - Consultant to HMG and others on PFP sector, Centre for

Development and Management Studies. 3 August, 2004 16. Dr. Hari Kishor Shrestha - Managing Director, Om Hospital & Research Centre (P.)

Ltd. 9 August, 2004 17. Bishnu Subedi - Hon. Secretary General, Association of Private Heatlh Institutions

(APHIN). 9 August, 2004 18. Krishna Pradhan - Director (Administration), Om Hospital & Research Centre (P.)

Ltd. 9 August, 2004