December 7th 2005 Meeting Summary

PSP-One held the second Network Exchange on "Contracting to achieve scale for private provider networks" on December 7th. Network implementers, donors and government representatives from five countries joined us via telephone for a lively discussion on Nicaragua's experience contracting with private health providers. Jamie Fuentes from the National Social Security Institute (INSS) offered a first-hand perspective on their model in Nicaragua and shared key lessons learned.

I) Contracting-Out Paper

Taara Chandani shared highlights on the draft PSP-One paper entitled “Contracting-out Reproductive Health and Family Planning Services: A Primer for Contracting Management and Operation”

Government contracting with private health providers is becoming increasingly popular as it is based on the premise that the efficiency, quality and cost-effectiveness of service delivery can be improved through clearly defined, performance-based contracts.

Key considerations to keep in mind when managing a contract include:

• Transaction costs need to be considered at the start. The cost of M&E, contract management, enforcement, etc, need to be taken into account at the initial costing and decision phase to contract out.

• Competition should be used as much as possible to reduce costs and improve performance. Policies to favor private sector participation may be called for, such as relaxing regulations so more providers enter the market or extending the size of government contracts to larger populations to attract more competition

• Make use of economic incentives: It is important to define and set targets against provider performance and to monitor against and base payment on these.

• Assure contract management capacity: Contracting out entails an important shift in the role of government that calls for an ideological transformation as well as capacity building to support these functions.

• Maintain constant cooperation and partnership: Collaboration and coordination between purchasers and providers is fundamental to prevent disputes, and ensure that expectations and issues are mutually shared.

II) Banking on Health in Nicaragua

Barbara Magnoni offered background on the role of Banking on Health (BoH) in providing technical assistance to the INSS (National Social Security Institute) and to private health clinics, known as EMP’s (Empresas Medicas Previsionales). In particular, BoH:

• Offers training to the private providers (EMPs) on how to access loans/credit and manage their FP services within a capitated scheme

• Has facilitated USAID’s Development Credit Authority (DCA) loan guarantee to two banks that on-lend to health providers.

III) The INSS Contracting-Out experience in Nicaragua

Jaime Fuentes from the INSS offered an overview of Nicaragua’s experience contracting with private health providers. (An abstract of the INSS case is available on the Network Exchange web portal--http://psp-one.forumone.com). Below are highlights from the Q&A session:

a) What are the certification requirements for providers?
Requirements are largely legal (legally standing, paid taxes, etc) and physical (building codes, equipment). In terms of their capacity, clinics also have to have sufficient human resources.

b) What is the plan to scale-up coverage to include the informal sector?
Currently, informal sector workers are supposed to be covered by MOH facilities. However, the INSS is looking into ways to expand coverage to those outside the formal sector.

c) Did contracting positively affect the financial sector (i.e. increase access to loans for private providers)?
Yes. In the past few months alone, $2 million in loans have been disbursed to the private health sector. Banking on Health played a specific role in facilitating lending to health care providers. Meetings between bankers and EMPs helped to educate bankers about health care businesses, and on the connection between increased quality and profitability. The high profile of INSS was another factor that facilitated lending by banks.

d) What insurance model did the INSS adapt?
Nicaragua drew from the Chilean model (which is also similar to the German health coverage plan). Key features include: no co-payments, full drug coverage, and a standard package of covered benefits, regardless of salary.

e) Are dependents covered?
Yes, spouse is covered (for maternity benefits) and children covered up to age 12.

f) What are revenue sources of the plan?
Formal sector workers contribute 6.25% of their salaries to the integral health regimen, and employers contribute 15%; government contributions account for approximately .25% although this is not always made. The plan covers retirement, health and professional risk. The real income for the health insurance branch is 8.25% (taken from the total of 21.5%) of which 6% is from the employer, 2.25% by the employee, and the theoretical 0.25% by the government.

g) Are there any differences in their contracts with public vs. private providers?
No differences. The INSS is moving towards ‘performance-based’ contracts that tie payments to achieving specific results. They plan to implement these next year.

h) What is the motivation for private providers to enter into INSS contracts?
Providers are able to expand their market through the INSS contract. Many EMPs have grown considerably as a result of their contracts.

j) What are key lessons learned from the INSS experience?

• The certification process of EMP’s is very important. The INSS only initiated this in 2002, and should have implemented it from the very beginning.

• Allowing affiliates (subscribers) the ability to choose their EMP’s is necessary for a competitive provider market.

• It is important to build in incentives that encourage preventive service provision. In performance-based contracting, the capitation payment can be tied to meeting specified service indicators.

IV) Next Steps

• New members from Benin, Nicaragua, Uganda will be added to the listserv

• We encourage you to use the Network Exchange listserv to pose questions or offer advice to your colleagues from around the globe.

• The next Network Exchange will be held in early March 2006. We will solicit your input on topics of interest, and then identify a case study and presenter to share field-perspective.

List of Participants

Meeting Summary