Executive Summary MANAGING TRANSITIONS Reaching the Vulnerable while Pursuing Universal Health Coverage MANAGING TRANSITIONS Reaching the Vulnerable while Pursuing UHC As Lao PDR prepares to graduate from Least As Lao PDR prepares to Developed Country (LDC) status by 2020 to become an upper-middle-income country graduate from Least Devel- by 2030, it also expects to face declining oped Country (LDC) status by funding from external sources and the need 2020, it also expects to face to increase domestic financing for health. This report aims to provide a snapshot of declining funding from exter- the current health financing system of Lao nal sources. PDR and to identify critical constraints and opportunities facing the health care sys- an in-depth analysis of key bottlenecks and tem as the country undergoes transitions in sustainability challenges for immunization demographics, epidemiology and health services as a marker for implementation financing. In addition to reviewing the overall constraints in the face of rapidly reducing health financing system, the report includes external financing. 1 Lao PDR in Transition Demographic and Epidemiological Transitions In 2015, the estimated population of tality rates as well as stunting of children Lao PDR was around 6.5 million with an under five years are four to five times higher expected peak at 9.3 million around 2060. in the provinces with the highest rates com- The population growth rate was 1.7 percent pared to the province with the lowest rate. in 2015. The total fertility rate has steadily Residents of rural areas without access to declined from 6.4 births per woman in 1984 roads are particularly disadvantaged and to 3.0 in 2014 and is expected to decline fur- depend to a large degree on outreach ser- ther in coming years. The country still has vices for both preventive and basic curative a predominantly young population, with the care. median age at 23.5 years in 2015; however the country’s demographic composition is As in several other countries in the region, expected to change by 2050. Roughly one- the health system in Lao PDR is facing an third of the population was under 15 years epidemiological transition, from the burden in 2015; this is projected to decrease to of disease (BoD) being dominated by com- around 20.1 percent by 2050. Only around municable diseases to a pattern in which 4 percent of the population is older than 65 noncommunicable diseases (NCDs) have years but the share is projected to reach 11 taken a leading role (Figure 1). In 1990, 69 percent by 2050. percent of BoD was caused by communica- ble diseases, maternal and neonatal disor- Despite improvements in national averag- ders, and nutritional deficiencies, and only es, there are persistent and high disparities 24 percent by NCDs. In the following years in health outcomes across socioeconomic the share of NCDs in BoD increased steadily groups, by ethnicity, provinces, and edu- while the share of communicable diseases cational level of mothers, and not all popu- diminished, and by 2016 the proportion of lation groups are benefitting from these NCDs (47 percent) had surpassed that of improvements. Infant and under-five mor- communicable diseases (43 percent). Figure 1: BoD by Cause (Share of DALYs Lost) (1990–2016) Communicable, maternal, neonatal, and nutritional diseases Noncommunicable diseases Injuries Source: Institute for Health Metrics and Evaluation database (IHME) 2017. Note: DALYs: Disability-adjusted Life Years. DALYs refer to aggregated healthy years of time lost at the population level as a result of disease-related morbidity and premature mortality. 2 Undernutrition remains a significant chal- Lao PDR’s health system is clearly follow- lenge. In 2011, more than one-quarter of ing this path and is undergoing a health children aged under five years (26.6 per- financing transition. Despite the fact that cent) in Lao PDR were underweight and some indicators fluctuate widely, there is more than 44 percent were stunted. About some evidence of an appropriate, albeit one-third of the deaths of children under slow, health financing transition that is five years are attributed to child malnutri- taking place in Lao PDR. There has been a tion. The total economic loss due to child consistent increase in health expenditure malnutrition was estimated to be at least per capita, a decrease in out-of-pocket US$200 million annually, representing 2.4 (OOP) expenditure on health as a share of percent of the country’s GDP in 2013. total health expenditure (THE), and a rising share of financing from pooled sources. As Health Financing Transition the country’s economy is projected to grow rapidly with the expected decline of exter- Sustained economic growth is often nal financing, this transition is expected to accompanied by significant changes in figure more prominently in coming years health financing systems in many coun- (Figure 2). tries. In parallel to the demographic, epide- miological, and nutrition-related transitions Figure 2: Health Financing Transition faced by countries as they grow and devel- in Lao PDR op, countries face what some have called a “health financing transition” or an increase in the level of total health expenditures accompanied by a rise in the domestically- financed prepaid or pooled share of total health expenditure. This trend is driven by a range of factors including changes in popu- lation priorities, institutional development, medical technology, demographic or epide- miological shifts, as well as changes in the financing and management of health care. Source: World Bank 2017; WHO 2017. Note: Data for Lao PDR is based on the NHA FY2012-2013 to In addition to the broader health financing 2015-2016, Vientiane 2017. (i) Both x and y axes in log scale. transition, there is also an important sub- (ii) THEPC = THE per capita; EXT= External. transition that occurs as countries move from low-income to lower- and upper- mid- Lao PDR has entered the accelerated tran- dle-income status, that is, the transition sition phase (as defined by Gavi)1 and has from externally-financed health programs. begun the process of phasing out from Gavi These are programs that are financed by support, as their GNI per capita on aver- bilateral and multilateral agencies as well age over the previous three years increased as from development partners such as Gavi beyond the eligibility threshold. A plan has (Global Alliance for Vaccines and Immuniza- been prepared for moving towards full tion, now known as Gavi, The Vaccine Alli- domestic financing of the immunization ance) and Global Fund (GF). program. It is highly likely that both UNICEF 1 Countries enter the accelerated transition phase if their average GNI per capita over the previous three years increases beyond the eligibility threshold. The accelerated transition phase is characterized by grad- ually increasing co-financing requirements over a period of five years to achieve full domestic financing thereafter. 3 and WHO will also substantially reduce Lao PDR has entered the their technical assistance to the immuni- zation program – as an important part of accelerated transition phase their support is financed by Gavi. The Gavi (as defined by Gavi) and has transition is among the earliest ones being begun the process of phasing witnessed by the country, but will also help generate lessons for similar transitions that out from Gavi support. may affect programs funded by other devel- opment partners in due course. Current Status Macroeconomic Context During the period 2005-15 Lao PDR had resource sector and by accommodative one of the fastest growing economies in macroeconomic policies on both the fiscal the world – with an average GDP growth and monetary fronts. Natural resources – rate of 7.8 percent per annum and GDP including mining, hydropower and forestry per capita growth rate of 6.1 percent per (accounting for 44 percent of total wealth annum. Growth has been boosted by the in 2014) – have been key drivers of growth 4 in recent years. During the 2000s, growth evidence that growth should be shared more was driven by mining; but a decline in prices, equitably. lower grade reserves, and sector regulation issues have more recently lowered its con- While government expenditures generally tribution to growth. followed increasing revenues until 2012, the gap has begun to widen since then and By 2011 the country had reached the sta- there are indications that this further de- tus of a lower-middle-income country. GNI teriorated in fiscal 2016 due to a shortfall per capita and GDP per capita have con- of revenues. The shortfall is largely attrib- tinued to increase and reached US$2,353 uted to lower commodity prices as well as and US$2,150 respectively in 2016. Strong lower grants from development partners. economic growth has been accompanied by Grants declined from 5.4 percent of GDP in a significant decline in poverty rates. The 2014 to 2.3 percent in 2015. As a result, to- national poverty rate declined from 33.5 tal revenues as a ratio of GDP are estimated percent in 2002 to 23.2 percent in 2012. to have declined to 19 percent in fiscal 2016 In 2012 about 47 percent of the population from 23 percent of GDP in fiscal 2015 and lived on less than US$3.10 a day and about the fiscal deficit has widened. 15 percent on under US$1.90 a day. Shar- ing of the benefit of growth could, however, Outstanding public debt at the end of 2015 be improved. Despite the decline in extreme was almost 66 percent of GDP which is poverty defined as less than US$1.90 a relatively high compared to regional neigh- day, the increasing poverty of some of the bors such as Cambodia and Myanmar and nonLao-Tai ethnic groups and rising income is, in fact, higher than the European Union inequality are increasing concerns with the Maastricht Treaty benchmark of 60 per- 5 cent of GDP. As a consequence, the 2016 health-financing system. Estimates from Joint IMF-World Bank Debt Sustainability the Lao Social Indicators Survey of 2012 Analysis (DSA) has elevated the risk of debt show that the total fertility rate among the distress in Lao PDR from moderate to high. Lao-Tai in 2012 was around 2.6, compared The fiscal balance, however, is expected with 4.2 and 5.5 among the Mon-Khmer and to gradually consolidate over the medium Hmong-Mien, respectively. In general, the term. fertility rate is highest among less educat- ed women, who are much more likely to be Inequity married and have their first child while out of school teenagers. The progress in achieving health outcomes in Lao PDR varies hugely by province. In Service Availability and Readiness 2011-12, for example, infant mortality and under-five mortality rates were four to five While the overall health worker to popula- times higher in the provinces with the high- tion ratio is within WHO minimum stand- est rates compared to the province with the ards, the rate of qualified health person- lowest rates. Rates of stunting of children nel (doctor, nurse, midwife) is below this aged under five years were more than three benchmark. Compared to the WHO 2006 times higher in the provinces with the high- minimum requirement of 23 physicians, est rates than in the province with the low- nurses and midwives per 10,000 popula- est rates. The problem is even more chal- tion, Lao PDR had reached 32 staff per lenging for the residents of remote rural 10,000 population by 2016. Of these, how- areas without access to roads, that depend ever, only 43 percent have a mid-level edu- to a large degree on outreach services for cation, bringing the professional workforce both preventive and basic curative care. down to 12.3 professionally trained staff per 10,000 population. A 2014 study also There are also huge disparities by eco- found substantial gaps in the clinical abili- nomic status – with the share of institu- ties of the frontline workers related to MDG tional births ranging from 87 percent in the achievements – indicating that provision of wealthiest quintile to only 11 percent in the a basic package of services may be less than poorest quintile. Lao PDR is grappling with optimal unless major investments are made the difficult challenge of being one of the in preparation of job-descriptions, defining world’s least equitable countries with re- functional responsibilities, preparation of gard to coverage and outcomes of MCH ser- job-aides and supportive supervision. vices between the rich and the poor. Shortage of qualified manpower is further Notably, the ethnic minorities lag behind compounded by an uneven distribution of the Lao-Tai ethnic majority in several di- health workers across provinces. The den- mensions of welfare including health, with sity of doctors to population in Vientiane is the poor among ethnic minorities being four times that of the rural areas. Similar worse off than the poor among the Lao-Tai, but less pronounced differences exist for and the better off among ethnic minorities high-level nurses and midwives. A World still being poorer than the nonpoor Lao-Tai. Bank (2016) workforce study conducted in High levels of OOP spending deter health 2014 found maldistribution of staff (by ge- service utilization by the poor and reduce ography, level and type), substantial gaps the potential redistributive capacity of the in clinical knowledge, and a mismatch be- 6 tween the type of in-service training pro- task of aligning the skills and competencies vided and the knowledge needed to perform of staff with the health services where and the service required. when they are needed. The Health Personnel Development Strate- According to the findings from the 2014 gy does include measures to address human Service Availability and Readiness Assess- resource management; while the 2015 mid- ment (SARA), the overall general service term review found some progress in its im- readiness index for Lao PDR was 59 per- plementation, an agreed action plan for im- cent in 2014 – meaning that, on average, 59 plementation of the strategy with reporting percent of facilities had the required tracer mechanism would facilitate achievement of items and amenities to provide basic health the agreed targets and goals. Since 2014 a services to the population. Service readi- large number of newly graduated communi- ness was generally found to be higher in the ty midwives have been posted at the front- Central Region than in the North or South line health centers thereby substantially Regions and slightly higher for district hos- improving the availability of MCH service pitals than for health centers. provision. There however remains the huge 7 Health Financing Health financing in Lao PDR is characterized by low and Health financing in Lao PDR is character- ized by low and erratic levels of government erratic levels of government spending on health and correspondingly spending on health and cor- high reliance on OOP health expenditure and external assistance for health. The respondingly high reliance on high levels of OOP spending deter health OOP and external assistance service utilization by the poor and reduce for health. the potential redistributive capacity of the health financing system. Furthermore, the holds; and (iv) external sources. The coun- poor and the near poor are frequently im- try spent US$ 50 per capita, or about 2.9 poverished or pushed deeper into poverty percent of GDP, in 2014. The composition as a result of high OOP spending on health. of health expenditures has changed over At the same time, Lao PDR has substantial the 15 year period until 2014, although OOP dependence on external finance in particu- spending has remained the largest source. lar in priority health programs including TB, In 2016, nearly one-half of THE (48.2per- Malaria and immunization programs. cent) is financed by private spending. This includes OOP spending by households which Financing for health in Lao PDR comes is 45.1 percent of THE. Public expenditure on mainly from four sources: (i) government health – which includes external financing – budgetary sources; (ii) social health insur- was 51.8 percent. The contribution from SHI ance (SHI); (iii) OOP payment from house- was 4.4percent of GGHE in 2016.2 2 The data on government health expenditure in the WHO Global Health Expenditure Database (http://apps. who.int/nha/database) is different from the official expenditure data reported in the Government Official Gazettes and Budget Plans in Lao PDR. This is partly due to difference in the Government fiscal year and calendar year and a methodology used. For international comparison and presentation of health expendi- ture data (from public, private, domestic and external sources), the latest data available from the WHO database is used. Data for 2016 are based on the NHA FY 2012-13 to 2015-16 report that is subject to the final approval by the government. 8 (i) Government budgetary expenditure (ii) Social health insurance Health’s share of the government budget Social Health Insurance (SHI) expenditures is relatively low. According to WHO data, account for a small share of THE in Lao several countries – including neighboring PDR. Various pilots and policy measures to Cambodia and Vietnam – devote a much address the challenges of limited access to larger share of the budget to health, which health services and lack of financial protec- indicates that Lao PDR’s prioritization for tion for the poor and the vulnerable have health is on the lower side in global com- been initiated and several social health pro- parisons. However, there has been signifi- tection schemes have been introduced over cant increase in the government budgetary the past decades. In 2016, SHI expenditures, spending on health since its inclusion in the primarily from formal sector schemes, were Seventh Socioeconomic Development Plan 4.4 percent of GGHE. The share of SHI ex- 2011–15. A modest portion of revenues from penditures is expected to increase in coming the Nam Theun 2 hydropower project has years as a result of the government’s recent been allocated to eligible health programs decision to launch the NHI scheme in 2016, including the Free Maternal, Neonatal and which integrates these multiple social health Child Health (FMNCH) program and the protection schemes and will expand its cov- Health Equity Fund (HEF) targeted for the erage nationwide by 2018. NHI targets the poor. According to Lao PDR’s State Budget entire informal sector population through Plan for fiscal year 2015-16, health’s share the integration of three schemes, namely, of the national budget is 6 percent. the Health Equity Fund (HEF), Community- Based Health Insurance (CBHI), and the FM- In the past, most government health spend- NCH program. Following its initial operation ing in Lao PDR had been allocated towards in three provinces, NHI has rapidly rolled out capital expenditure and wages, leaving to 15 provinces in 2017, and is expected to little room for critical nonwage recurrent achieve nationwide coverage by 2018. spending in an already tight resource en- vironment. In fiscal year 2007-08, more Despite the rapid expansion of social health than 70 percent of the government health protection schemes in Lao PDR, while in expenditure went to wage-related recurrent transition, they remain fragmented and expenditure. Only 17 percent was available also duplicate administrative infrastruc- for nonwage recurrent expenditure, includ- ture. While expansion of NHI is under way, ing purchasing critical health-related com- a process of consolidation or integration of modities and financing operational plans. the various schemes can create confusion There has, however, been a measurable in health facilities and beneficiaries around increase in the share of nonwage recur- eligibility and coverage. Separate vertical rent expenditures since 2012. In fiscal year procedures for monitoring and financial 2015-16, the share of nonwage recurrent reporting are also being set up. Mitigating expenditures increased to 35 percent of the this through better alignment and commu- total government health budget. nication will be important as the noncon- tributory NHI scheme (also with very low copayment for using public health services) expands its coverage and reaches its target of 80 percent population coverage by 2020. 9 (iii) OOP spending Despite the significant decline of OOP as a and reduce the potential redistributive ca- share of THE from more than 60 percent in pacity of the health financing system. The 2000 to 45 percent in 2016, OOP payments heavy reliance on OOP spending results in remain the largest source of financing for considerable financial barriers to access health in the country (Figure 3). The high health services and increases vulnerability levels of OOP spending deter health service of the poor to health shocks. utilization, especially affecting the poor, Figure 3: OOP Share of THE (2014) Source: World Bank, 2017. 10 (iv) External financing The level of dependency of health spending in development assistance for health from external sources is higher than ex- (DAH) by health focus area. A signifi- pected for the income level of the country cant share of the increase in DAH in re- and higher than in neighboring countries cent years can be attributed to the like Cambodia or Vietnam. While the share country’s focus on maternal and child of externally financed health spending in health, nutrition and immunization. While Lao PDR has been steadily increasing in the development aid earmarked for specific dis- first decade of the century, it appears to ease programs such as HIV, TB, and Malaria have leveled off between 15 and 18 percent accounts for a large share of the total DAH, of total health spending in recent years. Ex- maternal and child health (MCH) accounted ternally financed health spending per capi- for 21 percent of total DAH over the 2002 to ta has increased from US$3.13 in 2000 to 2014 period, increasing to 31 percent since US$10.35 in 2014. 2010, and peaked in 2014 at 38 percent. General health system strengthening has Figure 4 illustrates the general trends been another focus area in recent years. Figure 4: DAH by Health Focus Area (2002–14) and (US$ millions) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: IHME 2017a. From a health financing perspective, one of into a well-functioning health system and the major challenges for Lao PDR is to con- reducing fragmentation in financing and tinue expanding service coverage for key service delivery is key to ensuring future health programs that have been tradition- sustainability and enhancing health out- ally financed by the donors, and accelerate comes. While several key donors have initi- and sustain the progress toward universal ated dialogue around transition, it is critical health coverage (UHC). The country has to for the country to develop a clear transition achieve this feat while effectively managing strategy or plan to ensure its smooth tran- the transition from external financing and sition from externally funded programs to by ensuring sustainable financing for UHC. domestically financed, integrated and sus- Integration of externally funded programs tainable health programs. 11 Key Messages Lao PDR is undergoing rapid transition in its mination and prioritization of the in- demography, epidemiology and composition vestments yielding the best returns in of health financing. While the country has terms of health outcomes, improved made the attainment of UHC by 2025 an equity, improved financial protection, explicit public policy goal, financing UHC in a sustainability and other important fiscally sustainable manner will be challeng- health system objectives; and ing in the context of these transitions. There • innovations to cut costs, such as en- are several key areas that the country can couraging facility-based services for consider and prioritize in its path toward at- Zone 1, and integrating outreach for taining UHC. Zones 2 and 3. Mainstreaming of pro- grams also allows multitasking by Increased domestic financing and de- multiskilled staff, which is difficult to creased reliance on OOP spending is key in achieve in vertically run programs. moving towards UHC. This may be achieved • responding to the changing BoD and by addressing the increasing burden and • expansion of social health protection potential economic impact of NCDs schemes while increasing the efficien- while addressing the unfinished agen- cy of the health services delivery sys- da to meet the health MDG targets tems; and and challenges of undernutrition and • increasing government health spend- stunting. ing to reduce the financial burden on households. Much of this funding will UHC service package needs to integrate need to come from domestic sources, vertical health programs and be costed to given the unpredictability and vulner- ensure sufficient and sustainable financ- ability associated with external fi- ing. This may be achieved by nancing, which is declining. • planned integration and mainstream- ing of the multiple, often parallel, im- To ensure sustainability, it is essential to plementation modalities leading to ef- increase efficiency and effectiveness of ficiency gains; health spending. This may be achieved by • careful determination of the content, • increased levels of spending along processes and modalities, as well as with increased efficiency and effec- the costing of the essential service tiveness of spending to ensure sus- package (being considered as the first tainability of financing for health and step towards UHC) to project future desirable public health outputs and financing needs for UHC; outcomes; • a costed essential service package for • improved financial management and mainstreaming vertical health pro- expenditure tracking systems at all grams, such as HIV, TB, Malaria and levels including the health center; immunization services. Immuniza- • priority setting to identify where lim- tion and other key health programs ited resources should be invested. This financed and delivered through verti- will involve an evidence-based deter- cal structures create duplication and 12 inefficiency (for example, in supply • leveraging the information systems, chain management, reporting and monitoring and purchasing capacity service delivery); and in an integrated system to improve • a medium-term expenditure frame- the quality of service delivery. work for the health sector for assess- ing the fiscal space for health and Careful design and implementation of the ensuring adequate, predictable and Essential Service Package. This may be sustainable financing for health. achieved by: • giving due consideration to the needs Gradual and functional integration is im- of population health and addressing perative for successful transition and sus- the changing BoD when designing the tainability. This may be achieved by: Essential Service Package • full integration and mainstreaming of • including facility-based as well as data systems under the unified dis- community-based services, and de- trict health information system (DHIS fining the optimal extent to which 2) to reduce unnecessary burden at facility-based services must be deliv- the facility level, while concentrating ered through outreach to population on efforts to improve data quality and groups who do not seek or have ac- end use of the information for moni- cess to services toring, planning and policymaking; • evaluation of all services included, • integrating or streamlining multiple based on cost effectiveness, supply- mechanisms for financing and deliv- side readiness, fiscal capacity, eq- ery of health programs and services; uity and other criteria relevant to the • strengthening the institutional ca- country context pacity for managing the integrated • adequate and sustainable funding to schemes and steering purchasing cover the services for the poor and functions for improved health system other target groups exempt from co- performance; payment • ensuring that services are available to the poor and underserved – and that ‘elite capture’ is avoided. 13 References Institute for Health Metrics and Evaluation (IHME). 2017a. Financing Global Health. Seattle: IHME. http://vizhub.healthdata.org/fgh/ ———. 2017b. Global Burden of Disease Study (GBD 2016). http://vizhub.healthdata.org/ gbd-compare/ Ministry of Health (MoH). 2014. Service Availability and Readiness Assessment (SARA) Survey Report, Lao PDR. Vientiane: MoH. ———. 2016. Health Sector Reform Strategy and Framework till 2025. Vientiane: Govern- ment of the Lao People’s Democratic Republic. Ministry of Health (MoH) and Lao Statistics Bureau. 2012. Lao Social Indicator Survey (LSIS) 2011-12 (Multiple Indicator Cluster Survey/Demographic and Health Survey). Vienti- ane: MoH and Lao Statistics Bureau. World Bank. 2016. Lao PDR Health Center Workforce Survey. Findings from a Nationally- Representative Health Center and Health Center Worker Survey. Vientiane and Washing- ton DC: World Bank. ———. 2017. World Development Indicators Database http://data.worldbank.org/data- catalog/world-development-indicators. World Health Organization (WHO). 2017. Global Health Expenditure Database http://apps. who.int/nha/database. Disclaimer: This note is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this document do not necessarily reflect the views of the Executive Directors of The World Bank, the governments they represent or the funding partners (the Government of Australia and Gavi). The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.   14 World Bank Vientiane Lao PDR The World Bank Xieng Ngeun Village, Chao Fa Ngum Road, 1818 H Street, NW Chanthabouly District Washington, D.C. 20433, USA P.O Box: 345 Tel: (202) 4731000 T + 856 21 266 278 Fax: (202) 4776391 M + 856 20 2222 1330 Website: www.worldbank.org F + 856 21 266 299 Website: www.worldbank.org/lao