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1 Terms of Reference Economic Analysis of Handwashing in Central America: Developing cost-effective approaches to improving health Investments in water supply and sanitation (WSS) have been shown to affect health through reductions in diarrhea, reduction in parasitic infections, increased child growth, and reduced morbidity and mortality1. However, improvements in the quantity and quality of water supply, as well as improved sanitation, do not automatically result in improved health. Esrey (1994) demonstrated that the addition of hygiene education is often required to see health impacts. In fact, a recent review suggests that handwashing with soap at appropriate times could reduce diarrhea incidence by more than 40% (LSHTM, WHO 2002). Throughout the Bank, as well as other multilateral agencies, the WSS projects typically allocate around 10 percent of the total project costs to hygiene, sanitation and health components. Health projects rarely focus on handwashing as a potential to improve value-for-money in the sector. There is mounting international evidence that hygiene, sanitation and health investments, focused on handwashing and other education-based programs, are among the most cost-effective investments that can be made with public and private resources. Nested in the strategy to achieve greater value-for-money, with both public, private and multilateral financing, is the necessity to document the costs and benefits and the relative cost-effectiveness of handwashing in improving health, in light of other WSS investments and in comparison with other social sector investments that are financed by social investment fund, WSS, health, education and social protection projects. The World Bank and the Water and Sanitation Program (WSP), the London School of Hygiene and Tropical Medicine (LSHTM), the Academy for Educational Development (AED) and the private sector, in collaboration with USAID and UNICEF have initiated a global initiative aimed at promoting handwashing with soap in developing countries. The initiative, PPPHW has mobilized funds from the Bank- Netherlands Water Partnership (BNWP) to support activities at the global level. The Initiative builds on the USAID-supported Central American experience. In FY2000, the World Bank’s Rural Water Supply and Sanitation Thematic Group and the Public Health Thematic group developed a joint knowledge management activity which documented lessons learned from a USAID financed project – The Central American Handwashing Initiative. This project had been presented at World Bank headquarters on several occasions and generated significant staff interest in public-private partnerships for health initiatives. The World Bank, USAID, and UNICEF partnered to provide the necessary financial resources and technical support required to produce the document “The Story of a Successful Public-Private Partnership (PPP) in Central America: Hand washing for Diarrheal Disease Prevention.”2. The publication documents results, describes the essential elements of a public-private partnership, discusses the lessons from the experience in Central America, and outlines key steps for replication. 1 Feacham et al. 1983, Esrey et al. 1991; Hutley et al 1997. 2 The document can be found at http://www.basics.org/publications/abs/abs_handwashing_eng.html 2 The PPP in handwashing initiative was developed by USAID through two of its projects: Basic Support for Institutionalizing Child Survival (BACICS) and the Environmental Health Project (EHP) and was implemented in 1996-1999. The objective of the PPP for handwashing was to improve handwashing habits in order to reduce diarrheal disease among children under five. The approach was to combine the expertise and resources of the soap industry with the facilities and resources of governments to promote handwashing with soap. Key results of the PPP in handwashing project were: Improved handwashing behaviors and decreased incidence of diarrheal disease 30 % increase in hygienic handwashing behavior in mothers An estimated 300,000 fewer cases of diarrhea a year in poor children under five in Guatemala Leverage of public resources Sustained involvement of the private sector in social programs The preparation and publication of lessons learned from the PPP in handwashing initiative strengthened the partnership among the donors involved, drew in new partners, and led to the development of the Global PPP Handwashing initiative. Why Evaluate the Economic Analysis of WSS-Handwashing Projects? The economic analysis of government and private programs provides a quantitative technique for rational decision-making regarding the design and outcomes of a proposed project. Based on a comparison of the costs and benefits of the proposed project, it tries to answer the practical question of whether on balance a project is worthwhile and whether its worth could be increased by changes in its composition, scale, timing, and method of implementation. The basic rationale for this type of analysis rests on the fact that resources available to an individual or economy are scarce in relation to needs, and therefore it is imperative that they be used in a manner so as to produce the largest possible benefits. The economic analysis of health sector projects focuses on justifying the proposed investment in terms of the health/well-being benefit the project will yield over and above that which would occur without the interventions. The benefits from the project are defined in terms of direct benefits, typically resulting from savings or changes in the composition of demand, and indirect benefits, that reflect increases in productivity or lives saved from reduced mortality. The expected benefits from the project are improvements in the life of the poor populations that otherwise suffer disproportionately from low quality and/or lack of access to health services and WSS. Valuation of benefits should be seen as a mechanism to aggregate disparate inputs and outputs to get a single number as a measure of a project’s “profitability”. In terms of direct benefits, the study will select indicators that serve as proxies for the impact of the project in terms of savings and efficiency gains. At the same time, the indirect benefits will be measured in the proposed study by taking a human capital 3 approach to valuation, using the present discounted value of a person’s income stream as the value of life3. Conceptually, cost-benefit analysis (CBA) involves identification of the various costs and benefits, quantification of these costs and benefits, valuation of the quantities estimated, and comparison of cost and benefit values to determine profitability. Its usefulness is limited by the ease and reliability with which costs and benefits can be identified, quantified, and assigned value. Cost-benefit analysis (CBA) is potentially the most powerful tool available to policymakers that are deciding between alternative project structures, or the “with and without” scenario of project analysis. The criteria used to evaluate the economic efficiency of the project include Net Present Value (NPV)4, the economic (or internal) rate of return (ERR)5. The ability of CBA to convert outcomes into a common unit of value, typically expressed in dollars, provides a useful summary of overall benefits. CBA allows policymakers in the Bank and the government to compare outcomes from diverse projects--in different sectors, with different outcomes. On the other hand, cost-effectiveness analysis (CEA) seeks to measure the extent of achievement of a given beneficial goal, such as reducing 1 death, with a predetermined budget or, similarly, to assess the expenditure required to achieve produce a given outcome. In direct terms, the cost-effectiveness is the ratio of cost to health gain, expressed as dollars per Disability Adjusted Life Year (DALYs). In contrast to CBA, this analysis does not place a monetary value on a given goal but is useful to compare the cost to achieve a reduction in health risk. The analysis of the CBA and CEA of handwashing initiatives is critical for a number of reasons: Investment strategies to help countries reach the Millenium Development Goals (MDGs) should be based on clearly documented evidence of the most effective and least cost method to achieve the MDGs, within the context of the limited resources available; Further work is required to measure the full costs and benefits of PPP initiatives in Central America to provide further justification for policymakers throughout the region and elsewhere; Almost no evidence exists to evaluate the costs, benefits and effectiveness of handwashing interventions in the context of social sector investments; 3 While this method clearly ignores the fact that older persons frequently value their lives equally, and would be willing to pay equally, the method provides an effective means to evaluate the project as the lower bound for the true benefits. 4 The net present value (NPV) is the present value of the stream of net returns (benefits minus costs) of a project during its economic life. The present value is determined by discounting expected future net returns at a rate of which reflects the cost (interest rate) of borrowing funds, or the likely return on the best alternative investments available for those funds. A positive NPV is taken to be an indication that the project is economically sound. 5 The economic rate of return (ERR), also known as the internal rate of return (IRR), is that rate of interest (or discount rate) which makes the present value of the stream of net returns equal to zero. If the IRR is greater than the market interest rate, or cost of borrowing, then the project is worth undertaking from an economic point of view. As a general rule within the World Bank, projects with an ERR of 10% or more are considered successful. 4 Cost benefit analysis will provide the World Bank and its partners/the PPPHW partners a clear view regarding the benefits to leveraging resources from the public sector, with PPP initiatives and through our related water, sanitation and health lending portfolio. Specific Objectives The proposed study’s main objectives would include: - To develop a clear methodology and practical guidelines for carrying out the economic analysis of handwashing with soap promotion initiatives; - To assess the health and non-health benefits derived from investments in handwashing and the development of PPPs to foment the roll-out of handwashing programs; - To evaluate the costs, benefits and effectiveness of handwashing initiatives carried out under the Central American PPP Initiative; - To apply the methodology developed to undertake an upfront economic appraisal of one of the handwashing interventions currently being designed (either in Ghana or Peru). Overview of Methodology The proposed methodology would be based on a detailed analysis of the impact of hand washing interventions in Central America, in terms of their costs, benefits relative cost-effectiveness. The proposed methodology would develop comparative CBA and CEA data within WSS interventions and between WSS and other social sector investments (health, education and social protection). The basic steps proposed for the economic analysis of hand washing projects includes: 1. Identification of the population affected by hand washing initiatives. 2. Identification of the direct and indirect benefits associated with the hand washing initiative, including inter alia, the reduction in morbidity, mortality and disability associated with water and sanitation related diseases. a. Estimating the intervention effectiveness requires an assessment of the fatal and non-fatal health outcomes that occur if the intervention is introduced. Health benefits will be presented in terms of healthy years gained or DALYs averted by the whole population. b. Non-health benefits can be grouped as follows: i. the avoided direct expenditures due to reductions in morbidity from diarrhea, both within and outside the health sector. This will be estimated in terms of reduced demand on hospitals and clinics and savings in the opportunity of individuals that avoid illness; 5 ii. the avoided lost days from daily activities, whether it involves formal or informal employment, or school attendance. This will have economic benefits, both direct and future, and other less tangible benefits; iii. Other costs incurred from treating diarrhea. Including home remedies and transport costs to seek treatment c. Data coming from different sources such as household surveys, literature reviews should be collected and analyzed to obtain 3 major groups of information: i. Estimation of the avoided health service and patient costs (cost offsets) ii. Estimation of work loss days (formal or informal employment) iii. Estimation of time savings due to better access to improved facilities (handwashing and soap). This will include the perspective of the consumer, the private sector partners and the social dimension6. 3. Estimation of the monetary value of these benefits through direct cost savings from reduced demand in the health sector as well as through increased productivity. This step will assign value to the direct and indirect benefits estimated in the previous step. 4. Identification of the investment and total costs associated with the hand washing initiatives analyzed. Costs consist of all resources required to put in place and maintain the interventions, including upfront cost of partnership formation, formative research, campaign design and implementation, follow- up interventions and M&E. Where possible, disaggregate costs between mass media interventions and direct consumer contact campaigns. 5. Determine the economic efficiency of the hand washing initiatives, analyzing the cost-benefit and the cost-effectiveness of the projects, and the different types of interventions within the project (ie mass media versus direct contact). 6. Draw general conclusions regarding hand washing projects in Central America, including recommendations on the size of investments, scope and relative composition of WSS and health sector interventions, based on the results of the economic analysis. This will be based on the literature review of economic evaluations for alternative investments. 7. Apply the methodology developed to prepare an economic appraisal of the Ghana or Peru handwashing initiative, and identify the information that would need to be collected in the baseline and M&E process to ensure an adequate post-project economic analysis. 6 This analysis will attempt to assess the consumer surplus associated with the increase in demand for soap, water and related goods as well as the reduced incidence of disease. 6 As diarrhoeal diseases account for the main disease burden associated with poor water and sanitation, it has been chosen as the single health outcome for the first phase of the research. This stage will evaluate literature on hand washing initiatives in Central America and will include a detailed analysis of the BASICS project from an economic perspective, specifically regarding the economic analysis of projects. This stage will include the following actions: 1) Team meeting to discuss TOR and cost-effectiveness model rationale; 2) Build cost-effectiveness model for M&E of PPP handwashing initiative; 3) Identify information availability from BASICS project and identify hand washing interventions and projects in Central America; 4) Test model on existing BASICS data and other projects from Central America; 5) Present results from Central America and review model; 6) Apply ex ante economic analysis to the hand washing Ghana or Peru; 7) Present results of a Steering Committee meeting of the PPPHW. Timing and Deliverables Deliverable Timing Team workshop to discuss TOR and April 2003 economic analysis model rationale Draft document with economic analysis June 2003 of Central American hand washing initiatives. Apply model to new PPP HW project in July 2003 either Ghana or Peru Present results and review model; September 2003 Final report with economic analysis of October, 2003 hand washing projects in Central America, including ex ante analysis of Peru or Ghana project and ex post analysis of BASIC and prior projects in Central America. Consultant Profile In order to accomplish the described responsibilities, a Consultant with the following requirements will be contracted: experience in cost-effectiveness analysis in LAC and other regions; demonstrated knowledge and academic credentials in the field of health economics and project evaluation; proficiency in English; experience in working with the World Bank.
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