India - Second State Health Systems Development Project

Document of The World Bank Report No. 15106-IN STAFF APPRAISAL REPORT INDIA STATE HEALTH SYSTEMS DEVELOPMENT PROJECT II FEBRUARY 20, 1996 South Asia Country Department TI (Bhutan, India,Nepal) Population and Human Resoureces Operations Division  CURRENCY EQUIVALENTS (As of October 1995) Currency Unit = Rupee Rupee 34.6 = US$1.00 METRIC EQUIVALENTS 1 Meter (m) 3.28 Feet (ft) 1 Kilometer = 0.62 Miles GOVERNMENT FISCAL YEAR April 1 - March 31  i ABBREVIATIONS AND ACRONYMS AIDS Acquired Immunodeficiency Syndrome AP Andhra Pradesh ASCI Administrative Staff College of India BOD Board of Directors (PHSC) CHC Community Health Center CSSM Child Survival & Safe Motherhood Project DALY Disability Adjusted Life Years EMTC Equipment Maintenance and Training Center FW Family Welfare GDP Gross Domestic Product GOI Government of India GOK Government of Karnataka GOP Govermnent of Punjab GOWB Govermment of West Bengal HV Human Immunodeficiency Virus HMIS Health Management Information System ICB International Competitive Bidding ICDS I First Integrated Child Development Services Project IDA International Development Association IEC Information, Education and Conmunication IPP 7 Seventh India Population Project IPP 8 Eighth India Population Project IPP 9 Ninth India Population Project ISHA Indian Society of Health Administrators NCB National Competitive Bidding MCH Maternal and Child Health MIS Management Information Systems MOHFW Ministry of Health and Family Welfare NGO Non-Governmental Organization NHP National Health Policy NSS National Sample Survey PAR Performance Audit Report PCR Project Completion Report PGB Project Governing Board PHC Primary Health Center PHN Population, Health and Nutrition PHR Population & Human Resources PHSC Punjab Health Systems Corporation PWD Public Works Department SA Social Assessment SC Scheduled Castes SOE Statement of Expenditures ST Scheduled Tribes STD Sexually Transmitted Disease SUBC Subcenter TB Tuberculosis UIP Universal Immunization Program WDR World Development Report WHO World Health Organization   ii INDIA STATE HEALTH SYSTEMS DEVELOPMENT PROJECT II Table of Contents Page No. CREDIT & PROJECT SUMMARY ...........................v I. STATE/SECTOR BACKGROUND A. Health Sector in India .1 B. The States of Karnataka, Punjab and West Bngal .2 C. Health Sector Issues in Karnataka, Punjab and West Bengal .6 D. Lessons from Experience .8 E. Linkages with other PHN Projects .11 F. IDA Strategy and Rationale for Involvement .13 II. THE PROJECT A. Project Approach .14 B. Project Objectives .14 C. Project Content .15 i. Reform Program .15 ii. Project Investments .19 mn. PROJECT COST, FINANCING, IMPLEMENTATION AND DISBURSEMENTS A. Project Costs .26 B. Financing Plan .28 C. Procurement Arrangements .29 D. Disbursement Profile .32 E. Project Implementation .33 F. Status of Project Development .35 G. Social Assessment .36 H. Fiscal Analysis .37 I. Indigenous Population .39 J. Environmental Aspects .40 K. Land Acquisition .40 L. Accounting and Auditing .40 This report is based on an appraisel mission that visited India in October, 1995. The mission comprised Tawhid Nawaz (Senior Economist and Mision Leader), Shreelata Rao-Seshadri (Sociologist), Paramita Sudharto (Public Health Specialist), David Porter (Equipment and Support Services Specialist), Eid Dib (Procurement Specialist and Architect), Keith Hinchliffe (Senior Economist), Rani Tudor (Poverty Analyst), Kirti Baneijee (Public Health Specialist) and Nisar Sharif (MIS Specialist, WHO-SEARO). They were assisted by Main Chand (Procurent Specialist) and Sanjay Vani (Disbursanent Specialist) of the New Delhi Office. Salim Habayeb (Senior Public Healh Physician) provided subsantial contribution and advice during project development Kevin Casey (Senior Implementation Specialist) and Sajitha Bashir (Economist) contributed during project preparstion. Mark Schlagel and Jane Mukira assisted in the preparation of this document The Peer Reviewers were Jagadish Upadhyay (EA2HR), Marie-Odile Waty (AF3PH), Xavier Coll (HDD) and Qaiser Khan (MN2HR). The report is endorsed by Richard Skolnik, Chief, Population and Human Resources Operations Division and Heinz Vergin, Director, South Asia Country Department 11 (Bhutan, India, Nepal).  iii Page No. IV. PROJECT BENEFITS A. Benefits .......................... , , , , .. 41 B. Program Objective Categories . 42 C. Risks............................................................................................................................43 V. AGREEMENTS REACHED AND RECOMMENDATION . .44  iv Page No. TABLES 1.1 Lessons Applied From IDA Experience in PHN Lending to the Proposed Project .................................................... 10 1.2 Linkages with Other PHN Projects in Kamataka, West Bengal and Punjab ................ 12 3.1 Cost By Component .................................................... 26 3.2 Cost By Categories of Expenditures .................................................... 27 3.3 Procurement Arrangements .................................................... 30 3.4 Estimated Expenditures and Disbursements .................................................... 32 ANNEXES Annex 1 Health Status and Epidemiology .................................................... 46 Annex 2 Health Sector Development Program ..................................... ,.,.. 51 Annex 3 Public Expenditures on the Health Sector .................................... 68 Annex 4 Costs and Efficiency Comparisons of First Referral vs. Tertiary Level Hospital Care ........................... 80 Annex 5 User Charges and Cost Recovery ........................... 85 Annex 6 Project Management ........................... 91 Annex 7 Training ............................111 Annex 8 Referral System ........................... 125 Annex 9 Quality Assurance Program in Hospitals ........................... 130 Annex 10 Medical Waste Management ........................... 133 Annex 11 Epidemiological Surveillance of Communicable Diseases and Health Management Information System .................................... 139 Annex 12 Information, Education and Communication Strategy .................................... 147 Annex 13 Tribal and Underdeveloped Areas Strategy .................................... 150 Annex 14 Social Assessment .................................... 155 Annex 15 Project Costs .................................... 169 Annex 16 Summary of Construction Program .................................... 193 Annex 17 Procurement Arrangements .................................... 223 Annex 18 Implementation Plan ............... 224 Annex 19 Performance Indicators ............... 237 Annex 20 Supervision Plan ............... 247 Annex 21 Forecast of Expenditures and Disbursements .............................. 251 Annex 22 Documents Available in Project File .............................. 252   v INDIA STATE HEALTH SYSTEMS DEVELOPMENT PROJECT II CREDIT AND PROJECT SUMMARY Borrower: India, acing by its President Beneficiaries: States of Kaatka, Punjab, West Bengal and Punjab Health Systems Corporation (PHSC) Amount: IDA Credit SDR 235.5 million (US$350.0 million equivalent) Poverty: Program of Targeted Interventions (PTI). This project is classified as a PTI because a large proportion of project beneficiaries will be from the poor and vulnerable segments of the states' population. In Karnataka and West Bengal, about two-thirds of expected project beneficiaries would belong to the lowest 40% of the population in terms of income distribution. In Punjab, a relatively large share of the investment under the project would be targeted in the Upper Bari Doab and rural Southem Malwa regions where 30% and 25% respectively of the overall population live below the poverty line. Terms: IDA Standard, with 35 years maturity On-Lending Tenns: The Goverment of India would make the proceeds of the Credit available to the States of Kamataka, Punjab and West Bengal under standard arrangements for development assistance to the States of Idia; Punjab would further transfer the funds to PHSC as a grant GOI would assume foreign exchange risk. Descridtion: The project would be implemented in Kamataka, Punjab and West Bengal. It would be an investment loan with policy reform in areas of resource allocation for the health sector, capacity development for sector analysis and management strengthening, enhance participation of the private and voluntary sectors in the delivery of health services, and implementation of user charges for those who can afford to pay. The project would finance investment related to three main activities: (i) Management Development and Institutional Strengthening: (a) improving the institutional framework for policy development; (b) strengthening the management and implementation capacity of institutions; and (c) developing a surveillance capacity for major communicable diseases and response capabilities; (ii) Improving Service Quality. Access and Effectiveness at the First Referral Level, through: (a) upgrading community, subdivisional and district hospitals; (b) upgrading the effectiveness of clinical and support services through streamlining of norms and provision of training, management information system, waste management and support services; and (c) improving the referral mechanism and strengthening linkages with the primary and tertiary health care levels; and (iii) Improving Access to Primary Health Care in Remote and Underdeveloped areas: (a) upgrading primary health centers in the Sunderban area of West Bengal; and (b) increasing access to primary care services among the SC/ST population in Karnataka.  vi Bernfits: In addition to systemic benefits which would indirectly benefit the population of the states of Karnataka, Punjab and West Bengal, the project would directly benefit approximately 10 million out-patients and 0.7 million in-patients currently utilizing existing hospital services in the three states through the provision of better quality of health services. The project is expected to directly benefit an estimated 5.2 million incremental out-patients and an estimated 0.8 million incremental in-patients in the three states. A major benefit of the proposed project would be to assist the states of Karnataka, West Bengal and Punjab to put in place a coherent approach to establishing a cost-effective and sustainable health system. This would indirectly benefit the states' population as a whole. First, the broader sectoral policy reform envisaged under the project would increase the efficiency of the health sector by improving the environment in which the health sector operates. Second, there would be substantial cost savings in each state through the implementation of strean-line& s.-vice norns and rationalization of service provision at different levels of the systtrn. The technical and quality improvements, i ic uding operations and maintenance functions, at the institutional and health facility levels would enhance the effectiveness and efficiency of health care services by encouraging patients to seek timely care, resulting in higher cure rates at lower costs. Third, patients currently utilizing existing services would benefit from better quality services. Other qualitative benefits would be: the enhanced credibility and vital support to the primary health care system through the strengthening of first referral facilities; and externalities associated with improvements in waste disposal methods and surveillance systems for major communicable diseases. Finally, the proposed project would have a direct long-term impact on improving the health status of the people of each state and would thus contribute to increasing the earning potential of the poor. Risks: The proposed project carries several risks that have affected, to varying degrees, PHN projects in India. These include poor procurement, late disbursement, untimely and inadequate flow of funds, poor maintenance of buildings and equipment, and inadequate attention to software and qualitative aspects. Most of these risks have been substantially reduced through careful project design. There are two additional risks associated with this project. Institutional. The capacity of existing institutions to undertake systemic improvements and to establish a more rational health delivery system has not been tested in India. Institutional strengthening, including strengthening of the managemnent structure in all three states would be emphasized in the proposed project to address this risk. In Punjab, the newly established PHSC might initially have some start-up problems. The Government of Punjab, at the highest level, has made a commitment to enable the PHSC to effectively implement the Project. Financial. As with other projects in India, the overall financial status of the states is a risk. The position of public finances in Karnataka and recent trends in expenditure on health both suggest that the projects' incremental recurrent costs are sustainable. In Punjab. the necessary resources needed to sustain this commitment can be mobilized with a small increase in revenue. In West Bengal, some reorientation of its fiscal policies may be required to ensure sustainability. To help reduce the risk to financial sustainability, an on-going mechanism for monitoring overall state finances as well as the financial situation of the health sector would be undertaken through a comprehensive mid-term review. If necessary, additional measures to achieve financial sustainability of project benefits would be agreed upon based on that review.  vii Estimated Project Cost:' Component Local Foreign Total -------------------US$ Million--------- Management Development & Institutional 22.7 3.9 26.6 Strengthening Improve Service Quality, Access and 237.7 70.5 308.2 Effectiveness Improve Access to Basic Health Services 17.6 6.7 24.3 TOTAL BASELINE COSTS 277.9 81.1 359.1 Physical Contingencies 25.6 8.0 33.6 Price Contingencies 18.5 5.4 24.0 TOTAL PROJECT COSTS 322.1 94.6 416.7 ' Including taxes and duties estimated at US$22.3 million equivalent Financing Plan: Local Foreign Total -------------------US$ Million-------------- GOK 25.0 0.0 25.0 GOP 16.4 0.0 16.4 GOWB 25.3 0.0 25.3 IDA 255.4 94.6 350.0 Total 322.1 94.6 416.7 Estimated Disbursements: IDA Fiscal Year -----------------US $ Million--------------- FY97 FY98 FY99 FY2000 FY01 FY02 Annual 24.5 57.9 85.9 87.6 67.2 26.9 Cumulative 24.5 82.4 168.3 255.9 323.1 350.0 Economic Rate of Retum: Not Applicable.   EiDIA STATE HEALTH SYSTEMS DEVELOPMENT PROJECT I L STATE/SECTOR BACKGROUND A. Health Sector in India 1.1 Introduction. During the past two decades, India has developed a health care system in which the Government sector finances and manages a basic health care infrastructure, while the private sector predominantly provides ambulatory care services. Substantial gaps, however, remain in the effective delivery of health care, especially for the poorest sections of the population. Key health indicators show that the health status of India's population remains low. Communicable diseases continue to be major health problems; maternal mortality is high; acute respiratory and diarrheal diseases account for a large proportion of childhood mortality; and preventable mortality and morbidity, especially among the poor, exact a high toll. Moreover, with the increasing age profile of its population, India is moving into an epidemiological transition with the double burden of significant communicable diseases and increasing non-commuaicable diseases such as cardio-vascular diseases, cancers, diabetes and cataract blindness. 1.2 Health Policy. The Eighth Plan (1992-1997) identified health as one of the six priority areas, and determined that public investments in health are critical for human resource development and poverty alleviation in India. India's long term strategy for health sector development is enunciated in the National Health Policy (NHP) of 1983. Public policy for health has been based on an implicit assumption that primnary health care is a basic right to which people should not be denied access due to inability to pay or for other socio-economic reasons. The NHP emphasizes the role of the state in providing basic health care, through the development of publicly run health facilities and draws attention to the strengthening of cooperation between the public and private sectors. The NHP gives high priority to the control of fertility, infectious diseases of public health importance and preventable causes of maternal and childhood mortality and morbidity. This is an appropriate health policy given India's burden of disease (see Annex 1). However, investment allocations do not fully reflect the priorities highlighted in the government's health policy and implementation of health programs continues to be weak. 1.3 Health Care Financing. In 1991, total health spending in India accounted for about 6 percent of GDP, or about US$13 per capita per year. Of this, Government contributions including center, states and municipalities account for about 20% of total health spending or 1.3% of GDP. Private health spending accounts for the remaining 80%. As a percentage of GDP, total health spending is higher than in other Asian countries which are at about India's level of per capita income. However, the percentage of Government to total health spending in India is lower than in comparable Asian countries. There is also a difference in the type of health services provided in the public and private sectors. Public provided services are the dominant source of preventive health care, such as inmunization, ante-natal care, and infectious disease control services, in both rural and urban areas.  2 Private providers are dominant in the provision of ambulatory care for acute illnesses, or illnesses not requiring hospitalization. Moreover, private health spending is almost entirely from out-of-pocket sources, and health insurance is insignificant and limited in scope. This places a disproportionate burden on the poor. 1.4 The structure of Government's financing of the health sector is quite complex. Under the federal structure of the Indian Union, public provision of health services is primarily the responsibility of the state governments. The center, however, exercises its discretion to initiate and fully or partially finance centrally-financed schemes through a mechanism of specific grants to the states. The state governments retain responsibility for implementing such schemes. Public financing of health at the central and state levels is influenced by the planning process which takes place within the framework of central and state five-year plans. Within this structure of Government spending, states spend about 87%, the center about 10%, and municipalities account for the remaining 3%. A large component of public spending on health is directed towards tertiary care and medical education, and on public health interventions that are not the highest priority. The share of salaries in the health budget has continued to increase, and recent sector work indicates that it accounts for 70-80% of funds targeted to the health sector. As a result, the share of non-salary recurrent costs has fallen and operation and maintenance of health programs continue to suffer. As a result, the total amount of resources available for high priority, cost-effective health services is small. 1.5 The capacity of the health care system in India to effectively address the short- and long-term health care needs of the country remains limited. The country needs to be prepared to deal with the evolving burden of disease in the next decade and to put in place a sustainable health system which would combine elements of public health and clinical services in providing an adequate and necessary package of basic health services. This package of basic health care services would integrate primary health care with secondary level or first referral hospitals.' The emphasis on the first referral facilities at the state level in the proposed project is to complement the existing investments in primary care infrastructure and provide vital support to primary health care services and the rest of the health sector. In addition, a program of health sector policy reform needs to be initiated to provide the general firamework for health sector development. These changes need to take place within the context of state health systems and will provide technical effectiveness and improved quality of health care. B. The States of Karnataka, Punjab and West Bengal 1.6 The Governments of Karnataka, Punjab and West Bengal have expressed early commitment to undertake health reform. Based on several workshops, presentations and project proposals from about 10 states, these three states have been included in the proposed project since they are ahead of the others in developing a package of policy reform. In addition, West Bengal has been chosen because of the high level of poverty in large areas of the state and Punjab because it can set an example for other states in areas of policy reform. These states also provide an interesting geographical, cultural and I The terms first referral and secondary level hospitals are used synonymously in this report. They denote community/rural hospitals that have a bed strength of about 30-50 beds; area/taluka hospitals that have about 75-100 beds; sub-divisional/State General hospitals that have about 100-350 beds; and district hospitals that have about 300-550 beds. The level of services offered increase from community to area to sub-divisional to districts hospitals.  3 ethnic diversity. Furthermore, the administrative capacity to undertake a project of this type is relatively strong in these states. The reason for combining the three states under one project is that they will share common elements that are key to the functioning of health systems, such as service norms, training, referral systems, surveillance systems for major communicable diseases, equipment management systems, quality assurance and information, education and communication (IEC) networks. The implementation of the project in each state would be mutually beneficial for lesson learning and sharing of experience with respect to these key elements. A brief description of the health status and burden of disease in Karnataka, West Bengal and Punjab, which have a combined population of about 140 million people (1995), follows. 1.7 Health Status and Epidemiology in the Three States: Karnataka. The state of Kamataka, covering an area of 191,791 square kilometers, is located in the southwest part of India. The population in 1995 was about 48 million, with urban areas accounting for about 31 percent of the population. Both in terms of area and population, Karnataka ranks eighth among the states of India. The state is divided into twenty districts which are grouped into four Revenue Divisions with headquarters at Bangalore, Belgaum, Gulbarga and Mysore. Scheduled Castes (SC) and Scheduled Tribes (ST) formed 16.4 and 4.0 percent respectively of the population. According to the 1991 census, the literacy rate was 67 percent among males and 44 percent among females, which is marginally higher than the country average. In 1991, the last year for which consistent estimates across states are available, the per capita income was US$329 equivalent, compared to the per capita average for India of US$330. 32% of the population is below the poverty line compared to about 33% for India as a whole. 1.8 Karnataka is performing slightly better than the national average in terms of health status and epidemiological profile. In Karnataka, the birth rate of 26.3, death rate of 8 and infant mortality rate of 67 per thousand live births compares to the national averages of 29.3, 9.8 and 80 per thousand live births respectively. In the last decade, the number of patients admitted to government hospitals has increased by 60 percent, putting a great deal of pressure on hospital facilities. State level epidemiological data indicate that injury and poisoning (19.9%) are among the leading causes of morbidity, followed by infectious and parasitic diseases (16.3%); diseases of the respiratory system (14.50%); and complications of pregnancy and childbirth (11.1%). During the period 1982-92, the increase in in-patients has been greatest for the treatment of infectious diseases, neoplasm, endocrine, nutritional and metabolic diseases; immunity disorders; complications due to pregnancy and puerperium; and injuries and poisoning. The burden of disease in Karnataka reflects the initial phase of the health transition taking place during the late 80's and early 90's. On the one hand, selected health indicators, such as infant mortality, neonatal and post natal mortality and stillbirth rates, have deteriorated; on the other hand, injuries and trauma are increasing. 1.9 West Bengal. West Bengal, situated in eastern India, is bound by Bangladesh, Nepal and Bhutan, and covers an area of about 88,700 square kilometers. With a total population of 72 million in 1995, it is the most densely populated state in India (810 per square kilometer). 39% of the population is below 15 years of age, and about 28% is urban. The large rural population is mainly agricultural, with a predominance of small and marginal farmers. It is estimated that more than 30% of the rural population lives below the poverty line. ST and SC constitute 5.6% and 23.6% of the population, respectively. The literacy rate is about 58%, with a large urban-rural differential. The state is divided  4 into 17 districts, with 344 community blocks. In 1991, the per capita income was US$294 equivalent, with 28% of the population below the poverty line. 1.10 In terms of selected health indicators, West Bengal is better off than the average Indian state, with a birth rate of 25.6, death rate of 7.3 and infant mortality rate of 58 per thousand live births. A recent study indicated the following burden of disease: obstetric and gynecological (23%); gastro- intestinal diseases (12%); cardiovascular diseases (9%/o); pulmonary diseases (10%/6); muskuloskeletal diseases (9%/6); accidents and injury (9%/6); urinary diseases (8%); skin diseases (7%/6) and neonatal diseases (6%). More than 50% of the burden of disease is attributable to matenal and child health and communicable diseases, indicating that the health transition has not yet begun in West Bengal. 1.11 Punjab. The state of Punjab is situated in the north-westem part of India and covers an area of 131,015 square kilometers, with a population of 21.9 million (1995). 29% of the population lives in urban areas. The state is divided into 14 districts, grouped into three regional divisions, with headquarters at Firozpur, Patiala and Jalandhar. According to the 1991 census, the average literacy rate for the state is about 59%, and the sex ratio is 882 females per thousand males compared to the national average of 927 females per thousand males. In 1991, the per capita income was US$554 equivalent, and only 12% of the state's population was below the poverty line. However, as in other states, there is substantial regional variation in per capita income. The Upper Bari Doab area, in the northwest comer of the state, has 30% of its population below the poverty line; rural poverty is most pervasive in the Upper Bari Doab area, and Southern Malwa, where 40% and 25%, respectively, are below the poverty line. 1.12 Punjab has a birth rate of 27.7, a death rate of 7.8 and an infant mortality rate of 53 per thousand live births. The 1992 Survey of Cause of Death (rural) shows that fevers resulting from infective conditions (24%) were the leading cause of death followed by circulatory system disorders (17%), degenerative conditions (17%), trauma (11%) and respiratory disorders (11%). In terms of outpatients seen at medical institutions, the Annual Dispensary Report also shows that 76 percent of the disease burden is due to non-communicable diseases; acute respiratory infection is the other major disease burden at 17 percent. These figures, when compared to other Indian states, reflect the health transition underway in Punjab. 1.13 Organization of the Public Health Care System. The public health system in Karnataka, Punjab and West Bengal corsi:ts of three tiers. At the bottom are primary health care facilities where basic health services are provided, with emphasis on preventive and pfomotive aspects such as family planning, maternal and child health (MCH), treatment of minor ailments, malarial treatment and spraying, sanitation, and public health education. This level includes, in Karnataka, 1,875 Primary Health Centers (PHCs) and Primary Health Units (PHUs); in Punjab, 1,462 subcenters, 484 PHCs and 104 Community Health Centers (CHCs); in West Bengal, 914 PHCs and 249 Block PHCs. The management of this level of health care in West Bengal and Punjab is under the Directorate of Health Services. In Karnataka, however, family planning and MCH services are under the Directorate of Family Welfare. 1.14 In the middle are the first referral hospitals or secondary level hospitals, consisting of hospitals of various bed strengths, ranging generally between 30 and 550 beds, at community, area, subdivisional and district levels. These first referral hospitals provide in-patient and out-patient care  5 with diagnostic and treatment facilities not available at the primary level. This level includes, in Karnataka, 239 community, sub-divisional and district hospitals (a total of 14,858 beds); in Punjab, 217 community, sub-divisional and district hospitals (a total of 6,745 beds); and in West Benal 175 community, sub-divisional, state general and district hospitals (a total of 19,964 beds). This level of health care is managed by the Directorate of Health Services. The provision of services at the first referral level is inadequate in all three states and this tier does not provide the critical support needed at the primary level. 1.15 At the top of the health structure are the tertiary hospitals, including teaching hospitals, which are staffed and equipped to provide more specialized treatments and generally have a capacity exceeding 750 beds, with some variations across states. This level includes, in Karnataka, 17 teaching hospitals; in Punjab, 3 teriary hospitals; and in West Bengal, 13 teaching hospitals. In addition, each state has other specialized hospitals such as TB hospitals, mental hospitals, infectious disease hospitals and leprosy hospitals. They are managed by the Directorate of Medical Education. In addition to the three major Directorates mentioned above, there are other smaller Directorates within the Department of Health and Family Welfare and these vary across states. In Karnataka, for example, there is also a Directorate of Indian Systems of Medicine and Homeopathy, and the Drug Controller. 1.16 Utilization of Health Services. The national sample survey (NSS) utilization data from the 42nd round show that an overwhelning majority of households utilized the allopathic systen of medicine both for hospitalization (98%) and ambulatory care (96%). The preference for the allopathic system was universal and not influenced by household characteristics such as income, social class or literacy. Public hospitals appear to be more often utilized both in rural and urban areas. For example, in West Bengal, 77% and 73% of hospitalized cases utilized public hospitals in rural and urban areas, respectively. About 8% utilized private hospitals and nursing homes in rural areas, and 24% in urban areas. Despite some regional and rural/urban variations, occupancy rates at first referral hospitals are close to 100% in West Bengal and between 60-70% in Karnataka and Punjab. Among ST households, utilization of public hospitals was much lower; and ST households choose private hospitals much less compared to other household groups. About 95% of govenmment services were free (although there were indirect costs to the individual) compared to only 7% of services in the private sector. Of the kinds of ailments treated by the private sector, preliminary analysis suggest that 35% of cases treated were related to child birth, 30-40% were fevers and injuries and 20-30% were for surgery. 1.17 Beneficiary assessment studies show that Government hospitals, especially first referral hospitals, are utilized predominantly by lower income groups. For example, in Karnataka, over 45% of the patients have an annual income below Rs. 15,000 (close to the official poverty line) and over 90% of the patients have an annual income below the taxable level of Rs. 50,000. Moreover, Government facilities are used mainly for treatment of communicable diseases which affect the poor more intensively. Those who can afford to pay usually prefer to use private hospitals since the quality of services available at Government hospitals is poor, as is the availability of staff, drugs and essential supplies (see Annex 14). 1.18 Public Health Expenditure. The public health care budget was about Rs. 4,872 million in Karnataka (FY95), Rs. 5,570 million in West Bengal (FY96) and Rs. 2,202 million in Punjab (FY94). In FY94, the share of health and family welfare in the total revenue budget in each state was about 6.4%, 5.3% and 7.2% respectively. Since FY90, the share of health in the revenue budget has declined  6 in Punjab (from 6.6% to 5.3%) and West Bengal (from 8.4% to 7.2%) and has increased marginally in Karnataka (from 6.1% to 6.4%). Annual public health expenditure as a percentage of the state's Net Domestic Product is only 1.3% in Karnataka, 0.9% in Punjab and 1.2% in West Bengal (see Annex 3). 1.19 In FY94, about 40% of public health expenditures in Karnataka and West Bengal and about 60% in Punjab was allocated to the provision of primnary health care services, the largest component of which included expenditures on family welfare and programs for the prevention and eradication of conmnunicable diseases. Analysis of the composition of public expenditures on health during the last five years shows that the budgetary emphasis on primary health care has been maintained. 1.20 Allocation to public hospitals (secondary and tertiary) in Karnataka in FY95 was about 33% of the health budget; in West Bengal, it was 37%; and in Punjab it was about 41%. This analysis of subsectoral allocations highlights some important issues. First, the allocation of expenditures for hospital services is relatively low in the states, compared to other low income countries. Only 4 countries in the 29 countries reviewed by Barnum and Kutzin (1993) spent less than 40% of their health budget on hospital services. Second, allocations to hospital services in the states, especially at the first referral level, have been adversely affected even in years when the overall health budget has grown. Third, resource allocations within the hospital sector have been unfavorable to sub-divisional and rural/community hospitals. 1.21 The non-salary recurrent cost budget has been shrinking and the share of salaries of staff have increased in recent years (see Annex 3). For example, in West Bengal, salaries and wages accounted for about 75% of total expenditures at urban hospitals, and materials and supplies accounted for less than 10%. With a rising share of salaries and total allocations remaining constant, the norms for expenditure on drugs, supplies and other consumables have been held constant in nominal terms. Since price inflation for these commodities have been greater than average, real expenditures on critical inputs other than personnel has declined substantially in recent years. C. Health Sector Issues in Karnataka, Punjab and West Bengal 1.22 Recent sector work on "Policy and Finance Strategies for Strengthening Primary Health Care Services" (Report No. 13042-IN, May 1995) recommended that the financing of health care in India needs to be increasingly viewed within the context of structural adjustment and stabilization policies since the latter are likely to affect government health spending at the central and state levels. Since more than 80% of public spending on health is accounted for by the state budgets, and since the states are primarily responsible for implementing various health programns, financing and policy reform to increase efficiency and improve effectiveness needs to be targeted at the state level. However, the need and the challenge for each state can be quite different given the burden of disease, existing public health programns, past pattem of public investment in the health sector, the importance and the level of involvement of the private sector, the level of poverty etc. In spite of these differences, there are some common themes at the state level which emerge as being of equal concem for all states, and which need to be addressed. 1.23 Budgetary/Resource Allocation Issues. Public resources allocated to the health sector in Karnataka, Punjab and West Bengal from the national, state and municipality budgets are inadequate to meet basic health care needs and compare unfavorably to several Asian countries with similar levels  7 of per capita income. The main problems at the state level, where more than 80% of public funds come from the state budgets, are: (i) the relatively small allocation within the state budget to the health sector; (ii) the disproportionately high contribution to the tertiary level of health care at the expense of first referral facilities and preventive and promotive care services; (iii) the lack of adequate allocations for operations and maintenance of investments in the health sector, in particular the size of allocations for non-salary recurrent expenditures; and (iv) low level of revenue collection from user charges. 1.24 Institutional Issues. Institutional weaknesses in the health system result in a low level of efficiency. The referral system is largely ineffective; clinical skills at first referral hospitals are below standard; and technical support for the primary level of care is weak. Structure of Service Delivery: The mechanism for delivering public health services at the state level faces serious problems related to the overlapping functions among the various tiers of health care provision. Services provided at different tiers of the system are often duplicated, and there is no clear delineation of services at each type of facility. Since the first referral hospitals are performing inadequately, tertiary level facilities are over-burdened. Moreover, the lower tier institutions such as PHCs are underutilized due to lack of technical support (such as treatment and diagnosis) from first referral level institutions. Referral Svyst: Institutional and technical linkages for referral between different tiers are weak. It is estimated that, with the streamlining of service norms and adequate provision of inputs, a third of all cases which are currently treated at tertiary facilities could be adequately treated, and at lower costs, at first referral facilities. Surveillance Development and Response Capability: The ability of the public health system to cope with unforeseen health emergencies is limited due to weak surveillance and rapid response capability. For instance, the plague scare in September-October 1994 exposed the inability of the public health system to respond to such events. 1.25 Management and Planning Issues. Management of facilities at the primary and first referral levels is inefficient, especially with regard to the integration of administrative and financial responsibilities. There are few incentives for hospitals to improve their management system. The capacity to undertake health planning, including the ability to undertake the monitoring of the evolving epidemiological profile and the burden of disease, analysis of cost-effective means of achieving the best use of limited resources, analysis of the medical manpower situation and monitoring of private health sector development at the state level, is inadequate. 1.26 Technical and Quality Issues. Health facilities at the primary and first referral hospitals in the states continue to face operational deficiencies due to general and technical inefficiencies. Streamlined clinical and support service norms are not applied at first referral hospitals, as a result of which lower tiers of the health system remain underutilized. Support services and infrastructure at secondary hospitals are inadequate to deliver quality care. Shortages of diagnostic facilities, including equipment for perforning laboratory procedures, are common and adversely affect day-to-day functioning. Communications networks and transport facilities are inadequate to meet health care demand. Shortages of trained personnel in key areas affect quality of services; and inadequate repair and maintenance services for machinery and equipment leads to malfunction and frequent breakdowns. Furthermore, the quality of services is also affected by the absenteeism of doctors and other medical staff in less developed areas of the state.  8 1.27 Access to Health Services. According to hospital data, the proportion of hospital users belonging to SC/ST groups is commensurate with their proportion in the general population. However, considering the poor socio-econornic condition of these groups, and their low nutritional level, the morbidity and mortality in this population is greater and warrants a higher utilization of secondary hospital services. An additional issue is the low utilization of health services by women. In Karnataka, for example, the NSS survey indicates that the sex ratio among hospitalized cases is 786 females for 1,000 males, whereas the sex ratio in the population is 960 females per 1,000 males. There is a need to enhance the utilization of hospital services by women and SC/ST groups by strengthening links between primary and secondary levels of care through an effective referral mechanism and reducing the physical and psychological distances traveled. Disparities also exist between the urban and rural parts of the states with respect to access to health facilities and service quality. The urban based secondary hospitals tend to be overcrowded, especially the outpatient facilities, and operate at near full capacity, whereas some of the remote rural facilities remain underutilized because they are unable to provide even basic services. 1.28 Role of the Private Sector and NGOs. Detailed information on the scope, quality and size of the private sector is not easily available. Recent sector work found that the private sector plays a major role in the provision and financing of health care in India. There has been a significant growth of private sector facilities in recent years, especially in Punjab and Karnataka. In Punjab 40% of all hospital beds are in the private sector; in Karnataka, about 33% of all hospital beds are in the private sector; and in West Bengal, private hospitals and nursing homes account for about 23% of hospital beds in the state. In all three states, about 80% of all private hospital beds are located in urban areas. The private sector comprises a wide range of health providers, ranging from the household doctors in the villages to the corporate sector in the cities and charitable hospitals and dispensaries. However, many of these providers are unqualified, licensing is weak or non-existent, and quality is varied. Lack of regulations and effective legal remedies contributes to inappropriate practices. Government's ability to monitor, regulate, register and certify private care providers could be strengthened and there still remains scope for expanding the role of the private sector. 1.29 The role and scope of NGOs in delivering health care services have so far been limited. NGOs have a comparative advantage in improving access to health services for some disadvantaged groups in remote and rural areas. Opportunities remain for effective NGO participation in service delivery as well as behavior changing information, education and communication (IEC) activities. D. Lessons from Experience 1.30 This is the second project in India that involves the health system at the state level. It is more broadly based than the on-going or completed population, health and nutrition (PHN) projects in India. Even so, the experience of social sector projects in India is varied and extensive enough to provide some important lessons for the preparation and implementation of this project.  9 1.31 There are five completed PHN projects in India for which Project Completion Reports (PCRs) or Performance Audit Reports (PARs) are available.2 These are the First, Second, Third and Fourth Population projects and the First Tamil Nadu Integrated Nutrition project. The Operations Evaluation Department has also undertaken an Impact Evaluation Report of the Tamil Nadu Integrated Nutrition project. Overall, the projects have met an important part of their development objectives. Population I and II met most of their aims, but did not have any systemic impact on the Family Welfare program. Population III had significant outcomes in Kerala but not in Karnataka. Population IV appears to have contributed to very significant improvements in contraceptive prevalence and reduction in infant mortality. The Tamil Nadu Nutrition project is well-documented as having a major impact on improving the nutritional status of young children. 1.32 There are currently fourteen on-going PHN projects in India. The list below shows eight that are now on-going in Karnataka, Punjab and West Bengal: Health sector: National AIDS Control, National Leprosy Elimination and Cataract Blindness projects; * Family Welfare (FW) sector: Population VII, Population VIII, Population IX and Child Survival and the Safe Motherhood (CSSM) projects; and * Nutrition sector: First Integrated Child Development Scheme (ICDS I) project. 1.33 Despite many positive outcomes, the completed and ongoing projects have suffered to varying degrees from a variety of implementation problems. These have included: late start-up, poor procurement, slow disbursement, frequent management tumover, untimely and inadequate flow of funds, poor maintenance of buildings and equipment, and inadequate attention to software and qualitative aspects. 1.34 The design of the proposed project would take account of the concems and problem areas identified above as shown in Table 1.1. 2 India: PCR - First Population Project (Cr. 312-IN), May 19, 1981; PPAR No. 3748, December31, 1981. India: PCR - Second Population Project (Cr. 981-IN), June 20, 1989; PPAR No. 8896, June 29, 1990. India: PCR - Tamil Nadu Integrated Nutrition Project (Cr. 1003-IN), November 26, 1989; Impact Evaluation Report No. 13783, December 12, 1994. India: PCR - Third Population Project (Cr. 1426-IN), Report No. 12278, August 1, 1993, India: PCR - Fourth Population Project (Cr. 1623), Report No. 13785, December 12, 1994.  10 Table 1.1: Lessons Applied From IDA Experience in PHN Lending to the Proposed Project Lessons Corresponding Action to be Taken Reference Inadequate Attention to At the early state of implementation the following paras. 2.21,2.22,2.23, Management Aspects actions would be taken: enhancement of 2.28, 2.29, 2.30, 3.24, 3.25, management and supervision authority for 3.26, 3.27 construction and maintenance of operational Annex 6 activities by the implementing agencies; adequate staffing of key project management persornel; adequate staffing arrangements at district, sub- divisional and community hospitals; strengthening of management procedures. In addition, a mid-term review of the management systems would be undertaken. 2. Slowness in Implementation Strengthen implementation capacity; enhancement para. 2.30 and Weak Supervision of implementation capacity of the engineering wing Annexes 6, 18, 20 of the implementing agencies; detailed implementation plan in place; regular field supervision by local consultants included in Supervision Plan. 3. Poor Maintenance of The state Governments will provide adequate para. 2.10, 2.30 Buildings and Equipment resources during project period for operations and maintenance services; capacity for equipment maintenance and training to be enhanced. 4. Untimely and Inadequate Assurance provided by the state Governments that paras. 3.21, 3.42 Flow of Funds to Project annual review of project expenditures and resource requirements will be carried out with IDA in order to ensure timely flow of fimds; assurance provided by GOI that it would release about three months of project expenditure in advance to the state Governments. 5. Poor Procurement Procurement arrangements for works and services in paras. 3.31, 3.32, 3.34 advanced state of preparation; lists of hospitals Annexes 16, 18 prepared, use of standard bidding documents; first phase of construction plan completed; equipment lists prepared and specification lists discussed with IDA. 6. Inadequate Attention to Staffing and technical norms at district, sub- paras. 2.27, 2.31, 2.32, Qualitative Aspects divisional and community hospitals agreed upon; 3.35, 3.36 referral system and linkages with primary care Annexes 7, 8, 9, 19 services to be established according to agreed norms; clinical training needs developed; management training needs developed; quality assurance program developed collaboratively with clinicians and practitioners from around the state; performance indicators developed and agreed with borrower.  11 1.35 In addition, international experience has also been considered in the design and scope of the project. The World Development Report (1993) on Investing in Health suggested that a broad sectoral approach within a supportive policy environment produces significant positive results and benefits. It also suggested that a limited package of public health measures and essential clinical interventions is a top priority for government finance. On the components of the public health package, the list includes: (i) the expanded program on immunization, including micronutrient supplementation; (ii) school health programs to treat worm infection, micronutrient deficiencies and health education; (iii) programs to increase public knowledge about family planning, health and nutrition; (iv) programs to reduce consumption of tobacco, alcohol and other drugs; and (v) AIDS prevention program with a strong STD component. On the components of the essential clinical services the list includes: (i) prenatal and delivery care; (ii) family planning services (these two components together constitute a Safe Motherhood Program); (iii) management of the sick child; (iv) treatment of TB; (v) case management of STDs; and (vi) treatment of minor infection and trauma, otherwise known as limited care. This project, in recognizing the specific administrative, burden of disease and socio-technical issues in India, would provide a number of the services listed above. It would also establish the institutional structure that can lead to the provision of some of the other services in the future. E. Linkages With Other PHN Projects 1.36 The proposed project would complement and consolidate investments made by on-going projects by providing policy and implementation coordination with other health and FW projects in the state. The need for this has also emerged as an important lesson of experience. For example, the strengthening of the first level referral for obstetrics and child care in this project through the provision of essential clinical and diagnostic services would complement the primary level of services being provided under Population VII, Population VIl:, Population IX and CSSM projects. In addition, the actions of these on-going projects with regard to initiating a referral system from the community to the community hospital level, providing equipment at the first level referral for obstetrics units and defining the facilities needed for emergency obstetrics care will be further strengthened under this project by putting in place a referral system that will be able to link up preventive and curative aspects of health services. These complementary curative actions, which are somewhat higher level interventions than the preventive and promotive primary care services provided by on-going projects, will improve the health status of women and children and reduce fertility. Similarly, this project will complement the AIDS Control and Leprosy Elimination projects by enhancing the physical facilities located in the states that are providing services under the national programs. The same is true of the complementarity with the Cataract Blindness project. Where the blindness wards are located in the district hospitals in the states, the project will upgrade the clinical and diagnostic activities of those facilities.  12 Table 1.2: Linkages with Other Projects in Karnataka, West Bengal and Punjab3 Name of Project Primary Health Care Linkages with State Health Systems Development Project II Objectives Karnataka: Population V Enhance service delivery Child Health: Children identified by primary care services as Population IX, CSSM for FW, and strengthen suffering from severe stages of diarrheal disease, acute respiratory management at the infection and nutritional disorders will be referred to first referral West Bengal: Population district and block level, hospitals for appropriate treatment. vIm, CSSM and slum areas; support Maternal Health: The CSSM program has identified by name the Child Survival program; First Referral Units (FRUs) for the states, most of which are under Puniab: Population VII, enhance Safe first referral management. Mothers identified as having life CSSM Motherhood Program. threatening complications of pregnancy and child birth will be referred to these FRUs for appropriate treatment. Technical supervision and training: First referral will improve the quality of care at the primary level through: (a) visits to PHCs by Specialists from the hospitals to conduct clinics for patients who need more skilled care; and (b) training at first referral hospitals for upgrading clinical and technical skills for PHC and SUBC staff; provide on-going training for medical and paramedical staff from PHCs and SUBCs. Karnataka. West Bengal. Involve states in program AIDS Cell and Empowered Committee promote coordination between Puniab: National AIDS development. AIDS Program and first referral hospitals. The MIS capability and Control patient statistics gathered by first referTal hospitals are of vital use to the AIDS project. Monitor epidemic; Surveillance sites or IfV testing facilitues located in first referral Screen blood; logistical hospitals to facilitate monitoring of the AIDS epidemic. HIV support. screening to be done within blood banks of first referral hospitals: the AIDS project provides the kits, training and procedure; first referral hospitals provide infirastnrcture, staffing and support services. First referral facilities provide essential logistical support for storage of equipment, medicines, medical supplies and waste management Raise public awareness; The IEC component of the AIDS project targets staff of first referral develop clinical hospitals for disseminating infonmation. Selected staff of first referral management skills in to be trained by the AIDS project to provide counseling and medical AIDS and STD control. needs of AIDS patients. Karnataka West Beneal: Multidrug therapy, The health infrastructure of first referral is a channel of treatment and National Leprosy disability care and drug delivery. The staff and hardware provided by the Leprosy project Eradication prevention. will function within first referral infrastructure, providing physiotherapy facilities, operation theaters (OT) and lab facilities. Logistics and MIS. First referral facilities provide storage and support services for the Leprosy project. MIS and statistical support are also provided. Karnataka West Expand service delivery The Blindness Control Programme, through the District Blindness Bengal and institutional Control Societies, is financing support services for cataract blindness Blindness Control development. in district hospitals. The Project will provide: support staff who will Program with Danida receive specialized training under the Blindness programme, Assistance logistical support and other facilities. The referral system will 3 This project will provide additional primary care services not included in the on-going Population & Human Resources Division portfolio.  13 Table 1.2 (continued) Name of Project Primary Health Care Linkages with State Health Systems Development Project II Objectives complement and facilitate the referral of blind patients to district hospitals for specialist care. Karnataka: KfW German Expand and upgrade of The component will be complementary to the KfW Project and will assisted Secondary Level existing secondary level contribute to reducing regional unbalances, which is the main Services Project health care facilities in objective of the project. This project will also supplement KfW the four backward investment by providing training of staff, waste management system, districts of Gulbarga referral system, quality assurance, MIS and EEC activities and access division. to basic health facilities. West Bengal: National Detect TB amongst Pathological laboratory services will be strengthened under the Tuberculosis Control chest symptomatics; project with both manpower and logistical supporL These Program vaccinate new born and laboratories will play a vital role in detection of TB by sputum infants with B.C.G.; microscopy and help in establishing a treatment schedule. sputum diagnosis and intensive supervised treatmnent of sputum positive cases. F. IDA Strategy and Rationale for Involvement 1.37 The World Bank Group's Country Assistance Strategy for India (May 19, 1995; Report No. 14509-IN) supports GOI's efforts to provide an enabling enviromnent for broad-based, efficient private sector-led growth while accelerating the development of human resources. In the human resource sectors, the strategy is to enhance access to basic services for the poor and to support well-targeted safety net programs that protect the most vulnerable groups in Indian society. As part of this approach, the Bank's strategy in the health sector is to assist India to reduce the level of mortality, morbidity and disability through a two-pronged approach. The first is to reduce the burden of the most significant diseases through the support of priority programs; the second is to strengthen the performance of state health systems to deal with the evolving burden of disease by providing more efficient and effective health care. The basis of this strategy for the health sector in India is rooted in an on-going dialogue between GOI and IDA, and is reflected in recent sector work, "India: Policy and Finance Strategies for Strengthening Primary Health Care Services", May 1995. 1.38 IDA investment in the proposed project is justified for the following reasons. First, the project is consistent with IDA's strategy of strengthening state health systems by optimizing resource use and avoiding duplication and wastage. Second, the project would strengthen the states' capacity to implement priority health programs and provide basic health care in rural areas. Third, the project would consolidate the investments made by a number of other IDA supported projects in the PHN sector, and add incremental value to the health care system at the state level. Fourth, the project is in line with the overall IDA strategy of poverty reduction in India through its focus on underprivileged people, especially women, Scheduled Castes and Scheduled Tribes. Finally, the proposed project would assist Karmataka, Punjab and West Bengal to establish the foundation for a sustainable and coherent approach to health care.  14 II. THE PROJECT A. Project Approach 2.1 The proposed project would be an investment operation with substantial policy content. It will assist the Governments of Karnataka, Punjab and West Bengal to put in place a first referral health system which would provide vital support and lend credibility to primary health care services and the rest of the health sector. The proposed project would be an important step in the development of a coherent, efficient and sustainable health system. The project would also strengthen the organizational structure of preventive and curative aspects of health care by integrating primary health care services with first referral hospitals. An adequate and necessary package of health services would be implemented in each state, based on service norms developed, and consistent with the burden of disease. Focusing on these key elements would prepare the states to better address priority issues in the health sector over the next ten years. B. Project Objectives 2.2 The objectives of the proposed project would be to assist the Governments of Karnataka, Punjab and West Bengal to: (i) improve efficiency in the allocation and use of health resources through policy and institutional development; and (ii) improve the performance of the health care system through improvements in the quality, effectiveness and coverage of health services at the first referral level and selective coverage at the primary level to better serve the neediest sections of society. The ultimate goal of the project would be to improve the health status of the people, especially the poor, by reducing mortality, morbidity and disability. The achievement of the objectives will be evaluated on the basis of timely implementation of the policy reform spelled out in the Letters of Health Sector Development Program of the three state Governments in Annex 2. 2.3 The set of development indicators include the following in each state: (a) an increase in each year in the share of resources for the primary and secondary levels of health care in the total resources (plan and non-plan) allocated to the health sector, until the year 2002; (b) adequate and timely budget allocations for recurrent expenditures at the first referral level, in order to meet the resource requirements under the project's annual operating plan; (c) adequate budget allocations for provision of drugs and essential supplies; and (d) implementation of a user charge policy. The implementation of these policy reforms will be monitored during supervision through the review of relevant financial and budgetary documents of the Goverrnent, and field visits. These would provide monitorable evidence of policy actions in each state and their sustained adherence to key elements of the policy letter. 2.4 In addition, the achievement of the development objectives would be evaluated on the basis of activity and efficiency indicators as well as quality, access and effectiveness indicators as shown in Annex 19 on Perfbmnance Indicators. These include a number of indicators to monitor interim progress towards the achievement of development objectives, summafized below. 2.5 Activity indicators including tumover rate, bed occupancy and average length of stay, which are derived from bed occupancy, cumulative inpatient days and admissions during a given period of time, would be measured against the baseline. Efficiency indicators including the following would be measured agamst a  15 baseline: clinical services, such as number of major surgeries and deliveries and their percentages to admissions during a given time period; diagnostic services, such as number of imaging and electro-medical tests and their percentages to admissions during a given time period; non-clinical services such as post- mortems, percentage of post-operative case fatalities and percentage of infection acquired at the hospital; and emergency service index measures such as emergency outpatient and entry ratios. These efficiency masures would be evaluated against the baseline, and compared with the best perfonrmng facilities and against comparable international standards. 2.6 Quality, access and effectiveness indicators including the following vvould be measured: staffing, equipment and drug norms met at each facility; inpatient and outpatient waiting time; patient satisfaction; upgradation of clinical, management and equipment maintenance skills; awareness among target group of services offered; awareness among doctors of how the referral system is expected to function; and funds recovered from user charges. Some of these would be measured against the baseline, while others will be measured against the norms that were developed during project preparation. C. Project Content I. The Reform Program 2.7 The Governments of Karnataka, Punjab and West Bengal have made a commitment to improving their health system and establishing the necessary framework to achieve project objectives. All three states have taken action to strengthen the implementation and supervision capacity of the implementing agency. Punjab has established the Punjab Health Systems Corporation (PHSC) which was passed as an Ordinance on October 20, 1995. The three states have developed streamlined service norms at district, sub-divisional and community hospitals that would result in substantial increases in efficiency and effectiveness. The proposed project would build upon the institutional and policy changes initiated by the states of Karnataka, Punjab and West Bengal. All three state Governments have emphasized their commitment to a policy package of health sector reform reflecting key sectoral development issues for the primary and first referral levels of health care. Letters of Health Sector Development Program provided by the three states are attached in Annex 2. Details of the Reform Program are provided below. (1) Increase Financing and Improve Resource Allocation for the Health Sector by (a) ensuring adequate budgetary allocations to the health sector; (b) increasing the share of health sector resources to the primary and secondary levels of health care; and (c) safeguarding the operations and maintenance component of the health budget to ensure adequate supplies of drugs and essential medical materials and maintenance of equipment and infrastructure; (2) Strengthen the Capacity of the Implementing Agency in Sector Analysis and Management by (a) setting up a Strategic Planning Cell under the Health Secretary to undertake analyses of health sector issues; and (b) strengthening the implementing agency's role and provide it with authority to manage essential operational activities including civil works construction and maintenance activities; (3) Enhance the Role of the Private and Voluntary Sectors in the Delivery and Management of Health Services by (a) contracting-out selected services; and (b) promoting linkages in health care delivery with the private and voluntary sectors; and  16 (4) Implement a User Charge Policy by (a) implementing existing user charges more rigorously; (b) retaining and using revenue collected; and (c) exempting the poor from user charges. (1) Increase Financing and Improve Resource Allocation for the Health Sector 2.8 Ensuring Adequate Budgetary Allocations to the Health Sector. In FY93, public expenditure on health and family welfare, as a percentage of State Domestic Product, in Karnataka, Punjab and West Bengal was about 1.3%, 0.9% and 1.1% respectively; as a percentage of the total state revenue budget, the contribution of the health budget was 6.4%, 5.3% and 7.2% in Karnataka, Punjab and West Bengal respectively (see Annex 3). These contributions are low when compared to several Asian countries with similar or even higher levels of income. In Punjab and West Bengal, where the rate of growth of health expenditure has been below the overall rate of Government expenditure in some years, continuation of recent trends in health expenditure would not be sufficient to absorb the incremental costs to meet the basic health care service needs of the population. At Negotiations, the Governments of Karnataka, Punjab and West Bengal confirmed that they would at least maintain the share of health sector allocations within the overall budget at the FY94 level. 2.9 Increasing the Share of Health Sector Resources to the Primary and First Referral Levels. Within the health sector resource allocation is skewed in favor of tertiary care services, compared to secondary and primary care services. In particular, resource allocations within the hospital sector have been unfavorable to sub-divisional and rural/community hospitals. Moreover, terdary hospitals have received a large share of total Plan resources allocated for the hospital sector. First referral care has, therefore, traditionally suffered from a low level of public funding. Investments at the first referral level would redress some of this imbalance during the implementation years (see Annex 3). At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that the share of both the primary and secondary levels in the total resources (Plan and Non-plan) allocated for the health sector would be increased each year until the year 2002. 2.10 Safeguarding the Operations and Maintenance Component of the Budgetary Allocations for the Secondary Health Sector. The non-salary recurrent cost budget of the health sector overall has been shrinking. With total grants remaining more or less constant, a rising share of salaries has meant that expenditures on critical inputs other than personnel, such as drugs and essential supplies have declined in recent years. Since price inflation for these commodities has been greater than average, there has in fact been a decline in real expenditures on non-salary recurrent costs. Moreover, during the last two years, even nominal expenditures per bed for drugs and consumables have declined. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that they would allocate adequate resources for drugs, essential supplies and maintenance of equipment and buildings at first referral hospitals in accordance with norms agreed with IDA. (2) Strengthen the Capacity of the Implementation Agency in Sector Analysis and Management 2.11 Enhancing Capacity for Strategic Planning. A strategic planning cell has been set up in each state to address strategic planning issues in the health sector and provide management with policy options. It would undertake operational and policy related research projects, either independently or through local consultants, and it would organize workshops and seminars. In addition, the strategic  17 planning cell would undertake analyses of a number of other equally important health issues including: monitoring the role of the private sector and reviewing the suitability of present regulations relating to the quality of private care provision; analyzing the evolving epidemiological profile in the states; and undertaking of periodic review of the health manpower supply situation and training needs in each state. At Negotiations, the Governmnents of Karnataka, Punjab and West Bengal provided assurances that they would maintain the Strategic Planning Cell with adequate staff, resources, and terms of reference acceptable to IDA. 2.12 Strengthening the Implementing Agency's Role in Managing Essential Operational Activities. A new system of managing essential operational activities, particularly with regard to civil works construction and maintenance, has been proposed to successfully implement the large scope and volume of activities under the project. This would be achieved by making the DOHFW in Karnataka and West Bengal, and the PHSC in Punjab more directly responsible both financially and administratively to undertake civil works construction and maintenance activities under the project. At Negotiations, the three state Governments provided assurances that they would take all necessary actions to ensure that the DOHFW in Karnataka and West Bengal and PHSC in Punjab would provide, and thereafter maintain authority to manage essential operational activities such as civil works construction and maintenance activities. (3) Enhance the Role of the Private and Voluntary Sectors in the Delivery and Management of Health Services 2.13 Contracting-out Selected Services. Private contractual services are often more efficient and effective than direct labor. In view of the difficulties of employing government staff, such as slow recruitment and poor attendance, contracting-out certain services, especially support services, becomes even more attractive. It has been confirmed that there are no legal barriers inhibiting the use of contractual services for support functions and that the Contract Labor Regulation and Abolition Act (1970), which prohibits certain institutions from contracting-out perennial services, exempt hospitals and health care facilities. At Negotiations, an understanding was reached that in order to cut costs and increase efficiency, the Governments of Karnataka, Punjab and West Bengal would review and implement, as appropriate, private contractual services, especially supporting services. 2.14 Linkages with the Private and NGO Sectors. As noted earlier, the private sector has a predominant presence in the health sector in the three states, especially in the provision of amnbulatory care services. The role of the private sector in health care delivery can be further enhanced in the future, provided that the regulatory framework for ensuring the quality of health care provision can be appropriately strengthened. The state Governments propose to enhance the participation of the private and NGO sectors, especially for improving access to primary health care and first referral services in remote and underdeveloped areas of the Sunderbans in West Bengal and for disadvantaged groups, particularly SC/STs in Karnataka (see Annex 13). The state Governments are also exploring opportunities for contracting out the delivery of health care in remote areas to the NGO sector which has a comparative advantage in improving access to such health services for some disadvantaged groups. On matters of ensuring the quality of health care provision, state Governments would also play a more pro-active role, through legislation such as the Nursing Home Registration Act.  18 (4) Implementing a User Charge Policy 2.15 Implementing Existing User Charges More Rigorously. The health financing sector work indicates that the revenue collected in the three states from user charges varies between 3% and 7% of the health budget of the states. International experience in developing countries with somewhat higher per capita income than India, and where the performance of the public health sector has been relatively better, shows that revenue collected from user charges accounts for about 15-20% of the health budget. The Governments of the three states recognize the importance of increasing revenue collection through user charges for the sustainability of the sector. A major problem in increasing revenue is a lack of enforcement in the collection of existing user charges. 2.16 The system of user charges proposed by each state would be a combination of voluntary payments and targeting the poor for exemptions. In order to generate revenue and provide services for those willing to pay, district and sub-divisional hospitals will provide private paying bed facilities and begin to charge for services in a phased manner after improvements in the quality of basic services and infrastructure development have been completed. All three states would ensure that at least 20% of all beds at first referral hospitals would be designated as paying beds. It was agreed that user fees would be used specifically for non-salary recurrent cost purposes. Enhanced charges would be made effective after improved services are provided at each facility. The Governments would institute adequate administrative mechanisms for collecting user fees through District Health Committees and through the appointment of key staff at the district level who would be responsible for implementing and collecting user charges more rigorously (see Annex 5). At Negotiations, the Governments of Kamataka, Punjab and West Bengal provided assurances that the arrangements for maintenance and collection of user charges would be maintained and user charges would be implemented in a phased manner after improvements in the quality of basic services and infrastructure development have been completed. 2.17 Retention and Use of Revenue Collected. The Governments of Karnataka, Punjab and West Bengal would implement a system that would ensure that funds collected through user charges would not revert to the state treasury, where they become part of general revenue. To provide incentives for hospitals to collect user charges, all three states would implement a system that would retain the funds collected at the institutional level. Funds collected through user charges would be utilized for non- salary recurrent cost purposes in all three states. At Negotiations, the Governments of Karnataka and West Bengal provided assurances that in Karnataka and West Bengal, the system established as a condition of Negotiations for the retention and reallocation of funds collected at the hospital level, that would reallocate funds, on the basis of both need and level of revenue collection by the District Health Committees, would be maintained. In Punjab, regulations on user charges would stipulate that funds collected would be retained at the point of collection. 2.18 Exempting the Poor from User Charges. Given the differences in management and administration, income levels and underlying structure of the economy in the three states, the states propose to use different criteria for exempting the poor from user charges (see Annex 5). In Karnataka, the Govermnent proposes to use the existing green/tricolor card system within the Public Distribution System (PDS) in the state, which is used to provide nutritional support through issue of subsidized grain, as a basis for exemption from user fees. Green card holders are also entitled to subsidized cloth and kerosene. All poor families with an annual income level of Rs. 11,850 or below (i.e., the nationally accepted norm under the JRY program) are entitled to such green cards. The number of green card  19 holders in the state are about 5.3 million compared to the 9 million ration card holders of the PDS system. Understainding was reached with the Government that it would carefully monitor the green card system as a basis for exempting the poor from user fees and ensure that leakages are minimized. In Puniab exemptions to the charges would include state government employees and members of families holding yellow cards which signify a family income of below Rs. 11,850 based on the JRY norms. New lists of families eligible for these cards are being put together. Total revenue raised by DOHFW in 1993/94 was Rs. 25 million or just over I percent of expenditure. According to the National Sample Survey 1987/88, almost 50 percent of hospitalized cases are in non public hospitals. The average payment per case in these institutions was Rs. 1,200, indicating a willingness to pay among the general population. Because of the higher income level in Punjab, the ability and willingness to pay for services is greater than in the other two states. As a result, there exists considerable opportunity to increase revenue collection through increased charges and better collection methods. In West Bengal. the existing system for exempting the poor is based on an 'Indigent Certificate' from the local elected representative, given to families with an income level below Rs. 1,500 per month. The West Bengal Government proposes to use this criterion rather than the JRY criterion because the latter does not apply to large portions of the urban population of West Bengal. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that the agreed mechanism for exempting the poor from user fees would remain in place. II. Project Investments 2.19 The project in Karnataka, Punjab and West Bengal would finance the activities noted below: (1) Management Development and Institutional Strengthening by: (a) improving the institutional framework for policy development; (b) strengthening the management and implementation capacity of institutions; and (c) developing a surveillance capacity for major communicable diseases and response capabilities; (2) improving Service Quality. Access and Effectiveness at the First Referral Level, through: (a) upgrading community, subdivisional and district hospitals; (b) upgrading effectiveness of clinical and support services; and (c) improving the referral mechanism and strengthening linkages with the primary and tertiary health care levels; and (3) Improving access to Primary Health Care in Remote and Underdeveloped areas by: (a) upgrading primary health centers and improving access to primary health care services in the Sunderban area of southern West Bengal; and (b) increasing access to primary health care services among the SC/ST population in Karnataka. Component 1. Management Development and Institutional Strengthening (US$26.6 million. 7% of base costs) 2.20 Improving the Institutional Framework for Policy Development. Sectoral capacity for development of policy would be strengthened in each state through the creation of a strategic planning cell headed by a person of the rank of a Joint Secretary who would report directly to the Secretary, DOHFW in each state. The planning cell would monitor the critical issues in the health sector in the state by commissioning studies, workshops and seminars and by directly hiring consultants to facilitate  20 these activities. As noted earlier, some of the issues would include monitoring the development of the private health sector including private and social insurance, reviewing the suitability of present regulations relating to the quality of private care provision, evaluating the burden of disease and cost- effectiveness of public health interventions and reviewing medical manpower. In addition, the strategic planning cell in each state would review implementation of cost recovery mechanisms and sectoral resource allocation patterns. Under this sub-component the project would finance furniture, vehicles, equipment including computers, local training, studies, fellowships, workshops, consultants, operational expenses and salaries of incremental staff on a decreasing basis. 2.21 Strengthening Management and Implementation Capacity. Project management arrangements in the three states have several common elements and some differences. Project management arrangements have taken into account the existing organizational set-up and implementation capacity of DOHFW, the health programs currently being implemented by the Department and the overall set-up of public administration in the state, especially with regard to the nature of decentralized administration in each state. In Karnataka and West Bengal, the project will be managed and irnplemented by DOHFW, which will be strengthened under the project to address increased investment at the primary and secondary levels of health care under the project. In Punjab, the project will be managed and implemented by the PHSC, which was passed as an Ordinance on October 20, 1995. The PHSC is an autonomous agency under the aegis of DOHFW. The aim of the PHSC is to establish, expand, improve and administer medical care at the secondary or first referral level in Punjab (see Annex 6 on Project Management). The project would also provide support to the PHSC for the promotion of health care activities in Punjab, through private and voluntary organizations, the details of which would be worked out during implementation. In addition, the project would provide physical facilities in Karnataka and West Bengal to consolidate, in one location, project related activities that are currently dispersed across Bangalore and Calcutta; and upgrade the office facilities of the PHSC and DOHFW in Punjab. At Negotiations, the Government of Punjab and the PHSC provided assurances that they would take all measures necessary to: (i) enable PHSC to carry out its part of the project; and (ii) the PHSC would undertake health care activities under the project at the secondary level in accordance with service delivery norms acceptable to the Association, and in carrying out other health care activities would ensure that the ability of PHSC to perform its obligations under the Agreement would not be materially and adversely affected. 2.22 Management arrangements in each state would be evaluated from time to time to see whether the management system is producing the best results. In addition, a review of overall state finances as well as the financial situation of the health sector would be undertaken, and, if necessary, would form the basis of additional measures to achieve financial sustainability of the project. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that not later than June 30, 1999, they would carry out, jointly with GOI and IDA, a detailed mid-term review of project progress including management and financial reviews, in accordance with terms of reference agreed with IDA, and thereafter implement their recommendations. 2.23 Staff strength at the Head Office to undertake increased responsibilities and perform some new functions would be enhanced. Headquarters staff would be increased to meet the increased workload and reorient the structure of DOHFW in Karnataka and West Bengal and the PHSC in Punjab to meet their new challenges. Specific areas targeted for strengthening include the training and referral unit, the finance and audit unit, the Office of the Director (General) and the Office of the Director, (Service  21 Delivery). Parallel improvements and strengthening of the management and implementation capacity at the hospital level would be undertaken. These actions would facilitate systems improvement, wider access and improved data collection and utilization for planning and policy making, problem solving and monitoring at all levels of management, including the facility level. In all the states, at the hospital level, both information collection and management are fairly rudimentary. The project would: (i) enhance and extend the computerized system through the provision of hardware and software, and consultancy support; (ii) establish trained and equipped information cells at HQ and district levels; (iii) train all management staff in appropriate record keeping; and (iv) introduce a completely revised medical record system for in-patients and diagnostic services. Under this sub-component the project would finance minor civil works, professional services, furniture, other equipment including computers, vehicles, other supplies, MIS/IEC materials, studies, workshops, local training, fellowships and operational expenses and salaries of incremental staff on a decreasing basis. At Negotiations, the Governments of Kamataka, Punjab and West Bengal provided assurances that DOHFW in Karnataka and West Bengal and PHSC in Punjab would appoint or engage additional headquarters personnel and all other personnel to be hired under the project in accordance with a schedule agreed with IDA. 2.24 Developing Surveillance Capacity for Major Communicable Diseases. The surveillance system for major communicable diseases proposed under the project would cover the identification of cases through education of health workers and community involvement; indexing of cases or isolation of cases and treatmnent; and tracing of contacts for monitoring and evaluation. In the long-term, however, the surveillance system would need to be expanded to include preventive examination among those most likely to be infected and carrying out immunization; and an enhanced response capability in case of outbreak or epidemric. This project would fill some of the gaps in the national disease programs by linking the three elements noted above and providing treatment at the primary and secondary levels. 2.25 Each state has identified a list of communicable diseases for routine surveillance. Explicit criteria for monitoring these communicable diseases would be set to avoid any ambiguity in reporting by different agencies. Emphasis has been put on a community-based system for early detection and reporting and the full participation of local level institutions working at the village or community will be necessary to make the system more effective. For example in West Bengal, stamp printed red cards would be introduced for quick transmission of information on communicable diseases, and would contain information such as name, age, sex, address, date of onset, immunization status, date of death (if any) of every patient with or died from a specific communicable disease. The red card would be used in out-patient departments and entry points of in-patient cases in all health and medical units of the state. As soon as a case is detected the card will be filled out and posted to the district epidemiological cell which would be provided with the facility under the project to sort, analyze and report such incidences to the appropriate authority for quick follow up action. It will also be important to include the support of private medical practitioners and private institutions through workshops as well as training programs. The implementation of the health management information system (HMIS) will improve tracing of contacts as well as provide information on other diseases that are slated to be included under HMIS activities. To improve the system, quick containment measures have been developed even in the case of a single incidence to prevent possible outbreak of a specific disease identified in the priority list. In the case of outbreak/epidemic daily monitoring would be required. Under this subcomponent, the project would finance minor civil works, professional services, furniture, other equipment and supplies, MIS/IEC materials, local training, operational expenses and salaries of incremental staff on a declining basis.  22 Component 2. Improving Service Quality and Effectiveness at District. Subdivisional and Community/Rural Hospitals (US$308.2 million. 86% of Base Costs) 2.26 Renovating/Extending District, Subdivisional and Community/Rural Hospitals. In Karnataka, 21 district, 107 subdivisional and 74 community hospitals would be renovated/extended; in Punjab, 13 district, 46 subdivisional, 91 community, one children's and one maternity hospitals would be renovated/extended; in West Bengal, 15 district, 60 subdivisional and 95 rural hospitals would be renovated/extended. There would not be any new hospitals built under the project. The state Govemrnments have confirmed that no new sites will be acquired for upgrading facilities and that all premises slated for renovation/extension have existing land. In Kamataka, 3,832 new beds will be added to the existing bed strength of 14,858 at first referral facilities; in Punjab, about 2,140 new beds will be added to the existing bed strength of 5,822 at first referral facilities; and in West Bengal, no additional beds are proposed to the existing 21,723 operational beds in these facilities which a current capacity for only 19,964 beds. In West Bengal, the project would create supporting infrastructure for the overcrowded facilities to adequately accommodate the 21,723 beds that are already operating but at a low level. The proposed increase in bed strength at the secondary level in Kamataka and Punjab are justified on the basis of: (i) Indian Planning Commission norms of I bed per 1,000 population overall, of which 70% are recommended at the secondary level; and (ii) the epidemiological approach, which is based on the total number of beds required to address the burden of disease at the state level. Both approaches suggest a greater increase in bed strength in each state than is proposed under the project. Staff quarters would also be built in all three states in areas where housing is a problem for staff. Under this sub-component, the project would finance civil works, professional services, equipment, building maintenance and operational expenses. 2.27 Upgrading the Effectiveness of Clinical and Support Services and Quality of Services at District, Subdivisional and Community/Rural Hospitals. Streamlined norms and standards for clinical and support services would be applied at the first referral hospitals. Staffing norms conforming to services provided at each type of facility would be adopted, a system for monitoring improvements in the quality of clinical care would be established through the adoption of a quality assurance program and the capacity of support services would be expanded. Staff skills in clinical and technical areas would be enhanced through the provision of training to improve the quality and range of services. Management training for professional cadres and on-going in-service training for clinical and technical cadres would also be strengthened. This would facilitate the implementation of the quality improvement strategy of the project, through which new responsibilities would be provided. It is expected that decision-making would be decentralized down to the appropriate management level. Under this sub- component the project would finance minor civil works, professional services, furniture, medical and other equipment, medical laboratory and other supplies, medicines, vehicles, MIS/IEC materials, local training, studies, workshops, fellowships, consultants, equipment and building maintenance, operational expenses and salaries of additional staff on a decreasing basis. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that they would adopt, within six months of upgrading each facility, staffing and technical norms at district, subdivisional and community/rural hospitals, as agreed with IDA, to ensure the quality of services. 2.28 At the first referral level, the focus of improving management effectiveness would be on strengthening service delivery. The first referral level would be able to better manage its resources,  23 deliver clinical services effectively, and hospitals will be able to play a more important role within the district health systems. DOHFW in West Bengal and Karnataka and the PHSC in Punjab would have greater freedom of action with regard to recruitment of staff and revenue raising; establish clarity of goals, objectives and procedures; create opportunities for contracting out services, especially support services; improve medical record-keeping, health management information systems (HMIS) and related evaluation and monitoring capacities; provide management training; improve capacity for equipment management, especially state-wide maintenance services by enhancing the capacity for equipment maintenance and training. To facilitate an early start to this process, the states have taken the following action: in Karnataka, the Project Governing Board, Steering Committee and Engineering Wing have been established, and key staff have been approved or hired; in Punjab, key staff, including the Managing Director of the PHSC, have been appointed; and in West Bengal, key staff, including Project Director, have been hired. They have also provided a schedule for the hiring of key staff (Annex 6). 2.29 There is currently no acute shortage of professional staff overall, but there is a shortage of some medical specialties and nurses. The first step would be to improve recruitment and prompt filling of job vacancies by improving recruitment procedures. An understanding was reached with the states that the implementing agencies would have the authority to: (i) advertise, appoint, promote and transfer staff internally; (ii) post staff as needed, especially in tribal areas; (iii) introduce appropriate incentives to retain staff in remote areas including: provision of staff quarters, bonus at the end of a specified period of posting, educational allowance for children of staff posted in remote and tribal areas, additional leave eligibility and extra credit for doctors and other staff for post-graduate qualification admission and for fellowships; and (iv) relax service rules as necessary to maintain service when appropriately qualified staff are unavailable. 2.30 Due to the scope of the civil works component and the need to ensure adequate maintenance of assets as a result, DOHFW in Karnataka and West Bengal and the PHSC in Punjab would be strengthened by providing them with enhanced management and supervision responsibilities of essential operational activities, including construction and maintenance activities, in collaboration with local Government. An Engineering Wing in the implementing agency in each state would be set up at the state and district levels, adequate funds would be provided and the flow of these funds would be channeled through the implementing agency. In addition, a Maintenance Cell will be established in each large hospital, to manage day-to-day emergent maintenance works. At Negotiations, the Governments of Kamataka, Punjab and West Bengal provided assurances that they would provide funds, satisfactory to the Association, annually for the maintenance of previously existing equipment in health facilities supported under the project. 2.31 Improving Referral System. The referral system in Karnataka, Punjab and West Bengal, as in the rest of India, does not function well (see Annex 8). Patients perceive the lower level facilities as providing lower quality of services. As a result, the lower tiers are underutilized since patients directly proceed to higher level hospitals for minor illnesses, thereby overloading the higher level institutions. The beneficiary assessment study in West Bengal found that about 2% of the patients at first referral facilities were referred from PHCs. It is estimated that a third of all cases which are currently treated at tertiary facilities could be treated, and at lower costs, at first referral facilities if those facilities received adequate inputs.  24 2.32 The project would seek to ensure that a much higher proportion of patients coming to first referral hospitals had been seen at PHCs and referred upwards. Likewise, for those patients going to tertiary hospitals, the project would implement several measures to strengthen the referral system and improve the quality of care at the first referral level. Special attention would also be given to establishing mechanisms to improve access for remote and disadvantaged groups and tribal communities. The referral system would also be strengthened by establishing an incentive system with differentiated user fees for users and non-users and allowing patients to by-pass waiting lines when they carry a referral slip. Under this sub-component the project would finance vehicles (purchase, hire and maintenance), other supplies, MIS and IEC materials, local training, consultants, fellowships, workshops and operational expenses. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that they would strengthen the referral system between the primary, secondary and tertiary levels by December 31, 1996, by: (i) issuing appropriate directives to hospitals to strengthen the management of the referral system; (ii) establish and thereafter maintain and implement appropriate referral protocols and clinical management protocols; and (iii) establish and thereafter maintain and implement an appropriate incentive system for patients who use the system. Component 3. Improving Access to Primary Health Care in Remote and Underdeveloped Areas (US$ 24.3 million. 7% of base costs) 2.33 Upgrading of Primary Health Centers in the Sunderban Area of West Bengal. The Sundarban area in southem West Bengal, with a population of about 3.1 million people is among the poorest regions in the state with a predominance of small and marginal farmers -- 40% of the population belong to SC/STs. The 54 islands, interspersed with bodies of water, are covered with forests and swamps. They are intersected from north to south by wide tidal rivers and estuaries and from east to west by narrow tidal creeks. Transport and communication networks are inadequate in this hostile geographical and topographical location. Metalled roads comprise about 10% of the total road surface area. Where available, transport is painfully slow and people have to travel in an assortment of country boats, cycle-rickshaws and buses to reach their destinations. There are no major hospitals in the region and travel time is at least eight hours from the closest point by public transport to Calcutta and its overcrowded health facilities. The remoteness of the region, the lack of transport, the poverty of the people and lack of access to health facilities have contributed to the health problems of the people in the Sundarban Areas. It is, therefore, proposed that the project would upgrade all the 28 PHCs and 8 block PHCs in the Sunderban area. In addition, three floating medical units will be set up to deliver effective health care in the riverine areas and would be supported by wireless connection. A wireless commnunication system will also link up the 36 PHCs and block PHCs with the gram panchayat office. Under this subcomponent, the project will finance civil works, professional services, furniture, riverine vehicles, medical and other equipment, medical and laboratory supplies, medicines, other supplies, MIS/IEC materials, local training, studies, workshops and operational expenses. 2.34 Increasing Access to Primary Care Services Among SC/ST Population in Karnataka. A system of annual health check-ups is proposed under the project for the SC/ST population of Karnataka, which account for nearly 20% of the population. The medical check-ups will be made available in health check-up camps to be organized at the headquarters of every auxiliary nurse midwife (ANM). At the beginning of each year, the district health and family welfare worker would draw up a calendar for every PHC indicating the date, time and place at which health check-up teams would visit the subcenter. Prior to the date for which health check-up is fixed in a particular village, the  25 ANM and the male health worker would make house-to-house contact with each SC/ST household to ensure maximum attendance. This would also be a good venue for IEC activities relating to the dissemination of general public health related issues. The health-check up team would consist of a medical officer of the PHC, lady medical officer drafted for the purpose from a government hospitaL laboratory technician, lady health visitor, ANM and a paramedical staff. Much of the work will be done at the level of the ANM, who will do the early screening. The PHC medical officer will review a smaller number of more complex cases. Referral to first referral hospitals will follow the system set up under the referral system for the general population. A record of health check-ups will be maintained in a master register and each individual would be issued a health check-up card free of cost. These camps will also provide family planning services. The novelty of this program is that it will mobilize the PHC staff in a manner consistent with the delivery of primary care services originally envisaged under the NHP. The subcomponent will finance furniture medical and laboratory supplies, medicines, other supplies, MIS/IEC materials, local training operational expenses and salaries of additional staff on a decreasing basis.  26 III. PROJECT COST, FINANCING, IMPLEMENTATION AND DISBURSEMENT A. Project Costs 3.1 The total cost of the project is estimated at about Rs. 16,691.4 million or US$416.7 million equivalent, including taxes and duties estimated at US$22.2 million equivalent. The project costs in Karnataka, Punjab and West Bengal would be US$136.4 million, US$106.1 million and US$174.2 million respectively. IDA would finance about US$350.0 million or about 88.7 percent of total project costs net of taxes; the balance of US$66.7 million would be financed by the Governments of the three project states, Karnataka (US$25.0 million), Punjab (US$16.4 million) and West Bengal (US$25.3 million). The direct and indirect foreign exchange cost is estimated at US$94.6 million. The project would finance civil works, equipment and furniture, vehicles, medical and laboratory supplies, medicines, other supplies, MIS/IEC supplies, professional services, training, studies and evaluations, workshops, and operational expenses and salaries of incremental staff on a declining basis. Details of cost estimates, financing plan, procurement arrangements and disbursements plans are shown in the various annexes of the SAR. 3.2 The breakdown of project costs by component and categories of expenditure for the project is summarized in Tables 3.1 and 3.2. Table 3.1: Cost By Component mm"p 1MlBei0 SW= MllG) S S TOW C-_ F*u am Lam Fomig TOl Loal PoG TOtal E Co 1. Ma.go Dop- A Sb_O.thmi. la-l ImproelniibammwlFramworkfcrPolicyDelp 58.3 16.4 74.7 1.7 .5 2.1 22% 1% Ib-S-enph MagsmeA& plmPkm-i _ CaPy 667.5 105.4 772.9 19.2 3.0 22.2 14% 6% Ic - Dcvebp SurvsiIl Coprinty sI= 22 LA A 11 in 2s Subtotal 789.6 137.1 926.7 22.7 3.9 26.6 15% 7% L Improve Se&vkm Quasiy, A ad Zfosdho.. 2a - Renovaw tAE dC Cm ty.AreaADiim Hapihs 4,065.9 740.1 4.126.7 117.4 21.3 131.7 39% 0% 2b-UpgradeClinic hcE 3.982.7 1,431.3 5.414.5 114.4 41.1 155.6 43% 0% 2c - Impaimo Refrral doct 28.Lm 42 La U l;2 4i ox Suboa 8,271.4 2,452.6 10.724.0 237.7 70.5 308.2 86% 0% 3 -lmpoo.Axn to Oak SSu 611.0 233.8 s44.9 17.6 6.7 24.3 7% 0% Total BASELE COSTS 9,672.1 2,823.5 12,495.6 277.9 31.1 359.1 100% 0% fyei C _ soasod 390.5 279.6 1.170.1 25.6 8.0 33.6 9% 0% Prim Candmpwiu 2,340.9 684.9 3,025.7 11.5 5.4 24.0 7% 0% Total PROJECr COSls 12.903.5 3,798.0 16,691.4 322.1 94.6 416.7 116% 0%  27 Table 3.2: Cost by Categories of Expenditures (Rupee MU&=) (USS Millon) % % Total Foreign Rafe Local Foe Tot Local Foreign Total Exham Ceam Investment Costa Civil Works (Renovation) 1,131.1 199.6 1,330.7 32.5 5.7 38.2 15% 11% Civil Works (New Constr or Extension) 2,737.3 483.0 3.220.3 78.7 13.9 92.5 15% 26% Professional Services 356.1 89.0 445.1 10.2 2.6 12.8 20% 4% Furniture 304.7 33.9 338.5 8.8 1.0 9.7 10% 3% Major Medical Equipment 562.7 844.1 1,406.8 16.2 24.3 40.4 60% 11% Minor Medical Equipment 43.3 10.S 54.2 1.2 .3 1.6 20% - Medical Equipment - Surgical Packs 81.0 20.3 101.3 2.3 .6 2.9 20% 1% Equipment (Other) 763.1 190.8 953.8 21.9 5.5 27.4 20% 8% Vehicles 109.9 329.8 439.7 3.2 9.5 12.6 75% 4% Medical Lab Supplies 127.9 32.0 159.9 3.7 .9 4.6 20% 1% Medicines 401.5 4015 803.0 11.5 11.5 23.1 50% 6% Other Supplies 550.3 - 550.3 15.8 - 15.8 - 4% MIS/IEC Materials 156.2 52.1 208.3 4.5 1.5 6.0 25% 2% Local Training 220.5 - 220.5 6.3 - 6.3 - 2% Studies 66.7 - 66.7 1.9 - 1.9 - 1% Fellowships 6.2 55.6 61.8 .2 1.6 1.8 90% - Workshops 51.5 - 51.5 1.5 - 1.5 - Consultants 12.4 - 12.4 .4 - .4 NGO's 18.7 - 18.7 .5 - .5 - - Total Investmeent Costs 7,701.0 2,742.4 10,443.4 221.3 78.8 300.1 26% 84% Kecurrent Coats Salaries of Additional Staff 1.225.2 - 1,225.2 35.2 - 35.2 - 10% Operational Expenses 473.5 52.6 526.1 13.6 1.5 15.1 10% 4% Building Maintenance 69.4 7.7 77.1 2.0 .2 2.2 10% 1% Surgical Pack Maintenance 2.9 .S 3.1 .1 .0 .1 5% Vehicle Maintenance 15.6 1.7 17.4 .4 .0 .5 10% Equipment Maintenance 170.2 18.9 189.1 4.9 .5 5.4 10% 2% Furniture Maintenance 14.3 - 14.3 .4 - .4 - - TotalRecurrentCoets 1,971.1 81.1 2,052.2 56.6 2.3 59.0 4% 16% Total BASELINE COSTS 9,672.1 2,8235 12,495.6 277.9 81.1 359.1 23% 100% Physical Contingencies 890.5 279.6 1,170.1 25.6 8.0 33.6 24% 9% Price Contingencies 2,340.9 684.9 3,025.7 18.5 5.4 24.0 23% 7% Total PROJECT COSTS 12,903.5 3,788.0 16,691.4 322.1 94.6 416.7 23% 116%  28 3.3 Basis of Cost Estimates. Estimated costs for civil works are based on current unit costs for construction which vary from US$135 per square meter in Karnataka and Punjab to US$165 per square meter in West Bengal of gross floor area of construction. The higher unit costs in West Bengal are due to the relative scarcity of building material in the state. These costs are comparable to IDA- assisted construction in India. Costs of professional services for design reflect the scale of fees established for similar services provided by local architectural consulting firms. Costs for supervision of construction reflect the standard ongoing charges in the private sector. Cost estimates for furniture, medical equipment, vehicles and medical supplies are product of lists developed by DOHFW, and include import duties and taxes. Costs of other supplies are based on the state estimates and reflect current prices. Estimated costs for the salaries of additional staff are based on basic pay scales including standard allowances for social and other benefits applicable in each project State. 3.4 Customs Duties and Taxes. All imported goods are subject to customs duties and taxes. The estimated cost of the project includes import duties and taxes estimated at about US$22.2 million equivalent. 3.5 Contingency Allowances. Estimated project costs include physical contingencies (US$33.6 million) estimated at 10% of all physical components and at 5% for technical assistance, training and salaries. The estimated costs of the project also include price contingencies (US$24.0 million) to cover expected price escalation at the following rates. For civil works, goods, salaries, technical assistance and operation and maintenance - foreign costs: 4.4% in FY96, 1.8% in FY97 and FY98, 2.2% in FY99, 2.3% in FY00 and FY01, and 2.4% in FY02; local costs: 8.7% in FY96, 8.2% in FY97, and 7.5% in FY98, 6.5% in FY99, 6.0% in FY00 through FY02. 3.6 Foreign Exchange Component. The estimated foreign exchange component of US$94.6 million is calculated on the basis of estimated foreign exchange proportions as follows: (a) civil works 15%; (b) professional services 20%; (c) furniture 10%; (d) equipment 60%; (e) locally manufactured vehicles 12%; (f) imported vehicles 90%; (g) medical laboratory supplies 20%; (h) medicine 50%; (i) MIS and IEC materials 25%; (j) foreign fellowships 90%; (k) operation and maintenance, and maintenance for buildings and equipment 10%. B. Financing Plan 3.7 The estimated total project cost of US$416.7 million equivalent would be financed by an IDA Credit of US$350.0 million equivalent, which would cover about 88.7 percent of the project costs net of taxes. The Governments of Karnataka, Punjab and West Bengal would finance the remaining costs of US$44.5 million plus all taxes (US$22.2 million). 3.8 The credit would be made available to GOI on standard terms and conditions and on-lent to the Governments of Karnataka, Punjab and West Bengal under standard arrangements for development assistance to the states; and Punjab would further transfer the funds to PHSC as a grant. Under current GOI policies and regulations, on-lending to Kamataka, Punjab and West Bengal takes the form of 30% grant/70% loan at 12% interest per annum over 20 years. GOI would assume foreign exchange risk. At Negotiations, an understanding was reached with GOI that it would release about three month's anticipated project expenditures in advance to the project states (in accordance with the amounts established in the Annual Plans), and that upon receipt of funds from GOI, the Governments of  29 Karnataka, Punjab and West Bengal would transfer all such funds, together with its quarterly counterpart contributions, immediately to the project accounts of DOHFW in Karnataka and West Bengal and the DOHFW/PHSC in Punjab. C. Procurement Arrangements 3.9 Table 3.3 summarizes the project items, their related cost estimates and proposed methods of procurement. Project-related procurement for goods, works and services would follow procedures acceptable to IDA using ICB and NCB documents acceptable to the Association. Project-financed consultants would be recruited according to Guidelines on the Use of Consultants by World Bank Borrowers. Procurement of equipment, vehicles, and medical laboratory supplies would be bulked to the extent possible and any individual contract exceeding US$200,000 equivalent would be procured under ICB procedures. This is also true for vehicles including riverine vehicles, except for those needed for immediate use costing up to an aggregate of US$300,000 only, which may be procured through national shopping or Directorate General of Supplies and Disposals (DGS&D), New Delhi rate contract. Shopping under the project would include international shopping procedures, based on comparing price quotations obtained from at least three suppliers from two eligible countries, or national shopping procedures with solicitation of price quotations from at least three suppliers, all in accordance with Bank Guidelines. 3.10 Civil Works (US$152.2 million). The civil works component entails no new hospital construction but does involve large and small scale renovations and extensions to 557 hospitals over the five year life of the project. An estimated 475 contracts (costing US$134.2 million) will be carried out through national competitive bidding. These works average between US$300,000 and US$500,000 and would not be of any interest to foreign bidders and would be procured under NCB procedures. Contracts for the remaining works estimated to cost about US$ 45,000 equivalent or less per contract at about 400 sites up to an aggregate not exceeding US$18.0 million scattered and in remote areas shall be procured, in accordance with procedures acceptable to the Association: (i) through Force Account limited to US$10,000,000; (ii) by direct contracting; or (iii) under quotations solicited from at least three qualified contractors. 3.11 Equipment (US$84.5 million). Procurement of most of the equipment would be phased on an annual basis in accordance with the requirements of the project activities. Contracts valued at over US$200,000 would be procured through ICB for an amount equal to US$54.9 million. Contracts valued at US$200,000 or less would be procured through NCB procedures acceptable to IDA for an amount not exceeding US$12.7 million. Purchases totaling US$50,000 or less, and not exceeding in aggregate US$12.7 million and US$4.2 million equivalent, may respectively be awarded on the basis of national and international shopping based on comparing price quotations obtained from at least (a) three suppliers from two eligible countries for international shopping and (b) three national suppliers for national shopping. An estimated 200 contracts will be carried out through ICB and NCB, ranging from over US$200,000 to US$750,000 per contract. Phasing of the procurement of equipment will be closely sequenced with the civil works program. Details on the type of equipment and packaging are available as working papers. 3.12 Vehicles (US$14.6 Million) would be procured during the first two years of the project through ICB for an amount not exceeding US$14.3 million. To facilitate project start-up activities  30 procurement of vehicles up to an aggregate of US$300,000 will be undertaken by the three states under national shopping procedures or DGS&D rate contracts. An estimated 24 contracts would be carried out through ICB, ranging from US$200,000 to US$800,000 per contract. Table 3.3: Procurement Arrangements (Total Costs in US$ Millions) Procurieai Nitibod l11aiaa Nada_l CmIZ_u Cc- . Iatuaada L4Xal Otbh liddlag Ild*.g Sh 5Shpping Mededi /a Toed CIrIL WORKS Civil Works 134.2 /b 18.0 152.2 (114.1) (15.3) (129.4) GOODS Furniture .5 /c 2.S 11.4 (7.7) (2-6) (10.2) Equipmnc 54.9 12.7 4.2 12.7 - 84.5 (49.4) (11.4) (3.8) (11.4) (76.0) Vehicles 14.3 - - 0.3 - 14.6 (12.9) (0.3) (13.1) Medical Lab Supplies - 2.7 0.4 2.3 - 5.4 (2.4) (0.3) (2-1) (4.9) Medicines - 22.0 1.5 3.7 - 27.2 (19.8) (1.3) (3.3) (24.5) OtherSupplies 7.4 11.1 18.5 (6-.) (10.0) (16.7) MIS/IEC Materials - 5.2 1.7 6.9 (4.7) (1.6) (6.2) CONSULTANCIES Projecs Preparation & implementation (incl Training. Workshops. Fellowships) - - 10.7 10.7 (10.7) (10.7) losiitional Development (includes Local CotsultnL, Studies, Professional Services Fces. NGO Fees) - - 1.1 tS.t (16.3) (16.3) MISCELLANEOUS Salaries of Additional Staff - - - 39.3 39.3 (25.5) (25.5) Opertional Ex,estiuees - .p- 17.8 - 17.8 (11.1) (11.1) Building Maintenance . - - 3.1 3.1 (1.7) (1.7) Equpem Maintenanc- 7.0 7.0 (3.8) (3.8) Total 69.2 192.7 6.1 52.5 96.2 4t6.7 (62.3) (166.8) (5-5) (42.3) (73.3) (350.0) Notes: In 'Other' methods indude Force Account, Direct Contacting and Consulting Services /b Figures in parenthesis are the repectve amounts financed by IDA /c Figures may not apear to add exactly due to rounding  31 3.13 Furniture (US$11.4 million), Laboratory Supplies (US$5.4 million) MIS/IEC Materials (US$6.9 million) and Other Supplies (US$18.5 million) would be purchased as follows. Contracts estimated to cost less than US$50,000 equivalent up to an aggregate of US$17.6 million (furniture - US$2.8 million, medical laboratory supplies - US$2.3 million, MIS/IEC materials US$1.7 million and other supplies US$1 1.1 million) may be awarded on the basis of national shopping with solicitation of price quotations from at least three suppliers. This is again based on the fact that this amount covers purchases by 557 hospitals over a period of five years. Contracts valued at US$50,000 equivalent or more would be awarded on the basis of NCB procedures acceptable to IDA for an amount not exceeding US$23.8 million (furniture - US$8.5 million, medical laboratory supplies - US$2.7 million, MIS/IEC materials - US$5.2 million and other supplies - US$7.4 million). Contract for medical laboratory supply estimated to cost less than US$200,000 per contract, not to exceed an aggregate amount of US$0.4 million equivalent will be awarded under international shopping procedures, based on comparing price quotations obtained from at least three suppliers from two different eligible countries in accordance with Bank Guidelines. 3.14 Medicines (US$27.2 million) would be purchased by each of the 557 hospitals as well as by DOHFW in Karnataka and West Bengal and the Health Systems Corporation in Punjab several times per year over the five year life of the project. Bulking requirements would not always be feasible due to shelf life of the medicines. As a result, the individual purchases would be small and not likely to attract foreign bidders. Accordingly, contracts valued at US$50,000 equivalent or more would be awarded on the basis of NCB procedures acceptable to IDA for an amount not exceeding US$22.0 million. Contracts estimated to cost less than US$50,000 equivalent up to an aggregate of US$5.2 million may be awarded on the basis of National and International Shopping procedures based on comparing price quotations obtained from at least: (a) three suppliers for national shopping; (b) three suppliers from two different eligible countries, in accordance with Bank Guidelines. 3.15 Studies and Consultancy Contracts (US$2.9 million) and Professional Services (US$15.2 million). Professional services will be used mainly for architectural and engineering services which will be provided from within the country. Consultants required under the project will be hired following procedures prescribed in "Guidelines: Use of Consultants by Worla Bank Borrowers and by the World Bank as Executing Agency"; August, 1981. Documents used for inviting proposals, terms of reference for all consultancies and single-source contracts will be subject to prior review for all contracts valued at US$100,000 or more awarded to firms and US$50,000 or more to be awarded to individuals. The professional services entail approximately 500 contracts valued from about US$15,000 to US$60,000; this many contracts would not be suitable for international consulting firms. These contracts will include topographical surveys, soil tests, architectural and engineering fees, and supervision of construction. 3.16 Fellowship, Training, and Workshops (US$10.7 million). This category includes expenses related to training of about 22,663 medical professionals over the life of the project in respect of seminars, workshops, travel and subsistence allowances. 3.17 Equipment Maintenance (US$7.0 million) and Building Maintenance (US$3.1 million). Maintenance costs for vehicles, medical and other equipment items estimated to cost less than US$5,000 per contract up to an aggregate of US$7.0 million would be procured from local commercial suppliers of such services: (i) through direct contracting; or (ii) under quotations solicited from at least  32 three suppliers in accordance with procedures acceptable to IDA. Maintenance of buildings and building equipment (funded by the project), estimated to cost US$5,000 equivalent or less per contract upto an aggregate of US$3.1 million, shall be carried out by other procedures where such arrangements already exist or by obtaining three quotations from local contractors in accordance with procedures acceptable to IDA. 3.18 IDA Review. Prior to the issuance of any invitations to bid for contracts, the proposed procurement plan for the project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. All procurement under contracts costing US$300,000 equivalent or more for civil works and US$200,000 equivalent or more for goods would be subject to prior review; the rest would be subject to post review. All other contracts would be subject to random post review in the field by visiting missions. Other contracts for civil works and goods would be subject to IDA review after contract award. Contracts for the hiring of consulting firm costing US$100,000 equivalent or more and contracts for hiring individual consultant costing US$50,000 equivalent or more, would be subject to prior review and approval by IDA. Approximately 60% of the value of the IDA Credit would require prior review. D. Disbursement Profile 3.19 The proposed IDA credit would be disbursed over five and a half years. This is shorter by 18 months than the standard profile for PHR projects in India. The project is expected to be completed on September 30, 2001 and the credit closed on March 31, 2002. Table 3.4 below shows forecasts of expenditures and disbursements. Table 3.4: Estimated Expenditures and Disbursements (US$ Million) IDA FY FY97 FY98 FY99 FY2000 FY01 FY02 Annual 45.6 88.1 111.2 98.2 66.2 7.4 Expenditures Annual 24.5 57.9 85.9 87.6 67.2 26.9 Disbursement _ _ Cumulative 45.6 133.7 244.9 343.1 409.3 416.7 Expenditures Cumulative 24.5 82.4 168.3 255.9 323.1 350.0 Disbursement I_I_I I I___ 3.20 Disbursement Percentages and Required Documentation. The IDA Credit would be disbursed against 85% of expenditures on civil works: 100% on professional services, consultants and fellowships; 100 percent of CIF and ex-factory costs or 80% of other local expenditure on furniture, equipment, vehicles, medicines and materials, MIS and EEC materials; and 65% of salaries of incremental staff and other recurrent costs on a declining basis during the project period starting with  33 90% until December 31, 1998, 75% until December 31, 2000 .:rd 40% thereafter. Disbursements for civil works over US$300,000 equivalent per contract, goods over US$200,000 equivalent per contract, consulting firm contracts over US$100,000 and individual consultants over US$50,000 equivalent would be fully documented and all other expenditures would be disbursed on the basis of statement of expenditures. Each state Government would maintain complete records of funds disbursed, including certificates of completion signed by the District Executive Engineer, the Managing Director of Punjab Health Systems Corporation and the Project Coordinators in Karnataka and West Bengal. 3.21 Special Account and Central Government Advance to the State. In order to accelerate disbursements in respect of IDA's share of expenditures prefinanced by GOI and the state Governments, and to allow for direct payment of other eligible local and foreign expenditures, a Special Account would be maintained in the Reserve Bank of India in the amount of US$17.0 million equivalent to cover four months of estimated disbursements through the Special Account. 3.22 Retroactive Financing. Retroactive financing for project preparation in the amount of US$10 million, about 2.8 percent of the proposed credit, is provided to cover eligible expenditures incurred in implementing appraised project activities after May 1, 1995. Retroactive financing in support of project preparation would support initial staff appointments, technical survey of the existing hospitals under the project including topographical site surveys and soil tests, preparation of preliminary designs, and initial construction activities. Procurement arrangements were reviewed and found appropriate. E. Project Implementation 3.23 In Karnataka and West Bengal, the project will be managed and implemented by DOHFW. In Punjab, the project will be managed and implemented by the Punjab Health Systems Corporation (PHSC). Lists of staff or Committee Members, organograms for each state, and the functional levels of project management in each state are shown in Annex 6. 3.24 In all three states, a Project Governing Board (PGB)/ Board of Directors (BOD) will be at the top of the project management structure. It will include high level representation from all relevant parts of the state Government that are associated with the project. The PBG/BOD will be fully empowered to make major policy decisions and develop the broad policy outline for the project; approve the annual budget; authorize major project revisions as necessary; ratify decisions made by the Steering Committee (in Karnataka); formulate rules and regulations; and undertake an annual review of project implementation and monitor overall project progress. The PGB/BOD in each state would have the responsibility for supervising the activities of project management. A provision has been met under the project for the use of consultancy/professional services under technical assistance to support this function, especially with regard to the new approach to the management of civil works. The PGB in Karnataka and West Bengal would meet twice a year, while the BOD in Punjab would meet more often. The Strategic Planning Cell would report to the PGB/BOD. 3.25 In Karnataka, but not in West Bengal or Punjab, there would be a Steering Committee under the PGB. The Steering Committee would delegate adequate powers to the PGB to carry out its functions as the nodal body for project implementation. The Secretary, DOHFW, would be the Chairman of the Steering Committee and the Project Coordinator. The Steering Committee will  34 supervise and monitor project implementation, undertake planning activities and facilitate project management activities. 3.26 Reporting to the PGB/BOD directly, in Punjab and West Bengal, and through the Steering Conmmittee in Karnataka, would be the Project Management Cell (PMC). The PMC would be headed by an Additional Secretary as the Project Administrator in Karnataka, a Special Secretary as the Managing Director of the PHSC in Punjab, and a Special Secretary as the Project Director in West Bengal. This official would be assisted by medical, technical, engineering services, financial management and administration and personnel divisions. The functions of the PMC would include all aspects of routine project management, monitoring progress, maintaining flow-of-funds and project account, providing technical guidance and general administration, and preparing progress reports. 3.27 At the district level, a District Health Committee/Project Implementation Cell would facilitate functioning of the various activities to be carried out under the project. In Karnataka and West Bengal, District Health Committees have been approved/established in all districts. At Negotiations, the Governments of Karnataka and West Bengal provided assurances that they would maintain District Health Commitees in all districts of the states to facilitate the collection and distribution of user charges, maintenance of equipment, waste management, training of technical staff, quality assurance surveillance of major communicable diseases and monitoring and supervision of project related activities. 3.28 The initial phase of project implementation will focus on developmental activities including project launch; monitoring mechanisms and performance indicators; strengthening health MIS system and surveillance network for major communicable disease; initiating in-service training of staff in clinical, management and equipment matter; strengthening the functions and appointing key staff and supplying equipment to existing hospitals to improve the quality of service program. The disbursement profile relating to the balance of hardware and software aspects of the project would be monitored during supervision to ensure that an optimal balance between the two is maintained. The first phase of the hospital upgradation program would consist of 42 hospitals in West Bengal, 45 hospitals in Karnataka and 40 hospitals in Punjab. During the initial phase, the implementation plan would be to: complete topographical site surveys and soil tests; finalize and complete all drawings including site development plans, invite bids and commence construction for all hospitals under the four planned phases (see Annex 18); and complete over 50 percent of phase I and phase II and about 25% of phase III and phase IV; and prepare and complete all drawings including site development plans, launch bids and sign contracts of all 557 hospitals, 28 PHCs and 8 Block PHCs requiring upgradation. About 35 percent of total construction is expected to be completed by the end of the second year. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that they would review with IDA annually by April 30 of each year the progress of project implementation over the preceding twelve months and prepare an annual work plan for the following twelve months acceptable to IDA.  35 F. Status of Project Development 3.29 The Governments of Karnataka, Punjab and West Bengal have finalized their project proposals (September, 1995) in consultation with IDA missions and on the basis of workshops on service norms, project management and policy issues organized by each state. Based on these norms and taking into account cost-effectiveness criteria, the proposals have defined appropriate staffing patterns, physical upgradation of facilities, equipment requirements and the need for support services. Letters of Health Sector Development Program furnished by each state were finalized during Negotiations (see Annex 2). Project management arrangements, additional staffing requirements and functional responsibilities have been finalized and found satisfactory by IDA (see Annex 6). 3.30 Beneficiary assessment and private sector studies have been completed in Karnataka, Punjab and West Bengal. The findings and recommendations of these studies have been used to fine-tune project design in each state. The tribal and backward areas strategy proposed for the project in Karnataka and West Bengal was found satisfactory by the IDA team; Punjab will have no tribal strategy since there is no tribal population in the state (see Annex 13). 3.31 An extensive survey of all health facilities to be included under the project has been completed in Kamataka, Punjab and West Bengal. Samples of the surveys in all three states have been reviewed and found satisfactory. Each state has recruited consultants to ensure timely preparation of designs, architectural and engineering drawings, and written bid documents. Preliminary designs of about 35 hospitals have been initially reviewed. The state Governments have been informed that these should be in accordance with World Bank guidelines for the use of consultants to ensure that retroactive financing would be applicable. The Governments of Karnataka, Punjab and West Bengal have prepared procurement plans and discussed and agreed on the bidding documents for procurement activities in the first two years of implementation. 3.32 All clinical, equipment and staffing norms have been reviewed and agreed with the states. An essential drug list has been prepared by each state and found satisfactory by IDA. An inventory of the nature and state of the current equipment at each facility that will receive inputs under the proposed project, including the primnary care facilities in the Sunderbans area of West Bengal, has been completed in Karnataka and West Bengal. Following this exercise, an analysis has been completed of the equipment requirements at each facility. Punjab is nearing completion of this exercise. 3.33 A plan for a surveillance system for major communicable diseases has been discussed with each state. Community participation in the surveillance network has been incorporated and links with HMIS have been elaborated in the proposals. All three states have developed a comprehensive plan for the implementation of medical waste management which includes tertiary hospitals not covered by the project (see Annex 11). 3.34 The overall implementation schedule for the different project components has been carefully synchronized. With regard to implementation schedules: civil works program has been prepared in each state and procurement packages for civil works have been finalized; lists of the equipment to be purchased under the project has also been finalized; training for staff, IEC, HMIS, referral system, waste management, surveillance system, and other software aspects of the project have also been finalized and found satisfactory by IDA (see Annex 18).  36 3.35 A list of performance indicators has been discussed and agreed upon (see Annex 19). Baseline data on the performance indicators have been mostly put together by the states. The concept of medical audit, which will extend the scope of monitoring activities under the project at the hospital level, would be finalized at a joint workshop to be held in March, 1996. The workshop will also finalize clinical training modules and the scope of the quality assurance program at the hospital level. 3.36 Workshop on traini. m odules for each category of staff was held in Calcutta, and attended by Kamataka and Punjab as well. Based on this, each state has developed a list of number staff to be trained, and the focus, location and duration of training (see Annex 7). The three states confirmed that the management training component would be contracted out to management institutes. 3.37 Prior to Negotiations, the three state Governments took the following actions: (i) a Letter of Health Sector Development Policy was furnished by each state, which was finalized during Negotiations; (ii) relevant state Government clearances, as well as cleara,ce from the Planning Commission, GOI, were obtained; (iii) Strategic Planning Cells were set up within the DOHFW in Karnataka and West Bengal and PHSC in Punjab; (iv) a mechanism for ensuring that existing level of user charges are implemented more rigorously was approved, an agreed mechanism for exempting the poor from user fees is in place, and District Health Commnittees in Karnataka and West Bengal have been approved/established; (v) an Ordinance was passed by the Government of Punjab, establishing the PHSC; (vi) regulations relating to Board procedures, personnel policies, audits and accounts, and user charges have been issued; (vii) in Karnataka, the Project Governing Board, Steering Committee and Engineering Wing were established, and key staff were approved or hired; (viii) in Punjab, key staff; including the Managing Director of the PHSC, were appointed; (ix) in West Bengal, key staff, including Project Director, were hired; and (x) in Karnataka and West Bengal, Government Orders were issued, providing authority to DOHFW to manage essential operational activities including civil works construction and maintenance activities. G. Social Assessment 3.38 A Social Assessment (SA) was undertaken for this project and was utilized extensively to fine- tune project design (see Annex 14). Some issues addressed by the SA included: the social risks which might affect the success of the project, including the institutional and management arrangements and capacity building at appropriate levels of administration; the social and cultural factors that affect the ability of stakeholders to participate or benefit from the proposed project; and the impact of the project on women and vulnerable groups. A multi-pronged strategy was adopted to gather the data required for the SA. This included: basic demographic, epidemiological and socio-economic data from secondary sources; and primary data on demand and supply factors affecting health care delivery generated through participatory observations, interviews, case studies, focus groups, surveys and rapid rural appraisal. 3.39 An important aspect of the SA was the involvement of key stakeholders. Preparation of the project devoted special attention to facilitating a sense of ownership and commitment of those involved in the process. They included: (i) the Government of India (GOI), the state Governments of Karnataka, Punjab and West Bengal, and agencies responsible for project implementation; (ii) the beneficiaries i.e. the individuals, groups and communities who would benefit from the proposed intervention;  37 (iii) women, scheduled castes (SC) and scheduled tribes (ST); and (iv) others with a vested interest in development initiatives, including other donor agencies, NGOs, religious and community organizations, local authorities and the private sector. The SA contributed to developing the following key aspects of project design: * increased access to improved health services for women, by strengthening the link between community hospitals with primary health centers, especially for emergency obstetric care, through improvements in the referral mechanism for these services. In addition, the life-cycle approach to women's health, including screening for reproductive tract infections (RTIs) and sexually transmitted diseases (STDs), IEC, and increasing women's awareness of their options in terms of health care, has been incorporated in the service norms. * increased access to improved health services for SC/ST groups, by strengthening the link between primary and first referral health system; providing an incentive package to medical staff to accept assignments in tribal areas; reducing costs to tribals of utilizing the system; and increasing hospital beds in tribal areas to reflect a share of beds which is much more commensurate with their proportion in the overall population. - exempting the poor from user charges, by instituting adequate mechanisms in each state. In addition, with regard to user charges, appropriate collection and management arrangements would be strengthened; and the revenue collected would be reallocated to hospitals within the districts. * enhanced contribution of the private sector in health care delivery, through contracting-out selected services as appropriate. In addition, NGO participation in remote and underdeveloped areas would be promoted. * increased efficiency and effectiveness of the first referral network, through the development of technical norms on the basis of the existing burden of disease in each state. * improved effectiveness of the primary health care system, by developing links with the secondary level through the referral mechanism, and by strengthening its management, implementing referral and clinical protocols, and establishing an incentive system for utilizing the referral mechanism. H. Fiscal Analysis 3.40 The fiscal analysis undertaken for this project covers a number of issues that assisted in fine- tuning project design and policy reform in each state. These include: (i) an analysis of public expenditure in the health sector and recurrent cost implications of the project (see Annex 3); (ii) sustainability analysis of the project, including impact on health and state finances (see Annex 3); and (iii) alternative scenarios estimating the generation of additional resources through user charges (see Annex 5). 3.41 Public Expenditure on Health and Recurrent Cost. An analysis of public expenditure on health is presented in paras. 1.17-1.20, and in Annex 3. The burden of recurrent costs of the project in relation to overall health expenditures is analyzed, on the basis of the following questions: (i) what will be size of the incremental recurrent costs as a percentage of the state's health and FW current budget;  38 (ii) what will be the size of the incremental recurrent costs as a percentage of the state's plan and non- plan current budget; (iii) what will be the likely share of the first referral level as a percentage of the health and FW budget at project completion; and (iv) how much funds can user charges reasonably generate at project completion. 3.42 Incremental annual recurrent costs including contingencies at project completion are expected to be about Rs. 360 million in Karnataka, about Rs. 250 million in West Bengal, and about Rs. 150 million in Punjab. This compares to current allocations for Health and Family Welfare of about Rs. 4,872 million in Karnataka, Rs. 5,570 million in West Bengal and Rs 2,202 million in Punjab. Assuming continuation of past trends in overall expenditures in the year following the end of the project, allocations would amount to Rs. 6,950 million in Kamnataka, Rs. 6,803 million in West Bengal and Rs. 2,956 million in Punjab. Incremental recurrent costs of the project would amount to 5.2%, 3.7% and 5.1% of total revenue expenditures for the Health and Family Welfare Departments in Karnataka, West Bengal, and Punjab respectively. The incremental recurrent costs of the project imply an increase share for health of total Government expenditures of around 0.3 percentage points in Karnataka, 0.3 percentage points in West Bengal and 0.2 percentage points in Punjab. 3.43 These increments should not be a problem for the state to provide. The state Governments would meet the incremental recurrent cost needs by increasing the size of the health budget and by reallocating incremental resources from the tertiary to the secondary level of health care. A commitrnent to this effect has been provided in the Letter of Health Sector Development Program. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that: (i) their respective incremental budgetary allocations under the project for the primary and first referral levels for each fiscal year during the implementation of the project would be fully additional to the allocations made in FY95; (ii) and budgetary allocations for recurrent expenditures at the first referral level would be provided on a timely basis adequate to meet resource requirement under the project's annual operating plan for each year. 3.44 Sustainability. The deterioration in the overall financial position of the states suggests that a sustainability analysis beyond the traditional recurrent cost implications of project investment be undertaken. As such, a limited analysis of financial sustainability is presented. In Kamataka, the revenue account in 1993/94 was in surplus. The gross fiscal deficit is equivalent to 17 percent of revenues -- one of the smallest among the major states. Interest payments on debt accounted for 11.6 percent of total revenue expenditures in 1992/93 rising to 12.7 percent in 1994/95. Public debt was equal to 26.3 percent of state domestic product in 1990/91 and to 27.0 percent in 1994/95. The indicators of public finances in Karnataka show some slight deterioration over the past few years as a result of increased borrowing for capital expenditures but overall demonstrate a picture of reasonable strength. The financial implications of the project for the state government include the necessity to service the loan, as well as the incremental recurring expenditure. Including contingencies the projected loan represents 4.7% of the current outstanding debt of the state government. Given the current relatively low share of interest payments in total revenue expenditures (second to lowest among the eleven major states) the additional burden arising from this project should be manageable. 3.45 In Punjab, the deficit on the revenue account was estimated at 13.5% of revenue receipts in 1994/95 and to 23 and 24% in the two previous years. The gross fiscal deficit has been equal to 40-45 percent of revenue receipts over the past three years -- the highest for any state. Interest payments on  39 the state government's debt as a share of total state revenue rose from 12.5 percent in 1985/86 to 37.2 percent in 1994/95 -- the second highest among the eleven most highly populated states. Revenue growth from state taxes has been buoyant in recent years and well above that for all states combined. However, additional efforts will be required both to increase revenue receipts further and to restructure expenditures if growth in social sector real expenditures is to revive. The relative wealth of the state suggests that it will not be a problem to generate the increased revenues. 3.46 In West Bengal, the deficit on the revenue account was equal to 19 percent of revenue receipts in 1994/95 (the highest ratio across the 15 major states). This has increased from 14 percent in 1991/92. The gross fiscal deficit is currently (1994/95) equal to 30 percent of revenue receipts. Interest payments on the state government's debts were equal to 19.1 of revenue expenditures in March 1995. This is slightly above the average across the major states (18.0 percent). Outstanding debt is equivalent to 22.6% of state domestic product which is slightly below the average. Efforts are underway to improve state public finances. The fiscal deficit in 1995/96 is anticipated to be below the previous years' and as a share of revenue receipts is planned to fall to 27%. The project will add 4.5% to the current debt of the state Government. Further efforts to increase revenues and to alter the structure of expenditure obviously will be necessary to reverse the relatively weak position of public finances in general and the deteriorating situation of finances for the health sector in particular. 3.47 Revenue from User Charges. tm analysis of potential revenue generated by implementing user charges, based on information from Kramataka, was undertaken. The analysis shows that Rs. 136 million could be generated from paying beds and wards, charges for diagno .-t tests and surgery, out- patient charges and charges for health certificates. This is equal to about 9% of the total or about 29% of all non-salary recurrent expenditures. This amount of additional revenue could have a significant effect on the levels of service quality provided by first referral level hospitals. These calculations are based on expected revenue from more rigorous implementation of the current level of charges prevailing at first referral level hospitals. There is, however, considerable scope for enhancing the user charges. For example, Government hospitals charge Rs. 45 and Rs. 100 for minor and major surgery respectively compared to the average private expenditure on an episode of hospitalization in a rural private hospital in 1986-87 of Rs. 733 (NSSO). The estimates of revenue generated are, therefore, on the lower end of the projected range. I. Indigenous Population 3.48 In both Karnataka, with a 4% Scheduled Tribe population, and West Bengal, with a 5.6% Scheduled Tribe population, tribal peoples are likely to be substantial beneficiaries of the proposed project. During project preparation, a number of workshops were held to facilitate the consultative participation of tribal populations (see section G on Social Assessment, Annexes 13 and 14). 3.49 The project's tribal and backward areas strategy is aimed at increasing the demand for hospital services in tribal areas by improving the quality of services and providing effective IEC to better inform tribal populations of the benefits of using health services at secondary hospitals. The project would: (a) strengthen linkages between primary and secondary health care services; (b) provide an incentive package to doctors and other medical staff in tribal areas to encourage them to accept assignment in these areas; (c) increase the appropriate utilization of non-tribal medical system by tribal population and reduce the cost to tribals of utilizing the system. In addition, the number of beds at sub-  40 divisional and community hospitals located in tribal areas will be increased to reflect a share of beds at secondary hospitals that is much more commensurate with their proportion in the overall population of the states. At Negotiations, the Governments of Karnataka and West Bengal provided assurances that they would carry out the project in tribal areas in their respective states, and in the Sunderban areas of West Bengal and amongst disadvantaged groups in Kamataka in accordance with the strategy agreed with IDA. J. Environmental Aspects 3.50 The proposed project would not raise any environmental concerns. The project would enhance medical waste disposal at health facilities where necessary. A plan for improving disposal of medical wastes has been provided by each state. K. Land Acquisition 3.51 The process of acquisition of additional land, where required, for the extension of existing hospitals has been initiated and most sites have been made available. IDA has been assured that none of the sites for hospital upgradation would entail involuntary resettlement of any persons. L. Accounting and Auditing 3.52 The project would be subject to normal Government accounting and auditing procedures which are considered acceptable to IDA. At Negotiations, the Governments of Karnataka, Punjab and West Bengal provided assurances that: (i) project accounts would be maintained and audited annually in accordance with sound auditing standards consistently applied by independent and qualified auditors acceptable to IDA; and (ii) certified copies of the annual financial statements and SOEs together with the auditor's report, which would comment separately on the SOEs, would be submitted to IDA no later than nine months after the close of each fiscal year.  41 IV. PROJECT BENEFITS A. Benefits 4.1 A major benefit of the proposed project is that it will assist the states of Karnataka, Punjab and West Bengal to put in place a coherent approach to establishing a cost-effective and sustainable health system. This would indirectly benefit the states' population as a whole. First, the broader sectoral policy reforms envisaged under the proposed project such as improvements in health planning capacity, management effectiveness, allocation of public resources for health, and enhanced role of the private sector would increase the efficiency of the health sector by improving the enviromnent in which the health sector operates and by optimizing resource use. Second, there would be substantial cost savings in each state through the implementation of streamlined service norms and rationalization of service provision at different levels of health care delivery. Morever, the technical and quality improvements, including operations and maintenance functions, at the institutional and health facility levels will enhance the effectiveness and efficiency of health care services by encouraging patients to seek timely care resulting in higher cure rates at lower costs. Third, those currently utilizing existing services would benefit from better quality of care. In addition, there would be other qualitative benefits which would have a significant impact on the health system. For example, the strengthening and upgrading of first referral facilities would lend vital support and credibility to the primary health care system for implementing the various priority health programs and provide basic health care in rural areas. An adequately functioning referral mechanism would also improve the effectiveness of the primary health care level and encourage a greater participation of the private sector in health care. Moreover, there are considerable externalities associated with reducing public health hazards through improvements in waste disposal methods and through improvements in the surveillance system for major comnnunicable diseases. Finally, the proposed project will have a direct impact on improving the health status of the people of each state by reducing mortality, morbidity and disability and thus increase the earning potential of the poor. 4.2 Project Beneficiaries. In addition to systemic benefits which would indirectly benefit the populations of the states of Karnataka, Punjab and West Bengal, noted in para. 4.1, the project would directly benefit approximately 10 million out-patients and 0.7 million in-patients currently utilizing existing hospital services in the three states through the provision of better quality of care. In addition, the project is expected to directly benefit an estimated 3.3 million incremental out-patients in West Bengal, 1.2 million in Karnataka, and 0.7 million in Punjab; and an estimated 0.4 million incremental in-patients in West Bengal, 0.3 million in Karnataka and 0.12 million in Punjab. This analysis on incremental in-patients is based on the following assumptions: (i) incremental patients at secondary hospitals do not include those expected to be diverted from tertiary hospitals; (ii) occupancy rate of 80% in West Bengal, 64% in Karnataka, and 60% in Punjab at pre-project and is assumed to increase to 100%, 82% and 78% in West Bengal, Kamataka, and Punjab, respectively at project completion; (iii) the average length of stay is 12 days in West Bengal, 15 in Karnataka and 12 in Punjab pre-project and is assumed to decline to 8, 10 and 8 in West Bengal, Karnataka and Punjab, respectively at project completion; and (iv) a corrective factor is used that assumes that a third of all in-patients are hospitalized about 2.5 times annually based on hospital data.  42 4.3 Cost Effectiveness Analysis. The project is not suitable for a cost-benefit type analysis because of the difficulty in quantifying benefits and data limitations. However, a micro-level analysis, based on detailed hospital level cost data, was undertaken to show the possible cost savings of treating patients at secondary level facilities rather than at tertiary hospitals (see Annex 4). Analysis comparing cost-effectiveness between different types of hospitals is limited in India, because of the unavailability of data. Previous analysis has shown that at least a third of all costs could be saved by treting patients at first referral facilities rather than at tertiary level facilities. However, due to variations in the case- mix, such analysis did not compare cost-effectiveness at first referral and tertiary hospitals. The following is an illustrative example of the type of cost savings that would result from the project investment. To estimate cost savings of treating patients at secondary level hospitals, a preliminary analysis of the overall profile of unit costs related to specific inputs for in-patients and out-patients was undertaken. A comparison was made between a tertiary level hospital and a first referral level hospital in Hyderabad where comparable data based on a similar case-mix was available. Both hospitals had a similar case-mix of ante-natal, intra-natal, family planning and gynaecological services. Since both hospitals provided in-patient and out-patient services, a comprehensive index which captures both types of services was used to estimate at unit costs (the day equivalent method). It was found that the day equivalent4 at first referral hospitals was about two-thirds that of a tertiary hospitals - Rs. 115 compared to Rs. 160. The difference was largely because of greater unit cost of infrastructure and overheads at tertiary hospitals. This analysis provides an indicative example of cost savings that can result from the strengthening and rationalization of health services across different tiers of the health system. B. Program Objective Categories 4.4 Poverty Aspects. A large proportion of project beneficiaries will be from the poor and underprivileged segments of the states' population. In West Bengal, the beneficiary assessment study found that nearly 70% of expected project beneficiary would belong to i re lo.ver 40% of income distribution. In Kamataka, the analysis found that over 45% of the patients liave an annual income below Rs. 15,000 (close to the official poverty line) and over 90% of the patients have an annual income below the taxable level of Rs. 50,000. In Punjab, a relatively large share of the investment under the project is targeted in the Upper Bari Doab region where 30% of the overall population and 40% of the rural population live below the poverty line; and the Southern Malwa region where rural poverty is about 25%. Based on this data, the proposed project is classified as a Program of Targeted Interventions (PTI). 4.5 Gender Issues. In general, the project would provide much greater access to women, particularly rural women, and improve the quality of services they receive. More specifically, by strengthening the referral mechanism and linking the community hospitals with prunary health centers, the project would assist in providing timely access to emergency obstetric care. The project would also promote a life-cycle approach to women's health, taking into account some of the main recommendations of the Cairo Conference on women's reproductive health, such as screening RTIs and STDs, providing appropriate IEC to promote the value of the girl-child, and increasing women's awareness of their options in terms of health care. 4The day equivalent method equates one in-patient day with four out-patient visits (Barnum and Kutzin, Public Hospitals in Developing Countries; Johns Hopkins University Press, 1993).  43 C. Risks 4.6 The proposed project carries several risks that are associated with PHN projects in general in India such as poor procurement, late disbursement, untimely and inadequate flow of funds, poor maintenance of building and equipment and inadequate attention to software and qualitative aspects. Most of these risks have been substantially reduced through careful project design. There are two additional risks associated with this project. Institutional. The capacity of existing institutions to undertake systemic improvements and to establish a more rational health delivery system has not been tested in India. Institutional strengthening would be emphasized in the proposed project to address this risk. In Punjab, the newly formed PHSC might experience some start-up problems. The Government of Punjab, at the highest level, has made a commitment to enable the PHSC to effectively implenent the project. Financial. As with other projects in India, the overall financial status of the states is a risk. The position of public finances in Karnataka and recent trends in expenditure on health both suggest that the project's incremental recurrent costs are sustainable. In Punjab and West Bengal however, continuation of recent trends in health expenditures would not be sufficient to absorb the incremental costs. In both cases the rate of growth of health expenditures in recent years has been below the growth rate of overall expenditure. There are, however, various measures which will help reduce the risk to financial sustainability significantly. The state Governments are comnitted to ensure that health expenditures will be maintained at least as a constant share of overall expenditures throughout the life of the project. In the case of Punjab. the necessary resources needed to sustain this commitment can be mobilized with small increase in revenue. In the case of West Bengal, some reorientation of its fiscal policies may be required to ensure sustainability. An on-going mechanism for monitoring the financial sustainability of the states was discussed at negotiations. Understanding was reached that as part of the project's comprehensive mid-term review, there would be a review of overall state finances, as well as the financial situation of the health sector. If necessary, additional measures to achieve financial sustainablity of project benefits would be agreed based on results of that review.  44 V. AGREEMENTS REACHED AND RECOMMENDATION 5.1 At Negotiations, the Governments of Karnataka, West Bengal, Punjab and the Punjab Health Systems Corporation provided assurances that they would: (a) ensure that: (i) the share of resources to the primary and secondary levels of health care in the total resources (Plan and Non-plan) allocated to the health sector would be increased each year until the year 2002; and allocate adequate resources for drugs, essential supplies and maintenance of equipment and buildings at first referral hospitals in accordance with norms agreed with IDA (paras. 2.9-2.10); (b) maintain a Strategic Planning Cell with adequate staff, resources and terms of reference acceptable to IDA (para. 2.11); (c) take all necessary actions to ensure that the DOHFW in Kamataka and West Bengal and PHSC in Punjab would maintain authority in managing essential operational activities including civil works construction and maintenance activities (para. 2.12); (d) ensure that: (i) the arrangements for the management and collection of user charges approved prior to negotaitions would be maintained; (ii) user charges would be implemented in a phased manner after improvements in the quality of basic services and infrastructure development have been completed; (iii) the agreed mechanism for exempting the poor from user fees would remain in place; and (iv) in Karnataka and West Bengal, the system for reallocation of funds collected at the hospital level, to be retained and reallocated based on need and level of revenue collection by the District Health Committees, would be maintained. In Punjab, regulations on user charges would stipulate that funds collected would be retained at the point of collection (paras. 2.16-2.18); (e) not later than June 30, 1999 carry out, jointly with GOI and IDA, a detailed mid-term review of project progress including management and financial reviews and thereafter implement their recommendations (para. 2.22); (f) maintain key headquarters personnel for purposes of implementing the project and would engage and thereafter maintain key additional personnel with adequate qualifications and experience to be hired under the project in accordance with a schedule agreed with IDA (para. 2.23); (g) adopt, within six months after upgradation of each facility, staffing and technical norms at all hospitals under the project, as agreed with IDA, to ensure the quality of services (para. 2.27); (h) provide funds, satisfactory to the Association, annually for the maintenance of previously existing equipment in health facilities supported under the project (para. 2.30);  45 (i) strengthen the referral system between the primary, secondary and tertiary levels by December 31, 1996, by: (i) issuing appropriate directives to hospitals to strengthen the management of the referral system; (ii) establish and thereafter maintain and implement appropriate referral protocols and clinical management protocols; and (iii) establish and thereafter maintain and implement an appropriate incentive systemn for patients who use the system (para 2.32). (j) review with IDA by April 30 of each year the progress of project implementation over the preceding twelve months and prepare an annual work plan for the following twelve months acceptable to IDA (para. 3.28); (k) ensure that (i) the respective incremental budgetary allocations under the project for the primary and first referral levels fbr each fiscal year during the implementation of the project would be fully additional to the allocation made in FY95; and (ii) budgetary allocations for recurrent expenditures at the first referral level would be provided on a timely basis adequate to meet resource requirement under the project's annual operating plan for each year (para. 3.43); and (1) a project account would be maintained and audited annually in accordance with sound auditing standards consistently applied by independent and qualified auditors acceptable to IDA; and certified copies of the annual financial statements and SOEs together with the auditors' report, which would comment separately on the SOEs, would be submitted to IDA no later than nine months after the close of each fiscal year (para. 3.52). 5.2 At Negotiations, the Governments of Karnataka and West Bengal provided assurances that they would: (a) maintain District Health Commitees in all districts of the states to facilitate the collection and distribution of user charges, maintenance of equipment, waste management, training of technical staff, quality assurance surveillance of major communicable diseases and monitoring and supervision of project related activities (para 3.27); and (b) carry out the project in tribal areas, in the Sunderban area of West Bengal, and amongst disadvantaged groups in Karnataka, in accordance with the strategy agreed with IDA (para. 3.49). 5.3 At Negotiations, the Government of Punjab and the PHSC provided assurances that they would (i) take all necessary actions to enable PHSC to carry out its part of the project; and (ii) undertake health care activity under the project in accordance with service delivery norms acceptable to the Association, and ensure, in carrying out other health care activities, that the ability of PHSC to perform its obligations under the Agreement would not be materially and adversely affected (para. 2.21). 5.4 With the above assurances and agreements, the project would be suitable for an IDA Credit of SDR 235.5 million (US$350.0 million equivalent) on standard IDA terms with 35 years maturity.  46 Annex 1 Page 1 of 5 HEALTH STATUS AND EPIDEMIOLOGY Table 1: Health Indicators Current Status and Targets to the Year 2000 Targets India Karnataka Punjab West Bengal 1. Population (million) 47.9 20.3 72.4 2. Crude Birth Rate 21.0 28.5 25.5 26.3 25.6 3. Crude Death Rate 9.0 9.2 8.5 7.0 7.3 4. Infant Mortality Rate Below 60 74.0 6.7 55.0 58.0 5. Expectatioa of Life at Birth (a) Male 64.0 60.6 62.1 66.6 62.0 (b) Female 64.0 61.7 63.3 66.6 61.9 6. Percentage of Eligible Couples Effectively Protected 60.0 45.5 49.0 63.7 37.2 7. Annual Growth Rate of Population 1.2 2.1 31.9 2.1 2.2 8. Pregnant Mothers Receiving Ante-natal Care 100.0 78.1 84.0 5.1 80.0 9. Deliveries by Trained Birth Attendants 100.0 69.8 70.0 10. Immunisation Status 56 Coverage (a) T.T. (for pregnant mother) 100.0 78.1 70.0 91.3 80.0 (b) D.P.T. (infants) 100.0 88.8 69.3 90.9 84.9 (c) Polio (infants) 100.0 89.2 69.5 90.4 85.5 (d) B.C.G. (infants) 100.0 92.6 73.1 88.2 96.2 Source: Sample Registration Survey  47 Annex 1 Page 2 of 5 HEALTH STATUS AND EPIDEMIOLOGY Table 2: Morbidity Profile of Karnataka, Punjab and West Bengal Cause Groups Karnataka Punjab West Bengal 1. Infective & Parasitic Diseases 16.3 17.0 17.6 2. Neoplasm 1.0 0.7 0.7 3. Endocrine, Nutritional & Metabolic Diseases & 3.5 2.4 1.7 Immunity Disorders 4. Diseases of the Blood & Blood Forming Organs 0.3 0.7 1.1 5. Mental Disorders 0.8 0.9 6. Diseases of the Nervous Systems and Sense Organs 5.1 8.7 2.9 7. Diseases of the Circulatory System 2.9 3.1 4.1 8. Diseases of the Respiratory System 14.5 17.3 7.8 9. Diseases of the Digestive System 5.2 9.9 10.1 10. Diseases of the Genito Urinary System 2.7 3.0 4.8 11. Complications of Pregnancy/Child Birth 11.1 3.12 22.7 12. Diseases of the Skin & Sub-cutaneous Tissue 4.6 8.0 2.1 13. Diseases of the Musculo Skeletal System & Connective 1.3 3.5 1.1 Tissue 14. Congenital Anomalies 0.1 0.1 0.3 15. Certain Conditions Originating in the Perinatal Period 0.3 0.2 0.3 16. Symptons, Signs and IIl Defined Conditions 1.0 5.8 13.2 17. Injury & Poisoning 19.9 15.5 8.7 Source: Sample Registration Survey  Table 3: Disability-Adjusted Life Years (DALYs, In Thousands): India 0o111 Mals Fenabes s,.es 0.sease ot ing y (IICD J code) au ages u 4 5614 15 44 45.69 60 , AN ages 0 4 5 14 15S44 45-59 60, AN ages AX Causes 292.646 66.901 15.919 31.563 16,102 14.969 145.454 69.699 16.564 35.580 11.939 13.409 147.191 I Qnan"Lid. man3I .1 pt lntail 148.217 48 921 7.360 10.094 2.864 1.526 70.771 49.010 0294 17.257 1.537 1.107 77.506 (0022139.320 322.460-46b.466.480 487 614 626. 630 676.760 779) A Inlecous A paa,asc d,s (001 139.320322.6146161 82.02a 22.655 6.011 8.8t7 2.524 695 40.822 24.165 6652 8.625 2.398 366 41,206 Al luttsculas.s (020.028.37) 2 0,800 244 582 3.256 1.694 506 6,282 399 969 2.210 729 152 4,518 A2 STDs dud.ng HIV (o090o099.624 626) 3.734 114 3 386 25 2 530 121 6 3.046 28 2 3.203 a 5SpNts (090097) 808 114 2 327 23 1 466 121 2 198 19 340 D Cliamncya 326 55 2 . 58 * 3 253 10 1 268 c GsunioeJ (O98d 16 * 4 * . s * 1 * * 12 d Pe.c emflanwiu2to0y d4sease 1614 6126 2.581 * . .- 2.584 * * 2.564 A3 IlyV wm-cwn 4 06i 12 9 2.Str7 112 1 2.701 14 IS 1.314 14 1 1.358 A4 D-.t"oeal tlseases (001.002.004.006 009) 28 031 1 t.S86 1.129 804 102 21 13.643 12,268 1.305 688 113 20 14.394 a AC.le walerV 15.390 5.92 3 856 638 76 16 1.498 6.260 988 545 84 IS 1.892 o PNes,stam 8 21. 3 J6 42 * 4.015 4,201 57 * * 4.258 c ysentery 4.314 t./IJG 225 IG. 26 G 2,130 1.,U06 2t,0 143 29 5 2.244 AS Ctnat,ni Jusii 2031 33U17.045.,t0055 56.138) 19 463 7J.2 215 6 I S6 2C 9 9.579 8.059 I.726 52 29 I 9 84 A Penuss.s 1133) 2.950 2 1289 236 1.425 1.255 270 . , , 1.525 o Pclomytei.is (045.138) I 835 362 725 - * . 1.0817 246 502 - . 74S c O.ninena (0321 2t0 ?0 28 - 48 17 38 5 60 a IAeasIes (0551 9.336 3873 628 . * 4.491 4.102 744 4.846 1 a Ietanus (031) 5.224 2 293 145 56 26 9 2.528 2.440 172 47 29 8 2.696 0 A6 .lenls. i (03 320.3221 2.006 sR9 310 I78 40- 13 1.191 526 268 116 12 5 8l2 Al l4pI.us 1010) 311 35 63 31 12 3 143 37 14 40 14 3 168 At MaLana 208)1 956 59 262 219 39 a 416 6s2 215 817 43 8 415 AS T'op.cat dutlel (065.086.120,1251 2.425 90 441 725 166 30 1,459 67 355 280 234 30 966 a Alnc4n trypaW r1JgsrS (066 3.086 4.086 51 * -- b Chagas dsease (086.0.086.1.086 21 cSdl.stos.mwasis (120 2SI. IS6 . 9 166 * - 4 tS adeuaimhnnass .085) 1.732 90 44? 451 17 4 1.010 61 355 279 19 3 723 a tymih.bc ldanas,s (2250. 225 1) 442 I * 228 149 17 264 * - 131 27 158 I Ckd.*"*.aas.s (125 31 A10 Lepiosy 1030) 521 33 209 14 3 * 259 31 216 13 1 262 All lacdiora (076) 309 * * 49 33 30 112 *89 i5 IS3 197 A12 Ingest" he2flmn12s (126.129) 2.056 5 866 161 IS 9 1.056 5 826 245 IS a 1.000 aAsAans 11220) 12166 5 589 2 * 597 5 562 2 . . 569 b Incthus (127 3) 486 * 246 2 . 249 * 235 2 . . 231 C toswown (1261 404 32 25 24 9 211 * 29 142 14 8 191 0 Respua2oCy m1goclogNs (381 382.460 466.480 487k 31 154 112.91 I ?2J 1 218 340 831 25.568 12.556 1.485 1.041 363 741 16.186 41 Acule lwe lIespakloey ml (460465) 30.133 11.351 1.221 1.042 308 826 14.734 12.020 1.420 896 338 726 15.399 02 Acule ppet espfloIy( l (466.40 481) 598 26 12 216 32 IS 320 27 66 145 26 IS 278 03 Olsne6a (381.352) I.023 514 * S14 509 . 509 C. Ilalemal cwhatons (630676) 1.824 * * . . 156 7.S92 16 1.824 Cl. Hiaemaithaga (666.6671 1,365 * * * * * * 47 1.305 13 1.365 C2 Sqst 6170) 2.752 * * * . 31 2.693 27 * 2.752 C3 Ecianr4 (642 4 642 6 394 1. * . . . 6 374 4 394 ( > C4. )lypeuwnsaon (642 nwws 642 46426) 292 . . . . . . . 162 2 * 191 ) CS Obeared labout (660) 1.941 i s *S . * * 26 .906 12 1.441 ' a CG AbtedIn (630639) 926 . * * * 31 906 9 946 0. Pe&MAW caww$s (7M779 26.671 14.321 . 14.381 12,290 12.290 -tt-'  Table 3: Disability-Adjusted Life Years (DALYs, In Thousands): India (Continued) Doili MaFml Doiase of wnury (ICO 9 codel a s 0 4 5 14 1544 4559 60 I Al ages 0 4 5 14 1544 45-59 60 . Al ages U NhCansruLgC46 (140-6?8.680.7591 117642 15.202 4.700 14.701 12.226 13.080 59.908 17.525 5.002 13.567 9.569 12.051 57.734 1aWUs 320 322.460 465.,66.480 481. 614f616t A M.akgnAa nqeasns (140-2081 12.041 141 472 1.340 2,547 2.126 6.633 483 69 1,468 2.103 1.286 5.409 Al kl.m and oearA.agna 1140.1491 1.908 3 9 226 385 658 1.280 13 2 131 202 280 627 A2 OeSo& U.s (1501 857 5 S7 218 230 504 5. IS2 142 353 A3 Sxla flC 1151) 7'3 I 86 202 181 471 - 52 103 Sl 242 A4 CA01clal l52.153.l5:( 445 11 65 IlI 253 2 46 41 95 192 AS Le.v (I55) 220 1 4 22 76 52 156 4 - 14 23 22 64 A6 Panceeas 1157) 124 I 1 32 35 78 8 18 IS 46 A7 Lang (1621 561 1 65 207 200 474 2 13 32 39 86 AS kIelaaogna ana omuLe sk,n (172-173 18t 2 4 3 10 - 2 4 2 a As lceasil (174) G09 * * * * 217 260 131 609 AIO Cd,.. (IIdO) SS6 * * * , 292 417 189 S8S All C.p.i lItn 1179.1l1-182) 46 * . , , 5 IS 22 46 A12 O.Ary 11831 206 * . 4 93 62 47 206 A13 Pboslaly (185) 194 2 39 153 194 All DIaJOeeI 1I1) 101 9 25 S0 8S 2 2 6 12 22 Ali L)n)pr4,Isu 1200 2021 441 23 75 98 42 70 308 25 5 34 23 53 140 A1i Le1ke,ma 1204-20r1 557 41 133 87 22 41 325 121 IS 5S 14 24 233 B OLhei nfopAim 1210 2391 801 21 38 13 46 21 195 s8 413 66 21 18 602 C D.AoieslsnWlus (250) 1 868 218 312 308 840 - 18a 397 442 1.025 o Nue*.O Aelve crw 1240-255. inus 250) 18265 5 609 579 2.316 346 183 9,183 5.167 711 1.776 455 214 9.02 Di Pso4en eneigy maulbon 1260.2631 5552 2.5.11 32 45 5 11 2.629 2.n03 b3 29 5 25 2.923 D2 lk"te delc.eAny 1243) 1 I93d C41 25 31 rs 4 713 C13 31 34 4 3 685 03 Vd.An A ddlr.eCflCY 12641 4.103 2 * . 2.OuS 2 024 - - 2.024 D4 Anaetaas 1280285) 4 469 252 S06 r695 216 102 1.911 214 112 1.12 252 138 2.497 E neuwopsycru