Argentina - Provincial Health Sector Development Project

Document of The World Bank Report No. 14399-AR STAFF APPRAISAL REPORT ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT JULY 5, 1995 Human Resources Operations Division Country Department I Latin America and the Caribbean Region  CURRENCY EQUIVALENTS Current Unit = Argentine Peso (Arg$) US$1 = Arg$1 (March 1, 1995) FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS AND ACRONYMS ANSSAL Administraci6n Nacional de Seguros de Salud (National Administration of Health Insurance) BN Banco de la Naci6n Argentina (Bank of the Argentine Nation) CES Convenio de Ejecuci6n y Subsidiario del Pr6stamo Naci6n- Jurisdicci6n Conurbano Peri-urban area GBA Gran Buenos Aires (Greater Buenos Aires) HPA Hospital Publico Autogestionado (Autonomous Public Hospital) ICB International Competitive Bidding ICR Implementation Completion Report LIB Limited International Bidding MCBA Municipalidad de Buenos Aires (Municipality of Buenos Aires) MIS Management Information System MOE Ministerio de Economia y Obras y Servicios Publicos (Ministry of Economy and Public Works) MSAS Ministerio de Salud y Acci6n Social (Ministry of Health and Social Action) MSP Ministerio de Salud Provincial (Provincial Ministry of Health and MCBA) NCB National Competitive Bidding O&M Organizational and Management OSs Obras Sociales (Health Insurance Fund) PAMI Plan de Atenci6n Medica Integral PBA Province of Buenos Aires PIP Project Implementation Plan POM Province of Mendoza PRESSAL Proyecto de Reforma del Sector Salud (Provincial Health Sector Development Project) SOE Statement of Expenditures TOR Terms of Reference UEC Unidad Ejecutiva Central del Proyecto de Desarrollo del Sector Salud en las Provincias UEP Unidad Ejecutora Provincial UNDP United Nations Development Program  ARGENTINA STAFF APPRAISAL REPORT HEALTH SECTOR DEVELOPMENT PROJECT TABLE OF CONTENTS 1. BACKGROUND ................................ 1 2. THE HEALTH SECTOR ............... 2 A. Health Status .............................. 2 B. Structure of the Health Sector .................... 2 C. Initiatives for Reform ......................... 5 3. SECTOR ISSUES AND GOVERNMENT POLICY .... ....... 5 A. Issues .................................. 5 B. Government Sectoral Policy ..................... 7 4. ASSISTANCE STRATEGY FOR THE SECTOR .... ........ 7 A. Bank's Role and Strategy ...................... 7 B. The Bank's Experience and Lessons Learned .... ....... 8 5. THE PROJECT ................................. 10 A. Project Objectives and Concept ................... 10 B. Detailed Project Description ..................... 12 6. PROJECT COSTS AND FINANCING PLAN ...... ........ 17 A. Project Costs .............................. 17 B. Recurrent Costs and Project Sustainability .... ........ 18 C. Financing Plan ............................. 19 7. PROJECT IMPLEMENTATION ..... .................. 19 A. Status of Preparation ......................... 19 B. Project Management and Coordination .............. 19 C. Implementation Schedule ....................... 22 D. Procurement .............................. 22 E. Disbursements and Accounts .................... 27 F. Financial Management, Accounting, and Audits ... ...... 28 G. Project Monitoring, Evaluation, and Supervision ... ..... 29 H. Environmental Impact ........................ 30 8. EXPECTED BENEFITS AND RISKS ................... 30 A. Benefits ................................. 30 B. Risks ................................... 31 9. AGREEMENTS REACHED AND RECOMMENDATION ...... 31 A. Agreements Reached ......................... 31 B. Recommendation ............................ 34  ANNEXES A Table 1: Distribution of Health Expenditures by Institution, 1993 Table 2: Estimated Health Expenditures and Coverage in Argentina by Institution B Component I: Policy Reform Studies C Institutional Development - Key Areas D Table 1: Detailed Project Cost Summary Table 2: Financing Plan by Year E Organizational Charts: Ministry of Health and Social Programs Project Coordination Unit (UEC) Provincial Project Coordination Unit (UEP) F Impact Indicators G Implementation Schedule H Table 1: Disbursement Forecast Table 2: Disbursement Allocations I Process Indicators J Project Supervision Plan K Project Implementation Plan by Components L Selected Documents and Data This report is based on the findings of the appraisal mission which visited Argentina in March 1995, led by Mr. Xavier Coll (LAIHR) and Mr. Cristian Baeza (LA1HR) and consisting of Mr. Reynaldo Pastor (LEGLA) and Mrs. Brenda Enuton (LAlHR). A pre-appraisal mission visited Argentina in December 1994, led by Mr. Xavier Coll and consisting of Mr. Cristian Baeza (LA1HR) and Mr. Joao Urbano (Consultant). Also participated in preparation missions Messrs./Mmes: Philip Musgrove (PHN), Hector Sanchez (Consultant) and Rafael Bengoa. (Consultant). Document processing and edition have been done by Mrs. Patricia Villag6mez. Peer reviewers are Messrs./Mmes: William McGreevey (PHN), Philip Musgrove (PHN) and Julian Schweitzer (LA3HR). Messrs. Alain Colliou and Gobind T. Nankani are, respectively, the Division Chief and the Department Director for this operation.  ARGENTINA PROVINCIAL HEALTIH SECTOR DEVELOPMENT PROJECT Loan and Project Summary Borrower: Argentine Republic Implementing Agency: Ministry of Health and Social Action (MSAS), the Provinces of Buenos Aires (PBA) and Mendoza (POM), and the Municipality of Buenos Aires (MCBA) Poverty: Program of Targeted Interventions. Amount: US$101.4 million equivalent (including up to US$2.0 million equivalent of retroactive financing). Terms: Standard variable interest rate, with maturity of 15 years, including five years of grace. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan: See para. 6.4 Net Present Value Not applicable Staff Appraisal Report: No. 14399-AR Map: MBRDNo. 25587 Project Identification Number: AR-PA-6030   ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT BASIC DATA SHEET A. General Country Data Year GNP Per Capita (US$) 6,050 1992 Area (Thousand Square Kilometers) 2,767 1992 Population Estimate (Millions) 33.1 1992 Density (Habitants/Km2) 12 1992 Urban Population (% of Total) 87 1992 B. Social Indicators Crude Death Rate (per 1,000) 9 1992 Annual Rate of Population Growth (%) 1 1992 Total Fertility Rate (birth per woman) 2.8 1992 Crude Birth Rate (per 1,000) 20 1992 Infant Mortality Rate (per 1,000) 29 1992 Prevalence of Malnutrition (under 5) 25 1992 Life Expectancy at Birth (years) 71 1992 Adults Illiteracy Rate (% of per. over 18) 5 1990 Source: World Bank, World Development Report, 1994.   ARGENTINA HEALTH SECTOR DEVELOPMENT PROJECT 1. BACKGROUND 1.1 In 1989, Argentina embarked on an ambitious structural reform program to reverse a long period of economic stagnation. The program, which has been remarkable both in its scope and its implementation speed, has improved tax structure and administration, privatized public enterprises, reformed public administration, and reduced public employment. These measures, along with trade liberalization and a Convertibility Law which has a fixed exchange rate that reinforced the elimination of inflationary finance, have brought price stability, spurred GDP growth and created a solid base for sustainable development. 1.2 While the rapid recovery based on recent reforms has demonstrated the long untapped potential of the economy, sustaining growth and extending its benefits will require consolidation of macroeconomic reforms and greater emphasis on human resource development. Since reform in the social sectors has lagged behind economic adjustment and restructuring of the productive sectors, the poorest segments of the population have suffered disproportionately from the country's past disarray. The proportion of the population living in poverty doubled from 1980 to 1989, as formal sector employment stagnated and bursts of hyperinflation eroded the real wages of the poor. At the same time, social services failed to cushion the fall of many Argentines into poverty; few programs were targeted to the poor, while fiscal authority and weak administration led to a severe deterioration of social services throughout the eighties. 1.3 In recent years, while expenditures on social insurance, health, and education have been growing at a faster pace than other public expenditures, the Government has been hampered by costly and inefficient delivery of services, a lack of targeting for priority beneficiaries, and a weak history of coordination between the sub-national governments and the federal government.  - 2 - 2. THE HEALTH SECTOR A. Health Status 2.1 Health indicators are less satisfactory than current spending levels would predict. With per capita outlays for health services around US$400, health expenditures are well above that of middle-income countries, such as Chile (US$250) and Costa Rica (US$160). Yet, both these countries have infant mortality rates--16 and 14 per 1,000 live births, respectively--lower than Argentina's 25 per 1,000. The situation is comparatively worse for the 40 to 60 age-group: the age adjusted mortality rate of 8.5 deaths per 1,000 is greater than the comparative value of 7.6 for Cuba and Costa Rica. 2.2 Demographic Dynamics and the Epidemiological Transition. A prolonged period of declining fertility and increased life expectancy has resulted in an aging population. It is estimated that in 1993, almost nine percent of the population was 65 years old or older. The aging population is associated with a higher prevalence of chronic and degenerative diseases. Cardiovascular and cerebrovascular diseases, cancer, and traumas already accounted for almost 63 percent of all deaths in 1992. The coexistence of a transitional epidemiological profile, mirroring the high incidence of infectious diseases and the increased prevalence of chronic diseases, reveals the magnitude and complexity of future demands on the system. B. Structure of the Health Sector 2.3 The structure of the health finance and delivery systems reflects the complexity of the government's federal structure and the historic presence of unions in the management of welfare programs and institutions. The three health care sub-sectors--public, quasi-public health insurance funds, and private--constitute an intricate and ineffectual structure that has developed through successive and often contradictory policies. The health system is ill- prepared to face the challenges of increasing demands for equity and efficiency improvements. 2.4 Given the lack of standardization of provincial accounts and the absence of a private sector regulatory agency, consolidated and reliable information on health sector financing and expenditures is extremely scarce. The Government estimates that in 1993, total health expenditures were  -3- Arg$18,374 million or about 7.2 of GDP'. Annex A (rables 1.1 and 1.2) includes the most recent estimates of health sector coverage and expenditures. Public Sub-Sector 2.5 The public sector accounts for about one-third of sector financing and covers the uninsured and under-insured (representing, respectively, about 22 and 10 percent of the population). Following the decentralization process, the federal Ministry of Health and Social Action (Ministerio de Salud Pjblica y Acci6n Social-MSAS) remains, in theory, the policy-making, normative and regulatory authority, while the provision and financing of services has been shifted to the provincial ministries of health and municipalities (Ministerios de Salud Provincial-MSPs). To date, however, there is no clear-cut division of authority among the three levels, resulting in complicated administrative and budget structures, weak policy-making, and fragmented planning responsibilities. 2.6 Public sub-sector financing and expenditures can be broadly assigned to three levels of government, i.e., national (MSAS), provincial (MSP) and municipal. It is estimated that public sector expenditures in health represent about 21 percent of total expenditures. The provinces account for the largest share of the outlays (75 percent), while the municipal and federal levels are responsible for 16 and 9 percent, respectively, of total expenditures. Taxation (general and local) is the primary source of financing for the public sector. Given the complexity of intergovernmental transfers (e.g., national transfers to the provinces do not earmark specific funds for health), no reliable information exists as to the level of funding from each source. 2.7 Service delivery capacity in the public sector is seriously eroded, both as a result of the lack of financing and of severe management inefficiencies. Service provision is predominantly hospital-based. Public hospitals are primarily managed by provincial governments and represent about 60 percent of the sector's installed capacity. More than 3,000 public hospitals and related public health facilities account for about 74,000 hospital beds and provide almost two million annual hospital discharges. Most hospitals are old and inadequately maintained, have obsolete equipment, and are poorly managed. Internal inefficiencies are further magnified by the lack of accountability of hospital directors. As decision-making is highly centralized at the level of the MSPs, hospitals have limited authority to achieve improvements in efficiency. 1. A recent study of the World Bank on health expenditures in Latin America (Healh Expendires in Latin America, LATAD, September 1994) cstimates, however, that health expenditurcs in Argentina represent 9.6 percent of GDP (5.9 percent public and 3.7 percent private).  -4- Occupational Health Insurance Funds 2.8 The occupational health insurance funds (Obras Sociales-OSs) cover over half the population and account for 51 percent (1993) of sector expenditures. There are over 300 OSs, and they include, inter alia, the national funds, the fund for retired and pensioned persons (Plan de Atenci6n Medica Integral-PAMI), and the provincial OSs. The funds vary widely in size (e.g., the five largest OSs account for over half the total coverage), financial stability, and benefits provided. The creation of the National Administration of Health Insurance (Administraci6n Nacional de Seguros de Salud-ANSSAL), in 1989, and the establishment of a redistribution fund to cross-subsidize poorer OSs did not improve quality and coverage standards. Instead, subsidies have served, to a large extent, as political rewards or support for inefficient OSs. 2.9 OSs are funded by a wage tax where employers and employees contribute six and three percent of wages, respectively'. Financing also involves public subsidies from direct federal budget transfers, provincial subsidies, and hidden subsidies through "free" assistance of OSs beneficiaries in public hospitals. It is estimated that one-third of public hospital discharges involve OSs beneficiaries, and that fees from OSs are collected in less than 20 percent of eligible cases. Since individuals involved with OSs are required to contribute substantial co-payments, poorer beneficiaries increasingly resort to the provision of services by public sector institutions. Private Sector 2.10 The private sector consists of financial intermediaries and providers. The sector has expanded rapidly in recent years as a result of skillful marketing, growth of OSs, and increasing consumer dissatisfaction with the public sector. Private providers account for 40 percent of hospital beds, over 40 percent of hospital admissions, and a third of outpatient visits. A majority of services are provided under contracts with OSs and private insurance. Around 200 private insurance institutions (Pre-Pagas) cover an estimated three million people. Insurance plans vary widely in coverage, pricing, and co-payment levels. 2.11 In 1993, expenditures incurred by private sector institutions accounted for 41 percent of total health expenditures--including payment of voluntary insurance premiums and out-of-pocket expenditures (28 percent of the total)-- and expenditures incurred through contracts with OSs. The growing importance of the private sector and the potential for market failures in health require an overhaul of the current regulatory framework. 2. An additional 1.5 percent is levied for the coverage of dependents.  C. Initiatives for Reform 2.12 In the past two years, legislation has been drafted and/or passed to reform two critical areas of the sector. First, Executive Decree 578/93 of 1993 establishes the foundation for the reform of public hospitals. It introduces the basis for the autonomous management of public hospitals and establishes the legal framework for increased collection of fees, particularly from OSs and private insurers. Substantial progress has been made in the implementation of this initiative. As of March 1995, 18 of the country's 23 provinces and the Municipality of Buenos Aires (Municipalidad de Buenos Aires-MCBA) have officially endorsed the decree and are therefore authorized to initiate the transformation of public hospitals. Second, a law was proposed in 1992 for an in-depth reform of the OS system that would have broadened affiliation, improved regulation and, most importantly, incorporated the indigent population through public sector funding. The proposal was defeated in Congress, following strong opposition from the OSs and unions. Executive Decree 9/93 of April 1993 restored a limited number of the initiatives and, in effect, introduced competition by allowing limited consumer choice in OS selection. As the debate on reform of the OSs continues between the unions, the Ministry of Economy, Public and Social Works (Ministerio de Economfa y Obras y Servicios Nblicos-MOE), and the MSAS, none of the initiatives of Decree 9/93 have been implemented. 2.13 Although the legal basis for Autonomous Public Hospitals (Hospital Piblico Autogestionado-HPA) has been established, its implementation depends on the modernization of the traditional public hospital managerial model and systems, training its key personnel to be able to assume more challenging managerial responsibilities, designing its detailed contractual relationships with the corresponding Provincial Ministry of Health (MSP) and, more difficult, changing its organizational culture. Lack of actual implementation of the HPA model since Executive Decree 578/93 of 1993 was passed has demonstrated that setting the appropriate legal environment is a necessary condition but it is far from being a sufficient one. 3. SECTOR ISSUES AND GOVERNMENT POLICY A. Issues 3.1 Health expenditures have experienced substantial increases in the last few years. Both as a percentage of GDP spent on health (7.2 percent according to Government estimates and almost 10 percent according to the  - 6 - latest Bank estimates) and per capita outlay (US$400 at a minimum), Argentina's expenditures are well above other middle-income countries with better health status. Without action on reform, demographic dynamics combined with severe inefficiencies are likely to further erode quality and increase cost. 3.2 Demographic Dynamics. The aging population structure (in 1993, almost 9 percent of the population was 65 years old or older) is determining increasing demands on chronic non-transmissible diseases programs and services. Since treatment of these diseases usually requires intensive use of technology and other resources, medium- and high-complexity public hospitals will experience a growing demand for high-cost services. 3.3 Allocation of Public Funds. Three factors have a negative impact on the efficient allocation of public funds in the health sector. First, the decentralization of sector delivery responsibilities to the provinces has occurred with a high level of central financing of provincial expenditures and a lack of incentive for provincial authorities to confront financial constraints. Weak accountability at the provincial level undermines incentives for jurisdictional expenditure efficiency. Second, the health care finance and delivery system is complex, with extensive and non-transparent interactions between the public sector, the insurance funds, and the private sector. The intricate structure of the sector with its multiple stakeholders complicates efforts for improvements in allocative efficiency. Third, the public sector has traditionally played roles both in financing and services delivery, and hospitals have been financed through historically-based budget transfers without defining priorities based either on epidemiological or on intervention cost-effectiveness criteria. Historically, most of the hospital budget is executed by the respective MSP and only a marginal part of it is actually known by hospital managers. Improvements in allocative efficiency could be facilitated by introducing cost-effectiveness criteria in the definition of priorities in resource allocation at the provincial level and through gradually separating the financing and delivery functions at such level to avoid the perverse incentive on the provincial level to continue financing a hospital regardless the cost-effectiveness of its interventions. 3.4 Production Efficiency of Public Hospitals. Low internal efficiency characterizes the public hospital network. Largely, this results from deficient administrative and management practices and the deteriorated condition of facilities. Modem management skills and systems are almost absent. Public hospitals lack, inter alia, professional management in the areas of accounting and financing, patient administration, pharmacy, materials and supplies, hotel services, diagnostic procedures, infrastructure and equipment maintenance, control of hospital infections, utilization review, and treatment of medical waste. Additionally, public hospitals are financed based on historical budgets  - 7 - with no reimbursement system associated with productivity or incentives for efficiency improvements. B. Government Sectoral Policy 3.5 The Government has linked the success of the adjustment program to the rationalization of social spending. In the health sector, a number of initiatives have been introduced to increase equity and efficiency. First, the Government has taken few steps, albeit limited, to reform the health insurance system. However, the Government has recently requested Bank support for an in-depth reform of the Obras Sociales system (Health Insurance Reform Project under preparation). Second, the operational and financial decentralization of services to provinces and municipalities has been practically completed, and the legal and financial base has been set for the establishment of autonomous public hospitals. Third, new regulations have opened the way for competition in the pharmaceutical market. Fourth, the Government, with support from the Bank, is committed to matemal and child health improvement. Fifth, reform of public hospitals and the rationalization of health services in urban areas is considered a key priority. The Govemment's commitment to reform in the health sector is hindered, however, by the complexity and heterogeneity of the sector and its problems, the overall lack of strong technical leadership, and the resistance to change from politically powerful groups (i.e., unions and physicians). However, strong commitment to change and technical capacity can be identified at the level of individuals in the MSAS, provincial ministries, and hospitals. Appropriately, the Govemment has embraced a strategic approach to health sector reform that is gradual, participatory, and based on the implementation of pilot and demonstration experiences. 4. ASSISTANCE STRATEGY FOR THE SECTOR A. Bank's Role and Strategy 4.1 The Bank's country assistance strategy (CAS), discussed by the Board on May. 4, 1995, strongly supports the Govemment's ambitious reform program and focuses on: (a) consolidating reforms; (b) reducing poverty and supporting human resource development; and (c) rebuilding the deteriorated infrastructure base. In the social sectors, the Bank's assistance to support targeted efforts on poverty is complemented by broader efforts to improve the quality of human resource investments.  - 8 - 4.2 As a first stage of the Bank's assistance to poverty alleviation, the ongoing Maternal and Child Health and Nutrition Project (Ln. 3643-AR) is targeting poor mothers and young children in the urban poverty belts and the underdeveloped northern provinces. A follow-up operation would provide similar support to other provinces. The Bank is also preparing a Social Protection Project to assist in the implementation and coordination of targeted efforts in poverty alleviation. In addition, a proposed Rural Poverty Alleviation Project would address the needs of low-income small farmers in depressed areas to improve productivity and income. 4.3 The targeted efforts on poverty would be complemented by the broader objective of improving the quality of human resource investments. In the health sector, two issues are critical in constraining sector efficiency: inefficiency in delivering health services and inefficient sector financing systems. The proposed project would help the Government in addressing the inefficiencies in the public health delivery model and in improving the managerial and financial incentives that determine the performance of public hospitals. At the same time, a related Health Sector Financing Study and a Health Insurance Reform Project, under preparation, would address these two issues by supporting the reform of the inefficiently run social health insurance system. While the proposed project would address reform through gradual and attainable changes in the delivery and contracting of services and in the regulation of private health insurance, the Health Sector Financing Study and the Health Insurance Reform Project would set the stage for politically sensitive reform of the Obras Sociales system. The proposed project underpins a Government priority, complements the objectives of other Bank-financed projects and sector work, and as a consequence is fully consistent with the Bank's CAS for Argentina. B. The Bank's Experience and Lessons Learned 4.4 The project design builds on the experience of relevant operations financed by the World Bank Group over the past decade. Lessons learned from these projects indicate that successful implementation is closely associated with: (a) linking the definition of project objectives and scope to a clear policy framework; (b) obtaining strong and pervasive government commitment; (c) designing simple projects with focused and modest objectives; (d) linking financing of critical investments to the implementation of policy and/or institutional reform; and (e) conducting intensive technical supervision by the Bank. 4.5 Past experience has shown that loans with large technical assistance (TA) and study components can achieve programmatic change more effectively when project design is linked to a well-defined policy  - 9 - framework. It is necessary to link carefully TA activities to specific actions to be taken to implement the results and recommendations of such TA. This is particularly relevant in cases in which reform components are politically sensitive. The objectives of the proposed project underpin the Government's 1993 policy framework which is supported by legislation. Executive Decree 578/93 of 1993 provides the foundation for the reform of public hospitals (see also para. 2.12). It introduces the alternative of autonomous management of public hospitals and establishes the legal basis for increased collection of fees, particularly from OSs and private insurers. As part of project preparation, the Government prepared a comprehensive study (Proyecto de Reforma del Sector Salud--PRESSAL, Documento No.1) which analyzes the sector, defines the government's sector strategy, and lists key legislation affecting reform in the sector. 4.6 Previous projects note the importance of keeping project design simple but relevant. Given the limited institutional capacity of sector agencies, their lack of familiarity with Bank procedures, and the complexity of the health sector, clarity and simplicity in project design are paramount. Moreover, project administration mechanisms (i.e., planning, programming, budgeting, procurement, and disbursement) must be transparent and functional. Project preparation has given particular attention to sharpening the focus of project objectives, specifying the scope of components, and refining the contents and timetable of implementation arrangements. However, in particular in middle-income countries, special attention should be paid to ensure that simplicity is consistent with the need to address the most relevant sector issues, which are usually exceedingly complex in the area of health sector reform. 4.7 Political commitment is a critical ingredient in project implementation performance. Commitment is particularly significant in the case of reforms in the health sector where powerful interest groups can easily derail the process. During project preparation, special attention was given to ensure the support of key stakeholders, particularly of the provincial governments (and the MCBA), the MOE, and professional associations. In this respect, the project preparation team consisted of representatives from the national and jurisdictional level and the MOE. Moreover, during appraisal, the Buenos Aires Medical Association, representing about 40 percent of all the Argentine physicians, endorsed the proposed project. To ensure sustainability and project ownership, it is also important that implementation arrangements be transparent and flexible and strike a fair and manageable balance between the definition of a clear and implementable set of objectives and the possibility of adapting project activities and implementation arrangements to changing political and institutional environments.  - 10- 4.8 In general, Bank projects across diverse sectors in Argentina have revealed that project execution has been affected by low government salaries, institutional deficiencies, and a scarcity of well-trained and full-time entrepreneurial staff. While strengthening existing agencies is the preferred option, the lack of a sound legal and administrative framework constrains the management autonomy and flexibility of these agencies. In this scenario it is critical that the project implementation unit be vested with ample authority and political support and has adequate capacity to guide the implementation and supervise project activities. Preparation efforts have been heavily focused on seeking early agreement on the creation, composition, and responsibilities of the national and provincial project implementation units. A MSAS resolution of September 1994 created the project preparation unit, i.e., Unidad de Coordinaci6n del Proyecto de Reforna del Sector Salud. The capacity of the national project unit to carry out implementation has been tested during preparation. 5. THE PROJECT A. Project Objectives and Concept 5.1 The proposed project addresses the Government's sectoral policy goal to rationalize sector spending by strengthening policy-making and improving efficiency in service delivery. To this end, the proposed project takes a two- pronged approach. First, it would strengthen policy-making capacity of the MSAS and the MPSs and assist the Government in the implementation of specific changes in the incentives environment for public hospitals. Second, it would improve the capacity to deliver services by pilot testing implementation of HPAs through different alternatives of managerial models for the transformation of public hospitals into HPAs . 5.2 To achieve these goals, the proposed project would carry out: (a) a limited number of operationally-oriented studies and system designs to be implemented during the second half of the project (Component I ); (b) the pilot implementation of HPA in the Province of Buenos Aires (Provincia de Buenos Aires-PBA), MCBA, and the (Provincia de Mendoza-POM) Province of Mendoza (Component II); (c) the nationwide dissemination of reform initiatives emerging from Components I and II; and (d) training of a critical mass of health sector professionals in health administration to take over the key roles in the new HPA (Component III).  -11- 5.3 Based on the Health Sector Strategy presented to the Bank in the Policy Letter, the findings and recommendations of the studies of Component I, and the experience gained in the implementation of the first phase of Component II, the Government would prepare an action plan for each eligible jurisdiction and the MSAS, to be approved by the Bank during Mid-Term Review and to be implemented by each eligible jurisdiction during the second half of project implementation. During negotiations, assurances were obtained from Government that an action plan would be prepared and submitted to the Bank no later than December 31, 1997, and its implementation finalized no later than nine months before the completion date. The Bank and the Government will participate, no later than April 30, 1998, to analyze and discuss the Action Plan submitted to the Bank. During Mid-Term Review, the Government will present to the Bank the final version of the Action Plan, incorporating Bank comments resulting from the joint review held in April 30, 1998. The action plan for each eligible jurisdiction should contain, at a minimum: (a) a proposal to legally and administratively transform one eligible public hospital, within the respective eligible province, into an HPA; and (b) actions to implement the appropriate recommendations of each of the studies carried out under Component I in the respective eligible province. Progress, satisfactory to the Bank, in carrying out the corresponding activities within the Action Plan would be a condition of disbursement for investment expenditures in the last three hospitals in each eligible province. 5.4 The Greater Buenos Aires Metropolitan Area (Gran Buenos Aires- GBA) has a population of about 11 million, about one-third of Argentina's population. It consists of the MCBA, with 3 million inhabitants, and the peri-urban area (Conurbano), divided into 19 counties belonging to the PBA with a population of 8 million. MCBA's population has seen little overall variation since the 1950s, while growth in the Conurbano has been rapid. The city's demographic and epidemiological profile is similar to that of a developed country and is in stark contrast with the peri-urban area with its large concentration of migrant population and a profile which mirrors that of a pre-transition developing country. Poverty levels and access to services worsen as distance from the capital increases. The public sector owns and manages about 17 percent of the 492 hospitals and 50 percent of the 37,000 hospital beds in the metropolitan area; hospital capacity is more concentrated in the city, where national referral specialized hospitals are located--only 40 percent of the city's hospital discharges are MCBA residents. The Province of Mendoza (POM) has a population of 1.4 million and slightly better health indicators than the national average. In the past five years, POM has been a pioneer in designing and implementing reforms in the health sector.  - 12- B. Detailed Project Description Summary Description of Components 5.5 The proposed project would consist of the following three components and related activities: Component I: Formulation of Policy for Reform (6 percent of total project cost) would help establish the basis and provide critical tools to further sector reform. The studies are designed to help fulfill the following objectives: (a) improve the sector's allocative efficiency through: (i) helping define health priorities in the country through a Burden of Disease Study (Health Service Priorities Study); and (ii) defining priority health care/preventive interventions through the identification of those interventions with the best cost-effectiveness for the country; (b) improve the sector's productive efficiency by creating the right incentives for the performance of public hospitals through adequate public hospital reimbursement systems from the jurisdictional ministries of health for services provided to indigent patients. (c) improve the targeting of public subsidies through designing and implementing an identification system to differentiate those patients considered indigent (and, therefore, to be financed by state subsidies) from those covered by Obras Sociales and/or private insurance schemes that should reimburse public hospitals for the services provided; and, (d) compensate for market failures in health insurance and service delivery through design and implementation of a regulatory framework for private insurance and for minimum quality requirements for private provision of services. Component U: Pilot Implementation of Autonomous Hospitals (89 percent of total project costs) would help transform the organization and management of up to 15 hospitals (five in MCBA, five in Conurbano and five in POM) to improve the internal efficiency and guide their transformation into HPAs. The estimated number of eligible hospitals to be included in the project responds to: (i) the preliminary identification of those hospitals that would be eligible under the defined eligibility criteria; (ii) the minimum number considered to be effective to get the desired demonstration effect in Argentina; and (iii) the minimum number to ensure the test of alternative  - 13- managerial models in each eligible province before deciding which of them could be replicated nationwide. To this end, the project would support the following activities in the eligible pilot hospitals: (a) institutional development with a focus on organization and management (O&M) improvements; (b) implementation of a hospital management information system (MIS); and (c) solving important bottlenecks for efficiency improvements through physical plant and equipment investments, conditioned to measurable improvements in organization and management. Component m: Dissemination of Reform Initiatives (5 percent of total project cost) would contribute to disseminate nationwide the findings and experiences of the first two components and to help strengthen the technical and management capacity of sector professionals. To this end, the proposed project would support training and workshops and a limited number of national and international scholarships in the areas of hospital management, public health, and health economics. Detailed Description of Components Component I: Formulation of Policy for Reform 5.6 Under this component, the proposed project would finance a limited number of studies and system designs to significantly improve the incentive environment in which public hospitals operate within eligible provinces. The aim of the studies is to develop action-oriented recommendations and designs in key areas of intervention to be implemented during the second half of project implementation. These areas were identified on the basis of the Government's priorities for action, their technical relevance to further reform, and their implementation feasibility. 5.7 The studies would include: (a) upgrading the national information system on sector resources, epidemiological information and productivity of service delivery; (b) defining priority health services to be financed by government subsidies; (c) designing and pilot testing a strategy to separate the financing from the service delivery functions of the public sector at the provincial level; (d) designing and pilot testing a public hospital reimbursement system; (e) designing a strategy to reform provincial OSs to improve their sustainability and managerial efficiency; (f) designing and implementing, among eligible hospitals, a system to identify beneficiaries under the various insurance schemes; (g) designing a regulatory framework for private health insurance and health care providers; and (h) reviewing the relevant legislation and institutional framework to improve the regulatory framework for hospital waste disposal. A brief description of these studies is included in Annex B. An additional set of studies would focus on developing  - 14 - investment and project proposals (e.g., AIDS control, nationwide expansion of the HPA initiative, Study of Project Impact) for which Bank financing is likely to be requested in the short- and medium-term. Draft terms of reference for these studies have been prepared. Final terms of reference (TOR) would be submitted to the Bank for no objection prior to preparation of a letter of invitation to consultants. Additionally, in order to assure participation of provinces in the design, before its approval by the UEC, all study reports under components I and II will be analyzed by the UEC together with representatives of the Minister of Health of each eligible province. Under this component, the proposed project would finance consulting services. Component II: Pilot Implementation of Autonomous Hospitals 5.8 Under this component, the proposed project would establish the basis for a broad reform of public hospitals. To this end, it would support pilot implementation of HPAs in three eligible jurisdictions already identified (MCBA, Conurbano and POM), where a new organizational and management model would be implemented. The HPA model is based on the separation of the health financing and health delivery functions of the public sector. The proposal is to gradually develop a purchasing agency role for provincial ministries of health and transform public hospitals into self- goverming trusts. HPA hospitals would have autonomy in the management of all resources and would establish contractual arrangements with public and private purchasing agencies. The proposed project would support the process by introducing most needed organizational, management, and financial tools into hospitals and by pilot testing the HPA model during the second half of project implementation. Without the introduction of basic hospital management techniques and development of administration capacity, public hospitals are unlikely to succeed in their transformation into HPAs. 5.9 The institutional development intervention of hospitals would be carried out through Organization and Management consultant firms (O&M) which would concentrate their efforts in the following areas: (a) general organization and management; (b) accounting and finance; (c) patient administration; (d) pharmacy materials and supplies; (e) hotel services; (f) diagnostic procedures; (g) infrastructure and equipment maintenance; (h) control of hospital infections; (i) medical auditing; and (j) management of medical waste. To facilitate the implementation of the results of institutional development activities, the project would also finance the development and implementation of a hospital MIS. With respect to the design and coordination of O&M and MIS activities, it has been agreed that: (a) the Govemment will prepare design and implementation guidelines for MIS containing the minimal technical requirements for the design and implementation of MIS, to be used for all MIS activities under the project  - 15- (b) firms executing O&M and MIS will be different, to avoid a poor implementation of organizational and management activities as a result of overdesign of the MIS; (c) the O&M firm will prepare TOR for the MIS within six month of starting its activities; (d) a high-level consultant team, hired by the UEC, will be responsible for overseeing the O&M and the MIS firms and ensure their coordination; (e) in order to guarantee the compatibility of MIS design in each jurisdiction, the MIS system will be procured in large packages (preferably two or more hospitals at a time in each jurisdiction); and (f) the TOR for the MIS implementation will be designed in accordance with the Implementation Guidelines referred to in (a) above and will specify that the technology to be used should be based on the available and proven state of the art technology. Final TOR would be submitted to the Bank for no objection prior to preparation of a letter of invitation to consultants. A description of each task is included in Annex C (Institutional Development--Key Areas of Intervention). Condition of disbursement for MIS will be that the Government has prepared and submitted to the Bank the Implementation Guidelines for MIS. 5.10 To support and complement the institutional development activities, the component would support investment in hospital physical plant and equipment to: (a) solve bottlenecks to increase productivity; (b) reduce the risk for patients and/or hospital staff; and (c) increase productive efficiency. Investments would be limited to rehabilitation of existing infrastructure (up to US$4.2 million per hospital, including physical and price contingencies) and replacement of basic equipment (up to US$2.1 million per hospital, including physical and price contingencies). Eligibility criteria for works and equipment have been defined. These criteria have been reviewed and included in the project's Implementation Manual. 5.11 Investments will be carried out in two phases. Hospitals would be eligible for financing under the first phase following preparation of a satisfactory investment plan. The investment plan should be a comprehensive five-year plan and establish the impact, if any, on recurrent costs. The investment plan should also contain detailed plans and technical specifications for all civil works and equipment to be financed under the project (both under the first and second phases). Investment project financing per hospital under the first phase could not exceed 40 percent of total investment cost (in goods and civil works) defined for the respective hospital. The remaining investment financing would be used during the second phase. Eligibility requirements for financing under the second phase relate to progress in the implementation of institutional development activities and will include at a minimum: (a) availability of detailed information on cost per cost center; (b) availability of information on payroll and staffing arrangements; and (c) fully implemented new organizational structure of the hospital, as recommended by the result of the activities to be carried out under Institutional Strengthening (Component II). For this purpose, each eligible  - 16- jurisdiction would submit to the Project Implementation Unit (PIU--UEC) for the hospital for which the no objection to initiate the implementation of eligible sub-project II is being requested: (1) a report identifying the cost of final services (using an acceptable and sound cost allocation methodology) for each cost center of the respective hospital, verifying that such cost report is the result of a cost system implemented in the respective hospital; (2) a report informing on the new defined organizational structure (result of the Organization and Management activities under Part B. 1. of the project) of the respective hospital and verifying that such structure has been adopted by the respective hospital; and (3) a report identifying detail information on personnel and payroll of the respective hospital, verifying that such report is the result of a personnel and payroll system implemented in the respective hospital. Once the UEC finds them acceptable, they would be submitted to the Bank as part of the support documentation for the no objection request to initiate actions to implement eligible sub-project II in the respective hospital. During appraisal, the Bank received a copy of the Investment Plan for the first hospital in each eligible jurisdiction. The plans will be reviewed by the UEC and, if considered within the eligibility criteria, will be submitted to the Bank for no objection. 5.12 During negotiations, assurances were obtained from the Government that the maximum amount allocated to civil works and equipment per hospital would not exceed US$6.3 million per hospital, and that the first phase of investments would not exceed 40% of the actual investment resources assigned to the respective hospital. Considering the criticalnature of strong leadership is in the implementation of reform in each eligible hospital, it will be a condition of disbursement for each eligible hospital that the respective hospital director has experience and qualifications acceptable to the MSAS, through the UEC. Additional conditions of disbursement for expenditures on civil works and equipment in each hospital are: (a) for the first phase (up to 40% of the assigned investment resources), the completion of a satisfactory investment plan and the signing of an Infrastructure Arrangement I between each eligible hospital and its respective MSP; and (b) for the remaining balance, progress in the implementation of pre-defined critical actions of institutional development (para. 5. 11) and the signing of an Infrastructure Arrangement II between each eligible hospital and its respective MSP. Additionally, a condition of disbursement for the second phase of investments under Component II (civil works and equipment, other than MIS) for the last three hospitals in each eligible jurisdiction would be evidence of satisfactory advances in the implementation of the action plan referred to in para. 5.3, for the respective jurisdiction. 5.13 The implementation of the pilot experiences would be carried out during the first three years of implementation. It is expected that, by the end of the third year, all 15 hospitals would have initiated institutional development activities.  - 17- 5.14 Under this component, the project would finance civil works, equipment, and consulting services. Component HI: Dissemination of Reform Initiatives 5.15 Under this component, the proposed project would support dissemination of the findings and experiences of the first two components nationwide and would help strengthen technical and management capacity of sector professionals. To this end, the project would support: (a) technical assistance, training, and workshops aimed at: (i) increasing the awareness and knowledge of the activities to reform the health sector, and (ii) disseminating the findings and lessons learned from the other two components of the project to provinces with no participation in Component II; and (b) a limited number (20) of international scholarships in the areas of hospital management, public health, and health economics. 5.16 Funding for technical assistance, training and workshops would be directed, primarily, to staff of provincial ministries and hospitals. An agreement would be signed between the MSAS and the entity requesting support. A model of the assistance agreement has been prepared and is included in the Implementation Manual. Proposals would be reviewed by the UEC prior to its submission for review by the Bank. 5.17 Under this component, the project would support improvements in the sector's human resource base through about 20 international scholarships in three areas: (a) public health/epidemiology, (b) hospital management, and (c) health economics. The criteria to be met by the eligible professionals and the minimum terms and conditions of the scholarships to be granted have been presented to the Bank during appraisal and are included in the project's Implementation Manual. Final selection of candidates will be done by an independent committee or institution, satisfactory to the Bank. 6. PROJECT COSTS AND FINANCING PLAN A. Project Costs 6.1 The total project cost is estimated at US$144.7 million equivalent, including taxes (US$23.7 million equivalent) and physical and price contingencies. The foreign exchange component is estimated at US$82.21 million, or about 57 percent of total project cost. Project costs by component are summarized in Table 6.1. A detailed cost table are provided in Annex D.  -18- Table 6.1: Project Cost Summary By Component Local Foreign Total % Foreign % of Total [ - US$ million - Exchange Base Cons 1. Formulation of Policy for Reform 2.86 4.66 7.52 62.00 6.00 II. Pilot Implementation of 50.90 64.85 115.75 56.00 89.00 Autonomous Hospitals m. Dissemination of Reform Initiatives 2.16 4.06 6.22 65.00 5.00 Total Base Costs 55.92 73.59 129.50 57.00 100.00 Physical Contingencies 3.42 4.45 7.88 57.00 6.00 Price Contingencies 3.15 4.17 7.32 57.00 6.00 Toutl Poject Cost 62.49 82.21 144.70 57.00 112.00 6.2 Contingency Allowances. The total project cost includes contingencies of US$15.2 million equivalent (12 percent of base costs). Physical contingencies of US$7.88 million equivalent (6 percent) are for civil works, medical equipment, and computers and technology equipment. Price contingencies (US$7.32 million equivalent), representing 6 percent of base costs, reflect projected price increases for foreign cost, estimated in US$ at 1.8 percent (1996), 2.6 percent (1997), 2.5 percent (1998), 2.5 percent (1999), and 2.4 percent (2000), as well as projected Bank estimates on local inflation. B. Recurrent Costs and Project Sustainability 6.3 The proposed project would entail minimal incremental recurrent costs. Administrative costs related to management of the national and jurisdictional implementation units, UEC and UEPs (e.g., secretarial support, rent and utilities, and maintenance of office equipment and office supplies) represent less than five percent of total project costs and will be funded by the Government. Personnel costs are not recurrent, since the UEC and UEPs will be composed of consultants under short- or medium-term contracts and these units are expected to be dismantled at the end of implementation. Project sustainability, however, is more heavily dependent on political will and the technical ability to incorporate the findings and recommendations of the studies (Component I) and the lessons learned from the pilot experiences (Component II) into broader sector reform efforts.  - 19- C. Financing Plan 6.4 The proposed loan of US$101.4 million would finance 70 percent of total project cost. It would cover US$70.9 million or 98 percent of foreign exchange expenditures and US$30.1 million or 63 percent of estimated local expenditures. The Government would finance US$43.3 million equivalent or 30 percent of total project cost. Table 6.2 summarizes the project's financing plan. Annex D, Table 2 incorporates the financing plan by year. The Government's estimated yearly counterpart funding requirements (both national and provincial) have been estimated at: US$5.9 million, US$13.4 million, US$14.6 million, US$10.0 million, and US$6.3 million. During negotiations, assurances were obtained from the Government that annual amounts of counterpart funding would be made available for each of the five years of project implementation. Table 6.2: Financing Plan US$ Million Percentage Government 43.3 30.0 IBRD 101.4 70.0 Total 144.7 100.0 7. PROJECT IMPLEMENTATION A. Status of Preparation 7.1 Project preparation was financed by the Borrower and by an advance from the Project Preparation Facility (PPF) of US$1,150,000 dated July 22, 1994 and amended on May 19, 1995. The Government initiated preparation activities in June 1994, when a project preparation unit was established. B. Project Management and Coordination 7.2 The MSAS would be responsible for project implementation. An MSAS resolution of September 1994 created the project preparation unit, i.e., Unidad de Coordinaci6n del Proyecto de Reforma del Sector Salud. Project execution responsibilities would be vested with a national project implementation unit, i.e. Unidad Ejecutiva Central del Proyecto de Desarrollo del Sector Salud (UEC). In addition, PBA, MCBA and POM  -20- would create jurisdictional implementation units, i.e., Unidades Ejecutoras Provinciales (UEPs), to assist in the implementation of Component II. The UEC's mandate would include: (a) carrying out the implementation of Component I, the institutional development activities under Component II, and Component III; (b) providing technical and administrative support to the UEPs in carrying out Component II; (c) coordinating with and overseeing all relevant entities at the national and jurisdictional levels involved in implementation; (d) monitoring and evaluating project activities; and (e) reporting to the Bank. The UEPs' mandate focuses on the upgrading of physical plant and equipment under Component II, with the administrative and technical support of the UEC. 7.3 The proceeds of the loan allocated for upgrading of hospital physical plant and equipment under Component II would be on-lent from the national government (MOE) to the governments of the three participating jurisdictions (i.e., PBA, MCBA, and POM). These governments would have the obligation to repay the proceeds of the loan to the MOE under the same terms and conditions as the Bank Loan. To this effect, a subsidiary loan agreement (SLA--Convenio de Ejecuci6n y Subsidiario del Prestamo Naci6n- Jurisdicci6n--CES) would be signed between the MOE, the MSAS and each of the three participating jurisdictions. These subsidiary loan agreements will include, inter alia, a description of the jurisdiction's financial and project obligations (including detailed provincial counterpart fund per year of implementation), provisions for withdrawals, conditionalities, remedies and bearing of the foreign exchange risk. A first draft of the subsidiary loan agreement has been prepared and presented to the Bank and has been reviewed. For each participating jurisdiction, a condition of disbursement of proceeds for Component II would be that the respective subsidiary loan agreement (SLA) would have been signed between the National Government (represented by the MOE and the MSAS) and the jurisdiction and counsel for the Borrower and the corresponding eligible province has furnished to the Bank an opinion stating that the respective SLA has been executed by the Borrower and the province. The three jurisdictions have expressed their commitment to the project and their willingness to participate in the project and have signed a Commitment Letter (Carta de Adhesi6n) between the National Government (MSAS) and each of the three jurisdictions confirming the interest of the three jurisdictions to participate in the project. Other provinces could be eligible for financing under Component II to replace any of the three eligible jurisdictions in case of not compliance with the SLA. During negotiations, assurances were obtained from the Government that non compliance with the SLA would be sufficient cause for suspension of disbursements in any of the three participating jurisdictions. 7.4 The UEC will, at a maximum, consist of 16 higher-level and 5 support staff. It will be organized around three management sub-units and it would be headed by a coordinator and a deputy coordinator. Two of those  - 21- sub-units will play a technical role in project implementation. The third sub- unit will be responsible for the project's financial management, including, inter alia, the submission of disbursement applications to the Bank and procurement and contractual activities. An organizational chart of the UEC and UEP are included in Annex E. Each of the three UEPs will consist of up to four higher level staff (including a coordinator) and one support staff. The UEC coordinator and the UEPs coordinators will be appointed by the Minister of the MSAS and the Ministers from each eligible jurisdiction, respectively. A condition of loan effectiveness is that the UEC has been created and is adequately staffed, and the coordinator, satisfactory to the Bank, has been appointed. For each eligible jurisdiction in which Component II would be implemented, conditions of disbursement for Component II are that: (a) the UEP is created and adequately staffed and that the coordinator, satisfactory to the Bank, has been appointed; and (b) hospital directors in each eligible hospital under Component II should have technical and managerial experience and qualifications, satisfactory to the Bank. 7.5 Considering the transient nature of the UEC and UEPs, during negotiations, assurances were obtained from the Government that no later than the Mid-Term Review of the project, the Government would present to the Bank a plan to transfer UEC and UEPs responsibilities and activities to the national and jurisdictional line ministries and/or gradually reduce their staff, whichever is appropriate, during the second half of project implementation. 7.6 During preparation, the UEC prepared three basic documents to guide implementation, which together constitute the project's implementation manual: (a) a project proposal (Documentos del Proyecto PRESSAL, quinta versi6n) that includes: (i) the overall rationale for and description of the project, (ii) a description of all activities to be carried out in each of the project's components, (iii) draft terms of reference for consulting services, and (iv) costs; (b) an Operational Manual (Manual de Operaciones del PRESSAL, marzo de 1995) that summarizes the project's activities and details implementation procedures including, inter alia: (i) disbursement and auditing procedures, (ii) procedures for the transfer of loan proceeds to the jurisdictions, (iii) procurement procedures, (iv) the UEC and UEPs organizational charts and terms of reference, (v) eligibility criteria for hospitals to be incorporated into the pilot program under Component II; (vi) eligibility criteria for access to funds allocated to works and equipment under Component II, and (vii) the criteria to be met by the eligible professionals and the minimum terms and conditions of the scholarships to be granted under Component III; and (c) a jurisdictional implementation manual (Instructivo de Ejecuci6n del Proyecto, marzo de 1995) based on the general Implementation Manual adapted to the specific day-to-day needs of the UEPs for the implementation of investments under Component II of the project.  -22 - These documents were reviewed during appraisal. A condition of loan effectiveness is that the Implementation Manual, satisfactory to the Bank, be approved by the MSAS. A condition of disbursement for Component II in each jurisdiction will be that the corresponding parts of the Implementation Manual should be duly approved by the respective eligible province. C. Implementation Schedule 7.7 The proposed project would be implemented over five years (i.e., mid-CY95 through mid-CY2000). Phasing of the various project activities is summarized in the Project Implementation Plan (PIP) included in Annex F. During negotiations, the Bank and the Government agreed on the final version of the project Implementation Manual. Prior to negotiations, the Government completed the final version of the Implementation Manual. During negotiations, assurances were obtained that the Government would carry out the project in accordance with the Implementation Manual and within the parameters of the implementation arrangements. D. Procurement 7.8 The proposed project will finance procurement of civil works, goods and consultant services. Procurement for civil works and goods, subject to Bank financing, will be carried out in accordance with Bank guidelines (January 1995). Procurement for consultant services will be carried out in acordance with Bank guidelines (August 1981). Condition of disbursement in each eligible province will be that the respective province has taken all actions, satisfactory to the Bank, in order to permit such eligible province to carry out the procurement of goods and works to be financed under the loan, in accordance with Bank procedures. Procurement activities will be carried out by the UEC (for Components I, II--except works and goods--and III) and the three UEPs (for works and goods under Component II). 7.9 The Government informed the Bank about its intention to amend the existing agreement (cost-sharing agreement) with the United Nations Development Programme (UNDP) office in Buenos Aires to assist the Government with procurement arrangements for consultant services of the proposed project. The Government submitted to the Bank, for its review, a draft contract of the proposed agreement. During negotiations, assurances were obtained from the Government that a plan for the organization of procurement arrangements to be carried out during the second half of project implementation would be developed. A condition of effectiveness will be that the MSAS-UNDP has been duly amended to allow for UNDP to support the MSAS in the management of all consultant services to be financed under the project.  -23 - 7.10 Arrangements for procurement and limits by type are summarized in Table 7.1. The procurement review procedures are summarized in Table 7.2. Standard bidding documents for civil works and goods for both NCB and ICB have been reviewed and found acceptable by the Bank. Standard documents, acceptable to the Bank, for two-step ICB procedures would be used in the procurement of information systems (equipment and software). A condition of effectiveness will be that all action, satisfactory to the Bank, has been taken by the Goverment in order to permit procurement of goods and services to be financed by the Bank Loan in acordance with Bank procedures. Table 7.1 Summary of Procurement Arrangements (US$ million equivalent) Procurement Method Procurement Element ICB NCB Other Total Cost 1. Civil Works 59.8 3.2' 63.0 (41.9) (2.2) (44.1) 2. Goods Computer Hardware and 12.0 12.0 Software (8.4) (8.4) Vehicles 0.51 0.5 (0.4) (0.4) Office Equipment and Furniture 0.1 F 0.1 (0.1) (0.1) Medical Equipment 7.0 10.2 11m4e' 28.6 (4.9) (7.1) (8.0) (20.0) 3. Consulting Services and 39.3d 39.3 Training (27.3) (27.3) 4. PPF Refinancing 1.15 1.15i ______ ______ ~(1.2) (1.2) TOTAL 19.0 70.0 55.7 144.7 (13.3) (49.0) (39.2) (101.4) a/ Includes lump-sum fixed contracts on the basis of comparisons of at least three price proposal. b/ Includes Local and International Shopping (up to USS 1.4 million equivalent) and LIB for eligible medical equipment (up to USS 10.0 million equivalent). c/ Consulting Services Note: ICB - International Competitive Bidding NCB = National Competitive Bidding LIB = Limited International Bidding Numbers in parentheses reflect Bank financing.  -24- Table 7.2 Summary of Procurement Review Procedures CATEGORY PROCEDURE PRIOR BANK REVIEW 1. Civil Works Contracts for US$3.0 million or more ICB All Contracts for less than US$3.0 million but NCB First project contract more than US$300,000 per jurisdiction and all contracts to cost more than US$600,000. Contracts for US$300,000 or less Comparison of None Three price proposals 2. Goods Contracts for US$300,000 or more ICB All Contracts for medical equipment which LIB All the Bank agrees can only be purchased from a few international suppliers, valued at more than US$100,000 Contracts for less than US$300,000 but NCB First project contract more than US$100,000 per jurisdiction and all NCB contracts to cost more than US$200,000. Contracts for US$100,000 or less Shopping None 3. Consulting Services Contracts with firms for US$100,000 or All above Contracts with individuals (new or All renewals) that would determine a total of US$35,000 or more for the specific consultant during a calendar year. Contracts for UEC and UEP personnel All  -25 - Civil Works 7.11 Civil works will involve the rehabilitation of 15 hospitals at a cost of about US$63.0 million. The upgrading cost per individual hospital should not exceed US$4.2 million (including physical and price contingencies). Hospitals would prepare an investment plan identifying priority self-contained investment projects to be financed by the project. Such priority investments should fulfill the eligibility criteria defined in the Implementation Manual. Procurement of works for each hospital will be carried out in two phases. The first phase would finance priority projects up to 40 percent of the total available funds for investments. The second phase would be conditioned on the completion of the first phase and the implementation of institutional development activities (see para. 5.11). 7.12 Individual packages for civil works in each hospital are expected not to exceed US$3.0 million equivalent. This would be unlikely to attract foreign contractors, and would therefore not justify their procurement through ICB. Contracts for works expected to cost more than US$300,000 equivalent but less than US$3.0 million equivalent, with an aggregate amount of US$59.8 million equivalent, or about 40 percent of the total project cost, would be awarded on the basis of NCB procedures satisfactory to the Bank. NCB for works would be carried out using standard bidding documents satisfactory to the Bank. Lump-sum fixed-price contracts would be used for works with small value (US$300,000 equivalent or less) up to an aggregate amount of US$3.2 million equivalent. These would be awarded, through comparison of three price proposals, to the lowest price responsive proposal meeting the specifications, time completion, and contract conditions. Goods 7.13 Goods will include computer hardware and software, vehicles, office equipment and furniture, and medical equipment, and are expected to total about US$31.0 million equivalent. To the extent possible, contracts for goods will be combined into packages of US$300,000 equivalent or more -- totalling about US$19.0 million equivalent-- and would be awarded on the basis of ICB procedures. Eligible medical equipment (medical equipment which the Bank agrees can only be purchased from a few international suppliers) financed by the Bank valued at more than US$100,000 equivalent, up to a total of US$10.0 million equivalent, will be awarded on the basis of LIB procedures. Other goods financed by the Bank valued more than US$100,000 but less than US$300,000, up to a total of US$10.2 million equivalent, will be awarded based on NCB procedures. ICB will require the use of Bank-issued standard bidding documents (SBD), and NCB would also be carried out using standard bidding documents satisfactory to the Bank. Shopping (international and local) would be used for contracts of  -26- US$100,000 or less up to an aggregate amount of US$2.0 million equivalent. Computer hardware and software may be procured on the basis of ICB under a two-stage procedure satisfactory to the Bank. Consulting Services 7.14 Preparation of studies, technical assistance, and project coordination will be carried out by national and foreign consultants, contracted in accordance with Guidelines on the Use of Consultants hy World Bank Borrowers and by the World Bank as Executing Agency (August 1981). Except as the Bank may otherwise agree, consultants would be employed under contracts using a model letter of invitation and the standard form of contract for consultant services issued by the World Bank in May 1993. The total allocation for consulting services is estimated at about US$39.3 million equivalent. Review of Procurement 7.15 Prior review by the Bank will be carried out for all contracts for civil works and goods to be procured under ICB and LIB. Prior review will also be required for: (a) all civil works contracts of more than US$600,000 equivalent; (b) the first contract for civil works under NCB in each of the three jurisdictions; (c) the first contract for goods under NCB in each of the three jurisdictions; and (d) contracts for goods under NCB above US$200,000. It is estimated that during the life of the project about 65 contracts, representing about 70 percent of the total value of contracts, will require prior Bank review, which is considered satisfactory. The Bank will review ex-post, on a selective basis, contracts and bid evaluation for civil works and goods awarded under NCB and shopping not subject to prior review by the Bank. 7.16 The Bank will review all documentation for consulting services included in the project. Bank prior review will be required for: (a) all contracts for consulting firms of US$100,000 equivalent or above; (b) all contracts with individuals (new or renewals) costing US$35,000 equivalent or above in aggregate during the calendar year; and (c) all contracts involving UEC and UEP personnel. For consultant contracts with firms that cost less than US$100,000 equivalent, and up to US$10.0 million equivalent, and for individuals that cost less than US$35,000 equivalent and up to US$5.0 million equivalent in the aggregate, prior review by the Bank will cover only the corresponding terms of reference and the short list before contracting. This exception would not apply to: (a) single-source selection of consulting firms; (b) assignments of a critical nature as reasonably determined by the  -27- Bank; (c) amendments to contracts for the employment of consulting firms raising the contract value to US$100,000 equivalent or above; or (d) amendments to contracts for the employment of individual consultants raising the contract value to US$35,000 equivalent or above. During appraisal, the Government submitted to the Bank a detailed format of terms of reference and c.v. contents for review and approval, to be included in the Implementation Manual. The Government and the Bank have agreed that prior review limits will be evaluated during the yearly reviews and could be modified, if appropriate. The Bank will conduct a selective ex-post review of support contract documents during supervision. All standard bidding documents, satisfactory to the Bank, will be included in the Implementation Manual. E. Disbursements and Accounts 7.17 The proceeds of the proposed loan are expected to be disbursed in accordance with the schedule shown in Annex H, Table 1 over a period of five years. The disbursement period was determined on the basis of the profile of other Bank projects with an emphasis on technical assistance. The project completion date would be December 31, 2000 and the project closing date would be June 30, 2001. 7.18 Annex I, Table 2 contains disbursement allocations. Disbursements will be made against the following categories of expenditures: (a) 70 percent of expenditures for civil works; (b) 70 percent of expenditures for goods; and (c) 70 percent of expenditures for consulting services and training. Administrative and operational costs would be financed by the Government. 7.19 Withdrawal applications for civil works with a contract value of more than US$600,000 for goods (excluding eligible medical equipment referred to in paragraph 7.13 above), with a contract value of US$300,000 or more, eligible medical equipment (see para. 7.13) with a contract value of more than US$100,000, services with ja contract value of US$100,000 or more and US$35,000 or more for the employment of consulting firms and individual consultants, respectively, will be supported by full documentation. Full documentation will also be required for: (a) the first project contract per jurisdiction and all contracts above US$600,000 for civil works; and (b) the first project contract per jurisdiction and all NCB contracts of more than US$200,000 for goods. Disbursements will be made on the basis of Statement of Expenditures (SOEs) against expenditures for contracts: (a) US$600,000 or less for civil works (with the exception of the first project contract per jurisdiction and all contracts of more than US$600,000 equivalent); (b) US$200,000 or less for goods (with the exception of the first project contract per jurisdiction, and all contracts awarded under LIB;  - 28 - (c) less than US$100,000 and US$35,000 for the employment of consulting firms and individual consultants, respectively; and (d) disbursements against expenditures not undertaken by contract. Supporting documentation for these would be retained and appropriately maintained by UEC and would be available for periodic review by the Bank. 7.20 Special Account. To facilitate timely project implementation the Government will establish, maintain and operate, under terms and conditions satisfactory to the Bank, a Special Account denominated in US Dollars with an authorized allocation of US$4.0 million equivalent in the BNA or a commercial bank. An initial deposit of US$1.0 million equivalent would be made and the full amount of the authorized allocation would be released when disbursements reach a level of US$10 million equivalent. 7.21 Retroactive Financing. Up to US$2.0 million equivalent (2.0 percent of the total Bank financing) will be made available in retroactive financing after April 15, 1995, up to 12 months prior to loan signing. F. Financial Management, Accounting, and Audits 7.22 The project's accounts will be available for inspection by the Bank. Annually audited accounts (audit reports) will be submitted to the Bank no later than six months following the end of the government's fiscal year. The annual audit reports will include, inter alia: (a) an audit of the project, including: (i) a statement of sources and applications of funds, (ii) a statement of assets and liabilities, and (iii) supplementary financial information containing a matrix of cumulative project performance, a summary of significant bids processed and awarded, a list of main contractors and contracts, and the status of the financial execution of technical assistance; (b) an auditor's opinion on the eligibility of expenses submitted through Statement of Expenditures (SOEs); (c) opinions on compliance with the financial-managerial covenants in the Loan Agreement; (d) an audit of the special account; (e) a management letter; and (f) a disclosure of the audit procedures utilized. The audit would be performed by independent auditors acceptable to the Bank. Draft terms of reference for the annual audits will be submitted to the Bank as part of the Implementation Manual.  -29 - G. Project Monitoring, Evaluation, and Supervision 7.23 The proposed project includes specific outcomes to be monitored (see Annex F) and incorporates a comprehensive monitoring system, including implementation timetables and definition of a dated plan of action with dates for the implementation of key steps to be carried out under each component (see para. 7.7 and Annex I). Annex K also includes a detailed Project Implementation Plan prepared by the Argentinean team. During negotiations, assurances were obtained that: (a) the Government, through the UEC, would submit to the Bank quarterly progress reports no later than 30 days after the end of every quarter of each year, and the last quarterly report of each calendar year will include an assessment of overall implementation progress over the past year; (b) the Government, through the UEC, would submit to the Bank a draft budget proposal, including the amount of counterpart funds and a detailed work program for the following year, no later than June 30 of each year (coinciding with their submission to the MOE); and (c) within thirty days after the day the government's budget for the Health Sector is dully approved each year, the Government would furnish to the Bank a copy of such approved budget. 7.24 The Government and the Bank would hold Annual Reviews no later than July 31 each year. The Annual Reviews would evaluate project implementation in the past calendar year and review the draft implementation plan and budget for the following calendar year. Annex J contains the supervision plan for the proposed project. In addition, the Government and the Bank would hold a Mid-Term Review no later than July 31, 1998. The Mid-Term Review would evaluate, among other things: (a) progress in completion of the critical project stages defined in the implementation arrangements; (b) compliance with the Loan Agreement's legal covenants; (c) adequacy of availability of project financing; (d) compliance with procurement and disbursement arrangements; and (e) the quarterly progress reports. Additionally, the Government and the Bank will review the status of impact indicators referred to in Annex F, for the first two hospitals in each jurisdiction. By that time, it is expected that all institutional strengthening activities would have been implemented and a first evaluation of their impact can be performed. During the Mid-Term Review, the Government will present a plan satisfactory to the Bank as the action plan referred to in paragraphs 5.3 and 5.12 of this SAR. During negotiations, assurances were obtained that: (a) Annual Reviews should take place no later than July 31 of each year; and (b) a Mid-Term Review should take place no later than July 31, 1998.  -30- H. Environmental Impact 7.25 The environmental rating of the project is "B". Under Component I, the project includes a study to review the relevant legislation and institutional framework on medical waste management. Institutional development under Component II would involve the analysis of current procedures and norms and implementation, if appropriate, of new procedures and norms for waste management in the 15 pilot hospitals. 8. EXPECTED BENEFITS AND RISKS A. Benefits 8.1 The main benefit of the proposed project would be to help the Government implement its objective of rationalizing sector spending by strengthening policy-making and improving service delivery capacity. First, by strengthening policy-making through definition of specific short- and medium-term strategies and actions aimed at furthering sector reform (Component I), the proposed project sets the stage and provides the technical tools for an in-depth transformation of the sector. Second, by supporting the pilot strengthening of the organization and management of 15 public hospitals and guide their transformation into HPAs, the proposed project establishes a new and more efficient delivery model that can be replicated nationwide. Improving public hospitals' management through their transformation into independent trusts is a priority for the reform of the Argentine Health Sector. Such transformation will introduce the required incentives to significantly improve productive efficiency in the public hospitals, which constitute about 80% of public health expenditures in the country. The project will, inter alia, increase cost-recovery, allow for more flexibility in the utilization of resources by hospital managers, reduce unnecessary utilization of hospital beds, and increase their productivity, as shown in Annex F. At the same time, the change of the managerial model for the public hospitals will allow for a complete public-private integration in the provision of health services in the Argentine Republic in the near future.  - 31 - B. Risks 8.2 The two principal risks of the proposed project are: (a) a lack of future political commitment to reform in the health sector; and (b) project implementation demands outstripping the managerial capacity of the MSAS, the provincial ministries and the MCBA Health Secretariat. Political commitment is particularly difficult to gauge in the case of Argentina's health care sector, given the number and variety of interest groups involved (e.g., national and jurisdictional governments, unions, professional associations, and private sector institutions). While it is not possible to guarantee support to the project by all stakeholders, risks related to the political sustainability of the project have been minimized by: (a) the attention given during preparation to ensure the support of key stakeholders, particularly of the jurisdictional governments, the MOE, and some professional associations; and (b) a project design which is not overly ambitious, has pilot and demonstration features and, through very specific and operational studies, focuses on gradually building the sector's knowledge base for reform. With regard to the project's demands outstripping the MSAS's managerial capacity, the risk would be minimized by: (a) full-time project units (UEC and UEPs) that have successfully managed preparation and are familiar with Bank guidelines, following the administration of an advance from the PPF; and (b) annual and Mid-Term reviews to assess implementation progress and adjust the pace and scope of implementation as needed. 9. AGREEMENTS REACHED AND RECOMMENDATION A. Agreements Reached 9.1 During negotiations, the Bank and the Government agreed on the PIP and assurances were obtained from Government that: (a) (i) a draft action plan for each eligible province would be prepared and submitted to the Bank for comments, no later than December 31, 1997; the Bank and the Government will participate, no later than April 30, 1998, to analyze and discuss the Action Plan submitted to the Bank; (ii) during the Mid-Term Review, the Government would present to the Bank the final version of such action plan incorporating the Bank's comments resulting from the April, 30, 1998 joint review; (iii) the implementation of such action plan would be finalized no later than nine months before the completion date in each eligible province; and (iv) such action plan would include, at a minimum, a proposal to  - 32 - legally transform one eligible hospital of the respective jurisdiction into an HPA and actions to be taken to implement the appropriate recommendations of the studies carried out under Component I in the respective jurisdiction (para. 5.3 and 5.12); (b) the maximum amount allocated to civil works and equipment will not exceed US$6.3 million per hospital and the first phase of investments will not exceed 40% of the total amount allocated for investments in the respective hospital per hospital (para. 5.12); (c) the annual amounts of counterpart funding would be made available for each of the five years of project implementation (para 6.4); (d) failure of performance by any of the three participating jurisdictions under their respective subsidiary loan agreement would be sufficient cause for suspension of disbursements in any of such jurisdiction, and other provinces could be included as replacements (para. 7.3); (e) no later than the Mid-Term Review of the project, the Government would present to the Bank a plan to transfer UEC and UEP responsibilities and activities to MSAS and respective jurisdictions (para. 7.5); (f) the Government will carry out the project in accordance with the Implementation Manual and within the parameters of the Project Implementation Plan (para. 7.7); (g) the Government, through UEC, would submit to the Bank: (i) quarterly progress reports no later than 30 days after the end of every quarter of each year, and the last quarterly report of each calendar year will include an assessment of overall implementation progress over the past year and (ii) a draft budget proposal for the following year no later than June 30 of each year and an officially approved budget for the following year no later than 30 days after its approval by the Congress (para. 7.23); and (h) Annual Reviews should take place no later than July 31 each year, and a Mid-Term Review should take place no later than July 31, 1998 (para. 7.24).  - 33 - 9.2 Conditions of loan effectiveness are that: (a) the UEC has been created and is adequately staffed, and the coordinator has been appointed (para. 7.4); (b) the Implementation Manual has been approved by the MSAS (para. 7.6); (c) the MSAS-UNDP has been amended to allow for UNDP to support the MSAS in the management of all contracts for consultant services to be financed under the project (para. 7.9); and (d) all action, satisfactory to the Bank, has been taken by the Goverment in order to permit procurement of goods and services to be financed by the Bank Loan in acordance with Bank procedures (para. 7.10). 9.3 Conditions of disbursement are that: (a) for expenditures for civil works and equipment under Component II for the first two hospitals in each of the three jurisdictions: (i) for the first 40% of the total amount allocated for investments in the respective hospital, the completion of a satisfactory investment plan; and (ii) for the remaining balance, reasonable progress in the implementation of institutional development activities refered to in para. 5.11 (para. 5.12); (b) in addition to paragraph (a) above, for expenditures in civil works and equipment under Component II, for the second phase in the last three hospitals for the respective jurisdiction, the submission to the Bank during Mid-Term Review of the action plan referred to in paragraphs 5.3 and 5.12, and evidence of satisfactory advance in its implementation in the respective eligible province; (c) for expenditures for each of the three participating jurisdictions under Component II, the subsidiary loan agreement has been signed between the Federal Government (represented by the MOE and MSAS) and the jurisdiction (para. 7.3); (d) for expenditures for information systems, the submission of Implementation Guidelines for MIS, acceptable to the Bank, to guide all MIS investments (para. 5.9); (e) for expenditures for each of the three participating jurisdictions under Component II, the UEP is created and is adequately staffed and the coordinator has been appointed (para. 7.4);  -34 - (f) for expenditures for each of the three participating jurisdictions under Component II, the corresponding parts of the Implementation Manual have been approved by the respective eligible province (para. 7.6); and (g) for expenditures for each eligible hospital under component II, the respective hospital has: (i) a director with experience and technical and managerial qualifications satisfactory to the MSAS through the UEC (para. 5.12); (ii) for the each phase of investments, the hospital and the respective province have signed the respective infrastructure arrangement (para. 5.12); (iii) the respective province has taken all actions, satisfactory to the Bank, in order to permit such eligible province to carry out the procurement of goods and works to be financed under the loan, in accordance with Bank procedures (para. 7.8). B. Recommendation 9.4 With the above agreements and assurances, the proposed project would constitute a suitable basis for a Bank loan of US$101.4 million to the Argentine Republic, repayable in 15 years, including five years of grace.  - 35 - Annex A ARGENTINA - PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Table 1: Distribution of Health Expenditures by Institution, 1993 INSTITUTION Arg (Million) % OF TOTAL % GDP National Govermment 357 1.9 0.14 Provinces & MCBA1 3,002 16.3 1.20 Municipalities 639 3.5 0.25 pAMI2 2,211 12.0 0.87 National Obras Sociales 2,7873 15.2 1.09 Provincial Obras Sociales 1,3114 7.1 0.51 Other Obras Sociales5 367 2.0 0.14 Private Health Insurance 2,500 13.6 0.98 Out of Pocket6 5,200 28.0 2.04 TOTAL 18,374 100.0 7.20 SOURCE: Ministry of Health, PRESSAL Project Basd on data from MOE. Table 2: Estimated Health expenditures and coverage by institution, 1993 Institution Population % of total Per-capita (Million) expenditures Arg$ National Govermnent Provinces & MCBA Municipalities TOTAL PUBLIC SECTOR 11.95 37.0' 335 PAMI 3.8 12.0 582 National Obras Sociales 17.5 54.0 159 Provincial Obras Sociales 6.1 19.0 217 Other Obras Sociales 1.2 4.0 298 Private Health Insurance 2,500 13.6 0.98 TOTAL PRIVATE SECTOR 23.6 73.o8 389 TOTAL COUNTRY 32.3 408 'Municipality of Buenos Aires 2Integral Medical Care Plan-- Plan de Atenci6n Medica Integral 3 Includes transfers from the Re-distribution Fund, special transfers and other revenues. 4 Includes provincial contributions (as employers) 5Includes Obras Sociales of: Armed Forces, National Congress and Judicial Branch. 6Preliniinary estimation based on PRESSAL documents (Dec. 1994) 7 Includes indigents (27%) and population with other coverage but using public facilities for free. a The actual sum of coverage is more than 73%. This is due to overlapping of coverage among insures.  -36 - Annex B ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Component I: Policy Reform Studies and System Design 1. The Formulation of Policy Reform component (6 percent of total project costs) would help establish the basis and provide critical tools to advance sector reform. The studies are designed to help attain following objectives: (a) improve the sector's allocative efficiency; (b) improve the targeting of public subsidies; and (c) compensate for market failures in health insurance and service delivery. They would involve: (i) upgrading the national information system on sector resources, epidemiological information and the productivity of service delivery; (ii) defining priority services to be financed by government subsidies; (iii) designing a strategy to separate the financing and service delivery functions for the public sector; (iv) designing and pilot testing a public hospital reimbursement system at the provincial level; (v) designing a strategy to reform provincial OSs; (vi) designing a system to identify beneficiaries under various insurance schemes; and (vii) designing and implementing a regulatory framework for private health insurance and private health care providers. An additional set of studies would focus on developing investment and project proposals (e.g., expansion of the HPA initiative nationwide, reform of health insurance, AIDS control, and mid-term and project-impact evaluation studies) for which Bank-funding is likely to be requested in the short- or medium-term. Finally, a study would analyze the relevant legislation and institutional framework for hospital waste management. 2. The studies will be carried out by external consultants (firms and/or individual consultants) under the technical coordination of the Project Implementation Unit (UEC). Specific Studies and Designs National Health Resource Information System 3. This two-year study will be carried out in all the provinces of the country. Information from private and public providers on availability of resources, health service utilization and provision, human resources and epidemiological data will be collected. The main purpose of the study is to update the provincial and national information available on service provision and epidemiological data in order to improve the planning capacity and the resource allocation decision-making process at the provincial and national level. In addition to data collection, a permanent data collection system will be designed and implemented to assure that the system will continue providing the required information on time and efficiently.  - 37 - Health Care Intervention Priorities for Argentina 4. After defining a methodology acceptable for policy makers in the country, the study will identify a number of health care interventions to prioritize government subsidy allocation. First, the study will perform a Burden of Disease calculation at the provincial level in all 24 provinces of the country using, as a first input, the epidemiological data to be collected by the national health resources information system, and will further collect epidemiological information, as required. During a second stage, after defining the costing methodology to be use, the study will collect cost information in a representative sample of provinces. Finally, after two years and through a participative approach with different stakeholders in the health sector, the study will recommend specific interventions to be considered priorities for state financing. Health financing 5, Health financing studies will include: (a) design and strategy definition for the separation of the health service provision and health financing for the three provinces included in the project; (b) design and definition of a new public hospital reimbursement system for the three provinces included in the project; and (c) design of an identification system for the different modalities of health insurance beneficiaries to be implemented in each eligible hospital. Regulatory Framework for Private Insurers and Providers 6. These studies will include: (a) system design and implementation strategy for a legal-administrative regulatory system for private health insurers to improve the health insurance market in the country through assuring transparency and sustainability of the contractual relationship between customers and private insurers; and (b) system design and implementation strategy for a regulatory system to assure basic quality of the services to be delivered either by public or private providers. Provincial "Obras Sociales" Reform 7. For the three provinces included in the project, the study will identify the sources of deficit for the provincial "Obras Sociales" and will propose a reform strategy to significantly improve their efficiency and eventually, in the long term, eliminate subsidies from the province to the respective provincial Obra Social.  - 38 - Annex C ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Component II: Institutional Development 1. The institutional development efforts to reform the eligible public hospitals would focus on the following key areas: (a) general organization and management; (b) accounting and finance; (c) patient administration; (d) pharmacy, materials and supplies; (e) hotel services; (f) diagnostic procedures; (g) infrastructure and equipment maintenance; (h) control of hospital infections; (i) utilization review; and (j) management of medical waste. The studies / hospital interventions, will be carried out by external consultants (firms) with demonstrated experience in the field of re-engineering health care organizations, under the technical coordination of the Project Implementation Unit (UEC). General Organization and Management 2. This area would involve support to the-hospital director in identifying critical management and organizational bottlenecks, define a plan for reform and follow-up the implementation of the restructuring efforts. Technical assistance in this area would be required throughout the implementation of the institutional development sub-component (two to three years). The consultant(s) would closely work with the hospital director and the management team, improve their management skills, guarantee their effective involvement in the restructuring effort and help coordinate activities of consultants working in functional areas. Accounting and Finance i. Efforts would focus on assistance to improve the hospital's capacity in accounting and finance. The main objectives are to develop accounting and intemal auditing systems, identify costs per cost center, establish cost control mechanisms and set up more efficient billing and payment procedures. The establishment of these accounting and financial systems should facilitate the gradual transformation of the hospital into an independent trust. These systems should carefully anticipate the effect of different alternatives of public/private hospital reimbursement methods to be designed under Component I of the project.  - 39 - Patient Administration 4. This area would entail support in developing an integrated system for patient management that registers and coordinates admissions and discharges, referrals to ancillary and diagnostic services, emergency services, outpatient services, medical records and hospital statistics. Materials and Supplies 5. Efforts would focus on developing the management of materials and supplies (including pharmaceuticals) through improvements in procurement, inventory and distribution. Special attention should be given to the critical area of pharmaceuticals (i.e., timing of purchase, reduction of stocks in nursing units) and the control of hospital infections through appropriate systems for reprocessing and sterilization of equipment and supplies. Activities should center on consolidating all materials management in one unit and avoid the current dispersion of responsibilities. Hotel Services 6. This area would entail support to upgrading hotel services, in particular laundry, cleaning, maintenance and food services. Recommendations should be provided regarding the financial feasibility of keeping these services in-house or contracting them out. Special attention should be given to the use of disposable linens to decrease the need for washing, ironing and sewing, and to develop the most cost effective systems to guarantee the supply of quality meals to patients (regular and special diets), visitors and staff. While cleaning services are the least complicated of the hospital's hotel services, the handling of cleaning services must pay particular attention to the particular needs of hospitals, i.e., handling of expensive laboratory equipment, need for intensive and constant cleaning of patient and surgical areas, disposal of waste. Ancillary Clinical Services 7. Efforts would focus on upgrading those areas which provide support to the care of patients, including diagnostic services such as laboratory and imaging. Attention would be given to rationalizing, among others, the sequencing of orders and speed of response (e.g., order forms and ordering rules should clearly define priority to facilitate sequencing of processing), the accuracy and consistency of results (e.g., setting of quality control measures), and the dispatching of results (e.g., messenger services).  - 40 - Infrastructure and Equipment Maintenance 8. This area would involve support to the establishment of maintenance systems to control the deterioration of buildings and equipment. The support should involve a diagnosis of the current procedures (e.g., current regulations, staffing capacity), the establishment of new regulations and operational manuals and the definition of, primarily, the nature of services that should be contracted out or kept in-house. Control of Hospital Infections 9. Efforts would focus on establishing a basic quality assurance program to reduce the incidence of nosocomial infections (i.e., hospital-associated). While quality of care is a composite of other factors that go beyond hospital-associated infections, an important step is to guarantee the quality of in-patient services. A reduction in nosocomial infections will tend to influence the hospital's rate and degree of hospital recovery and sense of well-being. Utilization Review 10. This area would involve the establishment of a program that facilitates the identification of hospital utilization patterns (i.e., admissions, length-of-stays, discharges) that are clinically inappropriate and/or have a negative impact on the hospital's operations and costs. Special attention would be given to the standardization of medical records and clinical histories. Management of Medical Waste 11. Efforts would focus on improving the mechanisms for the collection, transport and disposal of medical waste. Special attention would be given to analyzing the current rules and procedures, the adequacy of the hospital's facilities and equipment and the possibility of contracting out disposal services  - 41 - Annex D ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Detailed Project Cost Summary Local Foreign Total % Foreign % of Total | -USS million- Exchange Base Costs Base Costs L Formulation of Policy for Reform I Design for the Separation of the Health Service Provision and Financing Functions at the Provincial Level 0.11 0.19 0.30 62.00 0.00 2 Survey ofHealth Services 1.01 0.49 1.50 33.00 1.00 3 Health Care Priorities for Argentina 0.29 0.20 0.49 40.00 0.00 4 Design ofPayment System for Hospitals 0.41 1.10 1.51 73.00 1.00 5 Design of an Identification System for Health Insurance Beneficiaries 0.24 0.16 0.40 40.00 0.00 6 Regulatory Framework for Private Insurers and Providers 0.18 0.31 0.49 64.00 0.00 7 Quality Assurance 0.09 0.21 0.30 70.00 0.00 8 Provincial "Obras Sociales" Reform 0.38 1.02 1.40 73.00 1.00 9 AIDS 0.07 0.45 0.52 86.00 0.00 10 Preinvestment Studies 0.08 0.53 0.61 87.00 0.00 Subtotal 2.86 4.66 7.52 62.00 6.00 IL Pilot Implementation of Autonomous Hospitals I Infrastructure Upgrading 32.65 50.14 82.79 61.00 64.00 2 istitutional Development 18.25 14.71 32.96 45.00 25.00 Subtotal 50.90 64.85 115.75 56.00 89.00 IIL Dissemination of Reform Initiatives I Technical Assistance 1.95 0.79 2.74 29.00 2.00 2 Training 0.21 3.27 3.48 94.00 3.00 Subtotal 2.16 4.06 6.22 65.00 5.00 TOtal Base Costs 55.92 73.59 129.50 57.00 100.00 Contingencies Physical Contingencies 3.42 4.45 7.88 57.00 6.00 Price Contingencies 3.15 4.17 7.32 57.00 6.00 Total Contingencies 6.57. 8.62 15.20 57.00 12.00 Total Project Cost 62.49 82.21 144.70 57.00 112.00 N.B. Totals may not sum exactly due to rounding.  -42 - Annex E ORGANIZATIONAL CHART Mlnistry of Health and Social Programs Minister of Health and Social Programs UEC Sertr fSecretary of Secretary of Institutional Administrative Coordination HelhCoordination Provincial Ministers E of Health Hospitals  - 43 - Annex E ORGANIZATIONAL CHART Project Coordination Unit (UEC) |Coordinator| Deputy-Coordinator Administration and l .ni Finance Unit Operations Unit Programing Unit Project Hosp. Investments Policy Reform Studies Procurement (Comp. 11) Component I Institutional Project Monitoring and Strengthening Disbursement Evaluation (Comp. 11) UEC Administratin .Provincial Technical UEC Administration Assistance (Comp. Ill)  - 44 - Annex E ORGANIZATIONAL CHART Provincial Project Coordinatlon Unit (UEP) |Coordinator| Administration and Hospital Investments Hospital Institutional Finance Specialist Specialist  - 45 - Annex F PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT MONITORING AND EVALUATION INDICATORS PROCESS INDICATORS IMPACT Indicator At the end of project implementation Average pre-intervention length of stay for 40% Reduction the surgical intervention causing most of the surgical discharges in the eligible hospital ____________________ Average length of stay for the whole 20% Reduction eligible hospital Average cost for the surgical intervention 40% Reduction causing most of the surgical discharges in the eligible hospital Hospital services and intervention costs Availability of final services and intervention costs per cost center in each eligible hospital Availability of detailed payroll and personnel information per cost center in each eligible hospital. Cost recovery Cost recovery systems fully implemented in each eligible hospital 50% increase in billing to Obras Sociales and Pre-pagas'. 50% increase in actual payment received from Obras Sociales and Pre-Pagas. Annual average Intra-hospital infection rate 30% reduction Same episode re-hospitalization for the 30% reduction surgical intervention causing most of the surgical discharges in the eligible hospital During the Mid-Term Review, the Government and the Bank will review the status of impact indicators among the first two eligible hospitals in each jurisdiction. By that time, it is expected that most of the institutional strengthening activities would have been completed in those hospitals. Private Health Insurance Companies  - 46 - Annex G PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT MONITORING AND EVALUATING INDICATORS PERFORMANCE INDICATORS PROCESS Date Activity Goal Policy Studies All studies initiated December 1996 (Component I) Hospital Organization and Initiated in the first two Management (Component II, hospitals in each jurisdiction a.) MIS strategic plan (Component Completed II, a.) l Hospital MIS Bidding process initiated for (Component II, a.) the first two hospitals in l__________________________ each jurisdiction Hospital Investments First phase (40% of (Component II, b.) investment funds), initiated in the first two hospitals in each jurisdiction. Policy Studies December 1997 (Component I) All studies completed Hospital MIS Under implementation in all (Component II, a.) two first hospitals of each jurisdiction Hospital Investments First phase (40% of (Component II, b.) investment funds), completed in the first two hospitals in each jurisdiction Action Plan, to be implemented Completed and submitted to during second half of project the bank for comments implementation July 1998 Project Mid-Term Review  - 47 - Annex G PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT MONITORING AND EVALUATING INDICATORS PERFORMANCE INDICATORS PROCESS Date | Goal Hospital Organization and Completed. New hospital December 1998 Management (Component II, organization and systems a.) fully implemented in the first two hospitals in each jurisdiction Initiated in the last three hospitals in each jurisdiction Hospital MIS Completed. MIS fully (Component II, a.) implemented in the first two hospitals in each jurisdiction. Bidding process initiated for the last three hospitals in each jurisdiction Hospital Investments First phase (40% of (Component II, b.) investment funds), initiated for the last three hospitals in each jurisdiction. First phase (40% of investment funds), completed in the first two hospitals in each jurisdiction Second phase (60% of investment funds), initiated in the first two hospitals in each jurisdiction Policy reform studies Pilot testing of (Component I.) recommendations of each of the studies carried out under component I, Initiated.  - 48 - Annex G PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT MONITORING AND EVALUATING INDICATORS PERFORMANCE INDICATORS PROCESS Date Goal Hospital Organization and Under implementation in all December 1999 Management (Component II, last three hospitals of each a.) jurisdiction Hospital MIS Under implementation in the (Component II, a.) last three hospitals in each jurisdiction Hospital Investments First phase (40% of (Component II, b.) investment funds), completed in the last three hospitals in each jurisdiction. Second phase (60% of investment funds), initiated in the last three hospitals in each jurisdiction Second phase (60% of investment funds), completed in the first two hospitals in each jurisdiction December 2000 Hospital Organization and Fully implemented in all Management (Component II, eligible hospitals a.) Hospital MIS Fully implemented in all (Component II, a.) eligible hospitals Hospital Investments All investment works (Component II, b.) completed in al eligible hospitals Action Plan and Policy Strategy At least one eligible hospital in two eligible provinces, fully transformed in HPA New hospital payment system fully implemented in at least one eligible province  ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Implementation Schedule (US$ million equivalent) P ject :lemt -:---:----:---:----p ect P p -rojec Yea". T --: -.-: -1:- .'0: :-. :.-.'-: . :',-,::.'.' ''-',,' .:: : .: '' .':.: :'' '' - 2.0 :3.0: 4.0 ' 1.0 Payme.t Remarks Civil Works 7.2 15.4 22.1 13.0 5.3 63.0 ICB, LCB, Local and International Shopping Goods Medical Equipment 0.0 9.8 10.0 8.8 0.0 28.6 ICB, Local and International Shopping. Computer Hardware and Software 0.6 4.1 3.6 2.5 1.3 12.0 ICB Vehicles 0.0 0.2 0.3 0.0 0.0 0.5 Local and International Shopping Office Equipment and Furniture 0.0 0.3 0.2 0.2 0.0 0.8 Local Shopping. Subtotal Goods 0.6 14.4 14.2 11.5 1.3 42.0 vo Consulting Services Consultants 5.1 11.8 10.3 4.6 3.0 34.7 Training and Dissemination (Per Diem, Travel and Tuition) 0.4 0.9 1.2 1.2 0.2 3.9 Subtotal Consulting Services and Training 5.5 12.7 11.4 5.7 3.2 38.5 PPF Refinancing 0.8 - - - - 0.8 TOTAL 1/ 14.0 42.5 47.8 30.2 9.8 144.3 (Bank-financed) (9.8) (29.8) (33.4) (21.1) (6.9) (101.0) 1/ Totals include contingencies. Note: Totals may not sum exactly due to rounding.  - 50 - Annex I ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Table 1: Disbursement Forecast DISBURSEMENT (US$ million) Cumulative IBRD Fiscal Year Semester Cumulative as Percent Project and Semester of Total Semester FY96 2nd (Jan.-Jun. '96) 5.2 5.2 5 1 FY97 1st (Jul.-Dec. '96) 5.2 10.4 10 2 2nd (Jan.-Jun. '97) 14.8 25.2 25 3 FY98 1st (Jul.-Dec. '97) 14.8 40.0 39 4 2nd (Jan.-Jun. '98) 16.7 56.7 56 5 FY99 1st (Jul.-Dec. '98) 16.7 73.4 72 6 2nd (Jan.-Jun. '99) 10.5 83.9 83 7 FY00 1st (Jul.-Dec. '99) 10.5 94.4 93 8 2nd (Jan.-Jun. '00) 3.5 97.9 97 9 FY01 1st (Jul.-Dec. '00) 3.5 101.4 100 10 Closing Date: June 30, 2001 *Includes USS1.15 million (PPF), US$2.0 million (Retroactive Financing), and USS2.0 million (Initial Special Account Allocation).  - 51 - Annex I ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT Table 2: Disbursement Allocations % of Amount Expenditures Category (US$ equivalent) Financed 1. Works 37,500,000 70 a/ 2. Goods 70 a/ (a) Medical Equipment 17,000,000 (b) Computer Hardware and Software 7,100,000 (c) Office Equipment and Furniture 100,000 (d) Vehicles 300,000 3. Consultants' Services and 70 a/ Training 23,000,000 4. PPF Refinancing 1,150,000 5. Unallocated 15,250,000 TOTAL 101,400,000 a/ Percentage of total expenditures.  - 52 - ANNEX J ARGENTINA PROVINCIAL HEALTH SECTOR DEVELOPMENT PROJECT PROJECT SUPERVISION PLAN Supervision Tasks 1. The success of the proposed project depends on the capacity of the MSAS to manage its inherent complexity as it is introducing state of the art reforms in health public sector management and financing. Such complexity responds to the requirements of reforms currently being implemented in the Argentine public sector The success of the project also depends on the capacity of the Bank to develop intensive supervision (especially during the early years) to create, in practice, the required partnership between the Bank and the Borrower for project implementation. Project Launch 2. A Project Launch would be held on a date close to project effectiveness (November-December 1995) to: (a) ensure that all operational procedures are in place; (b) hold training seminars for UEC and UEP in Bank procurement and disbursement procedures; (c) publicly demonstrate high-level political support for the project and inform stakeholders of its final version; and (d) review eligible expenditures for retroactive financing and discuss the Implementation Plan for CY 1996. Annual Implementation Review 3. Each year, no later than July 31, annual implementation reviews will be held jointly with MSAS and MOE. The purpose of these reviews would be to analyze: (a) annual progress reports on project implementation and status of project performance indicators; (b) findings and recommendations of policy reform studies (Component I) and institutional strengthening in eligible hospitals (Component II); and (c) update project implementation targets, schedules, and action plans; and to confirm the consistency and fitness of project activities with evolving sector strategies and other sector projects. Supervision of compliance with the legal and administrative aspects of project implementation would be carried out during the mission as well.  - 53 - Supervision Missions 4. Routine supervision missions would take place in the fourth quarter of each CY of project implementation. Specialists would be included for specific components, depending on the issues raised in the Annual Implementation Reviews and areas of emphasis in the annual work program. Mid-Term Review 5. A joint Bank-Government Mid-Term Review would be carried out no later than July 31, 1998. The Mid-Term Review would be critical for the definition of actual reforms to be implemented during the second half of project implementation. 6. The critical role of the Mid-Term Review is determined by the need to reach agreement with the Government on an action plan to be implemented during second half of project implementation. The Action Plan to be presented to the Bank for each eligible jurisdiction and the MSAS should be based on the Health Sector Strategy presented to the Bank in the Policy Letter, the findings and recommendations of the studies of component I and the experience gained in the implementation of the first phase of Component H. Therefore, during the Mid-Term Review, the Government and the Bank would analyze the recommendations of each of the studies carried out under component I and the experience gained in the implementation of component II in each of the first two hospitals per eligible jurisdiction, and agree on the specific actions to be included in the Action Plan. 7. The action plan for each eligible jurisdiction should contain, as a minimum: a) a proposal to legally and administratively transform one eligible Public Hospital, within the respective eligible province, into an Autonomous Public Hospital (HPA); and, b) actions to implement the appropriate recommendations of each of the studies carried out under component I in the respective eligible province. Progress, satisfactory to the Bank, in carrying out the corresponding activities within the Action Plan, would be a condition of disbursement for investment expenditures in the last three hospitals in each eligible province. 8. Additionally, During Mid-Term Review, the Government and the Bank will review the status of impact indicators referred to in Annex F for each of the first two eligible hospitals in each participating province. By that time, it is expected that most of the institutional strengthening activities would have been completed in those hospitals. 9. The Bank and the Government would share the costs of the technical assistance to be used during the Mid-Term Review.  - 54 - Bank Resource Allocation for Supervision 10. Table 1 defines the estimated resources for project supervision during the five years of project implementation. Table 1: Estimated Resources Required for Project Supervision Supervision LA1HR Staff Cross Support External Aprox. Total Cost year Weeks Staff-Weeks Consultants USS (Headquarters (Sp.-weeks) (Cost of cross support not and Field) included) 1 10 10 6 55,000 2 10 8 4 52,000 3 8 6 4 50,000 4 8 2 2 46,000 5 8 0 0 43,000  Annex K O e Q X1 0Z _e 0% 111 111 , - S QQP _ ..|. .. ... . ........ ze~~~~~~~~~~~C .: 00 0 W ~ ~ ~ ~ ~ ~~~~- Et a - 0f 1110 = _ _ _..... -z --3-- . .. .. .. . 0 .. - 0 & 1