China - Basic Health Services Project

Document of The World Bank Report No. 17403-CMA PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT OF SDR 63.0 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA BASIC HEALTH SERVICES PROJECT APRIL 30, 1998 Health, Nutrition and Population Sector Unit East Asia and Pacific Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective January 1998) Currency Unit - Reninbi (RMB) Y 1.00 US$0.12 US$1 Y 8.3 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS BOD - Burden of Disease BOF - Bureau of Finance BOH - Bureau of Health CAS - Country Assistance Strategy CEA - Cost-effectiveness Analysis CEM - Country Economic Memorandum CIRP - County Health Resource Plan CHSI Center for Health Statistics and Information CMS - Cooperative Medical System (refers to system of financing healthi care) CTH - Central Township Hospital DALY - Daily Adjusted Life Year EAP - East Asia and Pacific EPI - Expanded Program on immunization EPS - Epidemic Prevention Station FLO - Foreign Loan Office GE - Grant Equivalent ICB - International Competitive Bidding IDA - International Development Association IDD - Iodine Deficiency Disorders IEDC - infectious and Endemic Disease Control (project) LIB - Limited International Bidding MCH - Matemal and Child Health MFA - Medical Financial Assistance MIS - Management Information System MOF - Ministry of Finance MOH - Ministry of Health NCB - National Competitive Bidding NEP - National Expert Panel PIP - Project Inplementation Plan QAG - Quality Assurance Group (of World Bank) QHP - Qinba Health Program OPD - Outpatient Department (of hospital) PMO - Project Management Office RMC - China Resident Mission SDR - Special Drawing Right SPC - State Planning Commission SOE - Statement of Expenditure THC - Township Health Center UNICEF - United Nations Children's Fund WHO - Wornld Health Organization Vice President Jean-Michel Severino, EAPVP Country Director Yukon Huang, EACCF Sector Manager Maureen Law, EASHN Task Manager Janet Hohnen, EASHN  CHINA BASIC EEALTH SERVICES PROJECT TABLE OF CONTENTS Project Financing Data ................1 A. Project Development Objective .........................................................,. 2 1. Project Development Objectives .2 B. Strategic Context .2 1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project . 2 2. Main Sector Issues and Government Strategy .2 3. Main Sector Issues to be Addressed by the Project and Strategic Choices .4 C. Project Description .5 1 . Project Components .5 2. Key Policy and institutional Reforms Supported by the Project .9 3. Benefits and Target Population .9 4. Institutional and Implementation Arrangements .10 D. Project Rationale ................................................... 12 1. Project Alternatives Considered and Reasons for Rejection .12 2. Major Related Projects Financed by the Bank and Other Development Agencies .15 3. Lessons Learned and Reflected in the Proposed Project Design .15 4. Indications of Borrower Commitment and Ownership .17 5. Value Added of Bank Support .17 E. Project Analyses .18 1. Economic Analysis .18 2. Financial Analysis .20 3. Technical Analysis .21 4. Institutional Analysis .22 5. Social Assessment .23 6. Environmental Assessment .26 7. Participatory Approach .26 F. Sustainability and Risks................................................................................................26 1. Sustainability .26 2. Critical Risks .29 3. Possible Controversial Aspects .30  G. Main Loan Conditions ..................... 30 1. Effectiveness Conditions ..................... 30 2. Other Conditions ..................... 30 H. Readiness for Implementation ..................... 31 I. Compliance with Bank Policies ..................... 31 List of Annexes Annex 1: Project Design Summary .............................. 32 Annex 2: Detailed Project Description .............................. 38 Annex 3: Estimated Project Costs .............................. 56 Annex 4: Economic Analysis .............................. 58 Annex 5: Financial Summary .............................. 74 Annex 6: Procurement and Disbursement Arrangements .............................. 75 Annex 7: Project Processing Budget and Schedule .............................. 83 Annex 8: Documents in the Project File .............................. 84 Annex 9: Statement of Loans and Credits .............................. 85 Annex 10: China at a Glance .............................. 87 IBRD MAP No. 29462  INTERNATIONAL DEVELOPMENT ASSOCIATION East Asia and Pacific Regional Office Health, Nutntion and Population Sector Unit Project Appraisal Document China Basic Health Services Project Date: April 30, 1998 Task Team Leader: Janet Hohnen Country Manager/Director: Yukon Huang Sector Manager: Maureen Law Project ID: CN-PA-3566 Sector: BNP Program Objective Category: Lending Instrument: SIL Program of Targeted [X] Yes [] No Interventions: Project Financing Data [ ] Loan [XI Credit [I Guarantee [] Other [Specify For Loans/Credits/Others: Amount SDR: 63.0 million ($85.0 million equivalent) Proposed Terms: [ Multicurrency [ Single currency, specify Grace period (years): 10 [ Standard Variable [ Fixed [ LIBOR-based Years to maturity: 35 Commitment fee: . 0.50% Service charge: 0.75% T ..................................................... w.. ~._. ... . ... . ... . Financing plan (US$m): 129.2 million Source Local Foreign Total Government 44.2 -.- 44.2 IDA 73.0 12.0 85.0 Total 117.2 12.0 129.2 ................... .................................... ........................................ .,....................... .................................................. Borrower: The People's Republic of China Responsible agency: Ministry of Health Estimated disbursements (Bank FY/US$m): 1998 1999 2000 2001 2002 2003 2004 2005 Annual 9.6 24.1 21.7 16.6 4.8 4.6 1.8 1.8 Cumulative 9.6 33.7 55.4 72.0 76.8 81.4 83.2 85.0 Project Implementation Period: 6 years Expected effectiveness date: August 31, 1998. Expected closing date: June 30, 2005  Project Appraisal Document Page 2 China Basic Health Services Project A: Project Development Objective 1. Project development objectives: (see Annex 1 for key performance indicators) The project would assist the Govermment to achieve sustainable health improvement for the populations of poor rural counties through: * improved allocation and management of health resources * upgrading of rural health facilities * improved quality and effectiveness of health services and programs * increased risk sharing and affordability of essential health care for the poor B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) 1.1 The Project's development objective advances two strands of the World Bank's assistance strategy for China. These are: (a) Poverty alleviation and promotion of human development by meeting the basic health needs of the rural poor, as noted in the CAS (Document No. 16321-CHA, February 25, 1997) discussed with the Board on March 18, 1997, and reaffirmed in the CAS Progress Report, to be discussed with the Board on May 28, 1998; and (b) Improved public funding of essential social infrastructure through reform of the health finance system, as recommended by the Bank's sector study, "Financing Health Care: Issues and Options for China" (in China 2020 Series, September 1997). 2. Main sector issues and Government strategy: 2.1 China made outstanding progress in raising the overall health status of its population during the 1960s and 1970s, as shown by reduction in infant, child and maternal mortality and increased life expectancy. This progress was much greater than would have been predicted from the country's economic progress during that period. However, for the 15 year period from 1980-1995, despite accelerating growth in GDP and personal income, there is evidence that, compared with progress in other countries, overall gain in health status has slowed relative to economic progress. The main contribution to the slow in growth health status improvement comes from poor rural areas, as shown by the differences in health indicators between rural and urban populations and among geographic regions of the country. 2.2 China's early health gains were associated with improved basic living conditions for the rural masses and establishment of a three-tiered health system (village, township and county level), which emphasized prevention (often through community action) and accessible primary health care provided by barefoot or rural doctors who were supported by the collective work unit. Declining public support of health programs and reduced community financing of health services were unintended effects of the economic reforms which began at the end of the 1970's. Between 1986 and 1993 the estimated share of govermment spending on health declined from 36 percent to 16 percent. In 1993 this represented about 3.8 percent of GDP, which is a very low proportion compared with other countries. 2.3 Rural communities lag far behind urban areas in their financial access to health care. In 1993 it was estimated that the average per capita annual health spending (public and private) was 110 RMB. But the average for rural areas was 60 RMB per capita compared with 235 RMB per capita for urban areas. In addition, in rural areas the proportion of health expenditure from public funds is much less than in urban  Project Appraisal Document Page 3 China Basic Health Services Project areas. Per capita health expenditure in the officially designated poverty counties is less than half the national average, but 80 percent of this expenditure (twice the national average) is out of pocket. Even in poor counties where government revenues are increasing, public expenditure on health has not kept pace and in many areas has been declining both as a proportion of total government expenditure and on a per capita basis. Rural health services have experienced increasing problems of coverage and utilization, quality, efficiency and financial viability. The validity of the oft quoted statement that "poverty leads to ill- health and ill-health leads to poverty" is borne out by specific studies and by field visits in poor counties. 2.4 At present, health facilities in most rural areas are planned and staffed in response to higher level norms or by decisions for individual facilities, which contribute to duplication and inefficiency. There has been no strong mechanism for population-based or local area planning or for allocation of resources according to health priorities. The limited govemment funds reaching the townships from higher levels are mainly earmarked for facility improvement (requiring local matching funds) and staff salaries (requiring local supplements). Almost all non-wage operating funds must also be generated locally. As a result, services are provided and priced in an effort to maximize revenue for the survival of the individual health facilities (including support of retired staff), rather than to provide health benefits or meet client needs. This situation encourages excessive or inappropriate services and diagnostic tests and overprescribing of medicines. Those who cannot afford to pay these costs often do not seek health care; and important public health programs and functions have been neglected. Referral and supervision linkages between health facilities at different levels are often weak and the facilities may be competing for clients. Funds are often not available for basic maintenance of facilities, but many equipment items are purchased and used to increase hospital income. 2.5 Staffing of township healti facilities is usually decided by assignment of health school graduates from higher levels or by local recruitment. The director of a rural hospital or health center generally does not have discretion to decline staff assignments. Health authorities report that the overall quality of staff has declined in poor areas due to retirement of experienced staff, and the preference of successful graduates for higher level health services, or for private practice in more prosperous communities. Supervision and inservice training in rural health facilities have also declined due to loss of funding and weak coordination among facilities. 2.6 The structural and financial difficulties facing the rural health sector, including loss of capacity in monitoring and assessment of health problems, have left the health bureaus ill equipped to control recognized public health problems, to respond to demographic and disease trends, or to understand the changing communication pattems of the community and their rising expectations with respect to service content and quality, In better-off areas there has been an increase in private sector health services, staffed by retired health service workers and by new graduates who have paid fees to attend either government or private schools. There is still very limited understanding of the nature and size of this private sector growth. 2.7 The issues noted here have been widely documented by Chinese analysts and many were summarized in the 1997 sector study, "Financing Health Care: Issues and Options for China," prepared by the World Bank with assistance of national experts and the Ministry of Health (MOH). The key study recommendations applicable to the rural health sector are to: * Strengthen public health programs. * Ensure essential services for the poor. * Reform prices and provider payment mechanisms.  Project Appraisal Document Page 4 China Basic Health Services Project * Control investments and improve regional planning. * Promote risk pooling through community financing in rural areas. Government Strategr 2.8 In January 1997, the State Council of the People's Republic of China (PRC) released its Decision Paper on Health Reform and Development, setting out the major priorities in the health sector to the year 2010. Provincial and lower level governments have prepared plans to implement these policies. For the rural health sector the key national strategies are to: