Document of The World Bank FOR OFFICIAL USE ONLY Report No: 35901-PE PROJECT APPRAISAL DOCUMENT ON A PROPOSEDLOAN INTHE AMOUNT OF US$15.0 MILLION TO THE REPUBLIC OF PERU FORA SECOND PHASE APL OF THE HEALTHREFORMPROGRAM January 21,2009 HumanDevelopment Sector Unit Bolivia, Ecuador, Peruand Venezuela Country ManagementUnit LatinAmerica andthe CaribbeanRegion This document has a restricteddistributionandmay be usedby recipientsonly inthe performance of their official duties. Its contentsmav not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (ExchangeRateEffective01/21/09) CurrencyUnit = Nuevo Sol 3.15 - US$l US$ 0.32 - 1Nuevo Sol FISCALYEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AECI SpanishAgency for International IMR InfantMortality Rate Cooperation(Agencia Espafiolapara la CooperacidnInternacional) APL Adaptable ProgramLoan INEI National Statisticsand Information CA ConveniosdeAdhesidn Technology Institute (Instituto Nacional de Estadistica eInformhtica) CAS Country AssistanceStrategy IRA Acute Respiratory Infectious (Infeccidn Respiratoria Aguda) CLAS Local Committees for Health JICA Japan International Cooperation Administration (Comite'sLocales de Agency Administracidn de Salud) COSUDE Swiss Agency for Developmentand KOICA Korea International Cooperation Cooperation(Agencia Suizapara el Agency Desarrollo y la Cooperacidn) CENAN National Centerof FoodandNutrition MOE-MEF Ministry ofEconomics and Finance (Centro nacional de alimentacidn y Nutricidn) DGPROMS GeneralDirectorate for Health Promotion M&E Monitoringand Evaluation (Direccidn General de Promocidn de la Salud) MA ManagementAgreement DGSP Individual Health General (Direccidn MDG MillenniumDevelopmentGoal General de Salud de las Personas) DIRESAs RegionalHealth Office, Direcciones MINSA MinistryofHealth Regionalesde Salud DISAs Health Directorates,also Regional Health MMR Maternal Mortality Rate Office (Direcciones de Salud) DNI National Identity Document (Documento NGO Non Governmental Organization Nacional de Identidad) DOTS Directly ObservedTreatment Strategy OEI IberoamericanStates Organization (Organizacion de estados Iberoamericanos). DPT Diphteria-Tetanus-Pertussis vaccines OGP Planning GeneralOffice ECAD The Egyptian Co. for Agricultural PAAG Programto Administer Management Development Agreements (Programa de Administracidn del Acuerdos de Gestidn) EDA Acute DiarrheaDiseases (Enfermedades PAHO-OPS PanAmerican Health Organization Diarre'icasAgudas) Organizacidn Panamericana de la Salud i FOROFFICIAL USEONLY ELITES ItinerantLocal Team for Extramural PARSALUD Programfor the Support of Health Healthcare Reform(Programa deApoyo a la Reforma en Salud) ENAHO NationalHousehold Survey (Encuesta PCN ProjectConceptNote Nacional de Hogares) ENDES- NationalDemographicand HealthSurvey PCU ProjectCoordinationUnit DHS (EncuestaNacional de Demograflay PSP ProgramaSocial Protegido Salud) EPS PrivateHealthcareInsurer PIC Project ImplementationCommittee ESSALUD Social Security inHealthofPeru POA AnnualOperatingPlan (Plan OperativoAnual) ESW Economic Sector Work PSBPT Programfor Basic Healthfor All (Programa de SaludBhsicaPara Todos) EU EuropeanUnion QUALY QualityAdjustedLife Years FMR FinancialManagementReport RVP RegionalVice President FONB Basic Obstetric andNeonatalFacilities SBD StandardBidding Document (Facilidades Obste'tricas Bhsicas) FONE SpecializedObstetric andNeonatal SIS ComprehensiveHealthInsurance Facilities(Facilidades Obste'tricas (Seguro Integral de Salud) Especializadas) SISFOH HouseholdTargetingSystem (Sistema de Focalizacidn de Hogares) GDP Gross Domestic Product SIVICOS CommunitySurveillance System (Sistema de Vigilancia Comunitaria) GOP Government of Peru SNIP NationalPublic InvestmentSystem (SistemaNacional deInversibn Pziblica) GTZ GermanTechnicalCooperation USMR Under-FiveMortality Rate HIV/AIDS AcquiredImmuneDeficiency Syndrome UNFPA UnitedNationsPopulationFund IADB Inter-AmericanDevelopmentBank UNICEF UnitedNationsChildren's Fund IBRD InternationalBank for Reconstructionand USAID U S Agency for International Development Development IDA InternationalDevelopmentAssociation VIGIA Fightingthe threats of emergening infectiousdeseases (Enfrentando las Amenazas de las Enfermedades Infecciosas Emergentesy Reemergentes) IFC InternationalFinance Corporation WHO-OMS World HealthOrganization (Organizaci6n Mundial de la Salud) Vice President: PamelaCox Country Director: Carlos FelipeJaramillo Sector Director Evangeline Javier Sector Manager KeithHansen Sector Leader: Omar Arias Task Team Leader: Fernando Lavadenz This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may notbe otherwise disclosed without World Bank authorization. PERU HEALTHREFORMPROGRAM(SECOND PHASEAPL) TABLE OF CONTENTS A. STRATEGICCONTEXTAND RATIONALE ...............................................................................Page1 1. Country Context and Sector Issues .................................................................................................. 1 2. Rationale for Bank Involvement ...................................................................................................... 6 B.3.PROJECTDESCRIPTION............................................................................................................... Higher Level Objectives to which the Project Contributes .............................................................. 7 9 1. Lending Instrument .......................................................................................................................... 9 2. Program objectives and Phases ........................................................................................................ 9 3. Project Development Objectives and Key Indicators .................................................................... 11 13 C.4. Project components ........................................................................................................................ ...................................................................................................................... 1.IMPLEMENTATION 18 Partnership Arrangements .............................................................................................................. 18 2. Institutionaland ImplementationArrangements ............................................................................ 18 3. Monitoring and Evaluation of OutcomeslResults .......................................................................... 19 4. . . Sustainability .................................................................................................................................. 20 5. Critical Risks and Possible ControversialAspects ........................................................................ 21 25 D.6.APPRAISAL . Loadcredit Conditions and Covenants ......................................................................................... SUMMARY ............................................................................................................... 25 1 Economic and Financial Analysis.................................................................................................. 25 2. Technical ........................................................................................................................................ 26 3. Fiduciary ........................................................................................................................................ 26 4. Social.............................................................................................................................................. 27 5. Environment ................................................................................................................................... 28 6. SafeguardPolicies .......................................................................................................................... 29 7. Policy Exceptions and Readiness .................................................................................................. -29 Annex 1: Country and Sector or Program Background .............................................................................. 30 Annex 2: Major RelatedProjects Financedbythe Bank and/or other Agencies ........................................ 41 Annex 3: ResultsFramework and Monitoring ............................................................................................ 48 Annex 4: DetailedProject Description ....................................................................................................... 54 Annex 5: Project Costs ................................................................................................................................ 60 Annex 6: ImplementationArrangements .................................................................................................... 64 Annex 7: FinancialManagement and Disbursement Arrangements ........................................................... 66 Annex 8: Procurement Arrangements ......................................................................................................... 79 Annex 9: Economic and Financial Analysis ............................................................................................... 88 Annex 10: SafeguardPolicy Issues ............................................................................................................. 91 Annex 11:Project Preparation and Supervision ......................................................................................... 98 Annex 12:Documents inthe Project File ................................................................................................... 99 Annex 13: StatementofLoans and Credits ............................................................................................... 101 Annex 14: Country at aGlance ................................................................................................................. 103 Annex 15: MapIBRDNo 33465 . ............................................................................................................. 105 ... 111 PERU HEALTHREFORMPROGRAM (SECOND PHASE APL) PROJECT APPRAISAL DOCUMENT LATINAMERICA AND CARIBBEAN LCSHH Date: January 21,2009 Team Leader: Fernando Lavadenz Country Director: Carlos FelipeJaramillo Sectors: Health (80%); Non-compulsory Sector Manager/Director: KeithE.Hansen health finance (20%) Themes: Health systemperformance (P) Project ID: PO95563 Environmental screening category: Partial Assessment Lending Instrument: Adaptable Program Loan [XILoan [ 3 Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 15.00 Borrower I 132.40 I 0.00 I 132.40 International Bank for Reconstruction and 15.00 0.00 15.00 Develoument Inter-American Development Bank 15.00 0.00 15.00 Financing Gap -30.00 30.00 0.00 Total: 132.40 30.00 162.40 Borrower: MinistryofHealth Peru ResponsibleAgency: Ministerio de Salud Programade Apoyo a la Reforma del Sector Salud - Ave. Javier Prado Oeste, No. 1381 Lima Peru Tel: (511) 440-4101 Fax: (511) 440-4101 cricse@,parsalud.gob.pe Ministry of Health Peru iv Project implementationperiod: Start March4,2009 End:December 31, 2013 Expected effectiveness date: March4,2009 Expected closing date: December 31,2013 Does the project depart from the CAS incontent or other significant respects? Ref: PAD I.C. [.]Yes [ X I No Does the project require any exceptions from Bank policies? Ref: PAD IV.G. [ ]Yes [XINO Have these been approved by Bankmanagement? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Ref: PAD III.E. [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Ref: PAD I K G. [XIYes [ ] N o Project development objective Ref: PAD II.C., Technical Annex 3 Framedwithinthe long-term objective o fthe Health Reform Program (APL inall its phases) to reduce maternal and infantmortality rates inPeru's nine poorest regions o f the country (Amazonas, Huhuco, Huancavelica, Ayacucho, Apurimac, Cusco, Cajamarca, Ucayali and Puno); the project development objectives are to: (i) improve family care practices for women (duringpregnancy, delivery and breast-feeding), and children underthe age ofthree; (ii) strengthen health services networks with capacity to solve obstetric, neonatal and infant emergencies and to provide comprehensive health services to women (duringpregnancy, delivery andbreast-feeding) andchildren under the age o fthree; and (iii) MINSA's support governance functions o f regulation, quality, efficiency and equity for improving the new health delivery model o fmaternal and child health care ina decentralized environment. Project description[one-sentence summary of each component] Re$ PAD II.D., Technical Annex 4 The proposed project would include the following four interrelated components: Component 1, Improving health practices at the householdlevel for women (duringpregnancy, delivery and breastfeeding) and children under the age o fthree inrural areas o f selected Regions. Inparticular througha) the design, implementationandmonitoring ofabehavioral change communication and education program to promote healthy practices at the householdlevel, including increased demand for health services; andb) the promotion o f SIS enrollment rights and identity rights o fthe targeted population. Component 2. Increasing the capacity to provide better maternal andchild health services for the poor; through: a) the improvement o fthe quality o f services inhealth facilities o fthe nine regions; and b) the provision o f support for the integrated health delivery model andthe development o f support systems to raise the efficiency andeffectiveness o f healthnetworks. Component 3. Strengtheninggovernment capacities to offer more equitable and efficient health V system ina decentralized environment. This component would work towards the provision of: a) support for the development o f a regulatory framework and implementationplanto increase quality inthe provision o f health services; b) support to the SIS inthe development o fthe public insurance system; c) support to SIS and SIGA for the strengtheningo f their monitoring data in order to increase the accountability inthe system; andd) support to the decentralization o f health services; and Component 4: Project Coordination andMonitoring and Evaluation, trough the provision o f technical assistance, financing o f incremental operating costs, andexternal and concurrent audits. Which safeguard policies are triggered, ifany? Re$ PAD I KF., TechnicalAnnex 10 The Projecttriggers the EnvironmentalAssessment (OP/BP/GP 4.0l), IndigenousPeoples and Safeguard Policies (OP 4.10). Significant, non-standard conditions, if any, for: Re$ PAD III.F. Boardpresentation: None Loadcredit effectiveness: None Covenants applicable to project implementation: None vi A. STRATEGICCONTEXTAND RATIONALE 1. CountryContextand SectorIssues 1.Peru is a diverse country in a changing demographic context, with a population that exceeds 27 million, of whom 33% are less than 15 years old, and 4.8% are over 65. Frombeing heavily rural in 1950 with only 33% of the population living in urban areas, b 2007 the country hadbecomepredominantly urbanwith 76% of its population living incities . However, Y the rural population inabsoluteterms i s still greater than 6.6 million. 2.As a result of strong macropolicies and afavorable external environment, in recent years Peru has been one of the best-performing economies in Latin America in both the growth andpoverty reduction dimensions. GDP growth accelerated to 7.6 percent in 2006 and to a remarkable 9.0 and 9.3(e) percent in 2007 and 2008, after posting an average growth rate of around, 4 percent in the period of 2002-2005. The national poverty rate dropped by 9.3 percentage points between2004 and 2007, from 48.6 percent to 39.3 percent in 2007. During the same period, extreme poverty fell by 3.4 percentage points, from 17.1 percent to 13.7 percent. However, it is expectedthat the global financial crisis (particularly the ongoing credit growth moderation, falling commodity prices and the recessionary risks of developed economies), will slow down economic activity for 2009-11. Inorder to face these challenges, the government of Peru has decided to secure access to contingent lines of credit (inter alia, from the World Bank) to strengthenits preparednessinthe event that the external environment worsens substantially. 3.Peru's sustained growth is helping to reduce poverty rates, although there remain significant inequalities. The poverty rate declined by almost ten percentage points between 2004 and 2007. However, inequality levels have not improved significantly. There remain marked differences inpoverty levels amongthe country's Regions. In 1994, while 12.2% of the urbanpopulation was extremely poor, the rate in rural areas was 62.9%. In2007 these figures had fallen to 3.5% inurbanareas, and 32.9% inrural areas2. This situation is similar across all three of the country's geographicalRegions (coast, mountains, andjungle). 4.I n health, Peru has experienced aggregate improvements in some MDG outcome indicators during the last decade. The decrease inthe national infantmortality rate (IMR) has been one of the most important achievements, and is currently below the LACR average of 24.2 deaths per 1,000 live births (as of 20064. Peru is on track to achieve its Millennium Development Goal (MDG) target for this indicator. However, IMR inequalities persist; while the aggregate rate has declined, the improvement has not been uniform among socioeconomic groups or Regions. In2006, the IMR varied from 5 per 1,000 (inthe richest quintile) to 45 per 1,000 (in the poorest quintile). Moreover, IMR inequalities among Regions are also wide4: Limahas a low IMRof 20, but Cusco has the highest IMRat 84. 5.Most gains in the I M R have been made by reducing mortality in the post-neonatal period (children older than 28 days but younger than one year). The improvements in IMR are a 'ENAHO 2007 INEI;technicalreporton poverty (2007). BasedonENAHO. HNP data base World Bank,2006, and WHO basic indicators2007 Last data available by region. 1 consequence o f better standards o f living, water, and sanitation improvements, as well as public health interventions such as sanitary education, proper management o f diarrhea, and immunization programs. All o f these are linked to socio sanitary conditions, which affect significantly the post neonatal period o f the IMR. The remaining disparities in infant mortality therefore largely reflect differences inliving conditions andunequal access to basic services. 6.However, the relative share of perinatal' mortality as a cause of infant deaths has increased. In 2004 the leading cause o f death among children under one was respiratory diseases specific to the perinatal period (6.68 per 1000). Causes arise from low coverage o f birthing care in health facilities, and lack of immediate professional attention for newborns, including resuscitation o f children who are not responsive at birth (Le. problems o f health care supply); the second cause was acute respiratory infections (4.48 per 1000) as a combination o f both supply and demand problems.; and the third set o f causes was delayed fetal growth, fetal malnutrition, short gestation and low birthweight (4.02 per 1000), followed by bacterial sepsis in newborns (2.87). This set o f causes has its roots in maternal malnutrition. More than a quarter o f pregnantwomen between 15 and 49 years o f age suffer from anemia, mainly because o f inadequate nutritional behaviors (i.e. constraints to health care demand)6, ' . Perinatal mortality, known as the "hard infant mortality rate'% the most difficult component o f the IMR to reduce, because it requires specific and often higher cost medically coordinated interventions. Further decreases inIMR inPeruwill requirea focus on this specific component. 7.I n addition, there is an unequal distribution of neonatal mortality correlated with income. According to data from ENDES 2005-2007 neonatal mortality is 11 times higher among newborns o f the poorest income quintile (23 per 1000 1.b.) compared to those o f the richest income quintile (2 per 1000 l.b.).' 8.Some of the key causes of infant mortality (delayedfetal growth, fetal malnutrition, short gestation and low birth weight) arise in large part from maternal malnutrition' lo.In this respect, further decreases inIMR inPeru will require an additional focus on specific changes in behavior and better knowledge o f family care practices for women during pregnancy, delivery, andbreast-feeding, as well as nutrition ofchildren underthree years inthe poorest provinces. 9. Over the last fifteen years, Peru has achieved important results in nutrition. Iodine deficiency, which used to be a common condition in the population o f all ages, has been virtually eliminated through salt iodization. The prevalence o f anemia among the under five- year-old population fell from 56.8 percent to 46.2% between 1996 and 2004'l, while vitamin A deficiency dropped from 55 to 11percent between 1996 and 200012 10. However, despite the positive developments, malnutrition remains a major public health problem. One-quarter o f Peruvian children younger than five suffer from chronic 'Periodbetween the 22 weeks ofgestation, 500 grams ofweight andthe first 7 days after birth.CIE 10 - 'Endes2000nacionesUnidasen -2001Peru Sistema de e l Peru.Hacia el cumplimiento de 10s objetivos de desarrollo del Milenio en e l Ped. Informe 2004. * Figure1.3b inAnnex 1 describes neonatalmortalityrateby poverty quintile inPeru Endes2000-2001Peru loSistema de nacionesUnidas en el Peru. Haciael cumplimiento de 10s objetivos de desarrollo del Milenio en el Ped. Informe 2004. I'Endes continua2004-2005 l2Fiedler, 2003. 2 malnutrition, while 50% of children under five and 69% of children under two suffer from anemia (ENDES, 2001). Moreover, the pace of progress has been uneven, and, in the case of chronic malnutrition, it has beenslowing down. 11. Chronic malnutrition (stunting) has a very unequal geographical and income distribution. Malnutrition i s almost four times higher among children living in the rural areas (39%) as it is in children living in urban areas (10%). In 2004 chronic malnutrition reached 44% among the extreme poor and 28% among the poor compared to only 5% among the non- poor (INEI, 2006). Located at high altitude, the Regions of Huancavelica, Huhuco, and Ayacucho, among the poorest of Peru, are the ones with the highest stunting levels (more than 40 percent). Huancavelica has the highest malnutrition rate in the country with little variation between urban and rural levels13.At the other extreme, Lima, Ica, Arequipa, Moquegua, and Tacna, located along the coast, have the country's lowest stunting levels, all below 20 percent. 12. Prior AAA work (the RECURS0 studies) show that malnutrition in Peru is related to lack of awareness of theproblem by mothers, lack of accountabilityfrom providers, and lack of incentives to improve services. Many mothers do not know whether or not their child i s growing as is expected, thus the problem remains invisible. Moreover, breastfeeding and supplementary feeding practices reveal inadequacies. Exclusive breastfeedinghas decreased in the past five years from 79% to 76% among infants fiom 0 to 1monthof age, and from 67% to 60% among infants from 2 to 3 months of age14.Inaddition, exclusive bottle feeding increased 16% among infants younger than two months of age, increasing their risks of inadequate nutritionrelated to inappropriate practices". 13. I n addition, the other key MDG indicator in health, maternal mortality, continuesto be a seriousproblem in Peru. At 164deaths per 100,000 live births, Peru's maternal mortality rate (MMR) is almost double the regional Latin American average. According to the Ministry of Health (MINSA). In addition, the official rate may understate the extent of the problem, as WHO, UNICEF and CEPAL suggest that the rate is closer to 240. Given the difficulties of measuring MMR-accurately, this disparity in estimates is typical in many countries. There is also pronounced disparity in maternal mortality across the country, suggesting unequal access to key services.The MMR for Lima was 52 in 2000, while the MMR for Huancavelica and Pun0 the same year were 302 and 361, respectively. 14. Peru's leading causes of maternal mortality are the same obstetric complications responsiblefor the great majority of maternal deaths around the world hemorrhage (45.7%, in particular, postpartum hemorrhage); toxemia (26.5%, preeclampsideclampsia), abortion- related complications (7.3%), and infection (6.6%). Others are indirect causes of maternal death, such as malaria and tuberculosis.'6. 15. Institutional birth delivery is unequal among Regions. Those with lower economic growth, high levels of poverty, and high percentages of rural population are especially affectedl7. For example, in Huancavelica and Puno, only 21% and 27.8% respectively of total birthsare professionally attended. l3 Datacollectedat the departmentlevelby CENAN l4 Comparisonofthe 2000 DemographicandFamilyHealthSurvey (DHS-ENDES)withthe 2004-06 DHS-ENDES. l5Ideally, nearlyall childrenwouldbe exclusively breastfeduntilsix monthsofage. l6 MINSA,EpidemiologyDepartment2005 l7 Physiciansfor HumanRights, 2007 16. I n addition, while 92% of those living in urban areas receivedprofessional attention in health carefacilities in 2006, only 44% of rural women received such attention." As a result, the risk o f dying due to complications inpregnancy, delivery, or puerperium" depends heavily on the poverty status and geographic location o f the population. In fact, death due to these factors i s more than ten times higher in poor Regions such as Ayacucho and Pun0 (36 deaths per 1,000 women inreproductive years) than inmore affluent Regions such as Lima and Ica (3 deaths per 1,000). 17. Gaps alsopersist in access to health services between thepoor and the non-poor, and between rural and urban areas due to economic conditions. Financial obstacles still represent a significant barrier to access. Inthe poorest quintile, 34% o f individuals reported they had no access to health care for lack o f money, while in the richest quintile only 6% did.20Moreover, 40% o f the poorest population accounted for only 32% o f the number o f days o f hospitalization inMINSA hospitals, while the richest 40% used45% o ftotal hospitalization days.*' 18. A key challenge to address these disparities in access is increasing accountability within a veryfragmented health care system The Peruvian health care system i s still highly segmented. It comprises two subsectors (public and private) and various subsystems that historically have worked independently and lacked coordination. As a result, the current system fails to offer health insurance protection to the whole population (62% o f Peruvians lack health insurance)22.One promising step toward coordination inside the sector occurred in 2006 with the unified purchase o f medicines by the public facilities, the Social Security System (ESSALUD) and Military hospitals. 19. I n theface of these challenges, MINSA has establishedpolicies and strategies aimed at obtaining demonstrable results in the reduction of maternal and child health morbidity and mortality. MINSA has defined access to institutional births with good quality services as a key operational standard for the primary health system, recognizing that this indicator i s a key tracer o f the quality o f primary and secondary medical care. In this context, MINSA has set an aggressive target to improve coverage o f institutional births in the poorest Regions. Moreover, inorder to achieve this target, a stronger accountability systemhas been established based on well specifiedManagement Agreements (MAS)for healthnetworks andRegions/municipalities. These tools have been incorporated to monitor the management o f regional health care entities within the MINSA structure. Consequently, regional goals will be set for coverage o f institutional births and the related inputs o f staff and medicines. '*ENAHO 2006 l9The perioddefinedbetweenchildbirthandthe returnofthe uterusto itsnormalsize. ''ENAHO2006 2o 2006 ENAHO 22ENAHO 2006 4 20. The Management Agreements (&Us), are the result of continuous development of the Peruvian health care system towards a decentralized framework, marked by progress and setbacks. MAS had a positive impact on equity and health outcomes while simultaneously contributing to an improved accountability process between policy makers/executors and suppliers, and greater empowerment o f the population. Nevertheless, though the decentralization process received a new pushin2002, MINSA has not yet benefited completely from this internal reorganization. For example, the unstable development o f the "ComitCs Locales de Administracibn de Salud" (CLAS) sought to increase accountability by financing primary health care centers organized under a quasi-private management scheme in which the community participated. The community-run facilities achieved improved coverage more efficiently, mainly because o f greater financial and human resource management flexibilities. However, in December 2004 the CLAS model lost political support and was challenged by the change in the job status o f physicians from contractors to appointees. The changeover to appointed positions resulted in reduced output, working hours and management effectiveness, all o f which undermined the model. Recently, legal arrangements that try to link this model with the current decentralization process are generating expectations that these facilities may matchpast levels o f success. 21. I n order to address theseproblems the government has undertaken a series of policies and reform efforts. MEF has committed to implement Results-based Budgeting (RBB) as a planningtool gearedtowards increasing efficiency and improving quality o fpublic expenditure, with special emphasis on results and accountability for social sector outcomes. After progress with a few pilot strategic programs (nutrition, maternal and neonatal health, basic education, identity, and transport), RBB i s now to extend to gradually cover entire sector budgets. MINSA i s committed to make health one o f the leading examples o f RBB. 22. One of the most important innovations designed to address the lack of a harmonized supply of health care services, and to deal with inequalities in access due to income limitations, was the Seguro Integral de Salud (SIS). SIS was created in 2001 and reimburses MINSA public providers for the variable costs within specified health plans. SIS gives priority to the vulnerable population living in poverty or extreme poverty. SIS has made important contributions to sector development, such as improvements inthe use o f resources, reduction o f economic barriers to access, and production o f transparent information for sector-based insurance management. . 23. Currently, while SIS is the main financing instrument to address supply-side weaknesses, it accountsfor 14 percent of the health sector budget and has low coverage which hinders achievement of targetsfor institutional births. SIS covers over 16% o f the population, while ESSALUD covers 18% and private entities cover 4%23.Although most o f the beneficiaries o f SIS come from the two poorest quintiles and from rural areas, the majority o f the population within these quintiles is still not covered by any health insurance. Increased effort is needed to extend SIS coverage in key Regions, including poor, dispersed, and indigenous populations. In particular, it i s intended that SIS will raise coverage o f a full insurance package for women o f childbearing age inthe poorest Regions by around 75 percent between 2008 and 2010, as well as setting an operational standard for the supply o f medicines inprimaryandsecondary healthpoststhat provide birthdeliveryservices. Inthis way, SIS aims 23ENAHO2006 5 not only to guarantee funding for health care costs for the poor, but also to promote the notion o f a guarantee o fthe right to maternal and child health services. 24. Road map. Some o f these policy changes have had a positive impact on equity and health outcomes while simultaneously contributing to an improved accountability process between policy makers/executors and suppliers, and greater empowerment o f the population. Nevertheless, much remains to be done to sustain these policy reforms and address the underlying inequality inaccess and health outcomes inPeru. 2. Rationale for BankInvolvement 25. The World Bank has been active in health in Peru in recent years, maintaining a constant dialogue with authorities and supporting reform efforts through analytical and lending operations. The proposed project would complement other past health sector investment projects in Peru financed by the World Bank and other donors that have supported the Government o f Peru's (GoP) efforts to implement institutional reforms, increase health care coverage, strengthen primary care and vaccination programs, lower rates o f infant and maternal mortality, and improve maternal and child nutritional status. The Bank's involvement in the health sector dates back a number o f years and has focused mainly on maternal and child health issues. From 1994-2000, the Government implementedthe Basic Health and Nutrition Project, which supported MINSA operations to strengthen maternal and child services in three regions o f Peru. In 1998, the Bank carried out analytical work which showed that maternal and child health issueswere still a priority, and called for institutional reforms to addressthese issues. 26. Theproposedproject is the secondphase of an Adaptable Program Loan (APL) which supports health reform in Peru. The overall objectives for the APL Program are to: (a) improve maternal and child health; and, (b) help reduce morbidity and death among the poor due to communicable diseases and inadequate environmental conditions. The first phase project was an investment loan, Health Reform Support Project I(Programa de Apoyo a la Reforma del Sector Salud I PARSALUDI), of a cluster o f Bank-supported activities designedto - part improve basic health indicators inPeru. 27. This cluster included influential AAA (RECURSO),which made recommendationsfor health policy reforms needed to obtain better results in health. These recommendations were implementedthrough a series of four policy-based loans (Programmatic Social Reform Loans, or PSRLs) and an investment loan (PARSALUD I). The latter, financedjointly with the Inter- American Development Bank (IADB), had as its main objective the reduction o f perinatal and infant mortality rates through empowering the poor to strengthen the demand side while improving the quality o f the supply side o f health programs and services. It had three achievements. First, it targeted Regions with the highest incidence o f IMR, and MMR, and the lowest access to effective and quality services.24 Second, it addressed inequalities in access by expanding health insurance coverage under the SIS. Third, the GoP began to address geographic inequalities by proposing the decentralization o f the governance structure o f the health sector to the Regions. The proposed second phase o f this project will contribute to sustain the achievements o f PARSALUD Idescribed in Annex 2. Because o f the protracted implementation o f phase one o f the APL, phase two i s being proposed for the timeframe 24Amazonas I1(Bagua), Ayacucho, Huancavelica, Apurimac I(Abancay) and Apurimac I1(Andahuaylas), Cuzco, Puno and Huanuco 6 originally foreseen for the third phase withinthe phase one design. This PAD takes into account the project document evaluation indicators elaborated by MINSA and submitted to the Investment Evaluation Unit o f the same Ministry, as well as to the Ministry o f Economy and Finance incompliance with the National Public Investment System - SNIP- (Sistema Nacional de Inversibn Pziblica). 28. More recently, the National government has asked the World Bank to continue to support MINSA and sub-national governments to improve the efficiency and quality of publicly-financed services, focusing on coverage o f maternal and child health care in a decentralized context. The World Bank i s uniquely positioned to contribute expertise on issues related to designing regional health care networks, adapting sector governance to better address maternal and perinatal health care, and performance improvements. These reforms are oriented toward stimulating system rationalization and accountability, in part through the reconfigurationo f service delivery into a new maternal and neonatal health care delivery model. 29. The Bank's contributions in system reform and decentralization are crucial. Both the national and sub national governments seek the Bank support for consolidating the reforms and decentralization o f the health system. While the PARSALUD I1Project would represent a small portion o f national (recurrent) financing, there i s considerable demand from the national government for Bank support to the policy reforms as well for its fiduciary contributions to ensure an expeditious and efficient execution o f the supply investments supported by this project. Moreover, the Project would represent additional funding for regional governments which will be channeled to investments and interventions that are not covered by current budgetaryallocations. 30. Thisproposed secondphase of the APL builds on activities being undertaken by other donors. As was the case for PARSALUD I,this second phase would also be jointly financed and supervisedby IADB. The Bank team anticipates coordinating activities with other donors, including the European Community, UNICEF, PAHO, and USAID, especially on nutrition, intercultural issues, monitoring, and capacity buildingo f regional health authorities. 3. Higher LevelObjectivesto whichthe ProjectContributes 31. The Bank Country Partnership Strategy in Peru seeks to sustain economicgrowth and ensure more rapid poverty reduction and emphasizespartnerships, flexibility and results in the WBG program. The strategy specifies indicators and targets at levels midway between individual projects and the broad pillars o f economic growth, social development and modernization o f institutions, which are consistent with the government's development priorities. The activities o f the social sector cluster build on findings o f results and accountability inthe RECURS0 study, an extensive and successful piece o f AAA supported by the Bank and DFID. There will be a programmatic continuation o f the analytical work begun under RECURSO, with the new lending projects beginningto incorporate the key lessons from the work. All o f the projects have a strong focus on results, beginning with this second health APL and non-lending technical support to nutrition. Inaddition, two development policy loans (DPLs) support the key policy changes needed to develop a results orientation in the social sectors and to support the recently announced decentralization o f health programs to the municipalities. This sector effort to instill a greater results orientation will also complement the Bank support to results-based budgeting (via the series o f Fiscal and Social Sector DPLs and related technical assistance). 7 32. The proposed project fits squarely within current national and sector policies. These include the Acuerdo Nacional, Estrategia de Superacibn de la Pobreza, Lineamientos de Politicas del Sector Salud, Hoja de Ruta, Estrategias Sectoriales, and the Plan Concertado de Salud-which have prioritized infant and maternal health, access and quality o f health services, and decentralization. These policies have been pursued by both the prior and current governments. This administration has ratified the reduction o f maternal and perinatal mortality as an unfinished health agenda for the vulnerable population, and given it priority in the new health policy platform. In addition, the current administration continues to pursue Peru's MDGs. Moreover, the Government has ratified its support to the Acuerdo Nacional (National Agreement) signed by the main political parties, unions, religious and regional entities. The Agreement includes goals and indicators on maternal and child mortality as part o f the state policy which seeks universal coverage and social security to health services. 33. I n addition, a Ministerial health enactment (RM 589-2007MINSA) has approved a Plan Concertado de Salud. This "Joint Health Plan" identifies maternal and infant mortality and malnutrition as the three main health priorities. The novel feature o f this plan is the participatory process under which it was developed, which lasted more than a year and was led by the National Council o f Health, an advisory Council to the Ministry comprising representatives from public and private providers, civil society, health union workers, and the ministry itself. The plan produced a broad consensus on health priorities, policies and approaches. Project objectives would therefore be aligned with the plan priorities and more so, with the participatory and accountability approaches rooted in a successful social communication strategy. 34. With regards to malnutrition, the Government's strategy originally had set the goal of reducing chronic malnutrition to 19percent by 2011 (a drop offive percentage points infive years). However, recently the Government has increased its goal to a 9 percentage point reduction. In order to implement this policy, in 2007 Government launched a new national strategy named CRECER to combine the efforts o f several major social programs to reduce stunting. Currently, CRECER encompasses PRONAA, PRONAMA, SIS and JUNTOS, although it i s expected that other programs will be involved as the strategy progresses. Consistent with the latest scientific findings on malnutrition, CRECER targets children under the age o f 3 and fertile-age and pregnant women. The Strategy has been structured into 3 phases and has planned to benefit a total of 880 districts in the first income quintile. The first phase was launched in July 2007 in 5 regions. The second phase i s currently under implementation. The Inter-ministerial Social Affairs Commission (CIAS) is responsible for coordinating this effort. Although the Strategy i s considered o f extreme relevance for the country, experts emphasize that it still lacks a clear implementation plan, as well as a funding strategy to guarantee its goals attainment. 35. The PARSALUD 11project supports the strengthening of the supply of basic health services needed to achieve Presidential goals of reducing malnutrition in the country. At the cornerstone o f the CRECER strategy, the country has implemented a conditional cash transfer program - Juntos - since 2005. The Program seeks to increase demand for healthand education services and alleviate income poverty among the Peruvian population in quintile Ithrough the provision o f conditional cash transfers. The Program i s based on shared responsibility to attend to health and education centers and induce desired behaviors for improving health, nutrition and education among its beneficiaries inthe poorest rural districts of the country. The PARSALUD 8 I1project complements the efforts to strengthen Juntos, for which a key challenge is ensuring andarticulating the healthsupply response. 36. I n addition, PARSALUD 11 is aligned with MEF's efforts to develop budgeting by results. MEF has aligned the budgeting by results along five axes; two o f them are closely related to the objectives o f PARSALUD 11. The first one has as its goal the reduction o f maternal mortality from 185 in 2000 to 120 in 2011, and the reduction o f neonatal mortality rate from 17.4 to 14.6. The second goal i s the reduction o f the prevalence o f chronic malnutrition inchildren under five from 25% in2005 to 16% by 2011. B. PROJECT DESCRIPTION 1. LendingInstrument 37. The lending instrumentproposedfor theproject is an Adaptable Program Loan (APL), since this operation has been designed to continue the implementation o f PARSALUD I.The choices o f instrument and implementation arrangements are appropriate for several reasons. First, during the first phase the project achieved its milestones and the key triggers for proceeding to the second phase. Second, MINSA has gained experience in managing APL fiduciary rules and expressed satisfactions that those rules help reinforce accountability. Finally, Government has expressed a clear preference to continue with an APL. 38. Even though this proposed APL would be the second of three planned phases, the government and the Bank have agreed that a thirdphase will not beprepared, giventhe long period since the beginningo fthe Program, and the reduction inthe amount originally planned. 39. Government requested that Bank support for the loan amount be reduced from the original USD$ 100 million for phases I1and I11to USD$15 million for this second phase. This request resulted from Peru's strong performance inboth growth andpoverty reduction, which in the view o fthe Ministry o fPlanninghas reducedthe country's needfor external finance. 40. Government also asked to merge phases 11 and 111 because o f the protracted implementation of phase I. Consequently, phase I1 i s being proposed for the timeframe originally foreseen for phase 111. Preparation was lengthy because o f the differing policy stances o f each o f the past four Ministers o f Health appointed during the project preparation period, and because o f an extended process o f approval o f the project's technical conceptual document by the Ministryo f Planning. 41. Inaddition, sector conditions at the end ofthis project might require a different approach for continuing partnershipbetweenthe Bank and the GoP. 2. Programobjectives and Phases 42. APL Program: The overall objectives of the APL program in all its phases are: (a) to improve maternal and child health (i.e. reduce perinatal, infant and child morbidity and mortality); and (b) to help reduce morbidity and death o f the poor due to communicable diseases and inadequate environmental conditions. 9 43. For this multiphaseprogram, a set of triggers was agreed on to demonstrate readiness for transition from thefirst phase to the second (see table 1 below). These triggers were all achieved under PARSALUD Iwith the exception o f the separation o f financing and service provision within ESSALUD (Social Security Fund). This trigger was not achieved as the context has changed and the legal framework that would have enabled MINSA to influence some o f ESSALUD's institutional processes was replaced by much greater autonomy for ESSALUD. Independently,ESSALUD has started to pilot an internal separation o f functions. However this has been part o f its own decision-making process and viewed as a mechanism to increase efficiency and promote more cross-collaboration between social security and the public health sector. The actions o f ESSALUD have been independent o f the PARSALUD trigger. Table 1: Summary of Triggers andAchievement Trigger Achievement and Verification SMI expansion plan implemented inall SIS -as legal continuation o f SMI and Students Insurance- is health Regions by June 2003 financing health services all over the country as documented in data and publications from that institution. By 2005 SIS got 11,026,607 affiliations. At least 30 to 33 percent ofhealthpost As o f 2006, up to 35 percent o f Primary Care centers are andhealthcenters managedby CLAS by administered by CLAS, which are used by almost eight 2003 million people (most o f them poor). However, during project implementation, a major health personnel reform imposed changes on CLAS. Duringthe last four years, CLAS growth has stabilized. Some o f the committees have had supervision and training problems. In 2008, the Government passed a CLAS law that consolidated its functioning and its governance regarding MOH's health facilities. Mother and child programs and Between 2002 and 2004 the government applied several environmentalhealth programs measures to integrate maternal and child programs, such as streamlined according to plan agreedwith the creation o f a Strategic National Coordination to support the Bank. the delivery o f these services and the implementation o f a management strategy based on results. On environmental health, MINSA issued a renewed normative framework on solid waste disposal at the hospital level. Also, a national program Water for AN i s being applied and expected to reduce environment induced health problems. Finally, other environmental health programs were restructured to avoid redundancies. Distribution impact studies o f PhaseI A results study was completed by PARSALUD IPCU. The health activities concluded and main recommendations were: (i)continue with targeting recommendations ready for consideration policy; (ii)socio-economic identification to avoid leakage; for Phase 11. (iii) redefinition o f the health delivery model (service plan); (iv) definition and application o f differentiated payment mechanisms and co-payments; (v) differentiated reimbursements, especially for remote areas; (vi) improving monitoring and evaluation systems; and, (vii) strengthen focus on institutional deliveries. 100 percent o f loan committed and 80 100percent ofthe loanwas disbursed. percent disbursed by June 2005 Satisfactory performance o f The dialogue carried out with other donors, and especially complementary projects inthe sector with the IADB (co-fmancer), confirms the good performance which have relevance to the achievement observed during Phase I.WB internal documents reflect the of the healthreform development coordination made, including meetings held with other objective. 10 liness for second phase (policy focus) Adeauate legal framework and actions MINSA and ESSALUD, through several instruments, agreed defin-ed to delineate the services to be to coordinate investments and purchases, harmonize service provided by the ESSALUD and MINSA delivery standardsandrates (among other billing procedures). Hospitals They are also coordinating to increase efficiency into the health expenditures made by the public agencies. Recommendations o fpolicy studies on MINSA has shared with the Bank and ESSALUD a separation o f financing and service strengthening study prepared by ILO. Its main provision inESSALUD available for recommendations include decentralizing ESSALUD service consideration. provision, setting clear goals and objectives to extend coverage (especially for the inclusion o f independent workers), and including formal payment mechanisms, leading _ _ - to a separation o f functions. Recommendations o fpolicy studies on A study containing recommendations to increase efficiency health manpower issues available for o f health personnelwas made available to the Bank. Scope o f consideration the study included MINSA stewardship capacity, labor contracts reform, labor formalization, increased incentives to work in rural areas, legal framework and a concerning assessment o fthe recent legal changes. 44. The experience of thefirst phase, along with results of World Bank AAA (RECURSO), reinforces the need to prioritize the APL 11target population (mothers and children under three), and the needto influence population behaviors at the local level, inorder to increase care for pregnant women and for children, mainly those affected by poor nutrition and communicable diseases such as diarrhea and respiratory diseases. 45. The original APL program design contemplated launching reforms throughout the health sector during the second phase, including ESSALUD integration, and MINSA hospitals, as well as the implementation of the component of communicable diseases surveillance and control. However, APL 11will not include all these activities. These reforms were planned on the assumption that the institutional changes addressed at the primary health care level would have been resolved as a result o f demand for services induced by SIS. However, although SIS has had a significant impact on increasing demand, coverage is still a serious problem. In addition, tackling ESSALUD i s no longer realistic given the autonomy provided by law for this institution. With respect to MINSA hospitals, the decentralization process has put these institutions in a stand-by situation. It is not clear whether they will be transferred to the regional governments, or will stay under MINSA's jurisdiction. This uncertainty prevents MINSA from establishing a reform program for national hospitals. In addition, communicable disease surveillance and control alone represents a major reform, and inthe APL I1communicable diseases were focused only inthe control and surveillance o f two infectious diseases that affect children: respiratory infectious diseases, and diarrheic infectious diseases. Furthermore, experience from a number of Bank projects has shown that the introduction o f a mixture of reforms i s difficult to implement because o f overriding political factors and multiple development objectives. Project success is highly correlated with focusing on only a small numberof incrementalreform elements at a time. 3. ProjectDevelopmentObjectivesandKey Indicators 46. Framed within the long-term objectives of the Health Reform Program, the project objectivesare to: 11 (i)improve family healthcare practices for women (duringpregnancy, delivery and breast-feeding) and children under the age o fthree (ii)strengthenhealthservices networkswithcapacity to solve obstetric, neonataland infant emergencies, and provide comprehensive health services to women (during pregnancy, delivery andbreast-feeding) andchildren under the age o f three (iii)supportMINSA'sgovernancefunctionsofregulation, quality,efficiencyandequity for improving the new health delivery model o f maternal and child health care in a decentralized environment, 47. Indicators: Success inachieving the above objectives will be assessedusinga set o f 6 indicators described below. Data will be collected from the SIS data base, National epidemiological surveillance system, and hospitals' specialized reports from the nine Regions. Table2: Indicatorsfor APL Phase2 (1) Increase the proportion of institutional deliveries" inrural areas of the nine selected Regions from 44% (2005) to 78% (20 13). (2) Reduce the prevalence of anemia among pregnant women inthe nineRegions from 41.5% (2005) to 35% (2013). (3) Increasethe proportion of pregnant women ofthe nine Regions with at least 1prenatal control during the f r s t trimester o f pregnancy from 20% (2005) to 45% (2013). (4) Reduce the hospital lethality rate among neonates inthe nine selected Regions from 9.5% (2005), to 5% (2013)26. (5) Reduce the prevalence of anemia among children under age 3 inthe nine Regions from 69.5% to 60%. (6) Increase from 64% to 80% the share of children in the nine selected Regions who are exclusively breastfeduntil6 months of age. 48. A detailed explanation of indicators of the APL Program (outcomes); APL I project indicators (outputs), and intermediate process indicators (Components) in the nine selected Regions (baseline, values and targets), is presented in Annex 3 - Results Framework and Monitoring. 49. Monitoring the APL Program. With the purpose o f monitoring the APL program in all its phases, the table below describes the set o f indicators to be tracked by the project. However, it is important to note that this phase is not accountable for achieving these specific outcomes, both because o f their multipledeterminants and because o f the impracticality o f attributing such outcomes to project actions. Outcome indicators are described below: 25 As definedby SIS: deliveries attended ina health establishment 26Neonates Lethality rate is the mortality among neonatesthat arrived alive to the hospital 12 1 1 Table 3: Arrangements for Results Monitoring" Programoutcome indicators(PARSALUD I Baseline Baseline Frequency Data AND PARSALUD11) -APL I APL I1 and Collection Source Reports Instruments 282.5 ENDES- Maternalmortalitv ratio (9 (1997- 240 Endof MM ENAHO- selected regions) 2002) 2005 150 Project Surveillance MINSA 66 42 Infant mortality rate (9 (1995- (2000- Endof ENDES ENDES 2005 1 1 I 1 1 selected regions) 2000) 2005) 25 Project Survey 1 1 1 Prevalence of chronic malnutrition among children Endof under age 5 (9 selected $& 30*2 Project ENDES Survey ENDES 2005 4. Project components 50. Thisproposed secondphase APL would havefour components and totalproject costs of US$162.4million. This project has been jointly prepared with the IADB. The GoP has requested that the Bank and IADB finance up to US$15 million each, with the remainder to be covered by other fiscal resources. The project will be implemented in the same Regions as under the APL I(Amazonas, Huhuco, Huancavelica, Ayacucho, Apurimac, Cusco and Puno) plus two additional Regions: Cajamarca and Ucayali. These Regions were prioritized because IMRandMMR still remain well above the national average, and thus need further intervention. Disbursement for this project will be based on standard mechanisms for investment projects as requested by the GoP and the categories under which funding will cover components were prepared by the borrower. 51, wlile PARSALUD I's mainfocus was to support SIS in the expansion of the MOH's maternal and child health services and programs in the selected Regions, PARSALUD IPS main focus is to support SIS in improving the quality of provision of those services and programs, as well as the organization o f a new health delivery model inthe same regions in a decentralized context. In addition, reducing the results gap for mothers and children from rural populations requires PARSALUD I1support SIS to improve healthpromotion interventions and develop behavior change campaigns indispersed populations, as well as improving the cultural sensitivity o f health services to indigenous population in the targeted areas, increasing demand andguaranteeing the access o frural populationto all levels o fthe healthcare chain. 52. Component 1. Improving health practices at the household level for women and children under age three in rural areas of the nine targetedRegions (US$6.0 million). This component will finance three lines o f actions: 53. Subcomponent 1.1. The design, implementation, and monitoring of a Behavioral Change Communication and Education Program (BCCEP). The BCCEP aims to promote healthy practices at the household level, including increase demand for health services, with a *'An updatedbaseline by region will be done during the first 6 months after effectiveness. 13 focus on mothers during pre- and post-natal periods and children under three, taking into consideration the cultural context o f rural and indigenous populations. 54. To achieve this objective, the activities to be financed include: (i)studies to identify current practices, beliefs and attitudes, including the use o f health services; (ii)9 tailored BCCEP strategies (by region); (iii)development, validation, and production of culturally sensitive printed and audio-visual materials (radio spots, soap operas, videos, etc.); (iv) equipment for basic training and dissemination (PCs, data display devices, TVs, DVD); (v) training o f M N S A , DIRESAs staff, as well as staff, networks, micro-networks, and community agents for the local implementation o f the BCCEP; (vi) a training program for local authorities, community leaders, social and civil society organization; (vii) learning workshops; (viii) technical assistance to health staff and community members on the implementation o f the BCCEP; (ix) monitoring and evaluation o f the BCCEP. In addition, a competitive fund o f approximately US$1 million (to be financed under the IADB loan), would be established to finance local initiatives to improve healthy communities. 55. Subcomponent 1.2. Promotion of SIS enrollment rights and identity rights among eligible target population. This sub-component aims to support the GoP in enrolling eligible women and their children for SIS benefits. The lack o f national identification documents i s a serious obstacle to accessing social programs: the problem is especially serious in indigenous rural areas. Inthe country, almost 10% o f adult population i s undocumented, and women who lack a Documento Nacional de Identidad (DNI) may lose access to health insurance (SIS), as well as to other social protection and development opportunities. Therefore, the Project will promote SIS enrollments, and DNI requests. All below described activities of this subcomponent are aligned with RENIEC's national program o f expansion o f identification (DNIcoverage o fPeru's population), that forms part ofMEF's resultsbasedbudgetingprogram for increasing accountability and allocative efficiency based on results. 56. Specifically, the project would finance: (i) the design and implementationo f a campaign promoting SIS rights and identity rights. This campaign would facilitate the work to be carried out by civil servants in charge o f the delivering the DNI; (ii)the design, production and dissemination of materials promoting SIS rights and identity rights for all nine Regions; and (iii)training o f health staff and local authorities on the promotion o f SIS rights and identity rights. 57. Component 2. Increasing the capacity to provide better maternal and child health services for the poor (US $142.3 million). This component would strengthen the health delivery model through improving the capacity o f health service networks to attend obstetric and neonatal emergencies, to improve the integration between pre-natal andpost-natal care, and health care for children under three. The component would support: 58. Subcomponent 2.1. Improvement in the quality of services in health facilities. This would include: (i)minor constructions, rehabilitation, and equipment investments, for the networks in the Regions supported by the Project, related to the improvement o f the essential obstetric care functions, and neonatal care28; (ii)technical assistance and training for health personnel; (iii) inclusion o f an intercultural focus in service provision; and (iv) a fund to support innovative proposals to finance local initiatives for health services provision (to be financed by the IADB). 28WHO, essential obstetric health care functions, andone neonatal healthcare, 2003 14 Subcomponent2.2. Raising the efficiency and effectiveness of networks. The main purpose o f this subcomponent is to improve the new health delivery model to be implemented under the project. The table below explains the differences between the old and new health model for mother and child care. Table 4: Maternal and Neonatal Health Delivery Model: Traditional vs. Health NetworkApproach Model Traditional Health network Orientation Individual Family Maternaland Perinatal healthcare Individual, mainly Comprehensive care curative, and providedby health maintenance in isolated facilities health care networks, basedon health risk management Knowledge of community healthproblems Low High and conditioning factors ineach Region Enrollment ofpregnant women to the SIS Nopartial Yes within definedcatchment areas Main HealthCare Setting Facility-based Community- basedoutreach, and health network Clinical risk management No Clinical management agreements Case managementhontinuitvof care Passive Active 59. This would include: (i)strengthening management systems at network level; (ii) improving the referral and counter-referral system, in particular for maternal and neonatal service referrals, and (iii) regulationo f the healthnetworks. 60. Component 3. Strengthening government capacities to offer more equitable and efficient health system in a decentralized environment (US$5.2 million). This component would work towards the strengthening o f MINSA, and the decentralizationo f the health system through: 61. Subcomponent 3.1. Regulatory framework in support of service quality. The PARSALUD results-based model entails innovations that require regulatory reforms inorder to ensure that they are incorporated into the institution and are sustainable. Technical assistance including training will be provided to support the integrated health delivery model and the development o f support systems. These include the development o f the regulatory framework and implementation plan for: (i) accreditation and certification system, currently proposed the bythe law but not regulated, (ii) infrastructure maintenance systems, (iii)reference laboratory a system, (iv) hemotherapy (v) hospital financing, (vi) pharmaceutical purchasing and logistics system, and (vii) ahealth communicationand promotion system. 62. Subcomponent 3.2. Strengthening of SIS. The Project would support SIS to develop the public insurance system. This would entail technical assistance for: (i) development of the 15 the regulatory framework, improvement o f the SIS information system, aimed at better monitoring enrollment, coverage and access inthe Regions initially included inthe project, (ii) quality assurance mechanisms, and technical assistance for the implementation of the SISFOH targeting system to ensure adequate targeting o f healthinsurance financing inurbanareas. 63. Subcomponent 3.3. Systems development to enhance the monitoring capacity of MINSA. This set o f activities would support the improved implementationo f existing systems, namely SIS (see above), and SIGA, all o f which can produce monitoring data and thus introduce greater accountability into the system. This i s particularly important for the MINSA decentralization process, whereby the sector is movingtowards a greater regulatory role and the Regions will be taking on greater responsibility for implementation. 64. Subcomponent 3.4. Support to decentralization. The Project would support the continued implementation o f Management Agreements (MA) developed under APLI, as instruments for supervision and accountability between the central regulatory level and the Regions, which are responsible for service provision. MA is defined as.the sector Agreement between MINSA, the Regional or the Municipal Governments for results based management and financing of health services. To this end, new MASwill be signed, and the Project would provide direct technical assistance and training to MINSA and regional staff. In addition, the Project will support the design o f an incentive/penalty system that will ensure that the MASare effective instruments. Finally, Subsidiary Agreements will be signed between MINSA and PARSALUD I1with the region of Cusco and the region o f Cajamarca, respectively, to detail the terms and conditions in which the above-mentioned regions shall repay the Borrower the portion o fthe Loan allocated to them underthe Project as set forth inthe Operational manual. 65. Component 4. Project Coordination, and Monitoring & Evaluation (US$ 8.9 million). This component would finance activities related to the administration o f the project, such as: (i) The financing o f external concurrent auditors, (ii)monitoring and evaluation activities, including impact evaluation o f specific detailed project activities, and (iii) project management andprocurement team withinMINSA. 66. The integrated PCU for PARSALUD will operate under the Vice Minister o f Health, and under an operations manual agreed withthe Bank. 5. Lessons Learned and Reflected in the Project Design 67. World Bank experience in project implementation in Peru provides a number o f lessons that have contributed to the design of this proposed project, inparticular those learned from the implementation o f the APL I. 16 68. An evidence-based results approach strengthens the project by protecting it from external pressures. The APLI had significant difficulties in implementation during the first two years. These difficulties had a number o f causes, but they were particularly influenced by the lack o f a clear implementation strategy that would ensure results. Once the project team decided to focus on results and established the necessary inputs (supported by evidence-based research), the project started to flow and outcomes were achieved. The evidence-based results framework has beenthe main instrumentfor project design inthis proposed second phase o fthe project. Inaddition, there is a clear needfor political support from the Minister and hisher management team. Results-oriented management is not common practice inPeru. As such, any such practice of this type in the health sector requires significant support. This was clear during the implementation o f the first phase o f the APL, where ministerial influence made a decisive difference in implementation. The results- oriented framework has been promoted throughout the Ministryduringthe first phase but, as with all cultural changes, the process has been slow. 69. Finally, institutionalization o f projects i s very difficult in the health sector and needs to be followed-up closely by the Bank. The original design for the first phase o f the project called for a PCUthat would mainly manage administrative processes while technical aspects would be designed and implemented by the Ministry's technical areas and by the Regional Directorates. Although this design has been successful in other sectors in Peru, this was not the case for the first phase o f the APL. As a result, the Ministry hired a technical team that led the design and implementation o f activities inconsultation with the Ministry. While this was an improvement from the previous project (which operated ina bubble withinthe Ministry), greater involvement o f the Ministryand o f regional staff are necessary to ensure sustainability. It is expected that the new institutional arrangements will leadto greater ownership within the Ministry. 70. Based on the experience during implementation o f APL Iit was agreed that the Bank could further support the borrower by (i) providing know-how and technical support to the MINSA regarding development o f policies, plans, and investments related to implementationo f the SIS inpoorest Peru's Regions; (ii) developing a robust stewardship framework for a new health delivery model implementation inthe maternal and neonatal health care; (iii) improving jointly with IADBthe quality o f program supervision o f the total project amount, and not only the portion corresponding to the loan; (iv) mandating an impact evaluation; and (v) incorporating a health promotion-based approach for indigenous populations. 71. On the other hand, regarding malnutrition, the "RECURSO" AAA studies showed that malnutrition inPerui s due to lack of mothers' awareness, lack o f accountability from providers, and lack of incentives by everybody. These recommendations were provided for health policy reforms needed to obtain better results inhealth, and as a potential road map to be followed in order to improve key outcomes. This proposed second phase APL addressesthese issues. 6. Alternatives considered and reasons for rejection 72. No project: The Borrower and Bank agreed that the value added o f the loan and Bank involvement consist of: (i) providing know-how and technical support to the MINSA regarding development o f policies, plans, and investments related to implementation o f the SIS inpoorest Peru's Regions; (ii)developing a robust stewardship framework for a new health delivery model implementation in the maternal and neonatal health care; (iii) improving jointly with 17 IADB the quality o f program supervision of the total project amount, and not only the portion corresponding to the loan; (iv) mandating an impact evaluation; and (v) incorporating a health promotion based approach for indigenouspopulations. 73. The Governmenthas decided to continue itsfocus on maternal and child morbidity and mortality indicators as one of its health priorities. Although the implementation o f SIS and the strategic development o f the supply o f maternal and child services has had an important impact inthe increase ininstitutional childbirth, it i s clear that this i s still an equity and sanitary challenge for the sector. A SWAP was also considered, given that a clear resultsframework and budgetary allocations have been developed for maternal services. However, the GoP has decided not to pursue a SWAP until a pilot is implemented to assess whether it suits the country's needs. In addition, national procedures are still under review and discussion with government officials and further work is still needed for approval under the Bank's fiduciary requirements. However, the Bank and IADB fiduciary teams have agreed on harmonized procurement and financial management procedures. 74. A number of implementation arrangements were also considered. The use of the Ministry's general administration office was discarded as this institution functionally should serve only the demands from the Ministry's headquarters and does not have a function to cover nationwide purchases. The current implementation unithas proven to be very effective interms of project implementation, but i s not institutionalized. Thus, an intermediate option was selected whereby the Project i s institutionalized but has a separate administrative unit. C. IMPLEMENTATION 1. PartnershipArrangements 75. The IADB and the World Bank worked jointly during the preparation and implementation o f the first phase and will continue to do so during the second phase. In general, this partnership was successful duringthe first phase, despite the different procurement and financial management processes imposed by the Banks. During the preparation process, the Banks worked with the borrower inthe development o f common procurement and financial management procedures to avoid burdening the Ministry with multiple systems. In addition, both Bankshave agreed to continue localjoint supervision o f the Project. 2. Institutionaland ImplementationArrangements 76. The Project will be managed by a PCU fully integrated within the MNSA, which will report to the Vice Minister o f Health. The PCU will have the same responsibilities as it had in PARSALUD I,which includes fiduciary issues (Le. financial management and procurement) and activities planning. The PCUwill coordinate MINSA's directorates andprograms involved inplanningandimplementingthe Project activities withrelevant MinistryRegions, which have already been identified as responsible for specific Project components or clusters o f activities. Government i s currently covering the personnel costs o f the PCU, including consultants. Inthe case that Government wishes to use project proceeds to finance PCU consultants for a time, at midterm evaluation it will present the Bank a financing planto any PCU consultants financed 18 withproject proceeds by the end o fthe project. 77. A Project Steering Committee (PSC) will be createdto approveyearly operationalplans and any significant change in the design, as required. The design o f the Steering Committee benefitted from lessons learned from PARSALUDI(originally it comprised 19 members, with low flexibility, and many bottlenecks in the decision process). The Steering Committee responsibilities are described in the Operations Manual. Its composition includes three voting members, one from MINSA, another from the MEF, and the third selected from the Regional Governments, and one nonvoting member from the PCU (project coordinator). 78. New MAS will be signed between the nation and Regions, and the Project would provide direct technical assistance and training to MINSA and regional stafJ: The Project will support the design of an incentive/penalty system that will ensure that the MASare effective instruments. In addition, since recent national fiscal decentralization policy re- allocates miningtaxes to Regions that accomplish miners' policy, the MEF asked MINSA and the Bank for Subsidiary Agreements to be signed between MINSA and PARSALUD I1with two specific Regions o f Cusco and Cajamarca which currently are beneficiaries o f this policy. The Subsidiary agreements detail the terms and conditions in which the above-mentioned regions shall repay the Borrower the portion o f the Loan allocated to them under the Project as set forth inthe Operationalmanual. 79. The project will be managed in accordance with an Operations Manual that will provide guidelines on all operational issues including overall functions, financial management arrangements, procurement arrangements, structure o f the PCU, and linkages with MOH, Regions and the Banks. For further details about specific responsibilities see Annex 6. 3. MonitoringandEvaluationof OutcomesiResults 80. The second phase of the APL would continue implementing the monitoring and evaluation (M&E) model and procedures developed under the first phase. This model has provided the necessary and accurate outcome-oriented estimates regarding the progress o f the project's main output and outcome achievements. Technically and administratively, the M&E system will involve the Epidemiology Office (Oficina General de Epidemiologia - OGE) and the Statistics and Information Technology Office (Oficina General de Estadistica e Informatica - OGEI) which would be responsible for data processing, management and analysis based on relevant data inputs delivered by ad hoc teams located at the DIRESA (Direcci6n Regional de Salud) level in all nine project areas. In addition, the project's technical M&E team would conduct regular analysis using existing national datasets (Le. ENDES - National Demographic and Health Survey DHS and ENAHO - National Households Survey), inorder to measure and - monitor project outcomes, as well as sector-based datasets (SIS, HIS, MONIN). Monitoring capacity building will focus on Regional and municipal levels with aggregation at the national level, while evaluationwill be a central-level function. 81. Component 2 and part of Component 3 would continue collecting the same data and using the same sources as in PARSALUD I at both regional and national levels. For Component 1 (health demand side), there i s a need to design and implement additional data collection exercises for community, municipal and family health practices. Prioritized practices would include maternal breastfeeding and child growth control. To this end, baseline information would be generated using quasi-experimental rapid assessments to set values at the 19 startingpoint o f interventionstage o fthe process. 82. Evaluation of the project will be based on implementation (inputs, activities and outputs) and results (intermediate outcomes, final outcomes). Both will be tracked by component. The impact evaluation o f the project will attempt to estimate the specific contribution o f the Project to the outcomes defined at the beginning o f PARSALUD I.Most baseline data for PARSALUD I1have already been collected at the end o f PARSALUD I.Ad hoc surveys inthe participating provinces will be implemented to measure knowledge, practice and satisfaction. Evaluations will be pre-and post-intervention. A midterm review will be conducted, and a full evaluation would be done in the last year o f implementation. While the project would emphasize the use o f existing sources o f data and the inclusion o f indicators to monitor and evaluate project achievements, a full protocol defining the methodology or methodologies to be utilized for the impact evaluation will be defined during the first semester or after the third month o f project implementation 83. Given the new institutional arrangements in the health sector, there i s a new major challenge related to M&E. This challenge relates to the need to institutionalize M&E procedures as part o f the Ministry's regular strategic tasks associated with planning and policy- making, inaddition to training managers inthis field inorder to guarantee the system's use and sustainability. Moreover, at the regional and local levels, the project would have to consolidate M&E data-use capabilities among the different health system stakeholders. As such, M&E efforts would have to develop mechanisms for increasing and articulating M&E capacities at DIRESAS and FONE/FONB themselves. Thus, the responsible M&E technical team would have to identify, design and implement the mechanisms to guarantee the transfer, use and institutionalization o f M&E procedures generated by the project. While players have a role in the development o f the M&E procedures, the incentives to participate are different. For the Government the incentive i s the potential associated with Planning and policy-making, at the Region's level the incentive is to raise health facilities' accountability for achieving results and finally the incentive at the health facility level i s the recognition o f achieving results and economic gaps for achieving those results. 4. Sustainability 84. Theproject has been evaluated and approved by the GoP using standard measures of sustainability. The major concern is the affordability o f recurrent costs, so this project considers three elements to underpin its sustainability: (i) the inclusion in the evaluation o f the recurrent cost to be funded either by regional budgets or through SIS; (ii) the commitment o f regional governments to provide enough personnel and maintain facilities to keep the local health networks working on reducing maternal and child mortality; and, (iii) the inclusion o f regional and national goals into the Management Agreements scheme, which can be achieved by monitoring the population at the nationaland local levels. This evaluation was cleared by the Peruvian Ministers' Council, which receives requests from the Ministry o f Economy and Finance. 20 85. With respect to financial sustainability, there are two means by which funds are committed to the social sectors. The first mechanism was an initiative from the World Bank and the Government of Peru based on the Programmatic Social Reform Loans. Inthat context six functional prioritized programs (Programa Social Protegido - PSPs) were defined that were budget-protected in their non-salary component. Within those programs, the health sector budget grew in a sustained manner mostly in the activities related to the recuperative interventions. In addition to the PSPs, the second mechanism i s based on the Financial Equilibriumo fthe Public Sector Budget for Fiscal Year 2006 (Law No. 28653) which pledges to the prioritized programs at least 30 percent o f any additional budget coming from taxes collection. 5. Critical Risks and Possible ControversialAspects 86. The Government o f Peru and the sector have expressed their high commitment with project implementation. Specific examples like the increased amount o fNational project budget allocation regarding its sustainability, as well as the decision to maintain the same experienced implementation unit o f PARSALUD I,leads to low overall risk for implementation and sustainability o f the project; but weak implementation capacity and country norms affecting execution (SNIP), as well as the intensive project's procurement required leads to moderate to substantial risks that will merit mitigation measures and a closer, more intensive and continuous monitoring by the Bank. The following are the anticipated risks for this operation: r Table 5: Risk Matrix Risk Factors Descriptionof risk Rating Mitigation measures Rating of of risk" residu a1risk" ic Risks TechnicaWroiect Change in the Government's S SIS and the development of health networks M design healthpriorities or strategies, have received even stronger support from especially with respect to the the government as means to improve the proposed new health delivery efficiency, quality and equity o fthe health model and the focus on SIS as system and for social policy sustainability. ways to improve efficiency, Finance authorities have questioned equitable access and quality o f MINSA requests for increased spending, in health services. regions with "canon" seekinggreater information on and accountability for results (to justify any hture budget increases). The commitment o f MINSA to improve sector fragmentation inthe context o f the national decentralization process (new CLASS law) and the commitment to be a lead sector inthe roll out o f results- basedbudgeting are real attempts to prepare the foundation for improvedresults-based management in a decentralized framework. The Bankteam is engaging with other donors and sector organizations to elicit support to the new health delivery model supported under the investment pillarso f the proposed APL I1operation, as well as to advance results-based budgeting reforms. 21 Risk Factors Descriptionof risk Rating Mitigation measures Rating of of risk" residu a1risk" Program Eventhough the Project has S The Project team is already working on M execution passedthe appraisal under the developingthe specific sub investment National Investment System projects inorder to advance the SNIP (SNIP), the design approval. contemplates two sub investment projects which Moreover, the Banki s currently providing will still have to go through technical assistanceto evaluate the SNIP as the project is adequacy o f the SNIP norms and implemented. The large procedures inorder to provide amount o ftime neededto recommendations to improve the expediting complete the SNIP approval o f investment projects, particularly with process, which tends to be respect to social sector projects. more taxing on social investment projects, can cause a delay inthe implementation o fthe Project. Implementation Low management capacities M The Project design proposes to work intwo M capacitv and o f the regional authorities stages. The first stage would operate under sustainabilitv- could cause delays and limit centralized management, while there would regional the efficiency o fthe Project. be an important training component to governments strengthen the management capacities o f the regional governments. Inthe second stage, part o fthe functions would be transferred andthere would be close supervision from the PCU. Implementation The intended transition ofthe S MOHcommitment regardingthe new health M capacitv and health insurance scheme universal insurance scheme has the strong sustainabilitv - (SIS) towards a Universal support o fthe President o fthe Nation. The - SIS Health Insurance System will MOHhas requested that the Bank take time andrequire incorporates three Project's regions as pilots strengthened capacities to o fthe potential PEAS (Plan Esencial de maintain good quality Aseguramientoen Salud). transactions, adequate targeting, and monitoring The Bank is conducting a studyto assess systems. the challenges o fhealth financing and particularly inexpanding SIS, which will provide appropriate policy recommendations. The Project includes specific actions to provide technical assistanceto strengthen an expanded SIS. Achievement o f There are weaknessesin M The Project includes technical assistanceto L Results current M&E systemso fthe refine health indicator goals and quality sector anda needto refine standardsandto strengthen andintegrate health quality standards. M&Esystems. Inaddition, the Project's Besides, the fragmentation o f own monitoring andevaluation systemwill several information systems be institutionalized within the sector's jeopardizes information overall M&E framework. consistency and cross fertilization. This i s vital to carry out an appropriate monitoring o fthe health and nutrition indicators. 22 Descriptionof risk Rating Mitigation measures Rating of of risk" residu a1risk" FMarrangements are widely S A MinisterialResolution approved the - M management relyingon the arrangements Budget to reactivate the PARSALUD followed by the former executing unit. PARSALUD will keepa operation, duly strengthened similar UnitOrganization as inthe first where needed (information phase o fthe project and has already hired system, financial reporting and most o fthe former staffwith experience processes and procedures). with externally financed projects. However, the successful implementation o fthose Former FMarrangements are being arrangements is restingon the strengthened, includingthe upgrade o fthe expertise and qualification o f financial information system to allow not PARSALUD's former staff. only the recording and control o f As inthe past, institutional transactions by source o ffinancing, but also changeswithin the Health to allow the issuance o f withdrawal Sector may affect applications and financial reports. PARSALUD's capacity to properly operate the proposed arrangements. The success o fthe S The Project team must work inspecific M Procurement function o fthe coordination activities with the Minister Project dependson the including: definition o f Technical support from the MINSA, Specifications, Terms o f Reference, especially inthe technical Evaluation Processesand contracts cooperation and continuity o f supervision PARSALUD's staff. PARSALUD will primarily M A National IPP hasbeen approved bythe L and social intervene inareas whose Bank.Itmakesreference to aNational safeguards populations are more than Health Promotion strategic plan for social 70% indigenous. Inthese communication inhealth (NHPP), This areas there are widespread NHPP was already presented, and approved practices o ftraditional bythe Bank. The planaddresses the cultural medicine that would require adaptation o f indigenous populations. The special efforts o f cultural IPP for each region where the project adaptation by health facilities operateswill adapt boththe National IPP, andproviders. andthe NHPPto the specific regional situations. Management Agreements to be signedbetween the central government and I-- the regions will include the regional IPP. ReputationalRisks The government has M The Projectteam has agreedto divide the L requested that the Bankand procurement tasks with the IDBteam so as the IDBundertake the to facilitate this function and avoid procurement o f the entire duplications. Both Banks will agree with project, notjust o f MINSA on the specific criteria and process expenditures financed to coordinate procurement activities, through external borrowing. including: definition o f Technical T h i s is expected to expedite Specifications, Terms o f Reference, the executiongiven that EvaluationProcessesand contracts national procurement norms supervision. The Bankhealthteam in are more cumbersome. charge o f supervision will also secure However, it may increasethe additional resources to cover the additional Bank's reputationalrisk in activities. procurement, given the magnitude o fthe project The GoP has agreed with both Banks to investments in infrastructure cover from Project proceeds the costs o f an 23 Risk Factors Description of risk Rating Mitigation measures Rating of of risk" residu a1risk" and equipment, which would additional external financial audit. require a heavier load on the Bank'ssupervision, particularly more resources for the fiduciary and procurement team. Targeted beneficiary groups All beneficiary groups participated inthe inthe poorest Regions and consultation process and were informed the poorest areas with low about Project activities. PARSALUD will service access may attribute be inpermanent contact with the poorest shortcomings or delays inthe beneficiary groups regardingpossible project to the project's design adjustments to guarantee achievements o f andor implementation, goals defined. Most PARSALUD posing a reputationalrisk for rehabilitation, minor constructions, and the Bank. renovations, were designed to produce positive health impacts inobstetric health care, and were organized inpackages o f procurement that will allow a simultaneous launch o f a group o f civil works by networks, reducing delays. Inaddition, an appropriate procurement action planhas beendeveloped during preparation. 11.Overall Basedon all o fthe above the overall risk for this operation is rated as Moderate. Risk Memo items: 1. CPIA ratings (overallandfour clusters) 2. IEGrating(YOofprojectsratedunsatisfactory-MU, U, or HU-over last five yearsbothfor the countryportfolioandthe sector) 3. Othergovernance andcorruptionindicators suchas thosepreparedby WE31andTransparency International aRating of risks on a four-point scale-high, substantial, moderate, and low-according to the probability of occurrence and magnitude of adverse impact. Other examples include cost escalation, prevalenceo f failures in similar projects, adverse external developmentsaffecting costshenefits of the project, andrisksspecific to operationsinconflict-affectedareas. 24 6. Loadcredit Conditionsand Covenants There will be no effectiveness or disbursement conditions. SpecialCovenants The Operational Manual has been received, as well as the implementation and procurement plans for the 1%monthperiod. D. APPRAISAL SUMMARY 1. Economic andFinancialAnalysis 87. The cost for this jive-year project would be US$162.4 million and would be shared among the World Bank and the IADB at US$15 million each, and the GoP at US$132.4 million. The budget would be distributed among the four components designed for project implementation. Components one (health education to households) and three (government stewardship) will have 3.7% and 3.2% o f the budget respectively. Component two (health services availability) will have 87.6% o f the budget, with 5.5% for component four. 88. A feasibility study including the estimation of costs, effectiveness and sensitivity analysis of theproject. The analysis o f cost effectiveness included two alternatives, both based on the network framework principles and the need to place greater attention to those Regions with lower performance indicators. Both alternatives included a set o f cost-effective interventions but organized in different network arrangements. The substantive difference between these options is the ability to reduce the loss o f effectiveness o f the health interventions once they are considered in the context o f one specific health network organization. Option one's overall costs were 24 percent lower than costs for option two. However, the analysis in relation to years o f life saved showed that option two was less costly (286 soles) per year o f life saved thanoption one (307 soles). Thus, option two (effective public insurance) was the option selected for the implementation o f the project, representing 357,000 lives savedby the fifthyear. 89. An economic evaluation of the project was undertaken following accepted international standards for estimating the present value o f future costs avoided in the target population. The cost o f the project i s US$ 162.4 million and the discount rate given by SNIP i s 11 percent in soles. Given this is not a productive project but an investmentoperation, a cost- effectiveness analysis was carried out. As mentioned, in terms o f averted deaths, the project could save 357,000 lives and prevent 4.1 million episodes o f illness by its fifth year. 90. The project takes into account the key underlying causes of child mortality and malnutrition, as well as the fact that the incidence o f child morbidity and mortality are higher in rural and indigenous areas where population dispersion is higher and cost-effective interventions need to be implemented. The project design is constructed on the health network concept by which health posts, health centers, and regional hospitals are linked through a network where referral and counter-referral mechanisms are o f critical importance. It takes into account the rural population (i.e. those living in highly dispersed communities) that will not have access to these networks and will require differentiated attention through mobile supply o f care. 25 91. Furthermore, it is important to evaluate the public financial capacity o f the country to assure that the current costs will be covered with funds from the central government or local government. Initial observations o f national and Region budgetary trends show that the budget has increased each year at the central government and i s expected to maintain growth o f at least 7 percent, and Cusco and Cajamarca have benefited from the boom o f the mining industry and are likely to assume their commitments as well. The increase will be sustained by the transition in MINSA from a supply financing scheme to a mixed financing scheme (with fixed costs financed by the supply side and variable costs financed by the demand side). This would mean a reallocation o f resources from MINSA to SIS. Meanwhile, the additional resources required to finance human resohrces would come from ordinary resources (tax collection) allocated to the regional governments (which in2007 were 20 percent higher than in2006). Finally, by the end o f the fifth year the local governments progressively will assume responsibility for financing the maintenance o f the infrastructure and equipment o fthe project. 2. Technical 92. The MINSA team prepared a coherent and well funded logical framework to maintain the project focus on maternal and childhood health, building on the results obtained during the first phase. The approach considers both demand and supply strengthening o f service delivery. At the same time, the project recognizes that community behavior i s critical to reach results in childhood care and o f the importance o f dealing with obstetric emergencies to tackle maternal mortality across the poorest Regions. On the institutional side, the project would support MINSA with policy development activities, evaluation studies, and the preparation o f proposals o f micro-reforms. It will also include training and other activities to strengthen regional technical and institutional capacity. 3. Fiduciary FinancialManagement 93. As part o f the preparation o f the Second Phase o f the Health Reform Program (Programa de Apoyo a la Reforma del Sector Salud - PARSALUD), a financial management assessment has been undertaken in accordance with OP/BP 10.02 and the FM Manual2'. Taking into consideration the nature o f the operation, the FMA has been focused on the design o f essential financial management (FM) controls and arrangements to ensure that associated risks are adequately addressed and that the implementing entity will be able to provide the Bank and other interested parties with accurate and timely information regarding project resources, expenditures and activities. 94. The project inherent risk and control risk are rated modest (M).Consequently, the project overall FM residual risk i s also modest (M). Compliance o f critical actions in reference to the upgrade and strengthening o f its information systems has been identified as dated covenant, as required. 95. The Financial Management arrangements proposed for this operation are significantly based on those followed by the former operation which proved to be acceptable to the Bank. However, and taking into consideration, the nature o f the operation, the FM assessment has 29"Financial ManagementPractices inWorldBankFinancedInvestmentOperations" approvedbythe Financial ManagementBoardandpublishedonNovember3,2005. 26 been focused on the design o f essential FMcontrols and arrangements to ensure that associated risks are adequately addressed andthat the implementing entity will be able to provide the Bank and other interested parties with accurate and timely information regarding project resources, expenditures and activities. To that end the assessment has identified certain specific activities to strengthen the existing arrangements, mainly in relation to the information system, and the contracting o f key FM staff. 4. Social 96. As part o f the project preparation process, consultations with future beneficiaries of PARSALUD I1 and the current beneficiaries o f PARSALUD Iwere carried out in four indigenous areas o f the country: Ayacucho and Cusco in the Andean region and Ucayali and Amazonas inthe Amazon region, in March 2006. Consultations included representatives o f 33 Quechua communities and 52 communities belonging to the following ethnic groups: Shipibo- Conibo, Ashhninkas, Piros (yine), Cacataibos, Aguaruna, and Huambisa. 97. The consultation process included an assessment o f health issues for these groups, access to health services and concerns with respect to cultural appropriateness. The objective was to collect information regarding problems that the mothers face during their pregnancy and delivery in the health facilities, as well as issues with breastfeeding. The participants also shared their opinions about what should be done to improve the service. 98. Three mainproblems were identified duringthe consultation: (i) offriendZy servicetoclients:Poordispositionandnegativeattitudeofhealthpersonnel, Lack which i s interpretedby the Andean women as discriminatory and exclusionary. Women reported mistreatment, yelling, lack o f use o f their own language, and lack o f consideration for their cultural practices; (ii) of education and information: MINSA does not educate women on Lack the advantages o f skilled professional attended deliveries. In addition, women also perceive a lack o f information and education about advantages o f breastfeeding and benefits o f SIS; and (iii) accessibility toservices:healthfacilitiesarelocatedfarawayandthereareno"casas Low maternas" or "casas de espera" (facilities specifically designed to house women during the last weeks o f their pregnancy who live far from the health facility); poor or no community organization to help the patients find health centers; and lack o f resources to cover expenditures not paid by the SIS. Lack o f access to health facilities i s especially difficult in the Amazon region. 99. Recommendations proposed during consultations include the following: (a) Cultural appropriateness strategies; (b) Strategies to strengthen the institutional capacities o f the sector, taking into account the attention o f dispersed indigenous populations, and (c) Cross-cutting education and communicationapproaches. 100. Based on the consultation process and proposed recommendations, an Indigenous Peoples Plan was developed. This Plan includes (i) findings from the social assessment, (ii) a description o f the free, prior and informed consultation process, (iii) an action plan o f actions that ensure that indigenous peoples receive culturally-sensitive and appropriate health services, (iv) procedures for the resolution o f grievances arising from project implementation, and (v) monitoring and evaluation mechanisms for implementation o f the actionplan. 27 5. Environment 101. The second objective o f APL I1 comprises infrastructure activities that entail minor construction, rehabilitation and provision o f new equipment for the health facilities. It does not include major building construction but represents the adaptations that most common buildings need to become functional inthe health obstetric and neonatal health network. Inthis sense no environmental impact i s expected regarding construction o f new health facilities. On the other hand, the possible environmental impact in liquid and solid wastes in the health facilities network, due the anticipatedincrease inthe use of health services will result inincreased health care waste (HCW) production. 102. However, since waste management is expected to comply with current legislation, and appropriate current practice inthe health system, the impacts will be low (they will be no higher thanthose allowedby law). 103. The EA conducted during project preparation includes a diagnostic o f solid and liquid wastes that would be generated by project interventions. To reduce, prevent and mitigate risks, the EA includes measures that will be taken into account in the specific design o f all minor constructions and rehabilitation o f the intervened facilities, as well as agreed self evaluation o f hospitals with methodology that has been successfully implemented inother countries. 104. The EA proposes constant monitoring to mitigate potential environmental risks. This monitoring will ensure compliance with the standards and requirements established by law, as well as assure the use o fthe guidelines and technical procedures adopted by the health facilities. 105. Following the EA, specific manuals for waste management were developed to be shared with each health facility. As a part o f this project, there will be a component of technical assistance that will work directly with MINSA to institutionalize these manuals. 106. The EA proposes a Solid and Liquid Waste Management System which (i) establishes basic procedures in each o f the management stages for solid and liquid waste produced in health facilities and proposes best practices for implementation; (ii)defines monitoring and evaluation processes for the management o f solid and liquid waste produced in the health facilities; and (iii) estimates the costs and capacity building strategies for the implementationo f the Solid and Liquid Waste Management System, including intercultural and regional adaptations (Andean/ Amazon regions, ruralhrban areas). 107. In addition, the Project will work with the MINSA to promote the application o f the friendly Environmental-Hospitals Accreditation Program, through which health facilities are self-accredited if they comply with minimal environmentaly-friendly practices, including proper management o fhealthcare waste (HCW), efficient energy use, etc. 28 6. Safeguard Policies Safeguard PoliciesTriggered by the Project Yes N o EnvironmentalAssessment (OPBP 4.01) [XI [I Natural Habitats(OP/BP 4.04) [I [XI PestManagement(OP 4.09) [I [XI Cultural Property(OPN 11.03, being revisedas OP 4.11) E l [XI Involuntary Resettlement (OPBP 4.12) [I [XI IndigenousPeoples (OPBP 4.10) [XI [I Forests(OP/BP 4.36) [I [XI Safety of Dams(OPBP 4.37) E 1 [XI Projects inDisputedAreas (OPBP 7.60)* [I [XI Projectson International Watenvays(OP/BP 7.50) [XI 7. Policy Exceptions andReadiness 108. N o policy exceptions are contemplated under this Project. There are no conditions o f effectiveness other than the mandatory legal opinion. All readiness conditions were accomplished by appraisal and negotiations, including the Operations Manual, and Project Implementation and Procurement plans. The Project Coordination Unit is already sufficiently staffed. Regarding Component 1, the PCU has already prepared basic training materials for health care personnel in maternal and child care at the municipal level, and a basic strategy relevant to Component 2 to readily identify investmentprojects for assessment accordingto the rules o fthe National System for Public Investment(SNIP). * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of the parties'claims on the disputed areas 29 Annex 1:CountryandSector or ProgramBackground PERU: HEALTHREFORMPROGRAM(SECOND PHASEAPL) THEHEALTH SECTOR 1. Main improvements andproblems related to infant and maternal health in Peru. Peru has experienced aggregate improvements in some health outcome indicators during the last decade. IInfant mortality rates (IMR) in Peru have fallen more than in many other Latin American countries duringthe past few years (Figure A 1, I$.Between 2000 and 2004, Perureduced infant .......................................................................................... mortality by 27 percent, more than most o f Latin American countries did. By the period 2002 - 2006, Peru achieved an IMR o f 21 deaths per 1,000 live births3'. Although the achieved rate i s still high compared to L A C countries that have similar income levels to Peru such as Jamaica or Colombia (IMR: 17), Peru has already attained the Latin America and the Caribbean Region I(LACR) average (Figure A I , 2)........................................................................................................... ........ Thus, Peru should be able to achieve its Millennium Development Goal (MDG) target for IMR o f 19 per 1,000 live births by 2015 if ongoing programs are further strengthened and supported. 2. Improvements inthe IMR are related to better standards o f living (access to drinking water and education for mothers) and other public health interventions including sanitary education, adequate management o f diarrhea and immunization programs. For example, immunization coverage for key vaccines increased from 70 percent coverage rates inthe early 1990s to around 90 percent, currently. Nevertheless, though infant mortality has declined in Peru, the relative share o f perinatal mortality has increased as a cause o f infant deaths. This component o f mortality is difficult to reduce because it requires specific and often higher cost interventions to improve the access to and the quality of care (i.e. coverage for prenatal care, deliveries inhealth care facilities, premature births, and neonatal care for premature infants). Thus, further decreases in infant and child mortality will require a focus on perinatal mortality and on nutritional and sanitary practices. Figure Al. 1 Infant Mortality Rate Increaseldecrease (56) between 2000 and 2004 in LCR 10% 5% 0% -5% .IO% -15% -20% -25% -30% Argentina BoQvIa mile Colombia &uador Mexico Paraguay PBru Venezuela Uuguay Source: The World Bank'sHealth, Nutrition and Populationdata platform. 30Inthe National Demographic and Health Survey (ENDESContinua, 2004-2006), the confidence intervals for an IMRof21per 1,000 live birthswas between 16and 27 dueto sample size. 30 Figure Al. 2 1960 1965 1970 1975 1980 1985 1990 1995 2000 2W5 [ +Peru &Latin America and the Caribean Region 1 Source: GDF & WDI central database (World Bank) 3. Although over the last decade infant mortality has declined inPeru, the maternal mortality rate (MMR) continues to be a serious problem (Table A1. 1$........................................... rate i s 164 Infact, Peru's mortality._._________._...__. ..-.-- deaths per 100,000 live births3', nearly double that of Latin America as a whole. The Peruvian MDG target for this indicator is 66.2 deaths per 100,000 live births and this is unlikely to be achievedby 2015 evenwith ongoing investmentsfor maternity, natal and post-natal care. Table Al. 1 SelectedBasic Indicators of Health for Peru and Latin America Indicators 4. Finally, child and maternal health in Peru are affected not only by the high MMRs, but also by chronic malnutrition. This is another critical problem that has affected a quarter o f Peruvian children under five (and more in some Regions) over the last 10 years. Although there have been positive developments against malnutrition such as the virtual elimination of iodine deficiency, as well as the important decrease of vitamin A deficiency (from 55 to 11% between 1996 and 20003*), the pace of progress has been uneven. The prevalence of anemia among the under five-year old population fell from 56.8% to 46.2% between 1996 and 200433,but the 31WHO estimateda maternalmortalityrateof 185 per 100,000 births (2000) whereas PAHO, adjusting for under registration, estimatedit to be 401 per 100,000 births. 32Fiedler,J., 2003, TowardaNewPublic SectorApproachto NutritioninPeru, UnpublishedDraft, WorldBank, March2003. 33ENDESContinua2004-2005 (INEI). 31 percentage o f children under two that are anemic remains high (69)34. Moreover, chronic malnutrition i s very unequal and correlated with poverty and rural residence as it i s almost four times higher for children livinginrural areas than for those living inurban areas35. I5. Inequalities in Results: The aggregate IMR has decreased, but these improvements have not been uniform (Figure AI. 3).............................................................. 5 per 1,000 (withinthe richest In2006, IMRrate varied from --..-- .................................................... quintile)to 45 per 1,000 (withinthe poorest quintile). Inaddition, neonatal mortality is morethan 11 times higher among newborns o f the poorest quintile compared to those o f the richest quintile (Figure Al.3b). Moreover, IMR inequalities among Regions are also wide36. While Lima has a low IMR (20), Cusco has the highest IMR(84). Figure Al. 3 Chiid Mortality Rates by income quintiles (Period of analysis: Last 10 years) Source: National Demographic and Health Survey (ENDESContinua,2004-2006) Figure A1.3b Neonatal mortality rate by poverty quintile ._ -"-, ---I "_x-I ~ " Reachest Fourth mlrd ! Second poorest 0 5 10 15 20 25 Source: ENDES 2005-2007 34ENDES2001 (INEI). 3539% and 10%respectively. ENDESContinua2004-2005 (INEI). 36Last data available by region. 32 FigureAI. 4 Child MortalityRates by region (Period of analysis: Last 10 years) .___^.___._____.I.-__..I.__.__ _.l-__".__ ~ 80 60 40 20 0 Source: NationalDemographicand Health Survey (ENDES2000) 6. The IMR and the Under-5 Mortality Rate (USMR) declined inthe whole country between 2000 and 2006, butthe variation inrural areas was greater (Figure A.1.5). 7. Though the difference between mortality rates in both rural and urban areas i s still broad (U5MR in rural areas i s nearly double that o f urban areas), the decrease in rural areas has been considerable higher (IMR: 40 percent, USMR:41 percent). Figure Al. 5 ChildMortality Rate (Period of analysis: 10 years before each survey) - -____" - - ----I 60 50 40 30 20 10 n 2000 1 2006 2000 1 2006 Urban Rural Source: National Demographic and Health Survey (ENDES2000, ENDES Continua,2004-2006) 8. Geographic inequalities inaccess are the main cause o fpoor outcomes including highrates o f communicable diseases compared to others countries in the region. Although the rates of communicable diseases have declined overall during the last few years, differences also remain according to income levels and areas o f residence. The latest analysis o f the health situation in Peru-Andlisis de la situacidn de la salud del P e d 2005 ( M N S A 2006)--concluded that the illnesses with the highest rate o f reoccurrence during 2004 in the extreme poor population were respiratory infections and other related conditions (26 percent), parasitic infections (10.3 33 percent), and intestinal infections (7.2 percent). Although respiratory infections also affected the non-poor population, they are higher among the extreme poor and rural population. Furthermore, parasitic infections are particularly prevalent within the extreme poor due to the lack o f sanitary services. Urban Rural Source:Anlilisis de la sifuacidn de la salud del Peru 2005 (MINSA 2006) 9. Inequalities in Access: Inequalities in health outcomes reflect underlying inequalities in access which continue to persist. In200637,2 o f 3 individuals who fell illdid not seek care in a health care facility due to several factors, but most importantly was the lack o f money. A poor individual in Peru was almost six times less likely to seek care in a health care facility than a wealthier individual. In the poorest quintile, 34 percent o f individuals had no access to health care due to the lack o f money, while inthe richest quintile this percentage was only 6 percent. 10. Forty percent o f the poorest population (quintiles 1 and 2) accounted for only 32 percent o f the number o f days o f hospitalization in MINSA hospitals, while the richest 40 percent, quintiles 4 and 5, comprised 45 percent o f days of hospitalization. People who live in Metropolitan Lima or urban areas accounted for 70 percent o f the number o f hospitalization days. This concentration can be explained by the fact that national hospitals and institutes are located inthese areas. Inaddition, it seems that referral mechanisms are failing. 37ENAHO 2006, National HouseholdSurvey (INEI) 34 Figure Al. 7 Hospitalization in MINSA Hospitalsby Quintile according to residency, Peru 2006 a Quntb 1 auntte 2 auihle 3 Quinhle 4 Quurtde5 (poorest) (rchest) Source: ENAHO 2006, National Household Survey (ZNEI) Figure Al. 8 Hospitalization in MlNSA Hospitals by Quintile according to natural region, Peru 2006 Quintile 1 Quintile 2 Quintile3 Quintile4 Quinttk5 (poorest) (riches1) 1.8 Source: ENAHO 2006, National Household Survey (INEI) 11. On average, the inhabitants o f Metropolitan Lima were hospitalized twice as much as the inhabitants o f the jungle; nevertheless, a more detailed comparison o f hospitalizations between the poorest quintile and the richest quintile in each geographic zone indicates that the most dramatic situation o f intraregional inequity corresponds to Metropolitan Lima. This is due to the fact that the richest quintile has a prevalence o f hospitalization that is six times higher than the poorest quintile. Inthe jungle, the highlands, and on the coast these differences are lower or do not exist. 12. Nationally, access to a skilled professional during childbirth has improved at an aggregate level mainly due to investments made by the Government to improve access to quality delivery care. ENDES Continua (2006) data indicate that around 9 out o f 10 pregnant women received prenatal care during their last pregnancy (an increase o f eight percentage points over the 84 percent in 2000). Moreover, the most significant indicator - the deliveries o f babies in health care facilities - rose considerably in Peru from 58 percent in 2000 to 72 percent in 2004-2006. IHowever, this improvement does not reflect underlying inequalities in access to skilled care during childbirth which varies widely across Regions (Figure AI. 9J. While 91 percent o f those ..-...._....._.. ....... ..._._._ .....-- .......... ^. 35 living in urban areas in 2006 received professional attention in health care facilities, only 45 percentof ruralwomen received such attention (a ratio of 2 to 1). Figure Al. 9 Institutional Birth Coverage 90% 80% 70% 60% 50% 40% /oRuralregion 30% 20% 10% 0% I 1995 2000 2004-2006 Source:National Demographic and HealthSurvey(ENDES1996,2000,ENDES Continua2004-2006) 13. Improved information systems on maternal mortality have revealed that the majority of deaths are due to hemorrhaging from pregnancy or delivery (58 percent). Analysis of the specific causes of hemorrhaging reveals that 53 percent are related to the retention of placenta, 21 percent to uterine atony,38 7 percent to premature placenta separation, and 6 percent for placenta previa3' (MINSA 2003a). The majority of these causes can be prevented and attended only if the delivery takes place in a health care facility with adequatepersonnel and equipment. The variation in access clearly affects outcomes. Thus, the risk of dying due to complications in pregnancy, delivery, or puerperium4' depends on the poverty status of the population. In fact, death due to these factors is 11 times higher inpoor Regions such as Ayacucho and Pun0 (35.8 deaths and 35.7 deaths per 1,000 women of reproductive age, respectively) than inLima and Ica (3.2 deaths and 3.3 deaths per 1,000 women of reproductive age, respectively). Health Sector Policies and Priorities 14. Public HeaZth Expenditure: Peru spends little on health compared with the Latin American average. Current spending is 3.6 percent of GDP, compared to 7 percent spent in Latin America in 2000. Peru spends $102.8 per capita on health (average between 1995 and 2000), an amount significantly lower than expenditures in other Latin American countries. For example, Brazil spends US$267, Venezuela spends US$233, and Colombia spends US$ 18641. 15. Segmentation of the Health Sector: The Peruvian health system i s highly segmented; it is comprised of two subsectors (public and private) and various subsystemsthat historically have worked independently and have lacked coordination. In addition, the current system fails to offer health insurance protection to the whole population, although some progresshas been made in this area with the introduction of the Seguro Integral de Salud (SIS) in 2001 which targets low-income groups. The public sector i s comprised of the Ministry o f Health (MINSA), 38Uterine atony is the failure o f the uterus to contract with normal strength, duration, and intervals duringchildbirth. 39Placenta previa is a condition wherein the placenta implants over the cervical os. 40The period between childbirth andthe return ofthe uterusto its normal size. 41http://www.minsa.gob.pe/ogei/estadistic~indsalud~rac.asp?id=3 36 ESSALUD and the health care units o f the Armed Forces and the National Police. Each acts independently and covers different segments o f the population. The private sector consists o f for-profit insurers and health service providers, non-profit institutions, medical and health professionals, and providers o f traditional medicine. In spite o f this segmentation, as a first promising experience towards integrating actions, during the second half o f 2006 MINSA, Essalud and the Armed Forces hospitals made a corporate purchase o f medicines, saving 40 million soles. 16. MINSAprovides the majority ofthe country's primaryhealth care services. More than 80 percent o f centers and health posts are part o f MINSA.In200642,MINSA serviced 73% o f those receiving public sector health care services. Moreover, poor populations, particularly those living in rural areas, depend on MINSA for access to health care (70% of those receiving care in a health care facility inrural areas were serviced by MINSA). Inthe two poorest income quintiles, 65% o f individuals who seek health care consultations do so through MINSA. Inaddition, 8 out o f 10 patients from quintiles 1 and 2 were hospitalized in MINSA facilities in 2006. Despite MINSA accounting for a larger share o f the health care provided, MINSA spent approximately $139 per capita while ESSALUD spent 3.5 times this amount. This reflects the differences evident in health care access between distinct sectors o f the population-the same differences that impede efforts to integrate the subsystems. 17. Decentralization process; Since the beginning o f the 1990s, the Peruvian health care system has been undergoing slow but continuous changes towards a decentralized framework marked by achievements and set backs. Some o f these changes have had a positive impact on equity and health outcomes while simultaneously contributing to an improved accountability process between policymakers/executors o f policies and suppliers, and greater empowerment o f the population. Duringthe second half o f the 1980s, a deconcentration effort was set inmotion in the health area that served as the basis for the current decentralized DIRESA (previously known as DISA). Inthe 1 9 9 0 ~the DISAs o f Lima and Callao were recentralized in MINSA, but the ~ ministerial structure was not modified. Instead, vertical programs were developed parallel to the traditional structure. .. 18. Once the economy stabilized in 1993, a series o f changes took place: Strengthening o f primary health care through the development o f a basic package o f services delivered by the Program for Basic Healthcare for All Promotion o f the formation o f community co-administration entities o f primary health . care facilities called Local Committees for Health Administration (CLAS) 9 Structuring o f a system for rural rondas or outreach visits by local teams (ELITES) Reorganization o f social security,43 ESSALUD, primarily through the incorporation o f . Private Healthcare Providers (EPS) to manage part o f the plan (the basic plan for health care) o f ESSALUDin 1997. Creationo f insurance for school children in 1997 and Mother-Child Insurance in 1998 19. Since 2002, the decentralization process received a new push, but MINSA has not benefited from this internal reorganization yet. One o fthe most important measures has been the 42ENAHO 2006,National Household Survey (INEI) 43Law 26760, "Modemizaci6n de la SeguridadSocial en Salud," published on May 17, 1997. 37 attempt to unify the vertical programs. Efforts focused on improving maternal-perinatal coverage anddiminishing economic barriers to access through: 0 The incorporation o f management agreements as monitoring tools for the management o f regional health care entities withinthe MINSA structure. 0 The creation o f a Comprehensive Health Insurance (SIS) plan, a result o f the merger o f the Insurance for School Children Plan and the Mother-Child Insurance plan that provides an additional incentive to extend coverage for deliveries inhealth care facilities. 20. The CLAS model develops the possibility o f financing primary health care centers that are organized under a quasi-private management scheme in which the community participates. The CLAS model had three basic characteristics that differentiated it from traditional arrangements: community participation, humanresources management flexibility, and autonomy inresource management. In 1994, 432 facilities operated under this scheme, which represented only 8.3 percent o f the total o f MINSA health centers and posts; in 2002, the number increased to 1,927 facilities, representing 22.6 percent o fthe total of 8,521 centers and posts registered that year. These facilities have a distribution similar to that o f traditional facilities and cover both poor and less-impoverished districts and urban and rural areas. CLAS users were found to benefit from greater coverage, efficiency and service compared with traditional primary care facilities (Altobelli, 1998). In addition, with regard to the quality o f services offered, 85.9 percent o f CLAS users indicate that the health care received was satisfactory, compared to 76.9 percent in the MINSA centers and posts (Cortez 1998). The CLAS model, however, has lost support and been challenged by the change in the job status o f physicians in December 2004 from contractors (contratados) to appointees (nombrados). This status change has resulted in reduced output, working hours and management effectiveness which have undermined the CLAS model. Nevertheless, recent legal arrangement^^^ that try to link the existence o f this instrument with the current model of decentralization generate expectations to see a new status of these establishments. 21. Insurance policy: In2002, the Government established a Health Insurance System (SIS) to protect the health of Peruvians without health insurance. SIS gives priority to the vulnerable population living inpoverty or extreme poverty to improve their access to health care services. It was created in 2001 and reimburses public providers o f MINSA for the variable costs o f the offered plans. In 200645, SIS covered 16.4 percent o f the population, ESSALUD covered 18.4 percent, and private entities such as private insurers, schools and universities covered 4 percent. Thus, 62 percent of Peruvians still do not have health insurance. 22. SIS is a decentralized public entity within MINSA and represents 14 percent o f the Health Sector's budget (471 million soles)46. O f the total number o f people that indicate affiliation to SIS, 77 percent belong to quintiles 1 and 2. Meanwhile, o f the total number o f people that indicate affiliation to ESSALUD, 66 percent o f affiliated members belong to the highest income quintiles (4 and 5). Finally, the private insurers concentrate 87.7 percent o f their I affiliated members in the quintiles 4 and 5 (Figure At. 19.The majority......._.._...________.__.__.._ ....._._...._._. _..... of the population of .. ....--- quintiles 1 and 2 are not affiliated with any insurance (66 percent and 69 percent o f the population in quintiles 1 and 2, respectively). In addition, SIS has not sufficiently honed its 44 Last law reference, Law 29124 "Ley que establecela cogesti6ny participaci6nciudadanaparael primernivel de atenci6nen 10s establecimientos de salud del ministeriode saludy de las regiones", publishedon October 30,2007. 45ENAHO 2006,National HouseholdSurvey (INEI) 46 SIAF 2008 (MEF) 38 targeting on poor households and Regions yet. The proportion o f SIS funding going to the 10 poorest Regions (40%) i s still smaller than their share o f the population (44%); while, if the program were well-targeted, it should be considerably greater. Similarly, 27% o f SIS' resources go to districts inthe top two quintiles o f the poverty map. Given SIS' intention to focus on poor households, this proportion ought to be lower. Figure Al. 10 insurance affiliation accordingto quintile, Peru 2006 60 50 40 -ESSALuD -**-Other I Quhtile 1 Quintile2 Quintile3 Quintile4 Quintile5 (poorest) (richest) Source: ENAHO 2006, National Household Survey (ZNEI) 23. SIS has made important contributions to sectoral development over the last few years: (a) it has tied financing to activities, encouraging improved resource utilization; (b) it has diminishedthe economic barriers to access that had been restricting the poorest members of the population; and (c) it has the operating capacity and has generated valuable and transparent information for the sectoral management o f insurance. One o f the recent modifications, implemented in 2007, expands the number and type o f beneficiaries including men and senior citizens living in poverty, informal workers and public servants with temporary contracts. An alternative process for affiliation named "minimum cost" has recently been created and requires the nonpoor to make a payment for affiliation. 24. Complementary projects: The project complements other past health sector investment projects in Peru financed by the World Bank and other donors that have supported the GoP's efforts to implement institutional reforms, increase health care coverage, strengthen primary care and vaccination programs, lower rates of infant and maternal mortality and improve nutritional status (for further details see Annex 2). This project also fits well with the Bank's past series o f Programmatic Social Reform Loans that were focused on improving the efficiency o f social sector expenditures, reducing inequalities in access to services, and were a key part o f the launching o f SIS and community-managed basic health care clinics (CLAS). Furthermore, it also fits well with the current series o f Development Policy Loans that support the strengthening o f Results and Accountability (REACT) framework inPeru's social sectors. Moreover, the Country Partnership Strategy for Peru for the period 2006-201 1 specifically mentions this proposed project as a second generation project deepening support to health sector reforms. Forthcoming studies on the Peruvian social sector - being prepared by the Bank also signals infant, child and - maternal health as priorities for the country. 39 Health Sector Strategies for Maternal and ChildMortality 25. Maternal and Child Health as a national priority: The proposed project fits well with current national and sectoral policies - "Acuerdo Nacional", "Estrategia de Superaci6n de la Pobreza", "Lineamientos de Politicas del Sector Salud", "Hoja de Ruta", and "Estrategias Sectoriales" - that have prioritized infant and maternal health, access and quality of health services, and decentralization. The current Government has demonstrated its commitment to these issues through ongoing reform efforts and in particular those undertaken during the first phase of this program. It has decidedthat access to institutional birthswith good quality will be a key operational standard for the primary health system4'. The choice of this indicator reflects the fact that institutional birthaccess i s a key tracer of the quality of primary and secondary medical care. A woman who gives birth in an institutional setting is likely to have access to a full set of associated pre - and post - natal services for herself and her child. Inthis context, MINSA has set an aggressivetarget to improve coverageto institutional births inthe poorest Regions. 26. A stronger accountability system has been established, based on adequately specified management agreements for health networks and Regiordmunicipalities. Regional goals have been set for coverage of institutional births and the related inputs of staff and medicines. Monitoring will bethrough vital and health services statistics for each facility and municipality. 27. SIS as the mainfinancing instrument: MINSA is also developing an action plan to face supply-side weaknesses which might impede targets for institutional births. This includes a plan to improve access for women of childbearing age inthe poorest Regions of Peru to a package of services funded by SIS4*. It is expectedto raise coverage of a full insurance package for women of childbearing age in these Regions by around 75 percent from 2006 to 2008. Likewise, SIS aims not only to guarantee funding for the costs of health care for the poorest population inPeru, but also to promote the notion of access to maternal and child health services as a fundamental right. In addition, to help ensure the quality of these services, an operational standardhas been set for medicine supply in primary and secondary health posts as well. Thus, DIGEMID (MINSA)49and SIS will set and supervise medicine supply compliance targets for those health centers that provide birthdelivery services. 47Legalframework: "Resoluci6n Ministerial No. 589 -2007/MINSA", publishedon July 20,2007. 48Legalframework: "Decreto Supremo No.004 -2007 - S.A.", publishedon March 17,2007. 49"DirecciQ Generalde Medicamentos, Insumosy Drogas (Ministerio de Salud)" 40 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies PERU: HEALTHREFORMPROGRAM(SECOND PHASE APL) 1. This annex summarizes recent health projects supported by international agencies in Peru. In particular, three o f them are relevant to PARSALUD in terms o f intervention areas, components and objectives. Thus, the Project will ensure permanent coordination in order to learn from their experiences and to avoid a duplication o f efforts. The projects are: a. USAID: PRAES (Promoting Alliances and Strategies) b. USAID: Coverage with Quality c. Belgian Cooperation: PROSIS (Program of financial support for the SIS) Table A2.1: List of relatedprojects through the expansion of SIS coverage to the niral and poor population. PRAES-USAID 2. The project aims to: 1) promote the alliances between the State and the citizenry; 2) promote the technical assistance for the development o f decentralization processes and health insurance; and 3) strengthen the health sector. 3. The objectives o fthe project are to: 0 Create awareness among political actors about key health reform issues during the electoral period andthe governmental transition. 0 Strengthen the capacities o f regional and local governments for the transfer o f health competences and functions, as part o f the decentralization process. Implement, monitor and promote citizen oversight of the Regional Health Participatory Plans. Strengthen health system regulations, particularly those associated with quality assurance and supervision o f services. 5o9,000,000 EUR (exchange rate: lEUR=1.56 USD) 41 0 Designand implement the Guaranteed National Health Plan withinthe framework o f the promotion of the universal assurance. Inorder to achieve changes inthe healthsector the projectbasesits intervention onthe alignment of three dimensions: political, social andtechnical. 4. The project has four components: 1. Promotionof politicalconsensus for the reform agenda in the healthsector: inorder to contribute to the sustainability o f the policies, PRAES will establish alliances with several associates to face the challenges of decentralization andhealth quality assurance. 2. Decentralization of the health sector: to consolidate the decentralization process, PRAESwill provide technical assistancefor the buildingo f a consensual definition o fthe functions and competences the local governments should be delegated, as well as for the transfer process. 3. Strengthening of the normative role of the MOH: it i s necessary to have a national supervisory organization for insurance and health services. Therefore, PRAES will develop a technical and legal proposal for the creation o f the Superintendence of Insurance and Health Services. 4. Health assurance: the project will provide technical support for the development o f a proposal for a benefits plan with the objective o f expanding health insurance in the country. HealthyCommunitiesandMunicipalities 5. Community health promotion uses a multi-sector approach to address basic determinants o f health at the community level. This approach works to empower community members and increase the use o f improved health care services. 6. The approach o f the project is through health promotion. The strategy consists o f 13 steps: 1. Generate awareness inthe community 2. Promote community organizationandthe electionof representatives 3. Train the population on basic subjects 4. Provide management tools to the communities 5. Assist inthe identification o fthe communities' problems and needs 6. Guide the communities inthe planningo ftheir own development 7. Involve the population inthe management o ftheir own development 8. Liaise betweencommunity representatives andgovernment authorities and institutions 9. Strengthen the offices of development o f the local governments and the local technical team 10. Develop skills as an on-going process 11. Expandthe strategy 12. Promote the consolidation andthe sustainability o fthe strategy 7. The communities shouldachieve the following goals: 0 Improve their organization and the participation o f their members 42 0 Promote healthy public policies 0 Achieve healthy life styles 0 Generate healthy environments 0 Promote the reorientation o f services PROSIS-Belgiancooperation 8. The general objective o f the program i s to improve the level o f development and health o f the Peruvian population. The specific objective i s to broaden access to SIS for rural populations inpoverty or extreme poverty. 9. The first phase o f the program ran from October 2005 to September 2007. The beneficiaries were 250,000 poor inhabitants o f the rural target areas and the investmentwas US$ 9,334,8OO5l. The funds were transferred directly to the SIS in two installments, as budget support. 10. The program included guidance that was aimed to orient, verify and measure the development o f the indicators o f efficiency, coverage, effectiveness and focused expenditure established in the technical documents o f the program. The guidance also informed the Program's Monitoring and Evaluation Committee and their counterparts o f indicator performance to allow them to carry out the necessary measures. 11. The goals established by the governments were: 0 Efficiency o 20% increase o f the affiliation coverage rate o f the poor and extremely poor in target Regions. 0 Effectiveness o 20% decrease o fthe filtration rate inthe target Regions. o 5% increase of the relative expenditure o f the SIS in favor of the two poorest quintiles o fthe target Regions. o 4% increase o fthe percentage o finstitutional birthsinthe targetRegions. 12. The main achievements o fthe first phase o f the program were: 0 Financial execution successfully completed two months before the end o f the program. 0 The existent organizational structure was used to execute the grant. That is, the funds were not usedto finance administrative or personnel expenditures. 0 The SIS has begun to modify its administrative structure with the objective o f unifying the different benefits plans to expand the coverage to all the poor population through only one benefits plan. "6,000,000 EUR(exchangerate: 1EUR=1.56USD) 43 There have been substantial achievements in the evolution of the established indicators and goals. o The program expanded its coverage to 87% of the original planned beneficiaries. o The efficiency indicator increasedby 35% (the goal was 20%) o The increase of the relative expenditure in the two poorest quintiles was 4% (the goal was 5%) o The filtrationwas reducedby 16% (the goal was 20%) 0 The guidance yieldedthe following results: o Improvednational and regional management ofthe SIS. o Awareness and training in the new payment mechanism to the service providers (through capitation). o Improveddonor coordination. o Periodical monitoring ofthe sanitary and management indicators. o Synergy amongprojects andinstitutions. 13. At the end of the first phase, a second phase was approved to be implementedduring 2008. The amount investedby the Belgian Cooperation for this second phase is expected to be US$ 4,667,10052. The objectives of this phase are to consolidatethe increase of SIS coverage for the poor in the same target areas and to complement the financial aid with technical support for the changes initiated by the SIS (implementation of capitationmechanism). LESSONSLEARNEDFROMPARSALUDI(ICR) 14. PDOs of PARSALUD Ihave been successfully achieved: Most of the targets for the Project Development objectives of phase 1 of the APL have been met or surpassed and all performance milestones identifiedas triggers for the successful completion of phase 1 have been met. These achievementsare describedbelow. 15. Two Program Development Objectives were utilized: the infantmortality rate (IMR) and the peri-natal mortality rate. The data on IMR (IMR of 22.3 per thousand in 200453)shows a strong accelerationinthe reduction of infant mortality comparedto the trend that existed before 2000. The speed in the rate of reduction of IMR during 2000-2005 i s higher in Peru than in all other countries inLCR for which data is available. Unfortunately, no data was available for peri- natal mortality at that point, however man analysts believe that the existing gains in IMR are suggestive of gains inperi-natal mortality.5 Y 16. The large achievement inIMRis the result of manyfactors and is not exclusively aresult of the expansion in coverage. However, the expansion of coverage was prominent during the 523,000,000 EUR(exchange rate: 1EUR=1.56 USD) 53 This IMR was measured by the National Statistics Institute (INEI) through the Continuous National Survey (Encuesta NacionalContinua). The referenceperiod for the measurement of IMR gives an estimate for 2005-2006. 54 Infant mortality i s a measure of death of children under 1 year of age; it can be divided into peri-natal mortality (deaths under one month of age) and mortality of children one month to twelve months of age. At relatively high levels of IMR (of 60 and over) most reduction inmortality is achievedby prevention of deaths inthe later months of the period (deaths due to diarrhea or vaccine preventable disease), but as IMR reaches lower levels, it's continued reduction increasinglyrequires improvementinperi-natal mortality. 44 Project period and it was strengthened by the cluster o f activities supported by the Bank in health. PARSALUD worked together with the PSlUs and with the AAA to support the Government's policies that strengthened demand for health services through the national implementation of SIS, and the implementation o f SIS was clearly a determinant in the large expansion of coverage during the period. Coverage also benefited from the improved quality of supply inthe poorest Regions o f the country that was partly obtained by reforms and investments that were also supported by the cluster o f Bank health activities. 17. The achievements in the key performance indicators o f the project are summarized in Table 1. Targets have been achieved or exceeded for births attended by skilled health personnel, beneficiaries receiving primary care, children attended for acute respiratory infection and for acute diarrhea. Yellow fever is now considered a highrisk disease and by law all cases identified and reported must be attended55.In immunizations, the numerical target o f coverage was not reached because the immunization program chose to adopt a more complex combination o f vaccine (which has more impact on mortality and morbidity) instead o f continuing expanding the coverage o f DPT3. 18. Regional and local health plans were institutionalized in 2002, as prescribed in the General Health Law (No 27657 of 2002). Each Region carries out a Health Situation Analysis (ASIS) which describes the sanitary conditions annually. Inaddition, each region signs with the central Government Annual Management Agreements (Acuerdos de Gestibn) in which they agree to meet certain targets with respect to specific health results which include the prevention andtreatment of communicablediseases as well as other prevalent healthproblems. 55Legal framework: "Directiva No001 99 OGE - OEVEE". OGE (MINSA) Protocols of Epidemiological Surveillance Part I. - 45 Table A2.2. Parsalud IProject Development ObjectiveIndicators I I Indicators Baseline p"""; (2000) Target 2005 Achieved Percentageof birthswhich had more than or equal to 4 antenatalvisits by a skilled professional (Project area) 32.20% 51.36% 57.20% Y E S Percentageof institutional deliveries (Project area) 27.60% 36.70% 50.90% YES Numberofcasesof acuterespiratory infections (IRA) inthe childrenunder age 5 attended see (annual) * 8,747,589 3,700,000 7,742,457 below Number of cases of acute diarrhea (EDA) in see children under age 5 attended(annual)* 4,535,892 780,000 4331,800 below Percentageo f children between 18 and29 months vaccinated with DPT3 (Project area)** 78.30% 95% 87.41% NO Numbero fbeneficiaries receive care inthe primary facilities o fMINSA annually 17,000,000 YES Increase inthe number o fmunicipalities with DPT3 see coverage for children under age 1 ** 44% below Percentagesofyellow fever cases attended *** 80% 100% YES Percentagesof HealthRegions (DISAs) which are implementingregional and local health plans that respondto communicable diseases and environmental health problems prevalent intheir respective localities** ** 80% 100% YES 19. The performance milestones designed as triggers have all been met: The SIS (which replaced the SMI) was implemented nationally in 2002, ahead o f the scheduled date o f 2003. A third o fprimary care clinics were administered by CLAS.This strengthened the quality o f service in these clinics.56 In early 2006, during the final months o f the project, the Government changed the labor legislation giving CLAS employees the status o f civil servants. The Government will need to ensure that quality gains are not lost over the next few years as the new legislationi s implemented. Fragmentation o f the formerly "vertical" programs was reduced. The MINSA area responsible for the vertical programs was restructured into age-based groups and the Integral Health Model was instituted. The budget was integrated for all vertical 56CLAS have been shown to have greater productivity per employee, longer hours of operation, higher levels of patient satisfactionand greater levels of community participation (see RECURSO, p. 130-132) 46 programs. The information systems still need to beunifiedthrough anintegrated MINSA monitoring system. This system is being supported by a separate investment loan (Accountability for Decentralizationinthe Social Sectors TAL). 0 The loanwas fully committed and disbursed. 0 An assessment of the results of the project was completed by the government to produce lessons and recommendations for the formulation of phase 2. The lessons have been incorporated into the designof PARSALUD 2. 20. There have also been important gains in effectiveness, efficiency and equity of public spending onhealth associatedwith the initiatives supportedby the Project. 21. Coverage of SIS (for the maternal and child programs of SIS, which were the main focus of project support) increased significantly. While the targets in the PAD were considered ambitious at the time of appraisal, they were surpassed and sustainedover time, using funding by the treasury. By the end of the Project, 503,000 pregnant women and 1,254,000 children (younger than 5 years of age) were expected to benefit from the SMI, while the actual numbers were, during the last year of full Project implementation (2005), 649,000 pregnant women and 3,444,000 children. 22. Efficiency of existing health sector resources was raised by increasing their utilization. While there were some investment in works and equipment during the Project period (including those financed by the Project), there were small increases in overall public health expenditures. Hence the greater demand generated by SIS was satisfied by achieving higher levels of productivity inpreviously underutilized facilities. 23. SIS contributed significantly to improving the targeting o f public health expenditure through a direct and an indirect effect. Directly, SIS targets the poor through geographical and means tested procedures. A benefit analysis of all the large social programs inPeru, found that in health SIS was the best targeted program. Indirectly SIS also contributes to improving the distribution of expenditures of other MINSA facilities: by financing the co-payment that allows the poor entry to a hospital, it directs the (usually larger) subsidy to the facility to the poor beneficiary. Finally, the mother and child components of SIS have a relatively small cost (5% of public health expenditure or 0.07% of GDP), and this increase has been easily absorbed in the budget. Investmentexpenditures in2005 were only 0.4% of public health expenditures and their recurrent cost implications are also minimals7. ''Source:PIUPARSALUDI,SIS and SIAFMEF. 47 Annex 3: ResultsFrameworkandMonitoring PERU: HEALTHREFORMPROGRAM(SECOND PHASEAPL) TableA3.1: ResultsFramework (PARSIILD'DI AND PARSA~UDrr) Progrunt outcomeindicators Project Outcome Indicators Use of ProgramOutcome Information Reduce maternal and infant mortality Maternal mortality ratio Identify and evaluate changes in rates in intervened rural areas o f the these demographic trends, as nine poorest Regions ofthe country well as derive information for health policy designwith emphasis on strengthening access to health and nutrition services and scaling-up strategies. Infant mortality rate Improve growth patterns of children Prevalence o f chronic malnutrition among under age three who belong to rural children under age five families in the nine poorest Regions of the country Key Output Indicators Use af project output information -Increase the use o f maternal and child Increase the proportion of institutional Assess and evaluate changes in health services inintervened areas deliveries in rural areas o f the nine selected use o f health services and child Regions from 44% (2005) to 78% (2013). morbidity patterns in intervened areas. Reduce the prevalence of anemia among pregnant women in the nine Regions from 41.5% (2005) to 35% (2013). Increase the proportion o f pregnant women o fthe nine Regions with at least 1prenatal control during the first trimester o f pregnancy from 20% (2005) to 45% (2013). Decrease child morbidity among Reduce the hospital lethality rate among children under age three who belongto neonates in the nine selected Regions from rural families inthe nine poorest 9.5% (2005) to 5% (2013). Regions o fthe country Reduce the prevalence o f anemia among children under age 3 in the nine Regions from 69.5% to 60%. Increase from 64% to 80% the share o f children in the nine selected Regions who are exclusively breastfed until 6 months of age. 48 Project Output indicators Key Output tndicators Use of project output For the implications on child survival information and growth control over the following indicators: Process Indicators Intermediate Indicators Component 1 Improvefamily carepracticesfor women (pregnant,parturient and nursingmothers) and children under threein rural areas: LI. Design, Implementation, and % of SIS affiliated children who received Monitor for the improvement of monitoring of a behavioral change growth and development controls (CRED) health practices andprogress Communication and Education according to their age toward the implementation o f Program intervention inproject areas Component 2 Increasethe capacity toprovide better health servicesfor thepoor (US $123 million). % of Health facilities with improvement in Monitor progress made infrastructure (minor construction, regarding Project actions related rehabilitation andor new equipment) to enhance the supply side with emphasis on resolution 2.1- Improvementin thequality of capabilities as well as on services in healthfacilities provision o f health services. % of SIS affiliated rural pregnant women with laboratory tests on hemoglobin, urine and syphilis YO of pregnant women under SIS that receive iron and folic acid supplements YOof women satisfied with the services in selected facilities by confidence index 2.2 -Raising theefficiency and % o f cesareans inSIS affiliated pregnant effectiveness of networks rural women Component3 Strengthengovernmentalcapacitiesto 1 locatehealthsystem resourceswith effiency and equity YOofreferences among SIS-affiliated Monitor progress made 3.1. Regulatoryframework in support women (during pregnancy and puerperium) regardingProject actions related to service quality and neonates to strengthening management capacities in the health sector %o f SIS-affiliated households that make 3.2 Strengtheningof SIS out-of-pocket expenditures inmedicines 33. Systemsdevelopmentto enhance Numberofaccredited healthestablishments the monitoringcapacity of MINSA. bytype ofresolution 3.4. Support to decentralization Number ofMA inPlace Component4 Project coordination and monitoring and evaluation o f the project FONB.Basic services 49 5 W r3 0 ui s wl Q > .3 U 0 2 8 0 N %b $1 0 I N U 3 0 3 00 0 N 6 v) N z 0 I N Q\ 0 0 I c-4 n n 0 (u m e. 0 0 2?E 0 s g (u 0 0 rz m e . (u m 2 2E $ .-o v1 5 .I d 8 3x s 0 00 I I I I n m 0 0 W CY r- m Annex 4: DetailedProjectDescription PERU: HEALTHREFORMPROGRAM (SECOND PHASEAPL) 1. The second phase aims to continue supporting the program's medium-term goal o f improving maternal and child health (i.e. reduction o f neo-natal, infant and child morbidity and mortality). This project would be implemented in nine Regions o f Peru (Amazonas, Huhuco, Huancavelica, Ayacucho, Apurimac, Cusco Puno, Cajamarca and Ucayali). The first seven Regions benefited from the initial project, while the last two would be additional. Despite progress in some of these Regions, IMR and MMR continue to be high in these areas, as compared to the national average, andthus need further project intervention. 2. Project Framework. The project takes into account the underlying causes linked to child mortality and malnutrition (see figures A3.1 and A3.2), as well as the fact that the incidence o f child morbidity and mortality are higher in rural and indigenous areas, where population dispersion i s higher and cost-effective interventions need to be implemented. Thus, project design i s built on the network concept where health posts, health centers and regional hospitals have different resolution capacities and are linked through a network where referral and counter- referral mechanisms are o f critical importance. Inaddition, the project design takes into account that approximately 20 percent o f the population, that is, those living in highly dispersed communities will not have ready access to these networks and will require differentiated attention through mobile supply. Finally, the project focuses on three contexts: households, health facilities, and institutional framework that will ensure adequate governance capacity. Project components reflect these three contexts, each o f which includes interventions that address both the maternal and child mortality as well as child morbidity objectives. Project components and activities are described below. 3. Component 1: Improving adequate practices at the household level for women and children less thanthree years o f age inrural areas (US $ 6.0 million). This component would support two lines o f actions: a. Design, implementation, and monitoring of a Communication and Education Program (CEP). The CEP aims to promote healthy practices at the household level, with a focus on mothers during pre- and post-natal periods and children under three. Activities to be financed include: (i) development, validation, and production o f printed and audio-visual materials, including radio spots, soap operas, videos, etc; (ii)basic training and dissemination equipment (such as PCs, data display devices, TVs and DVD); (iii) training o f staff in MINSA, DIRESAs, networks, micro-networks, and community agents for the local implementation o f the CEP; (iv) a training program for local authorities, community leaders, social and civil society organization, as well as other community members on health practices, within the framework o f the healthy communities program; (v) learning workshops, in which successful experiences can be shared; (vi) technical assistance to health staff and community members on the implementation o f the CEP; (vii) monitoring and evaluationof the CEP. Inaddition, a competitive fund, o f approximately one million dollars, would be established to finance local initiatives to improve healthy communities. 54 Proposals would be accepted from local governments and community organizations to implement actions at the local level, such as local communication plans to promote institutional birthand adequate child care. The operation o f the fund is described indetail ina specific manual, withinthe Operations Manual. b. Promotion of SIS rights and identity rights among eligible target population. This sub- component aims to support the GoP in enrolling eligible women and their children for SIS benefits. The lack o f national identification documents is a serious obstacle to accessing social programs: the problem i s especially serious in indigenous rural areas. In the country, almost 10% o f adult population i s undocumented, and women who lack a Documento Nacional de Identidad (DNI) may lose access to health insurance (SIS), as well as to other social protection and development opportunities. Therefore, the Project will promote SIS enrollments, and DNI requests. All below described activities o f this subcomponent are aligned with RENIEC's national program about expansion o f identification (DNI coverage o f Peru's population), that forms part o f MEF's Results based budgeting program for increasing accountability allocative efficiency based on results. Specifically, the project would finance: (i) the design and implementation of a campaign promoting SIS rights and identity rights. This campaign would facilitate the work to be carried out by civil servants in charge o f the delivering o f the DNI; (ii)the design, production and dissemination o f materials promoting SIS rights and identity rights for all nine Regions; and (iii) training o f health staff and local authorities on the promotion o f SIS rights and identity rights. 4. Component2. Increasing the capacity to provide better health services for the poor (US $142.3 million). This component would strengthen health services delivery through improving the capacity o f health service networks to attend obstetric andneonatal emergencies, as well as to provide a better integration among pre-natal and post-natal care as well as services for children under 3. The component would support: a. Improvement in the quality of services in health facilities. This would include: (i) infrastructure and equipment investments for the networks in the Regions supported by the Project; (ii) technical assistanceand training o f healthpersonnel to improve quality o f services; (iii) inclusion o f the intercultural focus in the services; and, (iv) a fund to support innovative proposals to finance local initiatives. (i)TheProjectwouldinvestinrefurbishingandexpandingapproximately 115facilities to improve the Regions' mother and child services, including institutional birth and neo natal services, both for standard services, as well as high resolution emergency services, such as surgical and intensive care units. Moreover, facilities would be refurbished to provide adequate pre-natal and child health services, including nutritional counseling. As part o f the feasibility assessment for the Project, the GOP has already estimated the needs and dimensions for the investments in the health facilities, using the WHO standards for basic obstetric and neonatal care functions (BONF), emergency obstetric and neonatal care functions (EONF), and intensive 55 obstetric and neonatal care functions (IONF). This subcomponent would also finance equipmentfor health facilities to be refwbishedas well as other health facilities inthe networks, in order to ensure that both mother and child services comply with basic quality standards. Jointly with the investments in infrastructure and medical equipment, the component would finance communication equipment to ensure that referral and counter-referral mechanisms are in place in the regional health networks. As described above, the communication strategy i s critical for the networks to operate, that is to connect the different levels o f complexity. In addition, communication equipment is a requirement for the dispersed population attention model which includes mobile brigades (Estrategiasde Atencidn Integralpara PoblacionesDispersas). Finally, this sub-component would include technical assistance to Regions and networks on infrastructure rehabilitation and maintenance. As the decentralization process advances, the availability o f resources at the local level, from central government transfers and form canon revenue, is increasing, but usage is minimal. The Project would support regional and local governments inidentifying needs and in preparinginvestment projects to be submitted to the SNIP. In addition, the Project would support networks and sub-national governments in the development and implementation o f an infrastructure monitoring system in order to feed maintenance plans, thus ensuring sustained operation o fthese health facilities. (ii) Projectwouldfinancetrainingattheprimaryandsecondarylevelfacilitiesandin The hospitals, aiming to increase skills in birthing services and on obstetric and neonatal emergencies. As the strategy used duringthe previous phase had a positive impact on the quality o f health facilities5', it would be replicated during this phase. Training would thus be organized through internships and supervision, provided by accredited regional training centers for health personnel. The training program would also include one targetedspecifically to mobile brigades and community agents. (iii)Thissub-componentwouldincludesocialmarketingandsocio-culturaladaptationof health facilities inorder to better serve local communities. Experience from the prior Project shows that if the health professional speaks the local language and understands local customs female patients will feel at much greater ease and will go to the health facilities both for pre-natal and child controls and to deliver their children. This Project will take the lessons and developed methodology in the prior Project and bring them up to scale. To carry this out, the Project will finance specialized equipment and furniture (particularly for vertical deliveries), consultancies in cultural adaptation, technical assistance on social marketing, and training o fhealth professionals on language and culture. (iv) This sub-component would also finance a small competitive fund which would support local initiatives linked to the improvement in the quality o f those services 59Jaramillo, Miguel and Diaz, Juan Jose, PARSALUD Impact study 56 targeted to poor and dispersed populations. The operation o f this fund is described in a specifically designed manual. The IADBwill finance said fund. b. Raising the efficiency and effectiveness of networks. This would include: (i) strengthening management systems at the network level; and (ii) improving the reference and counter- reference system. 5. The Project would also finance technical assistance and training to enhance the organization of networks to improve the quality o f service delivery. The model for the organization o fthese networks i s described inthe table below: Table A4.1: Maternal and NeonatalHealth Delivery Model Traditional vs. HealthNetworkApproach: 1I Orientationand Perinatal Model Traditional Health network Individual Familv Matcrnal health care Individuai, mainly Comprehensivecare I curative, and providedby hea1t.hmaintenance in isolated facilities healthcarenetworks, based on a healthcare risk managenlent. Knowledge of communityhealth problems Low High MainHealth Care Setting Facility-based Community- basedoutreach, and health network Clinical risk management N O Clinical management agreements I Case management/continuity of care Passive Active 6. The new health delivery model will assure access with quality to target population, and simultaneously will increase the confidence o f managers in the governance o f health facilities. From the point o f view o f the clinical improvements required by the system, risk management, quality assurance, protocols, regulation o f the demand, as well as a new clinical referral organization will be the key areas to be developed under the umbrella o fnetworks. 7. This would include: (i)strengthening management systems at network level; (ii) improving the referral and counter-referral system, and (v) regulation of the health networks. In addition this would include technical assistance in the design o f a system to allow adequate allocation o f inputs and human resources regardingthe management o f auxiliary services such as blood banksand laboratories. 8. Technical assistance would also be provided to the networks and local organizations in order to improve the operation of the reference and counter-reference system. It would include 57 the assessment of flows in order to determine whether mobile brigades are necessary; ensuring adequate access o f all beneficiaries to auxiliary services (such as imaging, laboratories and blood banks), in a cost-effective fashion; and implementation o f reference and monitoring systems at the community level, withthe support o flocal community agents. 9. Finally, the project would provide financing for TA and consultancies to reinforce management skills o f providers at the regional level through the piloting o f new incentives for health workers and new models for primary health centers using the experience gained from the CLAS (centers with community involvement inmanagement and supervision). 10. This component would also support management training at the DIRESA, hospital and network levels as well as learning activities such as seminars and tutorials to help regional authorities to implement management packages developed under Phase I(Programa de Gerencia en Salud, SIGA, SISMED 11, etc). 11. Component 3. Strengthening of government capacities to offer more equitable and efficient health system in a decentralized environment (US$ 5.2 million). This component would work towards the strengthening and modernization of MINSA, and the decentralization of the health system by: a. Regulatory fiamework in support to service quality. The PARSALUD results-based model brings about some innovations that require regulatory reforms in order to ensure that they are incorporated into the institution and are sustainable. Thus, technical assistance including training will be provided in order to support the integrated health model and the development o f support systems. These include the development o f the regulatory framework and implementation plan for: (i) accreditation and certification the system, currently proposed by the law but no regulated, (ii)infrastructure maintenance systems, (iii)reference laboratory system, (iv) hemotherapy, (v) hospital financing, (vi) pharmaceutical purchasing and logistics system, and (vi) communication and promotion system. b. Strengthening of SIS. The Project would support SIS in order to develop the public insurance system. This would entail technical assistance for the development o f the regulatory fiamework, improvement o f the SIS information system, aimed at better monitoring enrollment, coverage and access in the Regions initially included in the project, quality assurance mechanisms, and implementation o f the SISFOH targeting system to ensure adequate targeting o f the health insurance financing in urban areas. In order to increase its financial performance, the project would fund international consultancies to support the development o f a risk-analysis methodology and for updating its current benefit packages. This would be complemented by local consultancies seeking to assist SIS inthe process o f "providers-bills" payments. c. Systems development to enhance the monitoring capacity of MINSA. This set o f activities would support the improved implementation o f existing systems: the SIS will be the main source o f administrative data collection, and SIGA will be the analytical tool for monitoring project's PDO, introducing greater accountability in the system. This i s 58 particularly important for MINSA in the decentralization process, whereby the sector i s moving towards a greater regulatory role and the Regions will be taking on greater responsibility for implementation. d. Support to decentralization. The Project would support the continued implementation of Management Agreements (MA), as an instrument o f supervision and accountability, between the central, regulatory level, and the Regions, which are responsible for the provision o f services. To this end, new MASwill be signed, and the project would provide direct technical assistance and training o f MINSA and the Regional staff inorder to their implementation In addition, the Project will support the design o f an incentive/penalty system that will ensure that the MASare effective instruments. One o f the key inputs for the MASwill be the indicators and benchmarks produced by the improved systems (see above). 12. Component4. Project Coordination and Monitoring & Evaluation(US$8.9 million) 13. This component would finance activities related to the administration o fthe project, such as the general and financial management, procurement team, monitoring and evaluation, as well as impact evaluation o f specific detailed project activities, and external auditors. 14. The unit incharge o f this project would be the PARSALUD unit which would operate as a PCUunder an operations manual agreed with the Bank. 59 Annex 5: ProjectCosts PERU: HEALTHREFORMPROGRAM (SECOND PHASEAPL) Table A5.1: ProjectCosts by Componentand/or Activity Component andlorActivity IBRD) IADB GOP TOTAL (US$ Million) Component 1:Improving adequate practices at the household level for women and children under three years of age inrural areas 3.O 3.O 0 6.0 Component 2: Increasing capacity to provide better health servicesfor the Door 9.2 9.2 123.9 142.3 Component 3: Strengthening government capacities to offer more equitable andefficient health system ina decentralized environment 2.6 2.6 0 5.2 Component 4: Project Coordination 0.2 0.2 8.5 8.9 Total Project Costs 3/ 15.0 15.0 132.4 162.4 Front-end Fee (0.25%) 0.04 0 0 0.04 Total FinancingRequired 15.0 15.0 147.4 162.4 60 Table A5.2: Project Costs by ProcurementArrangements (per componentand expenditure category) (US$ million) ProcurementMethod Other Total ExpenditureCategory ICB NCB 1/ cost Component 1 1.5 0.0 2.3 6.0 Goods 1.5 0.0 0.0 1.5 Consultants' Services 0.0 0.0 2.3 2.3 Training/Workshops/Dissemination n/a n/a n/a 2.2 Component 2 117.5 0.0 19.0 142.3 Goods 31.8 0.0 0.0 31.8 Works 85.7 0.0 0.0 85.7 Consultants' Services 0.0 0.0 19.0 19.0 Training/Workshops/Dissemination n/a n/a n/a 5.7 Component 3 0.00 0.00 5.10 5.2 Consultants' Services 0.0 0.0 5.1 5.1 Training/Workshops/Dissemination n/a n/a n/a 0.1 Component 4 0.00 0.00 0.51 9.0 Consultants' Services 0.0 0.0 0.5 0.5 Operating Costs d a n/a n/a 8.5 TOTAL 119.0 0.00 26.9 162.4 1/ Shopping, DC, QCBS, QBS, FBS, LCS, CQS, SSS Table A5.3: ProjectCostsby ProcurementArrangements (per expenditure category) (US$ million) ProcurementMethod Other ExpenditureCategory ICB NCB 1/ Total Cost Goods 33.4 0.0 0.0 33.4 Works 85.7 0.0 0.0 85.7 Consultants' Services 0.0 0.0 26.9 26.9 Training/Workshops/Dissemination n/a d a n/a 8.0 Operating Costs n/a n/a n/a 8.5 TOTAL 119.1 0.0 26.9 162.5 1/ Shopping, DC, QCBS, QBS, FBS, LCS, CQS, SSS 61 TableA5.4: Allocation of LoanProceeds (US%million) SuggestedAllocationof Total Project LoanProceeds cost Loan % oftotal amount Project Total costs Component 1 Improvinghealth practices at the household level for women and children under age three inrural areas ofthe ninetargetedregions 3.0 20.0 6.0 I I Component 2 Increasing the capacity to provide better maternal and child health services for the poor 9.2I 61.3 142.3 Component 3 Strengthening government capacities to offer more equitable and efficient health system in a decentralized environment 2.6 17.33 5.2 Component 4 Project Coordination, and Monitoring & Evaluation 0.2 1.33 8.9 Total 15.0 I 100.00 162.4 62 Table A5.5: LoanAllocationby Component and Subcomponent (US$ million) I I IBRD Component I YOof total Amount I loan Improvinghealth practices at the household level for 1 women and children under age three inrural areas ofthe ninetargeted regions 1.1 The design, implementation, and monitoringof a Behavior Change Communicationand Education Program 1.2 Promotion of SIS enrollment rightsand identityrights among eligible target population SubtotalComponent 1 3.0 20 3.4 Support to decentralization SubtotalComponent3 2.6 17.33 4 Project Coordination, and Monitoring and Evaluation SubtotalComponent4 0.2 1.33 TOTAL IBRDPROJECT LOAN 15.00 100.00 63 Annex 6: ImplementationArrangements PERU:HEALTHREFORMPROGRAM(SECONDPHASEAPL) Background 1. Phase Io f the APL was implemented by the PARSALUD Project Coordination Unit (PCU). The PCU had a technical coordination unit and an administrative coordination unit. The technical unit was responsible for the technical dialogue with the Ministry and the Regional Health Directorates, including the provision o f technical assistance in Project planning and implementation. The unit also had an investment team that carried out and monitored all investments in the field. The administrative unit was responsible for all financial and procurement activities and it operated as an autonomous executing unit under the Ministry o f Health. The PCU was also responsible for the implementation o f the IDB loan. In this phase, part o f the funds was transferred to the Regions and was managed directly by the regional governments. Due to problems in the execution o f the project, the funds were returned to the PCU and the Regions took part o fthe planningand decision making o f the project. 2. The operation o fthe PCUwas successful interms o f Project implementation capacity and monitoring and evaluation, and it was useful in providing lessons in terms o f institutional ownership within the Ministry o f Health. The proposed institutional arrangements under the second phase aim to build on the positive aspects o f the first phase PCU, introducing improvements interms of institutional ownership. Projectimplementationarrangements 3. OverallProjectCoordinationandMonitoring. The Project will be managed by a PCU that will report to the Vice Minister o f Health. The PCU will have the same responsibilities as in PARSALUD I,i.e. it will be responsible for fiduciary aspects (financial management and procurement) and activities planning. The PCU will plan and implement Project activities in coordination with the areas o f the Ministry, which have already been identified as responsible for specific Project components or clusters o f activities. 4. There will be no transfer o f finds to the Regions. The PCU will be responsible for the whole financial management but the planning and decision making will be a joint task o f the PCUand the regional governments. Duringthe first two years, there will be a highinvestment in capacity building. The objective is to generate capacity in the regional governments to manage adequately the funds that would be transferred two years after the project begins. 5 . New MAS will be signed between the nation and Regions, and the Project would provide direct technical assistanceand training to MINSA and regional stafl The Project will support the design o f an incentive/penalty system that will ensure that the MASare effective instruments. In addition, since recent national fiscal decentralization policy re-allocates mining taxes to Regions that accomplish miners' policy; the MEF requested MINSA and the Bank, that Subsidiary Agreements should be signed between MINSA and PARSALUD I1with two specific 64 Regions of Cusco and Cajamarca that currently are beneficiary of this policy. The Subsidiary agreementsdetail the terms and conditions inwhich the above-mentionedregions shall repay the Borrower the portion of the Loan allocated to them under the Project as set forth in the Operational manual. 6. Project Oversight. A Project Steering Committee (PSC) will be created to approve yearly operational plans, annual reports, and any significant change in the design, as required. The Steering Committee responsibilities are described in detail in the Operations Manual. Its composition includes three voting members, one from MINSA, another from the MEF, and the third selected from the Regional Governments, and one non voting member from the PCU (project coordinator). 7. OperationsManual. The project will be managedunder an OperationsManual that will provide guidelines on all operational issues including overall functions, financial management arrangements, procurement arrangements, structure of the PCU, and linkages with MOH, regions and the Banks. 8. Specific responsibilities will be as follows: Table A6.1: ResponsibleEntitiesby Component Component ii.StrengtheningofSIS SIS iii.Systemsdevelopmenttoenhancethemonitoring-capacityof ISIS, CENANand . M I N S A DIRESAs iv. Support to decentralization 4. Project coordination, and monitoring & evaluation PCU 65 Annex 7: FinancialManagementand DisbursementArrangements PERU:HEALTHREFORMPROGRAM(SECONDPHASEAPL) ExecutiveSummaryof FinancialManagementAssessment 1. As part o f the preparation process of the Second Phase of the Health Reform Program (Programa de Apoyo a la Reforma del Sector Salud - PARSALUD), a financial management assessment has been undertaken inaccordance with OP/BP 10.02 and the FMManual "Financial Management Practices in World Bank Financed Investment Operations" approved by the Financial Management Board and published on November 3, 2005. The assessment included interviews with key staff o f the Project Coordinator Unit (PCU) -PARSALUD which will be responsible for the management o f the project and will report to the Ministry o f Health (MINSA), on April 30, August 8, November 19, andDecember 4,2008 to determine whether the unit within the Ministry of Health will have in place acceptable financial management arrangements, capable o f providing with reasonable assurance, accurate and timely information. 2. The PCU-PARSALUD implemented the first phase o f the program; however, the PCU was deactivated at the end o f 2007. Therefore, the institutional memory was lost and the physical assets were transferred to other units o f the MINSA. In April 2008, the MINSA decided to reactivate the PCU to start the preparation o f the second phase o f the program. The International Development Bank and IBRD worked jointly during the preparation and implementation o f the first phase o fthe program andwill continue to do so duringthe second phase o fthe project. 3, The Financial Management arrangements proposed for this operation are significantly based on those followed by the former operation which proved to be acceptable. However, and takinginto consideration the nature o f the operation, the FM assessment has been focused on the design o f essential FM controls and arrangements to ensure that associated risks are adequately addressed and that the implementing entity will be able to provide the Bank and other interested parties with accurate and timely information regarding project resources, expenditures and activities. To that end, the assessment has identified certain specific activities to strengthen the existing arrangements, mainly in relation to the information system, content and format o f financial reports andupdate o fthe Operational Manual. 4. With the information available as o f the date of the assessment, project's residual inherent risk i s rated modest and the FM control risk is rated modest too. On such basis the overall project FMrisk is also considered modest. 5. On the basis o f the review performed, progress achieved so far, and the measures agree to strengthen the arrangements as mention above, the financial management team concludes that the proposed arrangements -as designed- can be considered acceptable to the Bank, subject to their effective and successful implementation. Compliance o f critical actions in reference to the upgrade and strengthening o f its information systems has been identified as dated covenant, as required. 66 SUMMARY OFFINANCIAL MANAGEMENTASSESSMENT CountryIssues 6. The 2001 CFAA found that there were significant areas needing improvement in the PFM system, despite existence of robust financial management tools and resources (e.g., financial administration legislation, highly trained staff, integrated financial management system). Identifiedweaknesses includeduneven application of the existing tools inthe system, under-funding of the supreme audit institution (the CGR), and need for greater oversight by the Congress and for more effective external reporting. GoP efforts to strengthen public finance administration focused on (i) strengthening supervision of the legislative branch's use of funds, (ii)increasing the independenceof the CGR and strengthening the legal and regulatory framework for the supervision of public spending, and (iii) expanding the scope and coverage of the integratedfinancial administration system (SIAF) at differentlevels of government. 7. PFM has significantly improved since the 2001 CFAA. The integrated financial management system (SIAF) has been introduced along with a greater degree of control and transparency, and coverage of SIAF has been expanded to almost half of municipalities; a new budget classification system and its unification with the chart of accounts and a Treasury Single Account (TSA) are being implemented. Moreover, a results-based budgeting tool and a new monitoring and evaluation system `are currently under development. Despite these important reforms which are currently on the way, efforts to improve PFMcould be significantly scaledup and acceleratedinthe coming years by prioritizing and focusing on performance indicators and benchmarks which can be monitored in a structured manner and be used to measure PFM progressover time systematically. RiskassessmentandMitigation 8. The FM inherent risk of the project has been rated as modest. In relation to the FM control risk, it is also considered modest, taking into account that PARSALUD, is still working in the strengthening of the information system, and the contracting of key FM staff as the Administrative Coordinator is pending. Thus, the overall risk rating is rated as modest at this time. The following table presents the risk assessment, as well as the risk mitigating measures incorporated into the design of the project and the financial management implementation arrangements. 67 Table A7.1: RiskMitigation Measures Risk Risk RiskMitigating Measures Incorporated into Condition of Rating Project Design Negotiationshioard or Effectiveness? Inherent Risk Country Level M The Activities to be implementedthrough DIRESAS are decentralized clearly defined (i.e.: training, workshops), thus, they environment is do not require complex financial managements still weak with arrangements. poor cultural behavior o f PARSALUD's financial team will constantly monitor inter- Program implementation at provincial level inorder to institutional identifyparticular situations that require corrective coordination actions. that could cause delays inthe process o f project implementation. Entity Level M PARSALUD has been reactivated as a PCU by Ministerial Resolution. As inthe past, PARSALUD will keep similar organizational institutional arrangements as in the first phase o f the project. changes within PARSALUD has hired key FM staff fiom former MINSA may project (treasurer, accountant, budget assistant) to affect recover the expertise developed in the implementation Operational Manual has PARSALUD's of external-financed projects. The Administrative been reviewed by the Bank capacity. Coordinator and Budget Specialist are under the during appraisal and found selection process. acceptable Operational Manual has been updated reflecting the organization arrangements, process, and procedures pertaining to PARSALUD. Project Level M PARSALUD will coordinate and support the planning Project design andthe technical monitoringo factivities with includes DIRESAS. decentralized operation, Transfer of funds to DIRESAS will be the minimum, therefore calls mdspecific procedure will be included inthe for the Operational Manual. coordination , among several The OperationManual defines roles and Operational Manual has entities - responsibilities, funds flow arrangements, financial been reviewed by the Bank PARSALUD reporting requirementsand monitoring mechanisms. during appraisal and found andRGs- acceptable DIRESAS which may difficult project 68 Risk Risk Risk Mitigating Measures Incorporated into Condition of Rating Project Design Negotiationsmoard or Effectiveness? implementation Projectis financedin partnershipwith IDBandIBRD with different fiduciary requirements Overall M Inherent Risk Control risk Budgeting, M Accounting, SIAF provides for an adequate control in terms of Internal budgetexecution. Control In spite of the use of different information systems, Cumbersome PARSALUD has established acceptable internal processusing control mechanisms to ensure integrity of the different information. Action plan submitted and sohare to The interface of TASK-POA with SIAF, allows the agreedwiththe Bank controlactivities issuance of a budget execution report by project (January 20,2009) ofthe project component/activity, as well as a comparison with (TASK-POA, annualprogram. SIGA, and spreadsheets), PARSALUDwill submit an actionplanto up- Up-grade/strengthen its grade/strengthenits existingsystemstowardshaving existingsystems. an integratedtoolthat ensures the integrityofthe informationandthe recordingofprojecttransactions One year after effectiveness by different sources offinancing. Additionally, Dated Covenant (Y) specificmodulesfor the preparationoffinancial reportsandwithdrawalapplicationswould be designed andimplemented Funds Flow M PARSALUD will be the sole responsible to manage OperationalManual Managing the Designated Account and will submit withdrawal has been reviewed by the different sources applicationsto the Bank. Bank during appraisal and of financing found acceptable may become SIAF controlsthe different source offunds received. difficult unless Specific arrangements to ensure that the source of specific internal financing of different activities has beendefined inthe controlsare POA, and this same source is used for payment implemented. purposes. Withdrawal applications The SOE will bepreparedbasedonthe information of (SOEs) will be SIAF/TASK-POA.. Adequate internalcontrol Training inFMand preparedin mechanisms havebeenestablishedto ensure accurate Disbursementsprovidedby Excel informationis reported. the Bank. spreadsheets.. Project launching: (Y) 69 Risk Risk RiskMitigating Measures Incorporated into Condition of Rating Project Design NegotiationslBoardor Effectiveness? Financial S Reporting PARSALUD is responsible for presenting to the Bank Financial the financial reports on a quarterlybasis. Core content Agreed format for the IFR. Reports will be o f IFRshas been agreed and approved by the Bank. reviewed by the Bank prepared TASK-POA system will provide the basic information duringappraisal. manually. (budget execution by project component) for the Consideringthe preparation o f IFRs. use o f various PARSALUD has inplace specific internal control sources o f mechanisms to ensure accuracy o f financial Up-gradehtrengthen its financing such information. existing systems. arrangement may pose risks One year after effectiveness to the reliability The upgrade o f the information system for the Dated Covenant(Y) o f the preparation o f IFRsand annual financial statements information. andSOEs Auditing L Financial audit will be contracted for each Fiscal Year Audit ToRs agreedwith the through the Supreme Audit Institution o fPeru(CGR). Bankandincluded in TOR will include visits to the DIRESAS. Operational Manual An acceptable audit fm selected six month after effectiveness Overall control M risk Overall FM M Risk Weaknesses andActionPlan 9. As a result o f the assessment, an action plan has been discussed and agreed with PARSALUD to complete the design of the FM arrangements and/or strengthen the previous arrangements in order to meet the Bank's minimum fiduciary requirements to manage the financial activities of the proposed project and to define the mechanism for coordination among participating entities. Therefore, this assessmentwill need to be updated during appraisal. 70 Table A7.2. ActionPlan InstitutionalArrangements Responsible Target Date Accounting-Integrated FinancialSystem and Financial Reports Provide the Bank with a detailed PARSALUD January 20,2009 action plan for the upgrade o f the financial information system including the preparation o f financial reports and withdrawal applications from the system. Complete the implementation/ PARSALUD No later thanone year after adaptation o f the integrated effectiveness information system Dated Covenant Auditing Contract for Annual Audit PARSALUD Six months after the effectiveness date ImplementingEntity,OrganizationalArrangements and Staffing 10. The Second Phase of the Health Reform Program will be executed by the Project Coordination Unit - PARSALUD, which operates as an autonomous executing unit under the Minister of Health. The PCU will report to the Vice-Minister and will be composed of a technical coordination unit and an administrative coordination unit that will be responsible for: (a) planning the use of funds, (b) providingtechnical assistance to Regional Health Directorates (DIRESAS) in planning and programming funds, and (c) managing the funds linked to the projects. 11. A project SteeringCommittee (PSC) will be createdto approve yearly operational plans, annual reports, and any significant change inthe designof the project. 12. The Administrative Coordination Unit of the PCU will be responsible for the fiduciary aspects of the project. Therefore, itwill be accountable for all financial and investmentsactivities of the project, funded by IBRD, IDB and Government resources.Duringthe first stage of project implementation, the PCU will be the sole responsible to manage all sources of funds. Those procedures will be establishedinthe Operational Manual. 13. The Adminiitrative Coordination Unit includes: a Planning and Budget Office, an Accounting Office, a Treasury Office and a Procurement (Logistics) Office. The Accounting and Treasury Offices are responsible for the administrative and financial transactions, control, preparation of financial statements, and as such it is also expected to undertake overall responsibility for the project's financial management tasks, in close coordination with the Planning and Budget Office. As of the date of the assessment, these offices are staffed with one Finance Specialist, one Accountant, one Budget and Planning Specialist, and one Procurement 71 Specialist. There are some positions that would be staffed as project implementation starts. As o f the date o f appraisal, the selection process o f the Administrative Coordinator position, head o f the FMteam, i s under going. 14. Most o f the staff, that has been selected to work in the administrative and finance areas, had worked in the previous PCU o f the Health Program. Therefore, the PCU has recruited qualified staff that has developed important expertise in implementing Bank financed-projects. However, the staff would require to be updated in management o f Bank projects according to current Policies and Procedures. 15. The Regional Health Offices Directorates (DIRESAS) will be responsible for the planningandmonitoring ofthe project activities to be implemented at the provincial level. There will not betransference of funds to the DIRESAS. Partnership arrangements 16. The IDB and the IBRD worked jointly during the preparation and implementation o f the first phase o f the program and will continue to do so during the second phase. On the basis o f such former experience, both Banks -BIRF and IDB- would work with PARSALUD's team to ensure that to the extent possible FM arrangements are common to both sources o f financing, mainly in terms o f financial reporting and auditing arrangements. Those arrangements should allow the PCU less cumbersome demands. Both Banks have agreed but not limited to continue localjoint supervision of the project once it is approved. Programmingandbudget 17. The preparation of the annual budgetwill be inline with general government procedures regulated by the Annual Budget Law and by the Budget Management Law-Ley de Gestion Presupuestaria del Estado- established by the Ministry o f Finance through the Direccidn Nacional de Presupuesto Pziblico (DNPP) and related guidance. The budget is operated under the Sistema Integrado de Administracidn Financiera (SIAF). PARSALUD /MINSA will have the responsibility to formulate the budget to the (DNPP) for Loan funds and Central Government funds o fthe project on anannual basis on or before October 31,eachyear. 18. Eventhough PARSALUD will register and control the budgetinSIAF, PARSALUD will have the responsibility for preparing, recording and monitoring the overall project budget, including all sources o f financing -BIRF, IDB, Central Government, and Regional Government contributions following the functional classification in terms o f components, sub-components and activities of the project. To this end, PARSALUD will establish specific processes and procedures for the preparation o f the annual operational plan(POA) and budget o f the project, to make sure that those activities are timely coordinated and prepared. To the extent possible and as the project financing structure is defined, the POA should also identify the financing source of each activity. 19. The budgetary control will consist of: (i) timely preparation and approval o f annual programs, budget and procurement plans, establishing a clear relation among them; (ii) proper recording o f the approved budget inthe financial management system; and (iii) timely recording 72 o f commitments, and payments as needed, to allow an adequate budget monitoring, and (iv) also provide accurate information on project commitments for programming purposes. 20. Similar to former project, and in addition to SIAF, PARSALUD will use the software TASK-POA that allows the recording o f the POA classified by project componentlsubcomponentlactivity, and source o f financing. The interface developed between TASK-POA and SIAF allows to periodically download the information o f payments made in SIAF to the TASK-POA. Such information is complemented with the exchange rate that is manually entered. With that information, the TASK-POA system allows the issuance o f a budget execution report for a specific period that reflects the investments for the period as well as the cumulative figures compared with the POA. This report permits the monitoring o f the POA interms o f financial execution. AccountingPoliciesandProcedures 21. The PCU will have to comply with the local requirements. Therefore, the project would use the Chart o f Accounts established in SIAF. This chart o f accounts will need to be complemented with a more functional classification including project components/sub- components/activities that would be implemented through the financial information system (TASK-POa) that the former project used, duly strengthened and complemented. Project transactions and preparationo f financial statements will follow the cash basis o f accounting. 22. The main FM regulatory framework for the project will consist of: (i)Peru's laws governing budget and financial management; and (ii) each entity's operating manuals and norms. 23. Project-specific FMarrangements that are not contemplated inthe documents cited above will be documented in a concise FM section o f the project's operational manual. Among others, specific reference will be made to: (i)the internal controls appropriate for the project; (ii) the formats o fproject financial reports; and (iii) auditing arrangements. InformationSystem 24. SIAF offers specific controls in terms o f budget execution and the project will benefit from the use o f SIAF to monitor the financial activities o f the project (especially budget and budget execution). In addition to SIAF, the former project o f PARSALUD had in place the following softwares: TASK-POA and the Sistema Integrado de Gesti6n Administrativa (SIGA). As described above, the TASK-POA has an interface with SIAFat the level o fpayments and it is used to control the POA versus actual expenses. The SIGA i s a software that controls travel advances, purchase orders, and assets o f the project. Although this software was designed as a pilot supported by SIAF-MEF, its development has not been completed and it does not have an interface with SIAF either. Therefore the information recorded in SIGA needs to be somehow reconciled with SIAF. For the preparation o f withdrawal applications and financial reports, PARSALUD established the use o f Excel spreadsheets where the information provided by SIAF and TASK-POA could be recorded. Such mechanism was also complemented by specific internal control to ensure integrity o f the information and PARSALUD was able to produce timely IFRs, financial statements and withdrawal applications. , 73 25. For this new project -at least at the beginning- PARSALUD will use the same information tools and procedures to record project transactions and further preparation of financial information. However, PARSALUD will also work on the upgrade of its information system in order to have an integrated tool that would enable PARSALUD to systematically and comprehensibly record project transactions by project components, activities, and category of expenses, including all sources of financing, and at the same time allow the direct issuance of financial reports and withdrawal applications. Such upgrading would also consider the strengthening of the system's internal controls to ensure the integrity of the information (e.g. modification of transactions). To this end, PARSALUD will provide the Bank with a specific action plan to adapt and implement the improvements to the system. While this process is completed and taking into account that project activities would be quite simple at the beginning, it has been agreed that PARSALUD would start project operations using the tools available for the former project. ProceduresandInternalControls 26. PARSALUD has worked in the design of chart flows to put in place processes, procedures and internal control mechanisms which have proved to be adequate for the implementation of the former project. To that end, PARSALUD has incorporated in its Operational Manual the detailed chart flows (flujogramas) that describe the procedures, roles and responsibilities and specific internal controls -ex-ante and ex-post- to be followed for the implementation of each component, providing for an adequate segregation of duties, especially related to disbursementmechanisms. 27. Internal controls and other mechanism to ensure integrity of the financial information (e.g. periodic reconciliations) have also been included. FinancialReports 28. On a quarterly basis, PARSALUD will prepareunaudited interimfinancial reports (IFR) containing at least: (i)a statement of sources and uses of funds and cash balances (with expenditures classified by subcomponent); (ii)a statement of budget execution per subcomponent (with expenditures classified by the major budgetary accounts) and all sources of financing. The core content of the unaudited interimreports will be agreed with the Bank before negotiations to ensure that such content adequately reflects project operations, in accordance with the nature of the transaction. Those agreed formats will be included in the Operational Manual, and will become the input for the upgrading of the information system. PARSALUD will be responsiblefor submitting the interimreports to the Bank not later than45 days after the end ofeachquarter. 29. On an annual basis, PARSALUD will prepare the project financial statements including cumulative figures, for the year and as of the end of that year, of the financial statements cited in the previous paragraph. The financial statements will also include explanatory notes in accordance with the Cash Basis International Public Sector Accounting Standard (IPSAS), and the entity's assertion that loan funds were used in accordance with the intended purposes as specified inthe Loan Agreement. These financial statements, once audited, will be submittedto 74 the WB not later than six months after the end of the Government's fiscal year (which equals the calendar year). 30. As describedabove, IFRs will be prepared in Excel spreadsheets using the information provided by TASK-POA (budget execution by project component/activity vs. approved POA) and SIAF. Any working paper generated for the preparation of IFRs and annual financial statements will be maintained by PARSALUD as supporting documents. Once PARSALUD completes the upgrade of its information tools, it is expected that IFRs are automatically prepared. Auditingarrangements Internal Audit 31. PARSALUD will not have an internal audit department. However, the Internal Audit Office (OCI) of MINSA, which reports to the General Controller's Office of Peru (CGR) may include in the course of its regular internal audit activities in their annual work plans. If such audits occur, the implementing entity will provide the Bank with copies of internal audit reports covering project activities and financial transactions. 75 ExternalAudit 32. PARSALUD will prepare the annual project financial statements, which will be audited following International Standards on Auditing (ISA), by an independent firm and in accordance with terms of reference (TORS), bothacceptable to the Bank. The audit opinion covering project financial statements will contain a reference to the eligibility o f expenditures. An audit firm will be hiredby PARSALUD with the intervention o f the General Controller's Office o f Peru (CGR) which will perform the audit o f the project and provide the audit report. The audit report will be required to include a section on the state o f the internal control o f the implementing entity, including the relevant regional activities. PARSALUD will submit the audit report to the Bank no later than 6 months after the end o f each fiscal year. 33. The audit work described above can be financed with loan proceeds. PARSALUD will request the contracting o f the first external audit within six months after Loan Effectiveness. Table A7.3: Reportingdates Audit Report DueDate 1) Project specific financial statements June 30 2) Special opinions SOE, DA June 30 Flow of funds and DisbursementArrangements 34. The flow o f finds and disbursement arrangements has been simplified from the previous project. PARSALUD I1will be the sole responsible entity for managing loan proceeds. All other financial arrangements are similar to the previous project in which PARSALUD's staff has developed experience. CounterpartContributions 35. Two Regional Governments, Cajamarca and Cusco, will participate inthe co-financing o f the project in a low percentage o f the activities to be developed in these regions. To ensure the opportune availability o f local resources, the Minister o f Finance (MEF) will sign an agreement to specify the transference o f budgets from the Regional Governments to MINSAPARSALUD at the beginning o f each fiscal year. Following local procedures, those funds will become available for PARSALUD as part o f the central government contribution (Recursos ordinarios); however, PARSALUD will maintain adequate auxiliary records to reflect the funds contributed by Regional Governments andtheir respective expenditures. 76 WB DisbursementMethods 36. Considering the results o f the assessment, the following disbursement methods may be usedto withdraw funds from the credit: (a) reimbursement, (b) advance, and (c) direct payment. WB DisbursementMethods 37. Under the advance method and to facilitate project implementation, PARSALUD will have access to a segregated Designated Account (DA) in US dollars which will be opened and maintained inthe Banco de la Naci6n del Peru in the name o f the project. The account would be managed by PARSALUD. Therefore, they will have direct access to funds advanced by the Bank to these DA. Funds deposited into the DA as advances, would follow Bank's disbursement policies and procedures, as described inthe Disbursement Letter andDisbursement Guidelines. 38. The ceiling for advances to be made into the DA would be USD 500,000 for the first six months o f the project and thereafter it will be increased to US$l,OOO,OOO , 39. The reporting period to document eligible expenditures paid out o f the DA i s expected to be on a quarterlybasis. 40. Supporting documentation for documenting project expenditures under advance and reimbursement methods would be the records evidencing eligible expenditures (e.g. copies o f receipts, invoices) for payments for consultant services against contracts valued at USD 100,000 or more for firms, and USD 50,000 or more for individuals services; for payments for goods against contracts valued at USD 250,000; for payment for civil work against contract value at USD 500,000 or more. For all other expenditures below these thresholds and operating cost, supporting documentation for documenting project expenditures will be Statements o f Expenditures (SOEs). 41. All supporting documentation will be maintained for post-review and audit purposes for upto one year after the final withdrawal from the credit account. 42. Direct Payments supporting documentation will consist o f records (e.g.: copies o f receipts, supplier/ contractors invoices). The minimumvalue for applications for direct payments andreimbursements will be USD400,000. DisbursementDeadlineDate 43. Fourmonths after the closingdate specified inthe LoanAgreement. Disbursementsto DIRESAS 44. Following the arrangements o f the former project, PARSALUD may process advance o f funds to the DIRESAS to cover specific activities to be implemented in short period o f time, such as workshop and trainings. The advances made to DIRESAS will not be included in withdrawal applications until they are fully documented. The mechanism to document the expenses will be described inthe Operational Manual and inthe Guidance to the DIRESAS. 77 45. Retroactive Financing. The Bank has agreed with the Government to finance retroactive expenditures for a maximum o f US$ 1,500,000 for expenses incurred after appraisal date which took place on December 11,2008. Table A7.4: Loan Proceeds Category v Allocated be financed (1) Goods, works, non-consultant 3,000,000 100% services, consultants' services andTraining under Part 1ofthe Project (2) Goods, works, non-consultant services, consultants' services and Training under Part 2 of the Project 100% (3) Goods, works, non-consultant 2,600,000 services, consultants' services andTraining under Part 3 ofthe Project 200,000 100% (4) Goods, Consultant Services (including audits), and Operating Costs under Part 4 ofthe Project Amount due under Section 2.07 (5) Premia for Interest Rate Caps (c) ofthis Agreement Amount payable pursuant to (6) Front-end Fee Section 2.03 o fthis Agreement in accordancewith Section 2.07 (b) . . of the General Conditions TOTAL AMOUNT 15,000,000 WB FMSupervisionPlan 46. A WB FM Specialist may perform a supervision mission prior to effectiveness to verify the implementation o f the action plan. After effectiveness, the FM Specialist must review the annual audit reports, and quarterly IFRs, and should perform at least two supervision missions per year duringthe first year and at least one per year thereafter. However, the supervision plan will be revised and the number o f yearly supervision missions updated according to the risk rating identified, duringthe first year of project implementation. 78 Annex 8: ProcurementArrangements PERU:HEALTHREFORMPROGRAM(SECOND PHASEAPL) A. General 1. Procurementfor the proposedproject would be carried out inaccordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004, as amendedinOctober 2006; and "Guidelines: SelectionandEmployment of Consultants by World Bank Borrowers" dated May 2004 as amended inOctober 2006, andthe provisions stipulated in the Legal Agreement. The general description of various items under different expenditure category i s described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed betweenthe Borrower and the Bank project team inthe Procurement Plan. The ProcurementPlan will be updatedat least annually or as requiredto reflect the actual project implementation needs and improvements in institutional capacity. 2. Procurement of Works: Works procured under this project, would include: minor infrastructure investments and health posts, health centers and regional hospitals refurbish and expansion. Procurement will be carried out by using the Bank's Standard Bidding documents (SBD) for all ICB and sample SBDs for National Competitive Bidding and Shopping, agreed withor satisfactoryto the Bank. 3. Procurement of Goods: Goods procured under this project would include: equipment for health services, including specialized equipment and furniture; computers and office equipment; and education and communication equipment. To the extent possible, contracts for these goods will be grouped in bidding packages of more than US$250,000 equivalent and procured following ICB procedures. Contracts with estimated values below this threshold per contract may be procured using NCB procedures and standard bidding documents agreed with and satisfactory to the Bank. Contracts for goods which can not be grouped into larger bidding packages and estimated to cost less than US$50,000 per contract may be procured using Shopping (nationalhnternational) proceduresbasedon amodel request for quotations satisfactory to the Bank. The procurement will be done using Bank's SBD for all ICB and National SBD agreedwith (or satisfactory to) the Bank inthe operational manual. 4. Procurementof non-consultingservices: Procurement of non-consulting services will consist of printing, materials reproduction, publication and dissemination, as included in the Procurement Plan. The procurement will be done using SBD agreed with (or satisfactory to) the Bank. 5, Selection of Consultants: Consultants services under this project will include: design, technical assistance, supervision, monitoring, evaluation, audit and training services and; development, validation, andproductionofprintedandaudio-visualmaterials. Short lists of consultants for services estimated to cost less than $350,000 equivalent per contract may be composed 79 entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Selection o f Consultant Guidelines. Where firms are not required, individual consultants will be hired according to Section V of the Guidelines, to provide technical advisory and supervision and support services. 6. Training:The project will finance all cost associated withtraining andworkshops for the implementationo fthe project. 7. Operational Costs: Operational costs under this project will include incremental and reasonable expenditures that would not have been incurred by the Borrower without the project, such as office supplies, communications (including internet connectivity), travel expenses, per diems, insurances and vehicle and equipment operations andmaintenance 8. Subprojects: The Project would finance innovative local proposals linked to the improvement in the quality o f services targeted to poor and dispersed populations. The Subprojects will not be financed inwhole or inpart from Bank loans. B. Assessment of CapacityandRiskto ImplementProcurement 9. The Project will be managed by a PCU (PARSALUD) that will report to the Vice Minister o f Health. The PCU was responsible for the implementation o f PARSALUD I,and will be responsible for fiduciary aspects (financial management and procurement) o f PARSALUD 11, and will coordinate the Project implementation activities with the areas o f the Ministry, which have already been identified as responsible for specific Project components or clusters o f activities. 10. An assessment of the implementation agency's capacity to implement procurement actions for the project was finished on November 24, 2008; the Capacity Assessment Report i s part o f the Project files. The assessment looked into PARSALUD: (a) organizational structure, (b) facilities and support capacity, (c) qualifications and experience o f the staff that will work in procurement, (d) record-keeping and filing systems, (e) procurement planning and monitoringlcontrol systems used, and (0 capacity to meet the Bank's procurement contract reporting requirements. It also reviewed the procurement arrangements proposed in the Procurement Plan. 11. The proposed corrective measures are: a) adjustment o f the Procurement Plan based on realistic cost estimates, identifying all contracts with their source o f financing to determine the specific procedures that will apply and; b) PCU team selection and employment. 12. RiskAssessment: The overall project risk for procurement is AVERAGE. 13. The level o f risk for this project will be reassessed and revised according to the recommendations o fprocurement reviews conducted by Bank staff. 80 C. ProcurementPlan 14. The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the PCU and the Project Team. It will be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D.FrequencyofProcurementSupervisionMissions 15. Inaddition to the prior review supervision to be carried out from the Bank,the capacity assessment of the ImplementingAgency has recommended an annual supervision mission. The supervision planwill be revised andthe number of yearly supervision mission updated according to the risk rating identified, during the first year of project implementation. E.Thresholdsfor ProcurementMethodsandPriorReview 16. Thresholds recommended for the use of the procurement methods specified inthe project procurement plan are identified in the table below, which also establishes thresholds for prior review. Table A8.1: Thresholdsfor procurementmethods andprior review (000 USD) D C = Direct Contracting QCBS = Quality- and Cost-Based Selection Note: QBS = Quality-Based Selection FBS =Fixed Budget Selection LCS = Least-Cost Selection CQS = Selection Based on Consultants' Qualifications 81 Attachment 1 Detailsof the ProcurementArrangementsInvolvingInternationalCompetition 1. Goods,Works, andNon-ConsultingServices (a) Listofcontractpackagesto be procuredfollowing ICB anddirect contracting: - - 1 2 3 4 5 6 7 8 9 Ref. Contract Estimated Procure- P-Q Domestic Bank Expected Comments No. (Description) Cost ment Preference Review Bid- Method (yesho) (Prior/ Opening - Post) Date - wo1 LS 1 Strengthening 85,681,628.13 ICB For appraisalthe the physical Projecthas and executor estimated to capacityof have 10ICB health with values facilities between accordihgtheir USD3,807,987 level of and performance USD12,572,110. The packages will be adjusted - for March2009 GOC IS 2 Complementar 29,347,299.70 ICB PRIOR NA For appraisalthe ities of No Projecthas equipmentat estimatedto health have 5 ICB with facilities for values between strengthening USD740,185 their capacity and to accomplish USDl5,492,652. their goals The packages (equipmentof will be adjusted mobile units) for March2009 3 Equipmentfor 1,3 10,774.75 ICB NO PRIOR communicatio ns - 4 Equipmentfor 2,479,244.58 ICB NO PRIOR I comuni- NA cations (b) All ICB contracts for works and goods will be subject to prior reviewby the Bank. The first NCB contract for goods and the first contract for Shopping for works and goods will be subject to prior reviewby the Bank. All direct contracting will be subjectto prior reviewby the Bank. 82 2. ConsultingServices (a) List o f consulting assignments with short-list o f international firms. - - 1 2 A 5 6 7 Ref. Description of Estimated Selection Review by Expected Comments No. Assignment Cost (USD) Method Bank Proposals - (PriorlPost) Submission Date 1 Supervision: 4,241,952.4 QCBS PRIOR NA For appraisalthe Projecthas infrastructurecomponent estimatedto have 8 QCBS with (smallconstruction and values aboveUSD350,000, equipment)Health betweenUSD361,451and Establishmentsofthe USD699,036.The detailswill be - obstetric network ready for March2009. 2 Preparationoftechnical 1,445,805 QCBS PRIOR N A For appraisalthe Projecthas reportson infrastructure. rn estimatedto have2 QCBSwith HealthEstablishmentof values aboveUSD350,OOO: the obstetricnetwork USD1,445,805 andUSD374,178 - 3 Financingofcredentials 682,344 QCBS PRIOR March2009 (BASAL ofEESSFONE network, FONBand FONPhealthfacilities PARSALUDI1in 9 DIRESAs 4 Applicationofusers 1,163,987 QCBS PRIOR June 2009 identificationfor SISFOHinruralareas of - the project 5 Strengtheningofthe 462,340.6 sss PRIOR June 2009 managerialcapacityof DIRESAs,hospitalsand I Networksincluding - PREG 6 Strengtheningofthe 462,640.6 sss PRIOR June 2009 monitoringcapabilityof regionalindicators at DIRESAs,hospitalsand ! networks; including - traininginDEMIS- 7 Technicalassistancefor 466,85 1.24 sss PRIOR September 2009 the implementation of the strengtheningof managerialsystems. (b) Consultancy services (firms) costing above US$lOO,OOO will be subject to prior review by the Bank. Consultant services (individuals) costing above US$50,000 will be subject to prior review by the Bank. All single source selection of consultants will be subject to prior review by the Bank. (c) Short lists composed entirely o f national consultants: Services estimated to cost less than US$350,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines. 83 s0 b hL I- c( i- 3 n m 8 L L 8 L Annex 9: Economic and FinancialAnalysis PERU: HEALTHREFORM PROGRAM(SECOND PHASE APL) Economic Analysis 1. The project takes into account the key underlying causes o f child mortality and malnutrition, as well as the fact that the incidence o f child morbidity and mortality are higher in rural and indigenous areas, where population dispersion is higher and cost-effective interventions need to be implemented. The project design is constructed on the health network concept by which health posts, health centers, and regional hospitals have different capacity to solve health problems and are linked through a network where referral and counter-referral mechanisms are o f critical importance. It takes into account the rural population (Le. those living in highly dispersed communities) that will not have access to these networks and will require differentiated attentionthrough mobile supply o f care. 2. The cost for this five-year project would be US$ 162.4 million and would be shared among the World Bank and the IADB at US$15 million each, and the GOP at US$147.4 million. The budget would be distributed among the three technical components designed for project implementation plus the administrative costs regarding this effort. Components one (health education to households) and three (government stewardship) will have 3.7% and 3.2% o f the budget respectively. Component three (health services availability) will have 87.6% o f the budgetand 5.5% will be allocated to administrative costs. 3. A feasibility study including the estimationof costs, effectiveness and sensitivity analysis o f the project took place on October 200760. The economic evaluation o f the project was undertaken following accepted international standards for estimating the present value o f future costs avoided in the target population. The cost o f the project i s US$ 162.4 million and the discount rate given by the SNIP is 11 percent in soles. A cost-effectiveness analysis was carried out. The benefits were estimated applying the methodology o f Quality Adjusted Life Years (QUALY). Thus, the project was selected due to its low cost-effectiveness ratio vis-&vis alternative projects. The method considered the following effectiveness indicators: the number o f avoided deaths; the number o f avoided disease cases, and the number o f days that an individual i s prevented o f being illdue to the project effects. A sensitivity analysis was carried out inorder to take into account the uncertainty o f reaching the goals proposed, the alternative 2 which represents the project did not lose its cost-effectiveness. The entire economic analysis was approved by the Ministry o f Economy and Finance and MINSA. 4. The economic evaluation included two alternatives, both based on the network fiamework principles and the need to place greater attention to those Regions with lower performance indicators. Both alternatives included a set o f cost-effective interventions but organized indifferent network arrangements. The substantive difference betweenthese options is the ability to reduce the lost o f effectiveness o f the health interventions once they are considered inthe context o f one specific health network organization. Option one's costs were 24 percent lower than costs for option two. However, the analysis in relation with the years o f life saved 6oSNIP 2007 88 showed that option two was less costly (286 soles) per year o f life saved than option one (307 soles). Thus, option two (effective public insurance) was the option selected for the implementation ofthe project representing 357 thousands lives saved by the fifthyear. FinancialAnalysis and FiscalImpact 5. Furthermore, it is important to evaluate the public financial capacity o f the country to assume the commitment with the project. In particular, it competes to assure that the current costs will be covered with funds from the central government or local government. Initial observations o f national and Region budgetary trends show that the budget had increased each year at the central government and it i s expected to maintain at least a healthy growth o f above 7 percent, and Cusco and Cajamarca have benefited fiom the boom o f the miningindustry and are likely to assume their commitment. The increase is sustained by the transition inMINSA from a supply financing scheme to a mixed financing scheme (with fixed costs financed by the supply side and variable costs financed by the demand side). This would mean a reallocation o f resources from MINSA to SIS. Meanwhile, the additional resources required to finance human resources would come from the ordinary resources (taxes collection) allocated to the Regional Governments, which in 2007 were 20 percent higher than in 2006. (Figure A9.1 and Figure A9.2). Figure A9.1: SIS Expenditures2005 2008 - Year Millions of soles Annual increasing rate 269.58 290.86 320.51 10% A71 17 A7Q/n ~ ~ Source: SlAF MEF - Budget planned. Figure A9.2 Health and Sanitationexecutedexpenditures 2005 - 2008 (RegionalGovernments) Year Millions of soles Annual increasing ___ L rate . 2004 1,236.95 2005 1,445.15 17% 2006 1,672.79 16% 2007 2,008.72 20% Source: SlAF MEF - 6. Finally, by the end of the fifth year the regional governments should progressively finance the maintenance of infrastructure and equipment of the project. The capacity o f regional governments to assume that cost is granted by the increase o f their revenues, which are not always executed. Most o f the regional governments have a low expenditure capacity, basically 89 due to the absence o f projects. Thus, based on a sustainability analysis, it i s reasonable to expect the availability o f regional funds that may be directed to investment requirements. The supporting assumptions are: a. The increases in the regional budgets, basically by the increase o f the transferences. For example, from 2004 to 2007, there was a 62 percent increase in health & sanitation expenditures. b. The transfer of competences from the national to the regional level would improve the direct collection of resources by the DIRESAs. C. The regional budget allocated inhealth has beenincreasing inthe last years. d. There is a low expenditurecapacity inthe interventionRegions. e. It is probable that the SIS budget would progressively increase due to the increases in ordinary resources, the implementation of a copayment system, the improvement of the administrative efficiency, etc. f. The enhancement of the management agreements which would contain a clause that would commit to allocate resources to the regional funds in order to reach the post- investment goals. 90 Annex 10: SafeguardPolicyIssues PERU: HEALTHREFORMPROGRAM(SECOND PHASEAPL) A. IndigenousPeoplesPlan 1. This section presents background information regarding indigenous inhabitants and a summary o fthe IndigenousPeoples Plan(IPP).61 2. The IndigenousPeoples Planwas elaborated onthe base o fa set o fworkshops carried out indifferent Regions. The workshops were done with the participation of future beneficiaries of PARSALUD I1 and with people who had already beencovered by PARSALUD 11. There were three workshops: one o f them inthe jungle and the other two inthe highlands, one o f them with Spanish native speakers and the other one with quechua native speakers. 3. The workshops did not attempt to explain PARSALUD.On the contrary, the Project was not mentioned during these workshops. The objective was to collect information about the problems that the mothers face during their pregnancy and delivery in the health facilities. The participants did also share their opinions about what should be done to improve the service. 4. The workshops were especially relevant because o f Peru's significant indigenous population that originates from the Ammonia and Andean territories. They are located in provinces that have a highproportion o f non-Spanish native speakers, which are contained inthe intervention areas o f PARSALUD 11. The main characteristic o f these areas i s the geographic dispersion. 5. Indigenous communities are easily identifiable in the Ammonia because their members recognize themselves as indigenous groups. However, in the Andes the population does not perceive themselves as indigenous, although a set o f linguistic and cultural characteristics allows their identification as indigenous. Therefore, there was the necessity to choose one definition for the analysis. In a study elaborated in 200462 a household was considered indigenous if the mother tongue o f the head of household was not Spanish or a foreign language. However this variable i s insufficient. Therefore, the analysis includes the self perception o f the heads o f households and their spouses. This is the concept of indigenous household that i s used throughout this document.63 6. PARSALUD I1will consider that a province or district is indigenous inthe Andean areas when 70% o fthe population or more has Quechua or Aymara as mother tongue. Inthe Ammonia the provinces and districts will be considered indigenous if 70% o f the population or more is indigenous. 61 This annex presents a summary o f the original Indigenous Populations Plan presentedby the borrower in Spanish (see Project Files). 62Trivelli, Carolina, "Los hogares indigenas y la pobreza en el Perk Unamirada a partir de la informaci6n cuantitativa". IEP. 63 2007 results are not currently available. The information usedto calculate the size ofthe population is not recent. These measureswill be updated when the latest census is available. 91 Table A1O.l: Provinces with greater indigenous population and rural communities officially recognized, by target Regions in the Andean area Cajamarca Puno Province VYo N"C.C. Province Q Yo A % V(Q+A)Yo N"C.C. Cajabamba 2 7 Azhgaro 82.7 1.2 83.9 278 Cajamarca 1.8 34 Carabaya 87.3 0.9 88.3 48 Celendin 1.6 6 Chuchito 0.8 80.4 81.2 131 - Chota 0.3 11 El Collao 1.3 80 81.2 127 Contumazfi 0.6 9 Huancank 29.2 59.7 88.9 125 Cutervo 1.1 7 Lampa 84.6 0.2 84.9 96 Hualgayoc 0.4 5 Melgar 76.5 1.3 77.8 77 Jakn 1.7 4 Moho 1.2 86.4 87.5 25 San Ignacio 2.3 6 San Antonio 70.5 13.1 83.6 51 San Marcos 0.3 2 de Putina San Miguel 0.4 7 Sandia 73.1 13.7 86.7 31 San PabIo 0.7 4 Yungu o 0.6 82.6 21 Santa Cruz 0.5 5 Apurimac Ayacucho Province Q % NoC.C. Province Q Yo NoC.C. Andahuaylas 78.9 120 Cangallo 89.7 57 Antabamba 83.4 18 HuancaSancos 87.3 8 Cotabambas 93.7 78 La Mar 86.3 51 Chincheros 83.4 44 Sucre 86.5 23 Grau 82.4 66 Victor Fajardo 91.7 39 Vilcashuamh 94.4 58 cusco Province Q % NoC.C. Huancavelica Acomayo 81.9 40 Province QYo N"C.C. Anta 79 77 Acobamba 76.2 61 Calca 76.1 87 Angaraes 75.1 77 Canas 93.2 61 Churcampa 79.5 75 Chumbivilcas 93.4 75 Espinar 79.1 64 Paruro 94.4 72 Huhuco Paucartambo 84.4 112 Province Q % N"C.C. Quispicanchi 81.4 98 Huacaybamba 77.2 4 Source: Atlas Lingtiistico del Peni, Chirinos, And&, 2001. Directorio de Comunidades Campesinas del Peni - 1998. Addenda -2001. Ministerio de Agricultura-PETT. Q: 5 years andolder population with Quechuaas mother tongue A: 5 years and older population with Aimara as mother tongue V: 5 years andolder populationwith an indigenouslanguage as mother tongue 92 Three main problems were identified duringthe workshops: 1. Lack of friendly service to clients: Poor disposition and negative attitude o f health personnel which i s interpreted by the Andean women as a discriminatory and exclusionary. 2. Lack of training and information: MINSA does not explain the advantages o f institutional birthsto the women. Inaddition, women also consider that there i s a lack o f information and training about breastfeeding. 3. Accessibility to the service: the health facilities are too far, there are no "casas de espera" (facilities specifically designed to house women duringthe last weeks o ftheir pregnancy who live far from the health facility), poor organization o fthe community to help the patients find health centers, and lack o f resources to cover the expenditures not paid by the SIS. The solutionproposed by the population includes the following aspects: 0 Cultural adequacy strategies 0 Strategies to strengthen the institutional capacities o f the sector, taking into account the attention o f dispersed indigenous populations 0 Cross cutting education and communication approach Action Plan 7. It is important to emphasize the difference betweenthe indigenous people placedinrural areas with dispersed population and the one placed in not dispersed areas with an important presence o f mixed race populations. This distinction will allow designing an intervention strategy that contains common elements for both groups and specific aspects for the attention o f the dispersed indigenous population. 8. The following table summarizes the components, actions and indicators o f the Action Plan. Table A10.2: Components,Actions and Indicators the use ofmaternalhealth sewices and decreasechildmorbidity 93 PROJECTSUMMARY INDICATORS VERIFICATION MECHANISM Component 1 Density ofthe incidenceof ENDES Improve familial care practicesfor Acute Respiratory Infections SIS women (pregnant, parturient andnursing (IRA) and Acute Diarrheal mothers) and children under age 3, Disease(EDA) - Action 1.1 YOof children who received ENDES Designand execute aWealth growth and development Study of effectivenessof Coniinunication and EducationPlan, controls, according to their age the practices targetedto pregnantwomen, families, community and local authorities. Action 1.2 Number of municipalities that Municipalbudget. Executethe Healthy Municipalities and allocateXX% oftheir budget Pield verification list Communities Program. fundsto activities promoting (baseline andyearly evaluations) Action 1.3 Database Implement actions to deliver National to the SIS with DNI RENIECKAPstudy Identification Documentsto women and Cornponent 2 Percentageof cesareans in DatabasesHISand SIS Health services networks pregnantwomen who live in the capabilities to salve obstetric, neonatal districtsof Quintiles 1 and2 in and infant emergencies, and provide Project areas. integral health services to women (pregnant,parturientandnursing Percentageof attended neonatal mothers) and children under age 3 emergencies in healthfacilities ofthe 2nd and 3rd levels(out of those reportedinthe districts of Quintiles 1 and 2 in Project areas) Percentageof pneumoniacases amongchildren underage 3 attended inhealth facilities of the 2nd and 3rd level (out of those reported inthe districts of Quintiles Iand2 in Project areas). Percentageof pneumoniacases amongchildren underage 3 diagnosed in health facilities of the 1st level and attended in health facilities of the 2nd and 3rd level. Action 2.1 Number of health facilities Permanenttraining for the health accreditedin FOE//FOBin personnel inthe cotnpetences relatedto Project areas. the deliveries attention, obstetric neonataland child emergencies and integral care of women (pregnant, parturient and nursingmothers) and 94 VERIFlCATION MECHANISM Databaseso f SIS. Final reportsof intervention (technical nom o f MINSA). Number ofreferences. Databases H I S and SIS. B. EnvironmentalAssessment 9. The second objective of APL I1 comprises infrastructure activities that entail minor construction, rehabilitation and provision o f new equipment for the health facilities. It does not include major building construction but represents the adaptations that most common buildings need to become functional inthe health obstetric and neonatal health network. Inthis sense, it i s not expected an environmental impact regarding construction o f new health facilities. On the other hand, the possible environmental impact in liquid and solid wastes in the health facilities network, due the anticipated increase in the use o f health services will result in increased health care waste (HCW) production. 10. However, since waste management i s expected to comply with current legislation, and appropriate current practice inthe health system, the impacts will be low (they will be no higher than those allowed by law). 11. The EA conducted during project preparation includes a diagnostic o f solid and liquid wastes that would be generated by project interventions. To reduce, prevent and mitigate risks, the EA includes measures that will be taken into account in the specific design o f all minor constructions and rehabilitation o f the intervened facilities, as well as agreed self evaluation o f hospitals with methodology that has been successfully implementedinother countries. 95 12. The following risks arise from the analysis: (i)Low negative and transitory (short term) impact on the local level. Investment in infrastructure will have a negative impact because o f the generation o f liquid and solid wastes in the health facilities. Since waste management will comply with current legislation, the impacts will be low (they will not be higher than the ones accepted by law). This negative impact will be transitory because the environment's self purification capacity will not be damaged, assuring that the places usedto deposit the wastes will return to their initial environmental characteristics. The impact i s on the local level because it will be used for the disposal o f wastes very little areas that will be located nextto the facilities or inthe areas designated bythe municipality. (ii)Moderatenegativeandtransitory(longterm) impactonthelocallevel. Liquid and solid wastes should not be discarded (on land or in water) without previous treatment. If this happened the self purification capacity o f the environment will erode, causing serious impacts depending on the life time o f the facility and the frequency and magnitude o f its services. The impact would be transitory but it would take a long time to return to the initial conditions. Meanwhile, the risk o f transmitting epidemic illnesses and deteriorating the environment would be high. 13. The EA proposes constant monitoring to mitigate potential environmental risks. This monitoring will ensure compliance with the standards and requirements established by law, as well as assure the use o fthe guidelines andtechnical procedures adopted by the health facilities. 14. Following the EA, specific manuals for waste management were developed to be shared with each health facility. As a part of this project, there will be a component of technical assistancethat will work directly with MINSA to institutionalize these manuals. 15. The EA proposes a Solid and Liquid Waste Management System which (i) establishes basic procedures in each o f the management stages for solid and liquid waste produced inhealth facilities and proposes best practices for implementation; (ii) defines monitoring and evaluation processes for the management o f solid and liquidwaste produced inthe health facilities; and (iii) estimates the costs and capacity building strategies for the implementation o f the Solid and Liquid Waste Management System, including intercultural and regional adaptations (Andead Amazon regions, rural/urban areas). 16. Inaddition, the Project will work with M O Hto promotethe voluntary self assessment o f the friendly Environmental- Hospitals Accreditation initiative, through which health facilities are self-accredited if they comply with minimal environmental-friendly practices, including proper management o fhealthcare waste (HCW), efficient energy use, etc. 96 Table A10.3: EnvironmentalImpactsafter the Incidence Variables Effect Duration Spatial Magnitude Transitorv 1. Land Finaldisposal oftreatedwastes Finaldisposal of generatedwastes Infiltration of treated residualwater -Biologicalenvironment 1. Biota. Final disposal ofgeneral wastes 11. Pregnantwomen Health promotion 2. Childrenage 5 or younger Health care 97 Annex 11:ProjectPreparationand Supervision PERU: HEALTHREFORMPROGRAM(SECOND PHASEAPL) Planned Actual PCNreview November 2,2005 November 2,2005 InitialPIDto PIC February21,2006 Initial ISDS to PIC November 24,2008 Appraisal June 5,2006 December8,2008 Negotiations July 15,2006 December 15,2008 BoarcWRVPapproval October 3,2006 March24,2009 Planneddate of effectiveness March30,2009 Planneddate of mid-tern review March 30,2011 Plannedclosingdate December31,2013 Key institutions responsible for preparation o fthe project: Bankstaff and consultants who worked onthe project included: Name Title Unit FernandoLavadenz Task Manager LCSHH Jost PabloG6mez-Meza Senior HealthEconomist LCSHH Amparo Gordillo Senior HealthEconomist LCSHH MoniqueFrancineMrazek HealthEconomist LCSHH NelsonGutierrez OperationsORcer LCSHD Livia Benavides Sr. Social Sector Specialist LCSHE AlessandraMarini Economist LCSHS Tomas Socias Sr. ProcurementSpecialist LCSPT FranciscoRodriguez E.T. Consultant LCSPT FabiolaAltimari Senior Counsel LEGLA MarianaMontiel Senior Counsel LEGLA PatriciaMc Kenzie Sr. FinancialManagementSpecialist LCSFM PatriciaDe la FuenteHoyes Sr. FinanceOfficer LOAFC XiomaraMorel Sr. FinancialManagementSpecialist LCSFM Lourdes Linares Sr. FinancialManagementSpecialist LCSFM Nelly Ikeda FinancialManagementAnalyst LCSFM IsabelTomadin Social Sector Specialist LCSHH Pablo Lavado Junior ProfessionalAssociate LCSHS PatriciaM.Bemedo Senior ProgramAssistant LCSHD LuisaM. Yesquen LanguageTeam Assistant LCSHD ErikaBazhLavanda ProgramAssistant LCSHD NataliaMoncada LanguageProgramAssistant LCSHH JuliaNanucci LanguageProgramAssistant LCSHH CarmenRosaOsorio JuniorProfessionalAssociate LCSHE ClaudiaMaria Sanchez JuniorProfessionalAssociate LCSHE Rocio Schmunis HealthPromotionConsultant LCSHH ZulmaOrtiz Consultant LCSHH IsabelTomadin SafeguardsConsultant LCSHH SilvanaVargas Consultant LCSHS Bank funds expended to date on project preparation: Bank resources: US$524,842 Trust hnds: 0 Total: US$524,842 Estimated Approval and Supervision costs: Remaining costs to approval: US$ 2,060 Estimated annual supervision cost: US$ 90,000 98 Annex 12: Documentsinthe ProjectFile PERU: HEALTHREFORMPROGRAM(SECOND PHASEAPL) 1. Ministerio de Economiay Finanzas. Proyecto de InversionP~blica.Perfilde la Segunda Fase del Programade Apoyo a laReforma del Sector Salud - PARSALUD 11. 2. Ministerio de Salud. Segunda Fase a1Programade Apoyo a laReforma del Sector Salud- PARSALUD I1-Estudio de Factibilidad, July 2007 3. Banco Mundial. Diagnbstico Socio-Cultural de Pueblos y Comunidades Indigenas del k e a de Interventiondel PARSALUD 11.May 2006 4. Banco Mundial. Planpara 10s Pueblos Indigenas. June 2006 5. Banco Mundial. Informe de EvaluationAmbiental 6. Informede Evaluacih Ambienta. Perfilde PARSALUD I1Fase. Febrero2005 7. Aide Memoire -FinalPreparationMission-PERU-PARSALUD I1- March 11-14, 2008 8. Aide Memoire - SpecialPreparationMission- PERU-PARSALUD I1-November 12- 15,2007 9. Aide Memoire - Technical Visit -PERU-PARSALUD I1-December 11-14,2007 10. Aide Memoire -PreparationMission-PERU-PARSALUD I1- September 3-6,2007 11. Aide Memoire -Pre-Evaluation Mission-PERU-PARSALUD I1-June 22-28,2006 12. Aide Memoire -PreparationMission - PERU- Health Sector ReformI1(PARSALUD 11) - FromMarch 9th to 15th,2006. 13. Aide Memoire PreparationMission- PERU- Health Sector ReformI1(PARSALUD 11)- FromNovember 14thto 23rd, 2005. 14. Aide Memoire -Pre Identification (Exploratory) Mission IBRD-IADB- PERU - Health Sector ReformI1(PARSALUD 11) September 6-14,2005 15. Implementation Completion andResultsReport (ICR) -PARSALUD I-March2007 16. Ugarte Ubilluz, 0.Aseguramiento Universal en Salud en el Peni. Ministerio de Salud. Nov. 2008 17.Velhsquez, Anibal; SeclCnY, Poquioma E, Cachay CyEspinozaR.Munayco C. La Carga de Enfermedady Lesionesen el Ped. Mortalidad, Incidencias, prevalencias, duracion de la enfermedad, discapacidady aiios de vida saludables perdidos. Febrero2008 18.MINSA.Plan Esencial de Aseguramiento en Salud (PEAS). Tom0 I1Costos Totales de 10s esquemas de manejo integral de las condiciones asegurablespara el Inivel de atencion. Abril2008. 19. MINSA.PlanEsencial de Aseguramiento en Salud (PEAS). Tom0 IIIa Costos Totales de 10s esquemas de manejo integral de las condiciones asegurablespara el I1y I11nivel de atencion. Condiciones Obstetricas y Ginecologicas. Abril2008. 20. MINSA.Plan Esencial de Aseguramiento en Salud (PEAS). Tom0 IIIa Costos Totales de 10s esquemas de manejo integral de las condiciones asegurablespara el I1y I11nivel de atenci6n. Condiciones pediatricas, neoplasicas, transmisibles y no transmisibles. Abril 2008. 21. MINSA.PlanEsencial de Aseguramiento en Salud-PEAS. Costeo Esthdar de Procedimientos Medicaos contemplados en la elaboracion de 10s esquemas de manejo referencialesaplicable a condiciones asegurablesdel PEAS a ser atendidas en el Nivel I,I1 y 111.Abril2008 99 22. MINSA.EscenariosPEAS Total y PEAS Acotado 23. MINSA. PlanEsencial de Aseguramiento en Salud (PEAS). Tom0 IEsquemasde manejo integral de las condiciones asegurables para el I,I1y I11nivel de atenci6n. Abril2008. 24. MINSA.Plan Esencial de Aseguramiento en Salud (PEAS). Versi6n Acotada del Plan (PEAS Acotado). Cobertura ofrecida por Nivel de Atenci6n y Entorno de laAtenci6n Brindada. 2008 25. Escobedo, S. MINSA.ReporteTecnico. Metodologia para la estimaci6n de costos estindar de 10s procedimientos medicosincluidos enel PlanUniversal de Beneficios de Salud. Setiembre, 2007. 26. PanAmerican Health Organization. Health inthe Americas 2007. Scientific Technical Publication No. 622. Washington, DC 2007. 27. PanAmerican Health Organization. Health Situation inthe Americas Basic Indicators 2007. 28. Ministerio de Salud, Programade Apoyo a la Reforma del Sector Salud. Estudio de factibilidad: Segunda fase del Programade Apoyo a la Reforma del Sector Salud - PARSALUD 11. Lima, 2008 29. Ministerio de Salud. Oficina Generalde Planeamientoy Presupuesto, Consorcio de Investigaci6nEcon6micay Social. Observatorio de la Salud. CuentasNacionales de Salud. Peni, 1995-2005. Lima, 2008. 30. Fraser Barbara. Perumakes progress on maternal health. World Report. The Lancet, Vol 371 April, 2008 31. Unicef. El estado de laniiiez en el Peni. Peru, 2004 32. Ministerio de Economia y Finanzas. Marco Macroecon6mico Multianual2008-2010 - Aprobado EnSesi6nDe Consejo De Ministros Del 30 De Mayo De 2007. Peru, 2007. 33. PHR and Physiciansfor Human Rights. Deadly Delays, Maternal Mortality inPeru: A Rights-BasedApproach to Safe Motherhood. USA, 2007 34. WHO. Maternal mortality in2005: estimates developedby WHO, UNICEF, UNFPA, and the World Bank.Geneva, 2007 35. Huicho, L et al. National and sub-national under-five mortality profiles inPeru: a basisfor informed policy decisions. BMC Public Health 2006, 6:173 36. Instituto Nacional de Estadistica (INE).Peni: PanoramaEcon6mico Departamental Junio 2008. Informe TCcnico No08 Agosto 2008 37. IDB.Sexual andreproductive health andhealth sector reform inLatinAmerica andthe Caribbean: challenges and opportunities. Washington, 2001 38. Grade. El Seguro Escolar Gratuito y el Seguro Materno Infantil: Analisis de su incidencia e impacto sobre el acceso a 10s servicios de saludy sobre laequidad en el acceso. Documento de Trabajo 46. Peni, 2004 39. OPS. Proyeccionesde Financiamiento de laAtenci6n de Salud. Pe& 2002 40. INEI, UNFPA. Resultados de laEncuestaNacional Continua ENCO. Lima, 2007 41. INEI. EncuestaDemografica y de Salud Familiar. ENDES Continua 2004-2006. Peru, 2007 42. INEI. EncuestaDemografica y de Salud Familiar. ENDES Continua 2004. Peru, 2005 43. OPS EstrategiaRegional. Unidad de SaluddelNiiio y del Adolescente. 2005. 100 Annex 13: Statement of Loans and Credits PERU: HEALTHREFORMPROGRAM (SECONDPHASEAPL) Difference betweenexpected Original Amount inUS$ and actual Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cance Undis Orig. FlTl. 1. b. Rev'd PO78813 2006 PE RegionalTransport 50.00 0.00 0.00 0.00 0.00 50.00 0.00 0.00 Decentralization PO88809 2005 PE Inst.Capacity for Decent. TAL 8.80 0.00 0.00 0.00 0.00 8.14 1.99 0.00 PO82625 2005 PE Vilcanota Valley Rehab& 4.98 0.00 0.00 0.00 0.00 4.96 0.4 1 0.00 Mgmt Project PO82588 2005 PE (APL2)Agric Researchand 25.00 0.00 0.00 0.00 0.00 24.16 -0.10 0.00 Extension PO78953 2005 PE-(CRL1)ACCOUNT. F1 7.80 0.00 0.00 0.00 0.00 5.77 0.47 0.00 DECENT. SOC.SCTR PO74021 2004 PE LIMA TRANSPORT 0.00 0.00 0.00 7.93 0.00 6.58 8.23 0.00 PROJECT PO73438 2004 PE Justice ServicesImprovement 12.00 0.00 0.00 0.00 0.00 11.66 9.64 0.00 PO35740 2004 PE LIMA TRANSPORT 45.00 0.00 0.00 0.00 0.00 43.19 17.20 0.00 PROJECT PO68250 2003 GEF PE PARTICIPATORY 0.00 0.00 0.00 14.80 0.00 9.59 3.27 0.00 MGMT PROT AREAS PO77788 2003 PE Trade Facil. and Prod. Improv. 20.00 0.00 0.00 0.00 0.00 18.34 14.26 0.00 T. A. PO65256 2003 PENATIONAL RURAL WATER 50.00 0.00 0.00 0.00 0.00 44.23 25.06 0.00 SUPPLY AND PO81834 2003 PE LimaWater RehabAdd'l 20.00 0.00 0.00 0.00 0.00 18.05 12.73 0.00 Financing PO55232 2003 PE- RuralEducation 52.50 0.00 0.00 0.00 0.00 40.90 7.20 -1.84 P065200 2001 GEF PE IndigenousManagement 0.00 0.00 0.00 10.00 0.00 2.80 1.oo 0.00 Prot. Areas PO44601 2001 PE SECOND RURALROADS 50.00 0.00 0.00 0.00 0.00 12.41 13.02 0.00 PROJECT PO62932 2000 PE-HEALTH REFORM 80.00 0.00 0.00 0.00 0.00 1.58 54.58 1.oo PROGRAM PO08037 1997 PE IRRIGATION SUBSECTOR 85.00 0.00 0.00 0.00 0.49 8.32 -1.45 -1.08 PROJECT Total: 0.00 0.00 0.49 - 1.92 511.0 32.73 310.6 167.5 8 8 1 101 PERU STATEMENTOF IFC's Held andDisbursedPortfolio InMillionsofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1999 Alicorp 0.00 0.00 20.00 0.00 0.00 0.00 20.00 0.00 2005 Corp.Drokasa 7.23 0.00 0.00 0.00 7.23 0.00 0.00 0.00 2004 EDYFICAR 2.63 0.00 1.oo 0.00 2.63 0.00 0.00 0.00 2002 FTSA 6.96 0.00 1.50 0.00 6.96 0.00 1.50 0.00 2002 Gloria 25.00 0.00 0.00 0.00 19.00 0.00 0.00 0.00 2002 ISAPeru, SA 15.72 0.00 0.00 5.98 15.72 0.00 0.00 5.98 2003 ISA Peru, SA 0.20 0.00 0.00 0.00 0.12 0.00 0.00 0.00 2001 InkaTerra 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2004 Interbank-Peru 40.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Interseguro 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 2003 Interseguro 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2005 Interseguro 0.00 0.60 0.00 0.00 0.00 0.00 0.00 0.00 2000 Laredo 5.71 0.00 5.00 0.00 5.71 0.00 5.00 0.00 2004 Laredo 0.30 0.00 0.00 0.00 0.08 0.00 0.00 0.00 1998 LatinoLeasing 1.78 0.00 0.00 0.00 1.78 0.00 0.00 0.00 2002 MIBANCO 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 1999 Milkito 5.50 0.00 3.50 0.00 3.50 0.00 3.50 0.00 2005 Miraflores 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2003 NorvialS.A. 18.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 Paramonga 11.50 0.00 0.00 9.71 11.50 0.00 0.00 9.71 2001 PeruOEH 5.70 0.00 3.40 0.00 1.70 0.00 3.40 0.00 1994 PeruPrvtznFund 0.00 3.96 0.00 0.00 0.00 3.96 0.00 0.00 1993 Quellaveco 0.00 4.67 0.00 0.00 0.00 4.67 0.00 0.00 1996 Quellaveco 0.00 3.98 0.00 0.00 0.00 3.98 0.00 0.00 2000 Quellaveco 0.00 0.45 0.00 0.00 0.00 0.45 0.00 0.00 2001 Quellaveco 0.00 0.57 0.00 0.00 0.00 0.54 0.00 0.00 1999 RANSA 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2005 RANSA 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2001 Tecnofil S.A. 3.60 2.00 0.00 0.00 3.60 2.00 0.00 0.00 2005 USMP 9.00 0.00 0.00 0.00 4.50 0.00 0.00 0.00 1993 Yanacocha 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00 1999 Yanacocha 9.00 0.00 0.00 15.00 9.00 0.00 0.00 15.00 Totalportfolio: 198.83 21.15 34.40 30.69 124.03 20.52 33.40 30.69 Approvals PendingCommitment ~~ ~ FY Approval Company Loan Equity Quasi Partic. 2004 CMAC Arequipa 0.01 0.00 0.00 0.00 2005 DrokasaPCG 0.00 0.00 0.00 0.00 2004 UPC I1 0.00 0.00 0.00 0.00 Totalpendingcommitment: 0.01 0.00 0.00 0.00 102 Annex 14: Country at a Glance PERU: HealthReformProgram(SecondPhaseAPL) Latin Lower- POVERTY and SOCIAL America mlddle- Peru BCarlb. Income Development diamond. 2004 Population, mid-year (millions) 27.5 541 2,430 GNi per capita (Atlas method,US$) 2,360 3,600 1,580 Lifeexpectancy GNI (Atlas method,US$ billions) 65.0 1,948 3,647 Average annual growth, 1998-04 Population (%J 15 14 1.0 Laborforce (%J 2.7 0.9 0.7 M o s t recent estlmate (latest year available, 1998-04) Poverty (% ofpopulationbelownationalpu vertyline) Urban population (%of totalpopulation) 74 77 49 Lifeexpectancyatbirth (pars) 70 71 70 I Infant mortality (per 1.000livebirths) 26 28 33 Childmalnutrition(%ofchildrenunder5) 7 11 Access to improvedwetersource Access to an improvedwetersource (%ofpopulation) 61 69 81 Literacy(%ofpopulation age #+) 88 69 90 Gross primaryenroliment (%ofschool-agepopulation) 118 123 1% -PeN Male 18 P 6 115 Female 118 9 2 1I) - Lo mr-middle-income group KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 Economic ratios" GDP (US$ billions) 8.6 44.9 60.6 66.6 Gross capitalformationlGDP 20.6 22.2 18.8 18.5 Exportsof goods and serviceslGDP 8.3 12.6 li.7 20.9 Trade Gross domestic savings/GDP 24.6 18.9 18.8 211 Gross nationalsavingsiGDP .. 16.4 i7.3 18.3 Current account balance/GDP -2.0 -5.7 -15 0a Capital Interest payments/GDP 3.1 12 2.1 2.1 formation Total debtlGDP 61.3 59.0 49.1 43.7 Total debt servicelexports 29.8 V.7 213 252 Present value of debtlGDP 54.6 Present value of debtlexports 277.5 indebtedness 1984-94 1994-04 2003 2004 2004-08 (average annualgrowth) GDP -0.7 2.8 4.0 4.8 5.1 -Pew GDP percapita -2.7 I2 2.5 3.3 3.8 ~ Lomr-middleincome gmuo STRUCTURE o f the ECONOMY 1984 1994 2003 2004 I (%of GDP) IGrowth of capital and GDP (%) I Agriculture .. 9.2 0.1 0.1 lo Industry .. 312 30.1 29.9 Manufacturing .. 7.7 15.4 6.O Services .. 59.6 59.6 80.0 -10 Householdfinal consumptionexpenditure 65.7 72.3 70.6 Generalgov'tfinal consumptionexpenditure 9.7 8.8 0.4 Imports of goods and services 15.4 16.2 li.7 -GCF -GDP 1984-94 1994-04 2003 2004 (average annualgrowth) Growth o f exports and Imports (%) Agriculture 11 4.4 15 2.0 * O T Industry 0.4 2.0 5.4 6.2 10 Manufacturing -0.6 2.0 2.1 3.0 Services -1.5 3.0 3.1 3.5 O 00 01 02 03 04 Householdfinalconsumptionexpenditure -1.0 2.6 3.2 3.4 -lo Generalgov'tfinal consumptionexpenditure -0.9 3.2 3.7 4.0 -20 Gmss capitalformation 3.1 -0.6 5.4 Imports of goods and services 4.8 2.3 4.0 0A 5.8 -Exports - 9 - l P O d S 103 Peru PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 Inflation (%) Domestic prices I (%change) Consumerprices 1M.3 23.7 2.3 3.7 Implicit GDP deflator $39.9 26.2 2.3 5.7 Government finance (%of GDP, includescurrent grants) Current revenue 14.7 14.9 15.1 99 00 01 02 03 04 Current budget balance 0.9 0.0 0.5 Overall surplusldeficit -3.2 -18 -1.2 -GDP deflator -CPI TRADE 1984 1994 2003 2004 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 4,598 9,091 P,6l7 15,000 Copper 824 1,261 2,446 Fishmeal 7M 742 955 Manufactures 1,199 2,620 3,476 10,000 Total imports (cif) 5,596 8,255 9.824 Food 523 560 722 5,000 Fuelandenergy 325 1,376 1,754 Capital goods 1,698 1,984 2,365 0 Export price index(2000=100) $32 x)8 a0 96 99 00 01 02 03 04 Import price index(ZOOO=WO) 89 a5 116 1 Exports Imports Terms of trade (2OOO=WO) I14 M3 I8 BALANCE o f PAYMENTS 1984 1994 2003 2004 (US$ millions) Current account balance to GDP (%) Exports of goods and services 3,8V 5,662 M.786 14,531 Imports of goods andservices 3,031 79181 M,804 2,581 Resource balance 786 -1,499 -18 1,950 Net income -1,177 -1,804 -2,144 -3,421 Net current transfers 0 748 1,227 1,461 Current account balance -391 -2,555 -935 -1) Financingitems (net) 641 5,614 1,4P 2,362 Changes innet reserves -250 -3,059 -477 -2,352 Memo: Reserves includinggold (US$ millions) 0 7,355 M,240 8,665 Conversion rate (DEC,locaVUS$) 3.47E-6 2.2 3.5 3.4 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 (US$ millions) Composition o f 2004 debt (US$ mill.) Total debt outstanding anddisbursed 8,87 26,513 29,822 29,991 IBRD 508 1,554 2,789 2.834 IDA 0 0 0 0 G 2.525 A 2'834 Total debt service 1,184 1,144 2,553 4,023 IBRD 84 189 279 281 IDA 0 0 0 0 Compositionof net resourceflows Official grants $30 226 182 Official creditors 409 160 -P DO Private creditors 489 460 1,182 -42 Foreign direct investment (net inflows) -89 3,289 1,377 1,802 Portfolio equity(net inflows) 0 465 1 -74 World Bank program Commitments 40 334 373 294 A iBRD E - Bilateral ~ Disbursements DO 171 344 234 B IDA D Other multilateral - F. Private ~ Principal repayments 40 80 163 189 C-IMF G-Short-term 104 IBRD 33465R 80°W 7575°W 7070°W 0° 0° ECUADORECUADOR ArcadiaArcadia COLOMBIACOLOMBIA Napo Corrientes Putumayo Puerto Curaray Puerto Curaray Tigre To To MachalaMachala Tumbes Amazonas TUMBESTUMBES Santiago To To A LojaLoja Pastaza Iquitos Iquitos CaballocochaCaballococha L O R E T O BRAZIL BRAZIL Talara alara MA Ayar Manco ar Manco Yavari SullanaSullana ZO 5°S P I U R A SanSan 5°S PiuraPiura A CA IgnacioIgnacio N Marañon Ucayali n Yurimaguas urimaguas Tamánco amánco d JAM AS Chachapoyas Chachapoyas Moyobamba Moyobamba LAMBA- e Tarapoto arapoto YEQUE S A N Chiclayo Chiclayo PERU s ARCA M A R T I N Cajamarca Cajamarca To To CruzeiroCruzeiro do Sul do Sul Trujillo SantaSanta LuciaLucia LA LIBE LA LIBERTARTAD LIBERTAD Pucallpa Pucallpa NevadaNevada SihuasSihuas HueascaránHueascarán Chimbote (6768 m) (6768 m) Hualaga ANCASHANCASH Tingo María ngo María Huaraz Huaraz HUANUCOHUANUCO Ucayali Huánuco Huánuco 10°S NevadaNevada Yerupaja erupaja 1010°S (6634 m) (6634 m) U C A Y A L Í GoyllarisquizgaGoyllarisquizga P A S C O Purús M Cerro de Cerro de PACIFIC Pasco Pasco Huacho SayánSayán SatipoSatipo AtalayaAtalaya OCEAN L I M A t LaLa C A L L A O n OroyaOroyaJ U N I N Apurimac M A D R E Callao LIMALIMA s Huancayo Huancayo Urubamba Madre D E D I O S . de PuertoPuerto AynaAy C U S C O Dios SintuyaSintuya Maldonado Maldonado Huancavelica Huancavelica 0 100 200 300 Kilometers QuillabambaQuillabamba HUANCA-HUANCA- NevadaNevada Ayacucho acucho SalcantaySalcantay VELICAVELICA (6271 m) (6271 m) LanlacuniLanlacuni AstilleroAstillero BajoBajo 0 100 200 Miles Pisco I C A AYACUCHO URIMAlcaAlca AP Cusco Cusco Abancay Abancay NudoNudo Inambari Ica Ica AusandateAusandate AC (6384 m) (6384 m) P U N O To San San BuenaventuraBuenaventura PuquioPuquio PERU Caballas NazcaNazca CaillomaCailloma 1515°S To To San Juan NevadaNevada JuliacaJuliaca CoropunaCoropuna CarabucoCarabuco SELECTED CITIES AND TOWNS (6271 m) (6271 m) Andes Lago Titicaca REGION CAPITALS Antiquipa A R E Q U I P A PunoPuno To To NATIONAL CAPITAL Atico Arequipa Arequipa Mtns. La Paz La Paz DesaguaderoDesaguadero RIVERS MAIN ROADS Mollendo Moquega Moquega RAILROADS MOQUEGUA T A C N A REGION BOUNDARIES To To BOLIVIABOLIVIA Tacna acna Visviri isviri INTERNATIONAL BOUNDARIES To Belén Belén 75°W To Iquique CHILE CHILE NOVEMBER 2006