Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 50922 - EG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$75 MILLION

TO THE

ARAB REPUBLIC OF EGYPT

FOR A

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

November 23,2009

Human Development Department Country Department 3 Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 19,2009)

AfDB CAO cco CDTSP CFAA CIS DPL DRG ESPISP EU F D I FHF F H M GDP GNI IPH HI0 HISDP HMIS HSRP HTA ICB IFR MIS MOF M O H MOIC MOSS NHIA NHIF NSSF OTC PIU

Currency Unit = Egyptian Pounds (EGP) EGP 1 = US$0.18 U S $ l = EGP5.40

FISCAL YEAR July 1 - June 30

ABBREVIATIONS AND ACRONYMS

African Development Bank Central Audit Organization Curative care organization Central Department for Technical Support and Projects Country Financial Accountability assessment Clinical Information System Development Policy Loan Diagnostic Related Group Lebanon Emergency Social Protection Implementation Support Project European Union Foreign direct investment Family Health Fund Family Health Model Gross Domestic Product Gross National Income Institute o f Public Health (Slovenia) Health Insurance Organization Health Information Systems Development Project Health management information system Health Sector Reform Project Health technical assessments International Competitive Bidding Interim Financial Report Management information system Ministry o f Finance Ministry o f Health Ministry o f International Cooperation Ministry o f Social Solidarity National Health Insurance Agency National Health Insurance Fund (Bulgaria) National Social Security Fund (Lebanon) Operational Training Center Project Implementation Unit

FOR OFFICIAL USE ONLY

PTES RTA SBD s IL SHI TSO vv

Program for Treatment at the Expense o f the State Reimbursable technical assistance Standard bidding documents Specific Investment Loan Social Health Insurance Technical Support Office Verification and Validation

Vice President: Shamshad Akhtar Country Director: A. David Craig

Sector Director: Steen Jorgensen Sector Manager: Akiko Maeda

Task Team Leader: Trina S. Haque

has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

ARAB REPUBLIC OF EGYPT

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

CONTENTS

Page

I . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 Country and sector issues .................................................................................................... 1

Rationale for Bank involvement .......................................................................................... 6 A . B . C . Higher level objectives to which the project contributes .................................................... 6

PROJECT DESCRIPTION .................................................................................................. 7 I1 . A . B . C . D . E .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Lending instrument.. ............................................................................................................ 7

Project development objective and key indicators .............................................................. 7 Project components., ........................................................................................................... Lessons learned and reflected in the project design ............................................................ 9 Alternatives considered and reasons for rejection ............................................................. 10

IMPLEMENTATION ..................................................................................................... 11 Partnership arrangements (if applicable) ........................................................................... 11 Institutional and implementation arrangements ................................................................ 11

Monitoring and evaluation o f outcomeshesults ................................................................ 11

Critical risks and possible controversial aspects .............................................................. -12

Loadcredit conditions and covenants ............................................................................... 15

Economic and financial analyses ...................................................................................... -15

Technical ........................................................................................................................... 16

Fiduciary ............................................................................................................................ 16

Social ................................................................................................................................. 17 Environment ...................................................................................................................... 18

Safeguard policies .............................................................................................................. 18 Policy Exceptions and Readiness ...................................................................................... 19

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..................................................................................................................... Sustainability 12

APPRAISAL SUMMARY .............................................................................................. 15

. .

Annex 1: Country and Sector o r Program Background .......................................................... 20

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 26

Annex 3: Results Framework and Monitoring ......................................................................... 28

Annex 4: Detailed Project Description ...................................................................................... 31

Annex 5: Project Costs ................................................................................................................ 38

Annex 6: Implementation Arrangements .................................................................................. 39

Annex 7: Financial Management and Disbursement Arrangements ..................................... 42

Annex 8: Procurement Arrangements ....................................................................................... 50

Annex 9: Economic and Financial Analysis .............................................................................. 54

Annex 10: Safeguard Policy Issues ............................................................................................. 62

Annex 11: Project Preparation and Supervision ...................................................................... 63

Annex 12: Documents in the Project File .................................................................................. 65

Annex 13: Lessons Learned ........................................................................................................ 66

Annex 14: Statement of Loans and Credits ............................................................................... 70

Annex 15: Country at a Glance .................................................................................................. 71

Map IBRD no . 33400 ................................................................................................................... 73

ARAB REPUBLIC OF EGYPT

International Bank for Reconstruction and Develonment

0.00

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

75.00 75.00

PROJECT APPRAISAL DOCUMENT

Total:

MIDDLE EAST AND NORTH AFRICA

1 .oo 75.00 76.00

MNSHD

Date: November 23,2009 Team Leader: Trina S. Haque Country Director: A. David Craig Sectors: Health (100%) Sector ManagedDirector: Akiko MaeddSteen Themes: Health system performance (50%); Jorgensen Child health (25%); Population and

reproductive health (25%) Project ID: PO80228 Environmental category: Not Required Lending Instrument: Specific Investment Loan Joint IFC:

Joint 1,evel: - - - - - - - - - - .

Project Financing Data [XI Loan [ 3 Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 75.00

Borrower: Government o f Egypt Egypt, Arab Republic o f

Responsible Agency: Ministry o f Health Egypt, Arab Republic o f

Project implementation period: Start June 1,20 10 End: December 3 1,20 14

Expected effectiveness date: June 1 , 20 10 Expected closing date: June 30, 2015 Does the project depart from the CAS in content or other significant respects? Ref: PAD I.C. [ ]Yes [XINO

Does the project require any exceptions from Bank policies? Ref: PAD IV. G. [ ]Yes [XINO

I s approval for any policy exception sought from the Board? [ ]Yes [XINO

[XIYes [ ] N o Does the project include any critical risks rated “substantial” or “high”? Ref: PAD III.E.

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref: PAD IV. G. Project development objective Ref: PAD II.C., Technical Annex 3 To assist the Borrower in improving the financial sustainability and efficiency o f i t s social health insurance operations. Project description [one-sentence summary of each component] Ref: PAD ILD., Technical Annex 4 The proposed HISDP supports the Government o f Egypt’s program to establish an efficient and effective national social health insurance system. This will be achieved through the adoption o f a proven business model for SHI operations and management by the single national payor organization o f the SHI system. The Project will entail development and use o f formalized business processes for the single Payor function; a functioning operations and management information system; and corresponding operational and management sk i l ls development.

Have these been approved by Bank management? [ ]Yes [ IN0

Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex 10 NIA

Significant, non-standard conditions, if any, for: Ref: PAD III. F. Board presentation:

None.

Loan effectiveness:

1. The Subsidiary Loan Agreement has been executed on behalf o f the Borrower and the Project Implementing Entity.

Covenants applicable to project implementation:

For Borrower

1. The Borrower shall ensure that the PIU carries out the Project in accordance with its obligations under the Project Agreement, the Procurement Plan and the FM Manual.

2. The Borrower, through the Ministry o f Health, shall establish by no later than one month after the

Effective Date, and thereafter maintain an inter-ministerial Steering Committee with responsibility to oversee overall Project progress throughout implementation, with members f rom relevant ministries including, inter alia, Ministry o f Health, Ministry o f Finance, Ministry o f International Cooperation, and the Ministry o f Social Solidarity.

3. On or about December 3 1, 20 12, the Borrower shall carry out jo in t ly with the Bank and the HIO, a midterm review o f the progress made in carrying out the Project (the Midterm Review).

For Project Implementing Entity

4. The Project Implementing Entity shall establish a PILI no later than one month after effectiveness, wi th key staff, a Financial Manual, and a financial management system acceptable to the Bank.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Egypt has an estimated population of around 83 million people (2009), with one- third of Egyptians under the age of 16. The population i s growing at an estimated rate o f 1.75 percent per year, driven partly by a fertility rate o f 2.9 births per woman. The average l i f e expectancy at birth i s 74 years for females and 69 years for males (2007), which compares well with other countries at this level o f development. Similarly, Egypt i s going through an epidemiological transition, with increasing numbers o f non-communicable diseases and injuries that are likely to require increasingly costly health care.

2. Macroeconomic performance has been relatively strong over the past years, although the global economic crisis has taken its toll. Egypt i s classified as a lower-middle income country with a total GNI o f US$119.45 billion and a per capita GNI o f US$1,580 in 2007 (per capita GNI in PPP i s US$5,370). Over the past three years the economy has grown by around 7 percent annually but i s expected to slow to between 4.5 percent and 4.7 percent this year and the next due to the impact o f the global economic slowdown (with an accompanying decline in inflation to between 8 percent and 12 percent per year; IMF , 2009). Over the same period, there have been significant reforms, including tax reforms, financial sector reforms, and a large privatization program.

3. The budget deficit remains high, although it has been falling steadily in recent years. The overall (general government) budget deficit has been reduced from 9.2 percent o f GDP in FY06 to an estimated 6.9 percent in FY09. Ministry o f Finance (MOF) projections indicate the FYlO fiscal deficit worsening to 8.4 percent o f GDP, partly as a result o f slowdowns in key sources o f revenues and a r ise in interest expense largely from domestic borrowing. The Bank’s advice to the Government has been to maintain focus on a medium-term fiscal management plan and that, though the expansionary fiscal stance was justified during the crisis period, fiscal adjustment should continue i t s original path to support private investment and productivity growth.

4. Economic and social reforms continue despite public scepticism that the fruits o f success are not broadly shared. This scepticism i s clear to leadership who are outspoken on the point. Improving public service delivery-including health care services--could broaden public support for other difficult reforms. Regardless, enhancing the efficiency and fairness in social service delivery i s critical to the continued success o f the Egyptian economy. Over the past four years, the Government has developed the concept o f social health insurance as one way o f addressing these challenges. In addition, the Government has taken the following steps: (i) extended the cash assistance program to 800,000 families, with further increases planned; (ii) piloted programs to better identify the poor and improve the targeting o f social benefits; (iii) improved service delivery for housing, transport, water, and sanitation; and (iv) integrated rural development for the poorest 1000 villages. Together, this i s an ambitious, but potentially synergistic program o f reforms. For example, effective targeting o f the poor and other vulnerable groups wi l l be o f critical importance to ensure fiscal sustainability under the reformed social health insurance system.

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5. Health expenditures have increased faster than the economic growth rate over the past decade. Total health spending rose from 3.9 percent o f GDP in 1995 to 6.1 percent in 2006, equivalent to around LE45 bi l l ion (US$4.7 billion) and 40 percent faster than the growth in GDP (IMF, 2009 report which looked at fiscal implications o f pension and health reform). In addition, public health spending, which accounts for around 3.6 percent o f total health spending as a share o f GDP, increased some 30 percent faster than the economic growth rate during this period. Out-of-pocket (OOP) spending also saw significant increases, going from 1.8 percent to 3.6 percent o f GDP, equivalent to around 60 percent o f total health spending. If health spending continues to outpace income growth at the current rate, health expenditure i s estimated to account for some 13 percent o f GDP by 2025.

6 . Containing costs while addressing distributional and efficiency issues of the health system are central to health financing reform. In addition to finding effective ways to control overall health spending, the Egyptian health sector faces several challenges related to the quality o f service delivery, access and utilization o f care, and in the efficiency o f resource utilization. For example, hospital bed occupancy rates are on average only 40 percent nationally, which signals severe allocation inefficiencies and i s significantly below that o f many other countries with which Egypt may want to compare itself.

7. The uninsured belong primarily to the informal sector and the poor, but also include many dependents o f the insured workers as well as workers in otherwise formal small and medium enterprises (SMEs). To obtain health services, these population groups depend largely on free care provided by the Ministry o f Health (MOH). Notwithstanding the availability o f free health care, out-of-pocket expenditures represent an estimated 62 percent o f care expenses for the uninsured. Roughly 60 percent o f these are for hospital and outpatient clinic services with spending o n pharmaceuticals making up the balance. As a result, health shocks present high risk o f impoverishment for many Egyptian fami l ies and individuals.

Approximately 50 percent of Egyptians are uninsured.

8. Most of the remainder of the population i s covered through the Health Insurance Organization (HIO). These include c iv i l servants, private sector workers employed in the formal economy', infants, school children, pensioners and widows. The corresponding premiums f low to the HI0 from payroll taxes via the collection arm o f the Social Insurance Agency (SIA) or from general and earmarked tax revenues.

9. The HI0 i s an integrated payor and health services provider. The HI0 offers i t s beneficiaries a comprehensive package o f health services through a network o f approximately 9,000 primary care facilities (mostly small clinics in schools) and approximately 40 secondary care facilities (hospitals). Findings from a recent household survey indicate that the quality o f HI0 health services i s l o w and HI0 enrollees routinely bypass i t s providers and pay out-of- pocket for private outpatient services. Overall, only 5-10 percent o f al l health service visits are to HI0 providers/facilities, despite the fact that HI0 enrolls hal f the population. Although the reasons for the low quality o f services o f the HI0 are many and varied, one central cause i s the

It should be noted that SME participation in HI0 i s voluntary, not mandatory, and f i rms can opt out provided they 1

continue to pay a solidarity contribution.

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integrated purchaser-provider model that characterizes HIO. Among other things, this arrangement blunts the incentives for efficient resource management and for quality-of-service competition by care providers.

10. The private health insurance market i s rapidly growing. In Cairo alone, forty-eight prepaid health care plans cover two million enrollees. About 70 percent o f private coverage arises through employer groups (including, notably, the MOF as well as other government agencies). The growth o f prepaid plans indicates that employers are increasingly “opting out” o f enrolment in the HIO. Most prepaid plans, however, cap coverage at around LE10,OOO (approx. us $2,000).

1 1. Likewise, there are approximately 5,000 private primary care facilities and 1,200 private secondary care facilities throughout Egypt. Private care facilities are perceived to be o f higher quality. Those who can afford them generally choose private providers, especially for outpatient care.

12. The MOH i s the major provider o f health services (free and subsidized) financed from income and dedicated taxes. These include approximately 4,000 primary care facilities and 1 , 100 secondary care facilities. All citizens can use M O H facilities for “free.” Care outside o f a defined subset o f treatments, however, must be paid for out-of-pocket. This includes lab fees, and drugs. As with the HI0 providers, the M O H providers are generally perceived to be o f poor quality .

13. The MOH has two other distinct payor programs: Program for Treatment at the Expense o f the State (PTES), and the new Family Health Fund (FHF). The PTES fund i s meant to protect Egyptians from the financial impact o f illnesses requiring particularly costly treatment. Currently, however, the PTES i s primarily reimbursing for routine care, as there are no clear criteria for awarding coverage and financing. Less than 30 percent o f funding i s utilized for truly catastrophic coverage according to an MOH-funded study in late 2006. Instead, it i s often used to access far better quality facilities by those who can gain access through political or other means. In 2005, the PTES overspent i t s budget by 100 percent and to date, i t has accumulated a US$0.5 billion deficit. Furthermore, the PETS program spends 40 percent more per year than the HI0 while only covering around 1.7 million people compared with the 38 million covered by the HIO.

14. The FHF i s a nascent payer organization. The FHF was developed under the World Bank financed Health Sector Reform Project (HSRP, Cr. 3076) and i s an integral part o f the Family Health Model (FHM) promoted under this project. The FHF was piloted in five governorates (out o f a total o f 27). The FHF was established to fund the newly established FHM, and contracts with restructured primary care organizations to deliver FHM services, etc. Only FHM- accredited facilities can be contracted by FHF. Since 2005, the FHM has been successful in improving provider quality through new forms o f performance payment and contracting and the use o f accreditation. For utilization control, the FHM facilities charge nominal registration and co-payment fees (although HI0 members are currently exempt from these fees). Approximately 800 M O H primary care facilities operate this model and in 2005, the Government formally adopted the Family Health organizational model for all o f Egypt.

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15. Notwithstanding the large public sector role in health services and finance, significant inequities exist. Total health spending by both public and private sources i s 2.5 times higher in urban governorates than in rural governorates and in Upper Egypt. The distribution o f public sector health facilities (e.g., hospital beds) also favors o f the wealthier urban governorates. The richest quintile o f the population spends 2.3 times on hospital care and 1.6 times as much on outpatient services as the poorest 20 percent o f households.

16. Egypt has been engaged in reforming the health care system for over a decade. In 1997, the Egyptian authorities formulated the country’s Health Sector Reform Plan (with support from the World Bank, EU, USAID, and DANIDA). Although not all o f the Plan’s initiatives were realized, health insurance coverage was extended to infants and students. Also, the major catastrophic program for the uninsured was considerably expanded.

17. In 2005 the reform process received a major impetus when President Mubarak announced a new medium-term framework for reforming the health sector. This called for (a) improving the management capacity and financial sustainability o f the HIO; (b) expanding the coverage o f primary care services under the FHF in all governorates; (c) improving the performance o f all state-owned hospitals; (d) expanding access to health services to all uninsured Egyptian citizens through the introduction o f a mandatory Social Health Insurance (SHI) program; and (e) merging all these components into a national SHI system over the medium term.

18. A crucial step in the reform process will be the adoption of a new social health insurance law. The legislation envisions a new payor entity, which would absorb the HI0 beneficiaries and i t s payor administrative resources. The World Bank has provided technical assistance to the authorities on the financing parameters, the legislative dimensions, and the service delivery reforms. An actuarial model has been developed for estimating the reform’s costs. The SHI reforms seek to extend universal health care to all citizens. This wi l l be achieved by expanding the risk pools, improving service quality and efficiency, and de-fragmenting financing and service delivery arrangements.

19. The new legislation envisions that enrolment into the S H I will be mandatory, with explicit subsidies for the poor. Beneficiary contributions and budget resources for subsidizing access to the poor wi l l enable the payor to pool risks widely across income classes, age and other risk groups. Presently, the authorities anticipate budget resources (subsidies for the poor) accounting for about 20 percent o f the SHI funding, although this share may have to be revised based on analysis o f the most recent data on health care utilization and poverty data. With broad participation, health care financing would be more firmly rooted in social solidarity. For the individual household, the risk o f impoverishment resulting from severe health events decreases drastically. I t s financial exposure i s limited by small copayments and deductibles (subject to the presentation o f a social health insurance membership card and personal identification).

20. The Government’s consultative process has targeted key constituencies. The Government o f Egypt, led by MOH, has been conducting consultations with a range o f stakeholders over the past two years in the context o f the new SHI legislation. These consultations have involved various syndicates, the Parliamentary Health Committee, labor unions, leadership o f the National Democratic Party, discussions in the media which have

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published a number o f drafts o f the law, etc. Given that this reform touches the lives o f the entire population o f Egypt, and has several technical dimensions which are vulnerable to misinterpretation, the discussions have been protracted and often challenging. The Bank has reviewed some of the documentation regarding the consultations and has concluded that the Ministry o f Health has made a significant effort to reach out to numerous constituencies and listen to their concerns. The Bank nevertheless expects the public debate to continue to be challenging as the law passes through Parliament, as well as during the implementation period. The Government i s expected to include a robust communication strategy and consultative process as part o f the reform program.

21. The implementation o f a single national Social Health Insurance payor in Egypt i s a long-term, phased endeavor. At the horizon, the authorities target 85 percent o f Egyptians to be enrolled with the national payor by 2028. Once the enabling legislation i s in place, the f i rs t phase will start with a pi lot in the Suez Governorate. The pilot will establish the new SHI Payor and strengthen health care provider capacities/arrangements in the Governorate. Suez i s predominately an urban governorate o f approximately 500,000 residents. It has a large formal sector and an informal sector concentrated in fishing with the participants represented by fishermen’s associations. Presently, a pi lot project team o f personnel (drawn from the HIO) has been established, and has been placed under the authority o f the Suez Governor to ensure that the innovations on the payor and provider side are closely coordinated. An office infrastructure has been established (from M O H resources) and the key managerial positions have been filed (Le., Head o f Payor, department heads for Beneficiary management, Claims management, and Provider management). The initial business processes have been defined and the staff have received training that will continue throughout the implementation period.

22. The Suez pi lot will be followed by pilots in Sohag and Alexandria Governorates. In Sohag, the pi lot will face the challenges o f a predominantly rural and poor population and in Alexandria, the context is a populous governorate, predominantly urban, with a significant private sector involvement in health care and health insurance. While these circumstances will be challenging during the initial implementation phase, they will also provide the authorities with broad experiences that will prove useful when the national roll-out commences. Based on a proven governorate-level model o f implementing health insurance-health care reform, this model would then be rolled-out nationally on a governorate-by-governorate basis. Presently the roll-out is targeted to begin in 2012 and proceed over a period o f several years.

23. Phase 1 will focus on developing and testing an enrollment strategy and risk containment measures. The payor enrollment strategy will focus first on the most accessible segments, starting with those presently insured with the HI0 (who will be transferred to the new SHI payor). The initial focus will also be on the poor and pre-school children. Subsequently, the payor will target segments in the informal non-poor sector that are organized in associations/syndicates. The remaining informal sector would then be targeted through marketing efforts and patient education initiatives by means o f outreach programs.

24. Four main risks to the S H I sustainability are: (a) over-utilization; (b) health care service price inflation; (c) l o w contribution rates and weak income measurement; and (d) limited enrollment, including adverse selection. Utilization risks are mitigated by the introduction o f a referral system based on a ”gatekeeper” and small copayments. Health care service price

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inflation i s anticipated, as public care approximates private care patterns and cost structures. Cost escalation risks are mitigated by the introduction o f outcome based reimbursement mechanisms that would incentivize providers to find efficiency gains. Contribution and income risk are mitigated by flexible payment mechanisms that are simple enough so that people are encouraged to participate. Enrollment risks are mitigated through the provision o f an attractive benefit package and outreach and marketing activities.

25 I Successful implementation turns on many factors, including the administrative and management capacities o f the payor and o f the provider facilities. Presently, the MOH has two instruments to address the sk i l ls gaps: (a) the Operational Training Center (OTC); and (b) the Leadership Academy. The OTC focuses on health care personnel in non-management positions and the Leadership Academy focuses on managerial training for the future leaders o f Egypt's health care system.

B. Rationale f o r Bank involvement

26. Implementing a major health insurance system i s a daunting technical, social and institutional undertaking (even in a pilot setting). The Bank has a substantial record o f engaging client countries in the health carehealth finance areas, I t i s well positioned and well practiced in transferring international experiences and expertise on the multitude o f the health system components touched on by such an undertaking (as well as on the management o f strategic projects). As a disinterested party, the Bank also has a strong record o f convening the many diverse stakeholders to such reforms for the purpose o f consensus-building - an essential condition for success.

27. The Bank has a long history o f engagement with Egyptian authorities on health financing, service delivery, and health outcomes. The Project would help realize an essential enabling condition for the efficient and effective management o f the overall health sector, namely a modem national social health insurance administration. Thus it represents a natural extension of the ongoing collaboration between Egypt and the World Bank on health sector reform and builds on the activities carried out under the HSRP.

28. While the scope o f the Project to be financed by the World Bank i s very focused, the Bank team wi l l continue to support the Government o f Egypt on the broader health insurance reform agenda through a combination o f policy dialogue and technical assistance. The broader areas o f engagement may include, inter alia, health financing, social targeting, utilization controls, and monitoring and evaluation.

C. Higher level objectives to which the project contributes

29. The overarching goal o f the health sector i s to achieve uniformly high levels o f health outcomes (reduced mortality and morbidity) while making the most efficient use o f the available resources. Ingredients for success include adequate financial resources, strong technical capabilities (skills, equipment, facilities, etc.), efficient administration, and informed and effective management, as well as properly aligned incentives for users and for providers. Health insurance i s one key instrument that can help tie these elements together. Effective health insurance, in turn, depends on proper legislatiodregulation, a strong administrative platform, an

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informed public, an incentive-responsive provider sub-sector, and an accountable governance arrangement.

30. The project seeks to support health sector goals by creating a tested model o f social health insurance administration. In particular, the project would help realize pilots o f a new social health insurance payor in three governorates which are functioning with new business processes and a technology platform that supports the new applications in the three pi lot governorates. This i s expected to yield a functional administrative platform in the pi lot governorates, including an information base to manage the user and provider responses to the array o f financial incentives created by the new social health insurance model. The pilots would also yield a functional and organizational model for health insurance administration at the governorate level which would provide a tested basis to implement these innovations nationwide.

3 1. Admittedly, most o f the project benefits are likely to accrue outside o f the project period following the national roll-out o f the new model and the gradual adjustments to user behavior and health care services driven by the financial instrument o f health insurance. These include stronger and more sustainable health financing - through efficiency gains on both the provider and user sides as wel l as through increased politicalhocial support derived from demonstrated value-for-money. The benefits also include reduced mortality and morbidity and a more equitable distribution o f these health outcomes - through the evidence-based management o f the financial incentives passed through the health insurance system. As they represent a major element o f national expenditure and touch on the well being o f the entire population, the gains in health finance sustainability and in health outcomes would positively impact the social and economic development o f the country.

32. In relationship to the Bank’s Country Assistance Strategy for Egypt as updated in the 2008 Progress Report (Report No. 43476-EG), the Project contributes to the third strategic objective o f “promoting equity”. It l i n k s directly to Result 3.3 “expand access to health care” and the related end-CAS outcome indicator “adoption o f a health insurance reform reflecting international best practice”.

I1 I PROJECT DESCRIPTION

A. Lending instrument

33. The proposed Health Insurance Systems Development Project (HISDP) will be financed by a US$75 mi l l ion Specific Investment Loan (SIL) from IBRD. A Loan Agreement will be entered into by the Government (“the Borrower”), a Project Agreement wi l l be entered into by the HI0 (“the Project Implementing Entity”), and the funds will be passed down by the Government to the HI0 via a Subsidiary Loan Agreement. The project will be five years in length, with a closing date o f June 30,2015.

B. Project development objective and key indicators

34. The proposed HISDP supports the Government o f Egypt’s program to establish an efficient and effective national social health insurance system. Its Project Development Objective is to assist the Borrower in improving the financial sustainability and eflciency of its social

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- I.

- 11.

- iii.

iv .

V.

health insurance operations. This will be achieved through the adoption o f a proven business model for SHI operations and management by the single national payor organization o f the SHI system. The Project will entail development and use o f formalized business processes for the single Payor function; a functioning operations and management information system; and corresponding operational and management sk i l ls development within the Payor. The Key Performance Indicators are:

Key Performance Indicators

New operational procedures for contribution management, claims management, and utilization management, including fraud control formally approved Percentage o f social health insurance claims that are captured and processed through the Payor’s new business management systems in the 3 pilot governorates Percentage o f electronically processed claims that are rejected/escalated for medical appropriateness compared to rates detected by manual audit in the 3 pilot governorates.

Annual Reports to the Government’s SHI Steering Committee well substantiated by systems-generated data.

Ratio of Payor staff to insured population in the 3 pilot governorates.

Underlying Logic

Indicating the uniformity of operational procedures across the national programs - and reflecting the response o f the key stakeholders to the design outputs under the main business system contract. Indicating the uniformity of SHI operations -- and reflecting the response o f the new Payor’s transactions- processing staff to the procedures and business-process controls embodied in the main business system. Indicating the efectiveness of SHI operations -- and reflecting the response of the new Payor’s financial and health service audit staff to the operational information and computer-supported risk reporting mechanism in the main business system. Indicating the efectiveness of the institutional management -- and reflecting the management’s response to the operational and agency-management information generated by the main business system. Indicating the eflciency of operations (net o f the front- loaded investment costs) -- and reflecting management and operational staff combined responses to the procedures, process controls, and information made available by the main business system.

C. Project components

35. The HISDP will finance the establishment o f the single national health insurance Payor’s IT-enabled operations as part o f the new national health insurance program (in Suez, Sohag, and Alexandria Governorates). This will include the development and implementation o f modern business processes and information systems for both operational and management functions for health insurance (i.e., contributions management, claims processing, utilization management, and agency administration). It will also encompass operational and management training in the new business processes, as wel l as establishment o f an interface for provider claims submission. Based on the experience gained and capabilities developed under the HISDP, the Government intends to generalize the health insurance model to al l governorates, in tandem expanding the beneficiary and provider coverage.

36. Notwithstanding the project’s focused scope, implementing new business processes and information systems i s a challenging undertaking. Among other things, this requires close coordination o f project activities and strong technical support to the beneficiary agency.

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Accordingly, the HISDP consists o f a single component, entitled Health Insurance Payor Operations & Management Information System, which wi l l finance three tightly integrated contracts. These are: (a) Main Business System Contract - delivering an integrated package o f business process development, application software, operational and management training, and extended technical support services; (b) Hardware Platform Contract - delivering the necessary computing and communications technologies to operationalize the new business functions in the three pilot governorates; and (c) Verification and Validation (VV) Contract, whereby a specialized health insurance firm will deliver hands-on support to the new Egyptian Payor for decision-taking, activity coordination, technicalhbstantive advice, and verification and validation services. The VV Contract i s expressly aimed at ensuring that the other two contracts are closely coordinated and the resultant business process innovations are properly integrated with the institutional development o f the Payor, as well as the broader reform program.

37. The new business system will be introduced gradually across the pilot governorates and wi l l comprise a number o f modules necessary for the Payor to fully perform i t s role. These include: beneficiary management, including processing applications for enrollment (with exemptions for social cases) and selecting family doctors; provider management, including processing applications and recording contract details; maintaining the benefits package register, including co-payment details and prices; claims management, including receiving and adjudicating claims, applying assessment rules and making payments; utilization control measures and reporting functions; case management, including the tracking o f patient referrals; and business support, including enterprise resource planning functions such as finance and accounting, human resources and payroll, legal, and fixed asset management.

D. Lessons learned and reflected in the project design

Lessons from Egypt

38. governorates such as Menoufia which will be utilized as building blocks for the new project.

There are formative but positive developments in the recent HSRP project in some o f the

The HSRP developed and implemented a series o f contracting and performance-based payment systems, including primary care bonus systems and DRGs for inpatient surgical episodes. These experiences are being formally evaluated under HSRP, and the results wi l l be utilized to implement and scale-up new contracting and payment systems under the new SHI.

These new systems wi l l depend upon good MIS systems as well. The HSRP has piloted a new Clinical Information System (CIS). A Version 6 and then Version 7 went "live", running in over 300 family health units in project governorates (Alexandria and Menoufia) by mid-2007. The M O H has reported that all units are fully equipped with all I T necessary networks and hardware. A final version i s being tested at the central level in MOH. Currently, two major issues would need to be addressed: (i) the CIS lacks an interface with the information systems present at the FHFs, crucial to completing the information cycle to better serve the FHFs; and (ii) the quality and completeness o f data in health facilities.

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The CIS, furthermore, must be complemented by a hospital-based system if the benefits package covers hospital services. To date, every indication i s that the standard package will closely resemble the HI0 package which i s quite comprehensive. CIS has been designed to allow a referral module to support a gate-keeping function by the FHM, but the M O H and HI0 will need to develop and test the referral protocols to be adopted in the new SHI system.

39. Lessons f rom International Experience. An important lesson that can be learned here from the international experiences i s that ambitious health insurance reform projects that have information systems components are notoriously dif f icult to keep on schedule and within budget. In several o f the cases reviewed, some o f the problems arose f rom an overly broad project scope that may not have allowed sufficient attention to have been provided to the information systems component. A key lesson that has been applied to the proposed HISDP i s that it i s crucial that the scope of the project i s very well-defined and realistic, with a central focus on the business system and i t s technical requirements. Supervision and management o f the IT contractors i s also a critical factor in whether the project will be successful. Inadequate supervision o f contractors would l ikely lead to project failure. This lesson underpins the HISDP’s inclusion o f a VV firm as part o f the core Project activities. The general level o f engagement by the implementing agency has also emerged as a concern in some o f the cases, with a high level o f engagement being crucial. I t is also important that the stakeholders be consulted at a l l stages o f the process, that the systems being developed address their needs, and that there i s a steady stream of products that assist the stakeholders in their day to day activities (see Annex 13).

40. In the Egyptian context, it may be noted that the HI0 and the M O H are working in close cooperation with each other to establish the new SHI system. The Minister himself has the change management effort in hand, with the HI0 Chair as his right hand as well as the Assistant Minister, and a strong communication strategy in place with regard to the different stakeholders. There i s also high-level scrutiny through a SHI Steering Committee chaired by the Prime Minister. Finally, one o f the key sources o f delay in such information system activities is that the design o f the system requirements and the procurement process take place only after the project has been approved or becomes effective. In the case o f the HISDP, the Egyptian authorities have begun wel l in advance o f project approval/effectiveness to develop robust technical system requirements and have drafted the bidding documents and launched the tendering process already. They have also expressed a willingness to strengthen the documents with the advice that the QER panel has provided on technical specifications.

E. Alternatives considered and reasons for rejection

41. Choice of lending instrument. The Bank team considered both D P L and SIL instruments. The issue o f authorizing environment and governance led the team to question whether the project design should be a D P L or SIL, recognizing that a DPL, from a governance point o f view, might create more leverage for an authorizing environment. However, the EU has had budget support projects for the health sector reform program o f the Government, with budget support totaling Euro 83 million. The tranches have had triggers that have been closely and carefully coordinated with the Bank team. Thus, in effect, the proposed project i s already preceded and supported by two DPL-l ike mechanisms. This SIL as proposed would provide complementary and specific, focused assistance in a highly technical area.

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42. Unifying software and hardware into one contract versus separate contracts. A key issue in such complex technology-based systems i s to ensure that the software that i s developed and the hardware on which it i s expected to be implemented are indeed compatible with each other. In order to have a clear l ine o f responsibility for ensuring this compatibility, the option o f including the technical specifications for the hardware platform in the same contract as that for the systems development was considered by the Government. After weighing the various implications, i t preferred to split the application software/training package from the hardware platform. In this way, hardware, which typically i s subject to short innovation cycles, wil l be procured and delivered only after the application software has been tested and approved for production.

111. IMPLEMENTATION

A. Partnership arrangements

43. The USAID, a long-standing partner o f MOH, has been gradually phasing out i t s support to the health sector, and i t s support to the health systems reform has been significantly downsized. At the same time, it will take an active role on specific issue areas such as capacity building programs to train health sector managers, particularly at the provider (hospital) level.

B. Institutional and implementation arrangements

44. The MOH has designated the HI0 as the Implementing Agency o f the Bank-financed HISDP. New SHI legislation i s being passed, which will establish a new agency, the National Health Insurance Agency or NHIA, as the single national Payor. Should the Government decide that this agency i s better suited to become the Project Implementing Entity, it may transfer the Project Implementing Entity responsibilities to this new agency. A mechanism to allow for this if the Bank agrees that this i s acceptable, has been built into the project documents.

45. An SHI Steering Committee with Cabinet-level membership from Health, Finance, Social Solidarity, and other ministries, has been established under the leadership o f the Prime Minister o f Egypt to guide the development o f the overall SHI reform effort. In addition, the Government will establish an inter-ministerial Project Steering Committee through the Ministry o f Health to help resolve any implementation bottlenecks facing the Project that would require coordinated action across different Ministries.

46. A Project Implementation Unit (PIU), financed by Government funds, will be established latest within one month after Project effectiveness. The detailed role and structure o f the P I U are presented in Annex 6. Once the NHIA has been established, the HISDP P I U i s also expected to report to the NHIA Board since the HISDP’s core task i s to develop the operations and management systems for the NHIA.

C. Monitoring and evaluation of outcomes/results

47. The data for the outcomes and results indicators will come from the information system that i s being developed. Part o f the system requirements will be that routine reports wil l be generated, and those reports will include the outcome measures. Internal system controls and training o f personnel, supervisors and managers will take place as the information systems are

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developed, to ensure that data are accurate and are acted upon. The outcome measure that relates to the introduction o f the various information system modules wil l be measured based on information provided by the VV firm to the HISDP PIU.

D. Sustainability

48. The Government o f Egypt i s committed to extending health coverage to al l citizens through social health insurance, as announced in 2005 by the President. The establishment and operationalization o f the new Payor i s a critical component o f the reform efforts. This agency will be collecting al l social health insurance contributions and purchase services for the members o f the program. Having a unified, single purchasing mechanism will greatly enhance the overall sustainability o f the health financing system as it will provide the scope for significant efficiency improvements compared with the existing situation.

49. Furthermore, the new law on social health insurance, which i s expected to be submitted to Parliament by the end o f 2009, will provide the necessary fiscal, legal, and structural context for the system and the Payor. The legislation will contain the principles for revenue collection, identification o f eligibility, and the overall mechanisms for the benefits package o f services to be included in the future program.

50. The HISDP, by strengthening the necessary management and capacity dimensions o f the Payor, will lay the foundation for the long-term sustainability o f the SHI system. In particular, efforts will be directed toward more stringent budget management and utilization control. Given that the new Payor will have significantly stronger mandates compared with the current HI0 with respect to the scope and quality o f care that wi l l be purchased, the need to develop these and other capacities will be critical.

51. The sustainability o f the business model and systems developed through the Project following completion will depend on a number o f factors: the success o f the current project as wel l as the perception o f success; the ongoing commitment o f HI0 (and its successor entity) and MOH management; the ski l ls transfer that has taken place to the Egyptian authorities; and clarification and commitment o f necessary ongoing maintenance funding. The Government team has invested considerable effort in reviewing the scope and design o f the Project, as wel l as the technical requirements o f the Payor management system that it wishes to develop and pi lot through the Project and then roll-out nationwide. The advance preparation and close management follow-up o f the Project from the highest levels o f the MOH, as wel l as guidance from the SHI Steering Committee, indicate strong ownership o f the Project and willingness to undertake necessary steps to minimize the inevitable risks that are associated with far-reaching health insurance information management projects.

E. Critical risks and possible controversial aspects

52. All projects supporting the development o f health insurance IT-enabled systems are risky undertakings and this Project i s no exception. The overall risk rating for the proposed Project i s substantial. Safeguard mechanisms have been built into the Project itself, however, which should bring down risk to acceptable levels.

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Risk factors

I. Sector Gover Political

Description of risk Ratinga Mitigation measures Ratinga of of risk residual risk

Commitment

Change Management

Sector Pay

Financing o f SHI

Client-Provider relations

m e , Policies and Institutions The approval o f the new SHI law i s delayed.

Conversely, Government’s push for rapid reform results in key elements o f reform being bypassed.

Change in choice o f government entity that acts as Payor may disrupt process

Public/private wage differentials drive high staff turnover in critical functions

Funding for national rollout does not eventuate

Provider information systems are not sufficiently developed

S The reform has the public support of the President of Egypt and a high-level SHI Steering Committee chaired by the Prime Minister. The Minister of Finance and Minister o f Health have also cooperated closely in the development of the provisions o f the law, which i s expected to be submitted to Parliament by end 2009. Furthermore, MOH has led an active, open public debate on the topic as part o f stakeholder consultations. MOH has invested considerable effort in developing a change management strategy which it i s in the process of implementing. The Government (MOH, MOF) and WB teams will remain in close, continuous dialogue on the reform program. The high-level SHI Steering Committee wil l review progress in overall reform, address key strategic bottlenecks, and modify strategy as needed. The new Payor has already been established in the first pilot governorate of Suez, with active leadership and support o f the HIO. This model o f transition i s expected to continue for each Governorate. The approach i s designed to minimize uncertainties as the reforms are rolled out nation-wide. In the public sector, HI0 enjoys a positive wage differential. Nevertheless training plans are also geared towards a possible high staff turnover. Clear identification of required funding has been identified under MOF leadership through an actuarial modeling exercise. HI0 envisages development of provider interfaces with a range o f provider systems capacities. In addition, HISDP financing could be utilized for investments in this area, should this be required at a later date. It i s DroDosed that Pavor staff

M

M

S

M

M

S

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Risk factors Description of risk

11. Operation4 Technical

Ratinga Mitigation measures Ratinga of of risk residual risk

wil l be on site at provider facilities to assist with electronic transactions

Design

Overall Risk I The project i s technically ambitious

Implementation Capacity and Sustainability

Substantial

Procurement

Financial Management

Social and Environmental Safeguards

ecific Risks Project scope i s not clearly defined

Ski l ls transfer i s not effective and Government becomes dependant on the information system supplier

Key technical decisions are not made in a timely manner by the Government during implementation, resulting in a system being developed that does not address the needs

Procurement process does not result in selection o f suitable system developer

Information System contract i s poorly managed/supervised

HI0 does not have experience with implementation o f World Bank Loans.

S Careful development o f TOR for the procurement o f the information system The smaller supervisory contract should be able to identify this issue early and ensure that the supplier provides the required training Main business system contract wil l cover skil ls transfer on operational, technical and managerial areas The technical specifications have already been developed to a significant extent. Nevertheless the system to be developed should have sufficient flexibility to address major likely requirements. Furthermore, the VV f i rm’s role i s to provide ongoing technical advice to Government counterparts. The Bank also intends to provide close supervision and implementation support to HIO/MOH during implementation. Careful review o f the procurement document i s taking place with input from technical experts. The inclusion o f a smaller contract (VV) to supervise the larger information system contract i s intended to reduce this risk. The envisaged PIU, with appropriate staff, training, and Financial Management System, wil l be established prior to Project effectiveness.

M

M

M

S

S

M

N

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F. Loankredit conditions and covenants

53. behalf o f the Borrower and the Project Implementing Entity.

Condition of Loan Effectiveness. The Subsidiary Loan Agreement has been executed on

54. Covenants Applicable to Project Implementation:

For Borrower

a. The Borrower shall ensure that the Project Implementing Entity carries out the Project in accordance with i ts obligations under the Project Agreement, the Procurement Plan and the FM Manual.

b. The Borrower, through the MOH, shall establish by no later than one month after the Effective Date, and thereafter maintain, an inter-ministerial Steering Committee with responsibility to oversee overall Project progress throughout implementation, with members from relevant ministries including, inter alia, MOH, MOF, MOIC, and the MOSS.

c. On or about December 3 1,2012, the Borrower shall carry out jointly with the Bank and the HIO, a midterm review of the progress made in carrying out the Project (the Midterm Review).

For Project Implementing Entity

d. The Project Implementing Entity shall establish a PIU no later than one month after effectiveness, with key staff, a Financial Manual, and a financial management system acceptable to the Bank

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

55. The HISDP i s expected to yield significant economic and financial returns to Egypt by improving utilization and cost control o f the social health insurance system. This would involve responding to a broad range o f issues, including: (i) ensuring services are o f acceptable quality; (ii) following good clinical practice; (iii) ensuring adequacy o f the available resource envelope; and (iv) reductions in the levels o f fraud and ensuring contribution compliance. The outcome o f these impacts would be enhanced efficiency o f the overall health financing system and improved ability to control costs and health spending. As i s common in similar project investments for a financial intermediary, the returns are gauged by means o f a cost-recovery analysis based on a number o f plausible assumptions with respect to the costs and associated benefits from the implementation o f the project.

56. The economic and financial analyses o f the HISDP suggest that the investments would be able to generate a return o f around 48 percent over and beyond the initial implementation period, largely attributable to the identified overall efficiency gains. The estimate i s sensitive to the set o f necessary assumptions about total health spending and coverage, and the realization o f the benefits depends on the effective implementation o f the SHI reforms.

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B. Technical

57. The introduction o f an effective health information management system i s essential for the operating o f an efficient health system. As this i s within the context o f a health insurance organization, it i s also crucial that the information management system deals with other crucial functionalities such as funds collection and management, in an integrated manner.

58. In this regard, therefore, the proposed information management system approach i s entirely consistent with the needs o f the organization and with international examples. The technical design proposed in this project, with regional and national data centers, security and backup for example, i s also consistent with international best practice.

C. Fiduciary

59. HISDP in September 2009 and October 2009, respectively.

The Bank conducted Procurement and Financial Management Assessments for the

60. Financial Management. Meetings with staff at HI0 and the Technical Support Office (TSO) o f the M O H were held to obtain an understanding o f the current applicable financial management systems and to discuss and agree on the arrangements planned under the proposed Project. The findings o f the assessment concluded that the P I U that will be established for the Project wil l be entrusted with the Financial Management aspects o f the project.

61. The HI0 follows the Egyptian “unified accounting system” when preparing its financial statements and accordingly i ts systems are not designed to accommodate special purpose financial statements required under a Bank-financed project. The project FM responsibilities will be entrusted to a P I U that will be established and financed by the Government. The project financial officer (FO) to be engaged, within the P I U team, will fo l low on the project accounts and wil l generate, periodically, project reports. The FO will report to the P I U manager and to the head o f the financial department o f the HIO. The M O H has previously implemented a Bank financed project, where the financial aspects o f that project were entrusted to an FO. The Bank team agreed with the HI0 that the FO who worked on the previous project will: (a) prepare, before effectiveness, a draft Financial Management Manual depicting the controls and procedures o f the envisaged project based on his previous experience in the Health Sector Reform Project; (b) Assist the project unit in procuring and installing a financial management system, before effectiveness, that can be used for the recording and reporting o f project transactions; and (c) provide weekly support, training and knowledge transfer, during the first year of the project l ife, to the new P I U FO. The project will issue semi-annual Interim Financial reports (IFR) and annual project financial statements. The Project’s financial statements will be audited annually by an external independent auditor, acceptable to the Bank, in accordance with internationally accepted auditing standards. The HI0 will submit the audit report to the Bank no later than six months following the closing o f the fiscal year subject to the audit. The audit’s TOR will be prepared and submitted for the Bank’s no objection. The audit TORS will be expanded to include the verification on the management and distribution o f the equipment to be purchased.

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62. Procurement. Since i t s establishment in 1964, the HI0 has not dealt with any International Competitive Bidding (ICB) tenders or with the Bank procurement guidelines. The HIO’s only procurement experience i s with the national procurement Law No. 89 and before that with i t s predecessor Law No. 9. In addition, HI0 procurement staff have limited experience with other donors’ procurement procedures.

63. In terms o f procurement risk, the Project i s considered high, particularly in the initial phase o f project implementation, should there be a delay in appointment o f the proposed VV firm. The procurement risk mitigation measures recommended to HI0 by the assessment are the following: (i) Include the procurement activity as one o f the core activities for the M O H Technical Support Office’s (TSO) sole responsibility until the PIU for the HISDP has been established. The PIU will continue this task in close collaboration with the VV firm for technical and contract management aspects. (ii) The HI0 wi l l use the TSO to also initiate and finalize the process o f hiring the VV firm. (iii) Start this activity immediately under Advance Procurement procedures o f the Bank. Preparation o f the main systems contract package bid documents i s already underway. (iv) Provide Government financing for the VV Contract (to be reimbursed from the Loan once it i s Effective) in order to facilitate timely selection o f the VV to contribute to the final selection o f the main information systems package. I t i s expected that upon appointment, the VV would have to work closely with the procurement staff o f the PIU and as part o f the overall health insurance program management team.

64. applied, i s considered substantial.

The overall project risk for procurement, after risk mitigation measures have been

D. Social

65. The HISDP’s core activity i s developing a proven business model for health insurance operations and management in three Governorates in Egypt that can then be the platform to extend the system to the country as a whole. The success o f the Project depends to a large extent not only on the technical merits o f the system to be developed, but on the extent to which the system responds to the specific needs and capacities o f i t s intended users, and the ability o f the HIO/MOH to mobilize the engaged support o f a range o f institutions as the change agenda i s implemented in the Governorates. The users wi l l be from within the new NHIA, the providers with whom the NHIA contracts, as well as insured individuals. Several key issues may arise as the proposed Project i s implemented.

66. Information technology i s a significant aspect o f the project design, and in order to manage these systems, provider inputs wi l l be needed into the system (Le., applications, claims, cases, etc.). The HI0 team i s very aware that there i s a wide spectrum o f technological capacity within the provider group in Egypt, ranging from rural clinics with basic computers to hospitals with customized information management systems. Moreover, the claims and reimbursements under the current health insurance system are almost wholly processed manually. The HI0 team envisages that the new Payor operations and management system wi l l develop “provider interfaces” that explicitly take into account this wide range o f provider technological profiles. These interfaces wi l l be developed based on the information available for the clinical and hospital information systems already developed as part o f other M O H investments, supplemented by consultations with providers held by the supplier.

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67. The broader question i s one o f how the Government intends to successfully manage a major reform program where it i s trying to obtain significant efficiency gains. The modernization o f health insurance in Egypt wi l l require new business processes being developed for SHI and adoption and use o f them by the NHIA at national and Governorate levels. The HI0 i s leading this process, together with the MOH, but international experience shows that this type o f effort i s fraught with risk o f resistance and push-back from different groups with vested interests in the status quo. MOH/HIO appear to be well aware o f these risks and have embarked on a three- pronged strategy o f open public debate, stakeholder consultations with Governorates, HI0 staff, and providers, and a gradualist approach to roll-out o f the reforms. The NHIA wi l l also have a governing Board with representation from key stakeholder groups, including providers, largely following the structure o f the current HI0 Board. The HISDP wi l l operate within this broader change management strategy and have the benefit o f drawing on the oversight structures being established for the NHIA itself, as well as the overall SHI reform effort.

68. Another important issue under the new SHI system i s related to the objective o f extending coverage by enrolling the poor and targeting subsidies to pay for them. The MOF wi l l be committing funds needed to cover eligible beneficiaries who are unable to afford the enrolment and other service fees under the new system. The M O H has agreed to rely on the proxy means testing and other social targeting procedures being introduced by the Ministry o f Social Solidarity (MOSS). Under the HSRP, this proxy means targeting was tested in Alexandria and Menoufia, and lessons were derived which wi l l be used to further refine future targeting approaches.

E. Environment

69. minimal or no adverse environmental impact.

The project has Environmental classification o f a Category C project since it wi l l have

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.01) [I [XI Natural Habitats (OP/BP 4.04) 11 [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)2 [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

- * By supporting the proposedproject, the Bank does not intend to prejudice thefinal determination oftheparties’ claims on the disputed areas

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G. Policy Exceptions and Readiness

70. No policy exceptions are being sought for this Project.

7 1. In terms o f readiness, the following developments are noted:

The MOH/HIO have already prepared complete draft bidding documents for procurement o f the main contract for development o f the Payor’s operations and management information system. These documents are currently being finalized for final no-objection clearance from the World Bank. A General Procurement Notice for HISDP was published on November 9,2009.

0 Significant effort by HIO/MOH i s noted over the past year to prepare the Governorates for their enhanced role in managing the health insurance program. Based on a needs assessment, the required human resources for the new payor are calculated, payor staff are identified, and then intense preparatory training on business processes o f the payor i s provided before starting daily operations. The strategy has been applied successfully in Suez and can be transferred to Sohag and Alexandria. In fact, the second Governorate Sohag has applied the Suez approach and preparations for the new health insurance program are underway.

72. On the basis o f the above, the Project i s considered ready for implementation.

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Annex 1: Country and Sector or Program Background

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

73. Egypt has a fragmented health system, consisting of a number of parallel public and private health care delivery systems and multiple financing intermediaries (Table 1). Total spending in the sector i s dominated by direct out-of-pocket payments by households, which account for more than hal f o f a l l health expenditure in Egypt. About 30 percent i s financed through the government budget and another 10 percent through the social insurance contributions. Private health insurance contributes less than 1 percent o f the total health spending in the country. From these figures, it i s evident that the level o f risk pooling and financial protection against an adverse health event available to the Egyptian citizen i s limited.

Table 1 : Distribution of Health Expenditures by Financial Intermediaries, 2004 Financing Intermediaries LE mi l l ion Percent Government budgeta 7,927 28.1

4.7 stateb Social insurance PA HI)^ 2,020 7.2 Household (direct out o f pocket)c 16,703 59.2 Private insuranced 169 0.6 Othersa 54 0.2

o f which special treatment at the expense o f the 1,323

Total 28,196 a. Ministry of Finance (MoF) expenditure data for Government and Economic Authorities for FY 2004. b. MoHP website: http:/iwww.mohp.gov.eg. c. EHHUES 2002: estimated for 2004 based on linear extrapolation from household expenditures in 2002. d. National Health Accounts 2002: estimated for 2004 based on assuming a constant coverage rate.

74. On the public side, the health coverage for the Egyptian population i s provided through a combination of social health insurance and subsidized government health services (Figure 1). Social health insurance coverage provided through the HI0 covers about 48 percent o f the population, which includes one-third o f the active labor force. The bulk o f the population under HI0 coverage (80 percent) i s schoolchildren and infants. The MOH and other government agencies operate a nationwide network o f government health care providers, and these function as an “insurer o f last resort” by providing free or substantially subsidized health services to the citizens not covered under HIO. Over the past decade, the MOH has significantly expanded the PTES, which extends financial assistance to al l Egyptian citizens for expenses incurred for government spending on health care in the past 10 years.

75. The public sector i s divided into Government Authorities and Economic Authorities. The health care institutions falling under the category o f Government Authorities include the administrative offices and health care facilities operated under MOH, which includes

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the central headquarters in Cairo, health directorates in the 27 governorates, and the Specialized Centers for Medical Care and Cancer Treatment. The investments into these Specialized Centers, established in 2001 under the MOH, comprise a network o f about 34 tertiary hospitals, and these have contributed to a major increase in the capital and operating expenditures o f the MOH. These services are partly reimbursed through the PTES. In addition, the Government Authorities include the hospitals operated by the Public Authority for Teaching Hospitals and Institutes (PATHI), which runs nine specialized research institutes and nine large teaching hospitals, and the university hospitals managed by the Ministry o f Higher Education, which play a key role in medical education and training and clinical research.

Population not covered through social health insurance (52 %)

Figure 1: Health Benefits Coverage in Egypt

Population covered through social health insurance system (48 %)

1 Health Benefits Coverage in Egypt

I private facilities I ource: MOH and World Bank staff, PER, 2006

76. Health care institutions falling under the category o f Economic Authorities include the HI0 and the Curative Care Organizations (CCOs). The HI0 was established in 1964 after the enactment o f Health Insurance Law 61, which conferred to HI0 a historic mandate to cover al l Egyptians with social health insurance. However, four decades later, this objective has not been achieved. At present, HI0 manages several separate compulsory social health insurance programs for formal sector workers, pensioners, widows, and schoolchildren, and for infants, who are covered on a voluntary basis by a decree. The HI0 has 13 regional branches and traditionally operated a nationwide network o f health facilities for i t s beneficiaries. This network recently split o f f the HI0 purchasing side from the provider network to allow better service on both the purchaser and provider side.

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77. HI0 has traditionally contracted with public and private providers to extend services for i ts beneficiaries that it i s unable to provide within its own network. More specifically, HI0 contracted with individual doctors to work in i t s facilities (about 25 percent o f total staff), as well as with public and private providers and pharmacies to serve the health care needs o f i t s beneficiaries. Contracting and outsourcing has made up about one-third o f total HI0 expenditures. In addition, CCOs were established in 1964 as autonomous organizations to run nationalized hospitals. The f i rs t two were founded in Cairo and Alexandria; four more were founded in the mid 1990s. However, in 2000 three were closed and their hospitals transferred to the MOH, thereby reducing the overall importance o f CCOs in the delivery o f health services. While the size and scope o f health care providers operating as Government Authorities has expanded over the past decade, the number o f health care providers operating as Economic Authorities has declined.

I

78. There are significant issues related to both equity and efficiency in the current sector. Total health spending by both public and private sources was 2.5 times higher in urban governorates than in rural governorates and Upper Egypt (Figure 2). The distribution o f health resources, as measured by the number o f hospital beds and health facilities in the public sector, i s also inequitably distributed in favor o f the wealthier urban governorates. Upper Egypt, the poorest region in Egypt, consistently had the lowest number o f hospital beds (Figure 3) and physicians per capita.

I

Figures 2 and 3: Annual Per Capita Total Expenditures (LE) by Regions, 2002

2w

i 50

i w

50

0

Urban Lower Egypt Upper Egypt Frontier Total governorates governorates

79. In addition to regional disparities in the distribution o f health services, there are inequities in access to and use of health services by region and by income levels. The richest quintile o f the population spends 2.3 times and 1.6 times as much on hospital and outpatient services as the poorest quintile households (Figure 4). In the urban governorates, utilization rates are 1.7 and 1.4 times higher than in rural Upper Egypt for outpatient visits and hospital admissions, respectively. In principle the MOH facilities should be providing free care for the poor. However, recent analysis by the Bank (Public Expenditure Review, 2006) showed a negative correlation between the poverty index and public health spending levels by governorates, suggesting that the MOH health services may not be adequately serving the needs o f the poor.

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igure 4: Use o f Health Services, by Income Quintil

Quintile 5

Quintile 4

Quintile 3

Quintiie 2

Quintile 1

0 2 4 6 8 10 12 14 16 18 20

.Hospital admission per 100 individuals per year

.Outpatient visits per 100 individuals per two weeks

S

I Source: Egypt Household Health Service Utilization and Expenditure Surveys, 2002. Note: Includes utilization rate for private and public facilities.

80. I n terms o f efficiency, the productivity of the government health delivery system i s low. One measure o f the low productivity i s the very low bed occupancy rate, which indicates that a substantial portion o f fixed capital i s not well utilized. Although Egypt’s bed capacity i s comparable to that o f other countries at similar income levels, the national average for bed occupancy i s estimated at 25 percent, and 35 percent at M O H hospitals only. If average occupancy rates could be raised to the international standard o f good practice (ens., EU countries) o f 80 percent, the productivity o f the existing stock o f hospital infrastructure would more than double. In the last few years the government has pursued an investment program that has significantly expanded the hospitals and Specialized Centers operating under the Government Authorities.

8 1. Incentives for improving productivity in the government health delivery system are low. Government Authorities rely primarily on the state budget, are not held accountable for their financial performance, and have l i t t le autonomy and limited ability to generate revenues. Public provider financing i s mostly based on historical supply-side financing, with no link between provider revenue and delivery o f services to patients. Health service providers in the MOH and other Government Authorities are also constrained by the rigidities o f the civil service administration, including low wages and fixed salaries not linked to performance. Some 89 percent o f private physicians have a dual employment status (government and public sector), making it possible for public hospital facilities to be used for private practice with no reimbursement to the state.

82. The quality o f government services could be significantly improved. Until recently, several quality improvement programs were initiated by health care providers, but none was institutionalized. A recent emphasis on improving quality has led to a nascent system o f accreditation for facilities in Egypt. Accreditation does exist for a limited subset o f primary care clinics (FHF), and both primary care and hospital accreditation standards have recently been accredited by ISQua, the International Society for Quality in Healthcare. A law has been drafted

23

to create an independent body to administer these standards. Alongside this, there i s a system o f licensure for private facilities that i s in the process o f being extended to public facilities.

83. I n the public sector, resources allocated to essential items such as pharmaceuticals and maintenance have been constrained or crowded out by other expenditure items such as the wage bill. The patient load on HI0 service providers has been increasing while budget increases and staffing have been constrained. This could be compromising the quality o f care and user satisfaction in the HI0 facilities. Another common problem in the HI0 program i s the delay that beneficiaries face in accessing doctors o f reasonable quality in a reasonable time. The HI0 beneficiaries are required to enroll with an HIO-designated doctor, who subsequently refers patients to specialists. The lack o f access to qualified doctors is one o f the main bottlenecks in the current system. Overall, the poor allocation o f resources and the lack o f a strategic approach to quality improvement until recently have contributed to the loss o f patient satisfaction with the public health services. As a result, most Egyptians, including those living in the poorest regions, are more ofien seeking health services from the private sector.

84. The private market i s rapidly growing. According to the Ministry o f Investment, there are 48 prepaid health care plans covering 2 mi l l ion enrollees in Cairo alone. Coverage i s mostly through employer groups (about 70 percent), including the MOF and other government agencies. There i s one re-insurer in the market. But coverage i s shallow and most plans cap coverage at around 10,000 Egyptian Pounds (approx. US$2,000). The prepaid plans reflect that increasingly many private employers have begun direct contractual relationships with local private clinics or hospitals to care for their employees, effectively “opting out” o f enrollment in the HIO. A successful example o f this i s the “Medicare” program introduce by the Nil Badrawi Hospital in Cairo, catering to higher income clients.

85. Health insurance policies are also currently offered by the largest l i fe insurers in the country-A1 Shark, Misr and A1 Ahlyia companies. The UK-based B U P A insurance also offers health insurance targeted at the affluent. Health insurance in Egypt has been significantly de- regulated over the past five years. A new law has been passed that allows the opening o f private foreign insurance companies. Additionally, under the General Agreement on Trade and Tariffs, the minimum capital needed to start and insurance company has also been decreased. Tax breaks have been extended for employers and employees paying premiums above a certain threshold.

86. The newly-emergent private market i s complemented by a more traditional private market o f employer-based clinics and facilities. Many large enterprises in Suez, for example, provide employers and families with employer-based health care on or near the premises o f enterprises. The challenge under the new social health insurance initiative is to integrate the emergent private sector and rationalize the public sector through some combination o f closure and upgrading of essential public facilities.

87. A crucial step in the reform process will be the adoption of a new social health insurance law. The legislation envisions a new payor entity, which would absorb the HI0 beneficiaries and its payor administrative resources. The World Bank has provided technical assistance to the authorities on the financing parameters, the legislative dimensions, and the service delivery reforms. An actuarial model has been developed for estimating the reform’s costs. The SHI reforms seek to extend universal health care to al l citizens. This will be achieved

24

by expanding the risk pools, improving service quality and efficiency, and de-fragmented financing and service delivery arrangements.

25

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

88. The HSRF', which closed in March 2009, was successful in expanding coverage o f a package of services o f primary health care and public health to the poor population in two governorates as part o f a wider multi-donor (USAID, EU, WB, and AfDB) support to the first phase o f the Health Sector Reform Program (in five governorates, including three rural governorates). The project aimed to expand health coverage with a basic package o f primary health care and public health services in two pi lot governorates. The project supported two key activities: (i) restructuring and rationalizing o f the primary health services into a network o f family health facilities, and (ii) establishing Governorate health funds (Family Health Funds) to finance performance-based payments for the reformed and accredited family health care facilities. As a result o f the project, this model was adopted by the MOH to be the national model for primary health care, and will be incorporated as the first level o f service in the new social health insurance scheme in Egypt. The project facilitated a dialogue between MOH and the Ministry o f Social Solidarity (MOSS), and led to the establishment o f a performance-based disbursement processa based on the application o f the MOSS social targeting mechanism to identify, enroll, and exempt the poor from user fees. Furthermore, there i s an agreement with the MOF to subsidize the cost o f services o f the poor thus identified through this mechanism. The new Health Insurance System Development Project will be a fo l low up to this project.

89. There are two ongoing reimbursable technical assistance programs (RTAs) with the M O F to support Government in developing an effective reform agenda, respectively, in pensions and social health insurance. These RTAs have enabled us to engage substantially with the MOF, e.g., providing international benchmarks in the design o f the legislation and in reviewing the fiscal impact o f the proposed reform scenarios, and could be an important vehicle for future engagement with and support to the Government.

90. The past health projects financed by the Bank also contributed to a significant reduction in diseases and fertility rates. The Schistosomiasis Control Project (Cr. 2403, closed in 2002) supported a successful National Schistosomiasis Control Program which provided coverage for the entire rural population o f Egypt with treatment aimed at reducing the prevalence o f this debilitating parasitic disease which has afflicted almost every poor rural population Egypt since the age o f the Pharaohs. The project contributed to a substantial reduction in the prevalence o f the disease from 35 percent o f the population in 1983 to less than 5 percent in 2002.

91. The Population Project (Cr. 2830, closed in 2005) was implemented as a unique partnership between the M O H and the Social Fund for Development (SFD), and was targeted to communities in Upper Egypt with high fertility rates. The project contributed to a significant increase in the contraceptive prevalence rates and to some four-fold increase in utilization o f

- 2 The performance-based disbursement process has been modeled after the Argentina Maternal and Child Health Insurance Project which was the first Bank project to introduce this mechanism. The MNSHD team benefited greatly from the cross-support provided by LCSHD Argentina health team.

26

family planning clinics in targeted areas. The key to success in this project was the effective mobilization o f motivated, committed, and well trained social change agents who were supported by nongovernmental agencies (NGOs) active in the target areas, and a close coordination between these demand-side interventions supported by SFD and with supply-side interventions supported by MOH.

92. Donors’ Activities/Partnerships. Several key donors have been supporting the health sector. The European Commission (EC) and the USAID remain the important key players. The EC started i t s current support to health reform in partnership with the Bank, and has committed about Euro 83 million in the form o f budget support. The budget support i s in 3 tranches, driven by a matrix o f indicators or objectives to be reached at each o f 3 stages. The Bank team worked closely with the EC to develop a set o f objectives that align with the design o f the new project. The indicators relate to changes in governance, financing, the benefit package, protection o f the poor, improved levels o f standards and quality, and performance-based incentives. The budget support has reached i t s initial level o f objectives.

93. The USAID, a long-standing partner o f MOH, has been gradually phasing out i t s support to the health sector, and i t s support to the health systems reform has been significantly downsized. At the same time, it wi l l take an active role on specific issue areas such as capacity building programs to train health sector managers, particularly at the provider (hospital) level.

94. Several UN agencies (WHO, WFP, and UNICEF) have programs that focus on basic primary health care services and combating Avian Flu, UNFPA i s focusing on reproductive health and family planning.

27

Annex 3: Results Framework and Monitoring

EGYPT, ARAB REPUBLIC OF HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

Projective Development Objective

To assist the Borrower in improving the financial sustainability and efficiency o f its social health insurance operations.

Intermediate Outcomes

Outcome 1: Detailed design

Outcome 2: Functional and Operational testing

Outcome 3: Remote entry of claims data from providers

Results Framework Project Outcome Indicators

1. New operational procedures for contribution management, claims management, and utilization management including fraud control formally approved

2. Percentage of social health insurance claims that are captured and processed through the payer’s new business management systems in the 3 pilot governorates

3, Percentage o f electronically processed claims that are rejected/escalated for medical appropriateness compared to rates detected by manual audit in the 3 pilot governorates

4.Annual Reports to the Government’s SHI Steering Committee well substantiated by systems-generated data

population in the 3 pilot governorates Intermediate Outcome Indicators

5. Ratio o f Payor staff to insured

Outcome 1: Percentage o f all system design documentation that has been completed and approved Outcome 2: Completion of successful operational testing in the areas of:

Contributions management Claims management Utilization management (including

D ReDorting fraud control)

Outcome 3: % o f al l claims that are received electronically directly from providers, o f all claims processed

Use of project outcome information

YR1: Late delivery of documentation i s likely to indicate late delivery o f product

YR2-3: Al l data should be captured in the new system, so failure to do so means that system design may be inadequate

YR3: mismatch between the levels of electronic claims questioned, relative to manual audit results, may mean that electronic systems need further refinement

YR3-4: Failure to produce system generated reports signifies that benefits o f the new system are likely not being achieved

YR4: Relative administrative costs should reduce in the pilot governorates

Use of intermediate Outcome Monitoring

Outcome 1: YRl : Late delivery o f design documentation will result in late delivery of product Outcome 2: YR2-3: Late testing in pilot governorate 1 may signify late delivery of full system YR3-4: Late testing in pilot governorates 2&3 may indicate late delivery of full system

Outcome 3: YR2-YR3: low levels o f electronically submitted claims may indicate that the providers or their software vendors are not engaged properly

28

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Annex 4: Detailed Project Description

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

95. The objective o f the project i s to assist the Borrower in improving the financial sustainability and efficiency o f i ts social health insurance operations. The main mechanism to achieve this wil l be the designing and introduction o f a modern information management system and associated hardware within the health insurance organization, initially focusing on the three pi lot governorates o f Suez, Sohag, and Alexandria. Following successful implementation, it i s planned to expand the program to include al l governorates. The project consists of a single component, “Health Insurance Payor Operations and Management Information System.”

96. Information management systems, especially within the healthcare environment, are complex to design and implement as they are often subject to external influences that can delay or prevent successful implementation, so in order to maximize the chances o f success, the project has been designed around three core contracts. The main contract is for the development and implementation o f the information management system, the second contract i s for the procurement o f the necessary hardware for the pilot governorates and the national center, and the third contract i s for project supervision and quality assurance o f the hardware and software contract. The third contract will also provide for the provision o f independent technical advice to the insurance organization on specific technical issues as they arise. Project administration will be under taken by a P I U reporting to the HI0 (or successor entity).

97. Design and Implementation of the Information Management System (-US$45 million). The information management system will comprise o f a number o f modules necessary for the HI0 to ful ly perform i t s role, including:

1.

.. 11.

... 111.

iv.

Provider Management. This will include the development o f an accurate provider register including the associated functions o f receiving applications for inclusion o f providers into the insurance scheme, the evaluation o f those applications against agreed criteria, and the recording o f subsequent contract details.

Beneficiary Management. This will involve the development o f an accurate beneficiary register, including the associated functions o f receiving applications for enrollment into the insurance scheme, assessment o f eligibility, any associated printing o f eligibility cards, the selection o f family doctors by the beneficiary, and the managing o f complaints.

Benefits Package Management. This will include the development and maintenance o f a register o f services to be provided through the scheme along with any relevant co-payments, prices and any other conditions.

Claims Management. This will include the submission and processing o f various types o f claims from different types o f providers in an efficient and automated

31

manner as i s possible. There will be several options for submitting claims to maximize the involvement o f providers with different level o f technical capability. Claims assessment rules will be automatically applied thus ensuring comprehensive and accurate implementation o f rules, prior to the approved funds being transferred electronically to the providers.

v. Utilization and Quality Management, and Fraud Control. There will be a number o f activities undertaken to monitor, identify and influence utilization management issues. This will include not only overutilization o f services but also underutilization o f services and services that appear not to be consistent with best clinical practice. The information system will enable a wide range o f performance measures to be monitored including for example visits per beneficiary per year, inpatient bed days per admitting doctor per year etc. In addition, the system will enable the tracking o f a number o f quality indicators such as prescribing choices that are made by providers, and facility level indicators such as nosocomial infection rates. Fraud identification and management i s a separate but equally important issue that will be enhanced considerably through the introduction o f the payer information system. The system will enable investigators to identify and investigate potential fraud in a systematic manner.

vi. Case Management. The system will enable the recording and tracking o f patient referrals to higher levels o f care, thereby ensuring that care i s provided through the appropriate level o f care.

vii. Business Support. The information system will also support the Insurance Organization through a range o f Enterprise Resource Planning type functions such as finance and accounting, human resources and payroll, legal, fixed asset management, communications and document management. In addition, the system will support the crucial issue o f collection, recording and management o f insurance contributions, and enable efficient use o f the tools necessary to optimize funds management, including for example medical loss ratio management, fund accounting, medical reserves provision, and actuarial tools and predictive models.

98. laboratory to ensure the software performs satisfactorily.

Included in this contract will be the requirement for the supplier to establish a testing

32

Overview Payor IT solution scope I

99. Hardware for the pilot governorates (-US$25 million). The second contract i s for the procurement o f the necessary hardware for the operation o f the Management Information System pilot program in the three governorates and the national center. The specifications for the hardware wi l l be developed by the MIS suppliers.

100. A t this stage, a number o f features are expected from the hardware configuration:

a. Regional and National Data Centers. The system wi l l be administered at the governorate level in matters such as beneficiary and provider enrolment, claims management and case management, with data centers being ultimately established in several governorates. The national data center wi l l be used for functions such as performance monitoring and management, and fund management.

b. System Performance. The system wi l l be designed to efficiently handle very large numbers o f claims, such as up to 10 million inpatient claims and 460 million outpatient claims annually, so will support a national rollout without significant development requirements.

c. Backup and Disaster Recovery. The system will be designed such that failure o f any critical system or of an entire data center will have minimal impact on system performance.

d. Security o f Data. Security o f data i s crucial, so wi l l be a priority in system design, with user-defined parameter to enable the appropriate system users to add, modify, or

33

remove roles, modify permissions and change roles associated with users, or groups o f users, as necessary

10 1. Health Insurance Information Management System Verification and Validation (VV) firm (-US$5 million). The third contract, or VV, i s designed to support the Health Insurance Organization in the supervision and project management o f the Information Systems and Hardware contracts and to provide the Government with independent specialized technical advice on issues pertaining to these contracts. This type o f independent advice and supervision i s important if the HI0 is to keep control on the long term design and cost o f the system. Technical advice may be required on a number o f topics, ranging from insurance pol icy to hardware and software. The consulting services will continue for the duration o f the project.

102. Planning for Contingencies. While every effort i s being made at this time to identify the key functional requirements for the new Payor business system, it is expected that other areas wil l emerge in the future which require further specialized work. These may entail “change orders” being introduced to the main systems contract. Additionally, as the system i s piloted in the selected governorates, implementation bottlenecks may be identified which require interventions. These may include, but are not limited to, further work to build the capacity of providers to interface with the Payor’s systems, or enhancing interface with social targeting beneficiary databases, etc. Price contingencies have been taken into account in the final Project costing to allow for such considerations.

103. System Performance. The Health Insurance Operations and Management Information System will be designed to handle very large numbers o f records and transactions, as indicated in the boxes below. The system will be administered and set up on a governorate level and should therefore allow for the enrolment and management o f the entire population o f each governorate. The average population size o f each governorate i s -2.5m and the population o f the largest governorate i s -8m’3 (Cairo Governorate). I t i s expected that the system will be able to support the national ro l l out and ramp-up with few additional development needs associated with the scale of the ro l l out, once the core components have been designed and their performance optimized.

104. The exhibit below details current, early, estimates o f activity levels in the new system.

34

Estimated activity levels at full ramp up /i'i?LL. Mi t " W >

Current estlmate at full ramp up ~ Rationale

* - 95-100m total , Current estimated population of 83m I Population growth estimated at 1 3-1 9%

1 Outpatients --350-360m annually Outpatients - Visit rate per beneficiary

Inpatients - Visit rate per beneficiary is - 7%

Outpatients - Target Referral rate is - 25%

Inpatients - -7-10m annually , IS - 350% , - Outpatients --85-90m annually ;

m. Inpatienti -7-10rn.annually . .I . .Inpatients -.ALL are referred to hospitals

Outpatients --450-460m annualb Outpatients - 1 claim per referral (provider) - Inpatients - 1 claim per referral

Current provider landscape

- Inpatients - -7-10m annually ' - 1 claim per visit (drugs)

' - 700-800 Public Hospitals - 4,500 Public Primary Care Unit$ - 250 Public Polyclinics -1,500 Private Hospitals and -40,000 private clinics

Providers

1 All a s s w t i m need to be verified bythe supplier 2 Assumution that uawr will gain signincant share h outpatlent cases (today 1120%)

105. The box below briefly introduces each healthcare provider segment and indicates the current number o f healthcare providers within it. I t i s not expected that al l o f the above healthcare providers would contract with the Purchaser; however, the above numbers represent current market figures and thus the solutions suggested by the Supplier should at least be capable o f handling such volumes and allow for future expansion.

Estimated number of transactions at full ramp up F - 1 , 1 1 iN.

Estlmated tnnsactlon volumes I Rationale

- 95-100m annually , Each beneficiary will have at least one Beneflciaries inquiry or complaint annually

- 360-370m annually 1 transachon per Msit for registrahon PCU vlsks 1

1 Outpatients -170-180m annually . lnpahents - -14-20m annually ~ - Register the referral Each referal includes at least 2 transactions

- Register the result of referral

Outpatients - -1,800-2,000m aneually Each claim has 4 transactions

- Validahon of claim - Reimbursement of claim - 25% of claims will be negotiated (4 transactions)

Inpatients - -30-35m annually , - Receipt of claim

- 20-30m annually I Estimated number of provider is -45,000 Provldenr 50% of changeslupdates/adds El

1 All assumptions need to be verMed wih the suppler

35

I There are three main groups of providers in Egypt

106. Change Management Strategy. To ensure optimal talent, training and change management the SHI focuses on HR processes, tailored training processes, and institutionalized change management efforts.

107. Introducing the Social Health Insurance will be a large performance transformation o f Egypt’s current healthcare sector. A key challenge o f this comprehensive effort will be the selection o f the future leaders who will become major drivers o f change and who will need to understand and fully support the effort. The SHI has designed scalable HR processes that allow for a quick ramp-up o f operations and that have already been successfully tested in the payor pilot in Suez. Scalable processes will also be instrumental to fill-up positions in case o f staff attrition. For this purpose a clear recruitment process starting with job profiles for al l functions, applications screening, testing o f sk i l ls o f candidates (e.g., classroom tests on specific sk i l ls such as logical thinking, IT skills, language skills) has been created. After successfully running through these processes, an interview process has also been set up for final approval o f suitable candidates.

108. To build and further develop the capabilities needed to sustainably transform the health sector into a performance- and service-oriented sector, the MOH i s introducing a training institute designed to provide al l leadership and management training required - the Leadership Academy. To create these change leaders, the Leadership Academy will inform i t s participants, who al l are directors or middle-management leaders, about the design o f the reform and the progress made to foster understanding and conviction amongst leaders. Graduates will also learn many leadership techniques through a comprehensive curriculum for future leaders comprising general elements o f managerial education and courses designed for the healthcare sector specifically.

36

109. O n a more operational level, the OTC will be introduced. The focus will be on providing training for running the day-to-day work for operational staff in the SHI, primary care and secondary care, such as SHI staff, physicians, nurses, pharmacists, lab technicians o f primary care units and hospitals, etc. There are specific training courses, e.g., the SHI has ready-made training materials and trainings o f a few weeks for the claims management staff, beneficiary management, provider management, C M O and call center operations which al l have been successfully used and tested in the Suez pilot.

110. Finally, learning and feedback on key change management insights will be institutionalized. Regular feedback forms and gathering o f insights on trainings, experience with working on the daily operational process, etc. will be gathered and used for organizational and process improvement. Workshops and meetings for exchange o f learning and sharing o f best practices will also be an institutionalized part o f change management.

11 1. Status o f Preparedness of the Governorates. Considerable effort has been made over the last 12 months to prepare the Governorates for their enhanced role in managing the health insurance program. Ma in elements o f the strategy include:

For the preparation o f Governorates, a plan has been developed allowing a stepwise approach. The plan starts with an assessment o f the local situation including composition o f the population, current provider landscape, etc. Based on a needs assessment, the required human resources for the new payor are calculated using a forecasting model that reflects the health insurance business processes. Payor staff are then identified and undergo intense preparatory training on business processes o f the payor before starting daily operations. The training includes the following main functions: case management, beneficiary management, provider management, claims management, support functions. Training will continue to be provided on an ongoing basis throughout the transition to the new Payor system in each Governorate.

Once training i s completed successfully, staff will start operations by ramping-up enrolment and all other functions. According to the enrolment process and in alignment with the forecasting model, additional staff will be hired. In parallel with the setup o f the local payor organization, payor management communicates early on with local stakeholders, e.g., the local governor, hospital management to ensure cooperation and a trust-based relationship. This i s a continuing process throughout the entire organizational ramp-up o f local health insurance operations.

112. The strategy has been applied successfully in Suez and can be readily transferred to Sohag and Alexandria. The second Governorate Sohag has applied the Suez approach and preparations for the new health insurance program are underway.

37

Annex 5: Project Costs

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

US$ million

Project Cost By Component and/or Activity Local Foreign Total

Health Insurance Payor Operations & Management Information System (IBRD financed)

75.00 75.00'

PIU (Government financed) 1.00 1 .oo

Total Project CostsL 1 .oo 75.00 76.00

'Front-end fee i s not included; to be paid directly by the Borrower. 2Country Financing parameters for Egypt have been established allowing for 100 percent o f financing from IBRD. Project costs include all taxes.

38

Annex 6: Implementation Arrangements

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

I. The Role and Resourcing of the PIU

1 13. A Project Implementation Unit (PIU) established for the HISDP within the HI0 structure wi l l be the main counterpart o f the Bank in implementation o f Project activities, including administrative and fiduciary (financial management and procurement) aspects o f the Project. It i s expected to be operational no later than one month after Project effectiveness.

114. The PIU shall include the following positions:

PIU Director. The PIU Director wi l l be responsible for managing staff and overseeing the day-to-day activities o f the PIU in i t s management o f the implementation o f the HISDP. The Director wi l l report directly to the Minister o f Health through the Assistant to the Minister for Health Insurance Affairs, which wi l l facilitate the resolution of any technical issues or delays to implementation.

Procurement Officer. The Procurement Officer wi l l be responsible for overseeing all aspects o f the procurement process for contracts financed by the project, including preparation and monitoring o f the procurement plan, preparation o f TORS and requests for World Bank no-objections, organization o f bidders conferences and bid evaluations, oversight o f contractual obligations, etc. In cooperation with the Director and other PIU staff, the Procurement Officer wi l l prepare and submit periodic procurement progress reports.

Financial Management Officer. Tasks o f the financial management specialist include development and monitoring o f annual Project budgets, reporting on the status o f Project accounts and the disbursement o f funds, liaising with the external auditor, and handling the Project flow o f funds (payments o f consultants and suppliers, and withdrawals from the Project account).

Monitoring and Evaluation Specialist. In coordination with the PIU Director, the procurement and financial management specialists, and HIO/NHIA technical staff involved in Project implementation, the M&E specialist wi l l be responsible for preparing the periodic Project progress reports, including reporting progress on overall implementation, procurement, project finances, and progress against agreed Project performance indicators.

0

0

0

115. The PIU wi l l be located in the HIO. Once the NHIA i s established, however, the PIU may be transferred to NHIA, subject to completion o f any additional assessments that the Bank may need to conduct as part o f due diligence.

39

116. The HISDP PIU wi l l constitute a part o f the SHI program management team and wi l l report directly to the Minister o f Health through the Assistant to the Minister for Health Insurance Affairs regarding project implementation and issues requiring management decisions. For the technical and operational aspects o f the Project, the PIU wi l l closely coordinate with assigned staff from the concerned HIO/NHIA departments: the Information Systems department, the Finance department, etc. These staff will not be part o f the PIU, but wi l l be selected by their managers to be the lead technical specialists for the HISDP. The technical specialists wi l l work closely with the PIU staff for specific tasks related to the Project, such as the elaboration o f technical specifications, the technical evaluation o f bids, etc.

117. MOH.

The PIU will be fully financed by the Government’s own resources channeled through

11. Relationship between HI0 and the New National Single Payor Agency

11 8. The Government has designated the HI0 as the Implementing Agency o f the Bank- financed HISDP. New SHI legislation i s being passed, which wi l l establish a new agency, the NHIA, as the single national Payor. Should the Government decide that this agency i s better suited to become the Project Implementing Entity, i t may transfer the Project Implementing Entity responsibilities to this new agency. A mechanism to allow for this, if the Bank agrees that this i s acceptable, has been built into the project documents.

111. Governance Structures

119. An SHI Steering Committee with Cabinet-level membership from Health, Finance, Social Solidarity, and other ministries, has been established under the leadership o f the Prime Minister o f Egypt to guide the development o f the overall SHI reform effort. In addition, the Government wi l l establish an inter-ministerial Project Steering Committee through the Ministry o f Health to help resolve any implementation bottlenecks facing the Project that would require coordinated action across different Ministries.

120. Once the NHIA has been established, the HISDP PIU i s also expected to report to the NHIA Board since the HISDP’s core task i s to develop the operations and management systems for the NHIA. The NHIA Board would also be the forum for coordinating the different payor policy parameters, such as decisions related to utilization control targets, provider payment methodologies, and so on, as well as ensuring that the business systems developed in the pilot governorates are rolled out to the rest o f the nation.

IV. Relationship with the World Bank

121. The PIU wi l l be the World Bank’s primary interface with the HI0 on all Project matters, including reporting on the status o f the Project, requests for the Bank’s No Objection on procurement documents, the disbursement o f Loan funds, etc.

122. The PIU wi l l also prepare and provide the Bank with the following project reports:

Semi-Annual Progress Reports: including a summary o f physical and financial progress o f the project, explanations o f variances between physical and financial progress versus

40

forecasts, a description o f issues encountered, a summary o f actions considered or undertaken to address them, and updates o f implementation and outcome indicators.

Semi-Annual Interim Financial Reports: the format and content o f these reports will be detailed in the financial manual.

Annual Consolidated Reports: integrating the information provided in the semi-annual reports and setting out the recommended measures to be taken to ensure an efficient execution o f the project and the achievement o f project objectives.

Annual Project Financial Statements: the format and content o f these reports will be detailed in the financial manual.

Institutional and Implementation Structure

41

Annex 7: Financial Management and Disbursement Arrangements

Egypt, Arab Republic Of

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

I. Introduction

123. In Egypt, the public health sector consists of: the Ministr ies o f Health and o f Education; the Public Authority for Teaching Hospitals and Institutes (PATHI); the HI0 and the Curative Care Organizations.

124. The objective o f the HISDP is to assist the Borrower in improving the financial sustainability and efficiency o f its social health insurance operations. The main mechanism to achieve this will be the designing and introduction o f a modern information management system and associated hardware within the health insurance organization. Initially this system will be installed at three pi lot governorates--Suez, Sohag, and Alexandria. Following successful implementation of the project, i t i s planned to expand the program to include al l governorates. The project consists o f a single component with three contracts to be procured under it. The main contract i s the development and implementation o f the information management system (US$45 million), the second contract i s for the procurement o f the necessary hardware for the pilot governorates and the national center (US$25 million), while the third contract i s for project supervision to assure the quality o f the hardware and software to be purchased under the previous two contracts (US$5 million).

125. A PIU, financed by Government, will be responsible for project administration. The P I U will report to the Assistant Minister o f Health for Health Insurance Affairs, and through him to the Minister o f Health.

11. Executive Summary

126. The M O H has designated the HI0 as the Implementing Agency under the project. The HI0 follows the Egyptian “unified accounting system” when preparing its financial statements and accordingly i t s systems are not designed to accommodate special purpose financial statements required under Bank-financed projects. The project FM responsibilities will be entrusted to a P I U that will be established and financed by the government. The project financial officer (FO) to be engaged, within the P I U team, will fol low on the project accounts and will generate, periodically, project reports. The FO will report to the P I U director and to the head o f the financial department o f the HIO. The MOH has implemented previously, a Bank financed project, where the financial aspects o f that project were entrusted to a FO. The Bank team agreed with the HI0 that the FO who worked on the previous project will: (a) prepare, before effectiveness, a draft Financial Management Manual depicting the controls and procedures o f the envisaged project based on his previous experience in the Health Sector Reform Project; (b) Assist the project unit in procuring and installing a financial management system, before effectiveness, that can be used for the recording and reporting o f project transactions; and (c) provide weekly support, training and knowledge transfer, during the first year o f the project life, to the new P I U FO. The project will issue semi-annual IFRs and annual project financial

42

statements. The Project’s financial statements will be audited annually by an external independent auditor, acceptable to the Bank, in accordance with internationally accepted auditing standards. The HI0 will submit the audit report to the Bank no later than six months following the closing o f the fiscal year subject to the audit. The audit’s TOR will be prepared and submitted for the Bank’s no objection. The audit TORS will be expanded to include the verification on the managements and distribution o f the equipments to be purchased. Disbursements under the project wil l be based on direct payments or Special Commitments. In addition, the HISDP P I U audit report reflecting the Project’s financial statements and operating results will be remitted to the Bank within 6 months from the end o f each fiscal year.

127. The following i s a summary o f actions agreed to be taken before effectiveness:

Action

Hiring of an FM officer for the project.

Developing a draft FM manual for the project.

Procuring and installing a financial management system for the project.

111. Country Risk

128. The most recent Egypt Country Financial Accountability assessment (CFAA) indicates that the country’s fiduciary risk i s rated as moderate on condition that the government continues to implement it reforms to the Public Financial Management system. Also the C F A A did reflect the absence o f an asset management system for the government assets including equipments. The project will be implemented as an extra budgetary activity, and through the country systems, where the loan proceeds will be made available to the HI0 directly and not through budget allocation. For this purpose, the project manual o f procedures will include an FM section that will define the control process and the safekeeping o f the equipment to be purchased, including defining the process o f distributing and accepting the equipments at the governorates.

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General R i s k s

- The Observance o f Standards and Codes (ROSC) report (2007), Country Financial Accountability Assessment (CFAA) report (2007), identified weaknesses in the Egyptian financial accountability, in both the public and the private sector. Another issue that affects inherent risk i s the level of corruption within Egypt which, according to the 2008 Corruption Perception Index, i s at 2.8.

- As per the June 2006, Health Sector IFMCA, the Health Sector i s recognized as being highly susceptible to corruption due to weak capacity and controls.

Overall Inherent Risk Before MAI

Specific Project

Risk

Project complexity

Lack of experienced staff with WB- financed projects

Reporting and budgeting

.isks

Moderate

Significant

Significant

High

High

- Establish a PW for the project with a financial officer unit responsible for a l l the project transactions. - Hire an independent qualified private audit firm acceptable to the Bank to conduct year-end audit o f the project Financial Statements. - Assigning a project team, for the PIU of qualified personnel and ensuring transfer of knowledge from the previous Health project FM staff to this new project.

Significant

Overall Inherent Risk After MM significant

The project has only 1 component and a limited number of contracts pertaining to the procurement and installation of the Soft and Hardware of the system in addition to a small amount, Le., technical assistance o f US$5 million. The PIU wil l comprise a newly hired financial officer with support and training provided by the previous Health project FM officer for the first 12 months.

- A financial management system will be procured before effectiveness to assist the project in recording and reporting i t s transactions in a timely and accurate manner. As part of the semiannual

Risk

After M .

Moderate

Moderate

Moderate

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Lack of proper internal controls application

I

Weak inventory

Significant

Significant management and asset distribution systems I

Moderate funds

Lack of timely 1 Significant auditheview reports on Project FS/IFRs

Overall Control Risk Before MM

SignsJican t

project IFRs, the PIU will prepare a semiannual forecast o f the project’s expected disbursements for the next 6 months for proper cash management,

An FM manual will be prepared before effectiveness to document and describe the procedures and controls that will be followed by the project.

The PTU will maintain separate records in place to record and keep information about the equipment distributed per location, including the number and type o f equipment received at the various offices in the three governorates. Because the project will have a limited number of contracts, direct disbursements will be used. An independent and a qualified private auditor wil l be hired in accordance with TOR acceptable to the Bank. The external auditor will conduct and perform the annual audit o f the project’s financial statements. The auditor TORS will be extended to include complete assessment o f the controls and verification on the equipment distribution process and management.

-

-

-

-

-

Overall Control Risk After MM

Moderate

Moderate

Low

Moderate

Moderate

IV. PIU Structure and Internal Controls

129. salaries o f the P I U staff will be fully covered by the government.

PIU structure and internal controls: The P I U falls structurally under the HI0 and the

130. The P I U team will be comprised o f a P I U Director, Procurement Officer, procurement staff and a Financial Officer who will be reporting to both the Project Director and the Head o f the Financial Department o f the HIO. In addition, the Financial Officer o f the Health Sector Reform Project that closed in March 2009 will provide support and training to the new Financial Officer during the first 12 months o f the project l i f e to ensure transfer o f knowledge about Bank financed projects.

13 1. The P I U Financial Officer, as soon as appointed and before project effectiveness, will be entrusted to update the Financial Management manual with the support from the closed Health Sector Reform Project Financial Officer who initially prepared the manual. The FM manual will depict the controls to be applied by the project along with the chart o f accounts and authorization, documentation and review cycles.

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132. All documents will be maintained at the P I U and the project Financial Officer wil l be responsible for preparing a monthly reconciliation with the World Bank client connection. Such reconciliation i s to be reviewed and approved by the HI0 Head o f the Financial Department.

133. Reporting and Recording: The project will fo l low cash basis o f accounting. A simple automated accounting system i s to be procured and used to support the recording, budgeting and reporting needs o f HISDP.

134. The Financial Officer o f the PIU i s responsible for the recording and reporting o f al l accounting transactions. In addition, the Financial Officer will prepare the monthly commitment tracking sheet to be reviewed and approved by both the project director and the HI0 Head o f the Financial Department.

135. The management information system that wil l be procured by the project should be capable o f generating necessary financial reports, including sources and uses o f funds, cash withdrawals and cash forecasts. As discussed during the mission, the project Financial Officer wil l prepare the reports and have them reviewed and approved by the Project Director and the HI0 Head o f Financial Department.

136. Project:

In accordance with Bank guidelines, the fol lowing reports will be required under this

137. Semi Annually; The Project will be required to generate semi-annually IFRs and submit them to the Bank as part o f the Project’s progress report or separately. These reports will consist o f the following:

a.

b.

C.

138.

Statement o f sources and uses o f funds and uses o f funds by project component, indicating funds received from various sources if any, cash forecast, an expenditure report comparing actual and planned expenditures by activity, and if applicable, D A s reconciliation statements.

Contracts listing: to include a listing o f al l contracts showing amounts committed and disbursed under each as at the report date.

Upon the signature o f the equipment contract, a l i s t reflecting the goods received (by type and location) as o f the report date and distributed.

These reports should be remitted to the Bank within 45 days from the end o f the semester as per the Project’s loan agreement.

139. Annually: The Financial Officer at the P I U will prepare, on annual basis, the Project Financial Statements (PFS). The PFS will fol low the cash basis o f accounting and will be audited and submitted to the Bank within six months from year end. The consolidated PFS will include:

d. Statement o f sources and uses o f funds, indicating sources o f funds received and Project expenditures;

e. Appropriate schedules classifying Project expenditures by component, showing yearly and cumulative balances;

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f. If applicable, DAs reconciliation statements reconciling opening and year-end balances; and

g. Statement o f Project commitments, Le., the unpaid balances under the Project’s signed contracts.

h. Status o f the equipment received and distributed as o f the year end.

140. Budgeting. The Project’s Finance Officer at the P I U needs to prepare, on annual basis, budgets and disbursement plans reflecting the project cash needs per quarter. The initial plan will be developed based on the initial procurement plan, implementation schedules and estimated payments cycles, and revised thereafter. The budget will be used as a monitoring tool to analyze variances and manage cash. Updating the annual budget will be the responsibility o f the HI0 PIU.

141. Inventory and assets Controls at the central and Governorate levels: All project assets purchases will go through the HI0 inventory system. The HI0 maintains a satisfactory inventory system based on manual entries. Given the scope o f the equipment that will be purchased under the project, the HI0 will install a system that will facilitate the management and distribution o f the equipments to be purchased under the project by maintaining separate records in place to record and keep information about the equipment distributed per location, including the number and type o f equipment received at the various offices in the three governorates. Also, additional measures were agreed during appraisal to ensure proper management o f project assets.

142. under

a.

b. C.

d.

e.

f.

g.

The following i s the inventory cycle with the assets controls measures that will be applied the project:

Goods received are subject to the inspection committee review. Such committee i s comprised o f technical, financial and procurement staff from the HI0 head office and the receiving governorate office. The project will maintain separate warehouse records for all i t s goods. After the goods are accepted by the inspection committee, they enter the warehouse and a receipt for incoming goods i s prepared by the warehouse manager. The received goods are then recorded in the warehouse book (warehouse book3). Both the receipt and the books record the goods with their detailed information such as the item number and sachet number. Copy o f the invoice, inspection report, and approved contract in addition to any other necessary documents are provided to the warehouse custodian who also records the incoming goods in his records (warehouse 4 books) and regularly matches his records with the warehouse man ones. The warehouse incoming goods receipt i s reviewed and approved by the warehouse manager. Disbursements from the warehouse are based on approved requests from the receiving location and goods will enter ultimate receiving location warehouse in the same manner explained above. O n weekly basis, the P I U will receive the warehouse reports o f al l items added and distributed to each and every location. Based on such reports, the P I U financial officer

47

will maintain an excel assets register with al l project-related goods information, location and custodian. This register will be part o f the IFRs to be prepared each semester by the project and remitted to the Bank.

h. Quarterly, the P M U Financial Officer will conduct a spot check o f the warehoused goods as well as the goods delivered to ensure information matches the assets registered.

i. On an annual basis, a physical count will be made on al l warehouse additions and disbursements items by a committee from the HI0 and a representative from the Central Accounting Office. The project audit TORS will include such count that will be also performed by the external auditor assigned to audit the project accounts, records and equipment purchased.

j. Part o f the project’s external auditor’s TOR will also include a physical check on a selected sample o f warehouse additions and disbursements.

k. All HI0 inventory items are insured against fire.

Project: requests direct payment. 4

143. Flow of Funds: As the project entails only one component and a limited number o f contracts for which payments will be made in bulky amounts, direct disbursement method and Special Commitments will be used. The loan will be disbursed through direct disbursements method. The P I U finance department will maintain al l the original supporting documents o f the project’s disbursements and will submit copies o f such documents to the Bank when requesting direct disbursements. The f low o f project funds wil l be as follows:

Supplier: sends invoice to project

144. External Audit: A private, independent auditor will be selected to perform the annual audits for the project. Terms o f reference for the audits will clearly reflect the nature o f the project and i t s exact needs relating to the equipment distribution and management and must be reviewed and cleared by the Bank Financial Specialist. The audit TOR must include a physical check o f the hardware received at both the HI0 warehouses as well as the ultimate final locations where the goods were delivered in the governorates. The cost o f the audit will be financed from Loan proceeds. The audit report and opinion, accompanied by a management letter, wil l cover the project’s financial statements. The report should be submitted to the Bank no later than six months following the closing o f the fiscal year. The external audit report should encompass al l project components and activities as a “whole” under the Loan Agreement. The audit should be in accordance with the Bank’s auditing requirements and conducted according to International Standards on Auditing.

48

145. Bank Supervision: Due to the limited number o f components and contracts under the project, the project fiduciary risk after the above mitigating measures i s assessed to be moderate. Therefore, the project will be visited at least twice by the Bank FM team to ensure satisfactory FM arrangements are maintained. . Initially, support will be provided to the P I U to have in place the FM arrangements agreed upon and thereafter supervision will be performed on a semiannual basis and will review the adequacy o f the Project financial management arrangements.

146. Corruption: Fraud and corruption may affect the project resources. The above fiduciary arrangements including ring-fencing, reporting and audit arrangements will reasonably reduce the risk o f corruption from a technical perspective through the fiduciary arrangements but may not be effective in case o f collusion.

147. FM in the proposed Payor Business System: The proposed system will cover "functions such as finance and accounting, human resources and payroll, legal, fixed asset management, communications and document management. In addition the system will support the collection, recording and management o f insurance contributions, and associated debts and liabilities." for a two-tier governance structure with a national and Governorate level Payor offices (see P A D Annex 4). The financial transparency and fraud control issues are at the very heart o f the efficiency gains that we expect the country to generate through the development and use o f this system. As such, both the main systems contract and the VV contracts are expected to have winning bidders who demonstrate experience in the area o f financial controls as applied to health insurance systems. An important distinction for us to note, however, i s that it will not be the World Bank reviewing the appropriateness o f these systems but rather the HI0 and NHIA themselves. We will be measuring the results through the agreed results indicators which include efficiency measures.

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Annex 8: Procurement Arrangements

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

A. General

148. Procurement for the proposed project wi l l be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below.

149. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been finalized in the Procurement Plan and agreed upon between the Borrower and the Bank at Negotiations. The Procurement Plan wi l l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

150. Procurement of Information Management System: The project wi l l procure an information management system package comprised o f the following modules: Beneficiary, Benefits Package, Claims, and Case management in addition to Utilization Control Measures and Reporting. The procurement wi l l be done using the Bank's Two-Stage Information Systems Standard Bidding Documents (SBD) under ICB procedures. The preparation o f the bidding documents i s well-advanced and i s slated for Bank management (OPRC) review and approval under Advance Procurement procedures in view o f the long lead time for preparation o f specifications required for a complex PMIS package.

151. Goods procured under this project wi l l comprise o f the necessary Hardware for the operation o f the Management Information System pilot program in the three governorates and the national center. The procurement wi l l be done using the Bank's SBD for all ICB.

Procurement o f Goods:

152. Selection of Consultants; Other than the external audit o f the Project, the core consultancy services contract to be procured under the project would be the technical firm providing VV services to the HIO. It i s expected to be in place by March 2010 and to provide services for the duration o f the project. Should the need for additional consultant services arise, the short l i s ts o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

153. Bank, but by Government to HI0 as the project implementing agency.

Operating Costs; Operating costs under the proposed Project wi l l not be financed by the

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154. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts, wi l l be annexed to the Project Implementation Plan expected before Effectiveness.

B. Assessment of the agency’s capacity to implement procurement

155. Procurement activities under the proposed Project wi l l be the responsibility o f the HIO. The HIO, established by Presidential Decree No. 1209 for the year 1964, and managed by an Administrative Council, i s authorized to manage all the affairs o f the organization, including procurement aspects. This degree o f autonomy from the M O H helps it to maintain the necessary independence and reasonable degree o f transparency in handling the relatively high volume o f procurement under i t s responsibility.

156. An assessment o f the capacity o f the Implementing Agency (HIO) to implement procurement actions for the project has been carried out by the Bank’s procurement specialists in September 2009. The assessment reviewed the organizational structure for implementing the Project and the interaction between the HI0 project staff responsible for procurement and the Ministry’s relevant central unit for administration and finance. In addition, a supplementary assessment o f the capacity o f the TSO at M O H was carried out in early October 2009 which, until the PIU i s established and running, has been made responsible and i s already carrying out the advance procurement activities for the Software Package such as preparation o f the Two- stage Bid Documents under the Project.

157. The TSO was created under the recently closed HSRP financed by the Bank. After closing the HRSP, the TSO mandate and scope o f services has continued for other donors such as the EU the under direct supervision from the MOH. The TSO has capable technical and fiduciary including procurement function staff and as such i s closely collaborating with HI0 management in processing preparation o f the first two o f the three contracts to be financed under the HISDP with some support from the external consultants on Health Insurance reforms reporting to the MOH. The TSO has a procurement unit comprised o f 4 Procurement Specialists (a senior, and 3 junior staff) all o f whom are familiar with Bank procurement procedures in projects, which serves the purpose o f these intra-sector interim arrangements to mitigate the risk to Bank financed procurement well.

158. Key issues and risks concerning procurement for implementation o f the project have been identified and the findings include that, since i t s establishment in 1964, the HI0 has not dealt with any ICB tenders or with the Bank procurement guidelines. The HIO’s only procurement experience i s with the national procurement Law No. 89 and before that with i t s predecessor Law No. 9. In addition, HI0 procurement staff have limited experience with other donors’ procurement procedures. The other potentially significant procurement risk i s whether the technical specifications can be designed comprehensive and robust enough to ultimately obtain a sufficient cohort o f technically comparable bids, to then be able to select the lowest evaluated responsive bidder (primarily on price alone at the second-stage) for supply o f the main systems package.

159. Procurement Risk Mitigations measures: In terms o f procurement risk, it i s considered high, particularly in the early phase o f project implementation, should there be a delay in

51

appointment o f the proposed VV firm. The procurement risk mitigation measures recommended to HI0 by the assessment are the following:

Include the procurement activity as one o f the core activities for TSO’s sole responsibility until the PIU i s established, which will thereafter work in close collaboration with the VV Consultant for technical and contract management aspects.

0 The HI0 will use the TSO to initiate and finalize the process o f hiring the VV (prepares TOR, EIO, Short list, RFP, technical and Financial evaluation, and contract signing).

0 Start this activity immediately under Advance Procurement procedures o f the Bank. This i s already underway with preparation o f the main systems contract package bid documents.

Provide financing from Government for the VV Contract, to be reimbursed under the Loan once it i s Effective, in order to facilitate timely selection o f the VV to contribute to the final selection o f the main systems package and subsequent development o f the necessary hardware package for the pilot governorates.

I t i s expected that, upon appointment, the VV would have to work closely with the procurement staff o f the PIU and under supervision o f the chairman o f HIO.

160. In addition to the above more immediate procurement risk mitigating measures, in terms o f more sustainable capacity building, the team recommends HI0 procurement staff in the headquarters office in Cairo should be encouraged to participate in external training as well as on-the-job procurement training from TSO, as regards Bank procurement guidelines and accountability for compliance with the Loan Agreement on procurement aspects.

161. applied, i s considered Substantial.

The overall project risk for procurement, after risk mitigation measures have been

C. Procurement Plan

162. 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 Borrower and the Project Team on October 28, 2009 and i s available at the World Bank office in Cairo, Egypt. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan wi l l 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. Frequency o f Procurement Supervision

163. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended two annual supervision missions to visit the field to carry out post review o f procurement actions.

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E. Details of the Procurement Arrangements Involving International Competition

1 2 3 4 5 6 7 8

Ref. Contract Estimated Procurement P-Q Domestic Review Expected No. (Description) Cost Method Preference by Bank Bid-

(yeslno) (Prior I Post) Opening Date

2 N/A Prior End-March Stage 2010

Software ICB supply and US$45 Install Million Hardware US$25 ICB TBD N/A Prior TBD Supply and Million Install

9

Comments

165. wi l l be subject to prior review by the Bank.

ICB contracts estimated to cost above US$200,000 per contract and all direct contracting

1

Ref. No.

166. List o f consulting assignments with short-list o f international f i rms .

2

Description of Assignment

VV Firm

3

Estimated cost

US$5 million

Selection Review

(Prior I

6

Expected Proposals

Submission Date

December 2009

7

Comments

Selection by March 2010 i s critical

167. source selection o f consultants (f i rms) w i l l be subject to prior review by the Bank.

Consultancy services estimated to cost above US$200,000 per contract and all single

168. Short l i s ts composed entirely o f national consultants: Short l i s ts o f consultants for services estimated to cost less than US$200,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

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Annex 9: Economic and Financial Analysis

Egypt, Arab Republic Of

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

I. Overview

169. The economic and financial benefits from the investments under the HISDP arise through a number o f channels. These include administrative efficiencies and effectiveness on the payor side such as utilization and fraud control, and administrative efficiency and clinical practice effectiveness on the health provider side. These benefits will emerge over time, most notably during the project period in the pi lot governorates, and in the post-project period nationally, these being contingent o f course on the nationwide roll-out taking place. Accordingly, forecasts o f the benefits are subject to a number o f assumptions regarding baselines, impacts and timing. Nonetheless, the benefits can be estimated by conducting different types o f analyses, as described below, including a break even analysis relating specifically to the project period and pi lot governorates, and a net benefit analysis for the pi lot governorates based on a conservative estimate o f anticipated impacts.

170. The introduction o f efficient claims management systems into a largely paper based environment can have dramatic impacts in a wide variety o f areas, not only relating to the administrative aspects o f the payer organization, such as: a reduction in the cost o f claims processing; improving the accuracy o f submitted claims so claims do not have to be resubmitted as often; reduction in the cost o f handling the paper claims, but also the monitoring o f service utilization can influence medical practice itself. Examples are: unnecessary duplication o f laboratory investigations; underutilization o f inpatient beds or equipment in some locations; poor coordination o f care that results in unnecessary hospitalization; wastage o f pharmaceuticals by mismanagement; medical errors such as adverse drug events; unwarranted variations in medical care; and poor fol low up o f chronic diseases resulting in poor health outcomes and ultimately high cost.

171. Estimating the financial benefits from addressing these issues can be dif f icult to achieve, le t alone establishing a baseline figure for the current organization. The fol lowing calculations therefore are based on a subset o f the benefits in the areas of: (a) fraud control; (b) utilization control; (c) clinical practices; and (d) administrative efficiency.

172. Based on the types o f analysis delineated above, we find that the potential scope for efficiency and effectiveness gains from the Project investments i s such that even under a relatively modest set o f assumptions related to the benefits outlined above, the Project will be able to recover i t s costs within the implementation period and limited geographic area o f the three pi lot governorates. The benefits l ikely to accrue from the project investments may lead to potential savings equivalent to some US$l11 million per year (in the pilot governorates), or 7.5 percent o f the current total health spending.

173. US$75 million, savings equal to only 2.7 percent would be required.

Furthermore, for the project to break-even, Le., recover the initial investment costs o f

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11. The Project Elements and the Estimation o f Returns

174. Egypt spends some US$85 per capita per year or around 6 percent o f GDP on health services. While this i s at par with other middle-income countries, the rate o f increase i s estimated to be almost 10 percent faster than the economic growth rate. The fact that health spending i s taking a growing share o f total spending suggests the need for strengthening the cost control o f the financing system. The current fragmented nature o f the health system i s l ikely to make this difficult as no single entity will be able to implement the necessary organization and management mechanisms. For example, the existing HI0 has seen i t s expenditure grow faster than revenues over the past decade leading to persistent operational deficits. Recent actuarial analysis commissioned by the Government to underpin the expansion o f social health insurance, indicates that, using a range o f plausible assumptions regarding coverage, utilization, and benefits, the social health insurance fund will face significant expenditure escalation pressures. The main driver for this i s the assumed utilization o f health services by the enrolled beneficiaries.

175. By investing in an effective and unified payor function, the HISDP will contribute to being able to address this challenge through the development o f a proven business model supported by a technology-enabled management system that will provide the purchaser o f health services with the required tools and information.

176. Evidence o f health care inefficiencies, fraud, and improper use o f resources i s increasingly becoming available at national and international levels. While little quantitative evidence i s available from Egypt, largely due to the absence o f information and management systems that the Project i s designed to address, there are strong reasons to believe that the project interventions will contribute to reducing overall health expenditures by an estimated 6 to 7 percent, or equal to around US$365 mi l l ion to US$420 mi l l ion per year, once the activities are up and running on a national scale. These are conservative estimates based on reasonable assumptions, and show that the overall economic rate o f return i s high.

177. The main mechanisms used to ensure the economic justification o f the project include management reviews, audits o f claims, contributions monitoring, clinical inspections, and auditing o f providers and major claims groups. Today, most o f the control interventions and reviews are made by hand, which is not only costly in terms o f time and human resources, but i s also l ikely to be cost-inefficient with respect to returns. Having a modern and effective information management system in place will enable the Payor to conduct these activities in a considerably more effective manner. In terms o f suboptimal use o f resources, the main targets include the following: systematic fraud and illegal behaviors o f providers and beneficiaries, income maximizing conducts o f providers, and poor medical practice. There are also other potential benefits such as improved administrative efficiency and contributions compliance monitoring,

178. The project investments, once fully implemented, will have an impact on al l o f the problem areas outlined above. I t i s unrealistic however to expect that al l problem areas will be fully resolved, as many countries with considerably more experience in controlling health expenditure s t i l l suffer f rom these problems, albeit to a lesser extent.

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a. Fraud and related misallocation o f resources

179. There are different types o f fraudulent and illegal behaviors ranging from system wide actions where several actors, both on the provider and on the beneficiary sides, collude to gain financial or other favors from the system, to the fraudulent practice o f individual providers on a repeated but limited scale. There are likely to be other types o f such behaviors, but where the evidence o f fraud i s less easily identified.

180. By means of manually conducted reviews and claims audits, the existing HI0 has been able to uncover fraudulent behaviors, such as where claims for non-medical items have been submitted. Although more systematic evidence o f the level o f fraud i s lacking in Egypt due to the absence o f an effective MIS, evidence from, for example, the USA where there i s also a largely fragmented health financing system, fraudulent billing may be as much as 3 percent - 10 percent o f total health expenditure. In countries with significantly less advanced anti-fraud programs and inferior information and management systems, even though they may have a different structure to their health insurance systems, there wi l l undoubtedly be fraud and related funds misallocation, probably at a level closer to the upper end o f 10 percent.

181. In an environment where the lack o f electronic claims management means that fraud control i s problematic, the introduction o f electronic claims management along with basic fraud control programs should have a significant effect, perhaps discouraging as much as 25 percent o f existing fraud. This i s difficult to confirm however until the electronic systems are introduced. Assuming that the potential level o f fraud i s 10 percent o f overall health expenditure, the combination o f claims management systems and fraud management program, once effective, say after 3 years, could save 2.5 percent o f total health expenditure, or some US$123 million per year.

b. Income Maximization of Providers

182. Depending on the current and future nature o f the provider payment system a percentage o f providers will actively look for ways to manipulate the system in a way to maximize their income. This i s o f course to be expected but if uncontrolled may result in high cost and be inconsistent with best practice. I t i s difficult to determine the extent to which this type o f activity i s taking place in Egypt because o f the lack o f data however i t could be reasonable to assume that this could account for 10 percent o f overall expenditure.

183. The way to control this i s to closely and systematically monitor the usage o f services and identify when unacceptable behavior appears to be taking place and then to adjust the regulations and reimbursement rules to reduce this activity. The operational and management information system to be introduced through this project along with the institutional capacity building being concurrently developed by the GOE should go some way to addressing this issue. This type o f behavior i s always going to be resistant to change but it should be possible to reduce this behavior by perhaps 20 percent, representing 2 percent o f the total health expenditure, or around US$98 million annually.

56

C. Poor Medical Practices

184. Gauging good clinical practices i s difficult for a number o f reasons, including divergence in the identification o f best practice. Health technology assessments (HTA), a special field o f quality o f care analysis and normative policy making in health care, i s increasingly being practiced across OECD-countries. Conducting rigorous HTA requires access to high quality data, an area that wi l l be strengthened with the project investments in place. Notwithstanding the absence o f upfront evidence o f medical errors in Egypt, i t would be reasonable to conclude that at least 20 percent o f all health costs relate to medical treatments that are not best practice.

1 85 I Based on the available international evidence on clinical practices and ways o f addressing deficiencies, i t i s reasonable to assume that the combination o f the information system that will be introduced through this project along with the institutional capacity building and program development that wi l l be undertaken by the GOE, wi l l reduce the financial impact o f poor practice by 10 percent, representing 2 percent o f total health expenditure, or approximately US$98 million per year.

d. Administrative Efficiency Gains

186. Evidence from different health care systems suggests that health care administrative costs can be significant. For example, one estimate puts the share o f administration costs in the U S health system at around 30 percent. The fragmented nature o f the U S and equally the Egyptian systems drives up costs due to foregone economies o f scale and duplication o f management systems. Evidence from systems with more coherent purchasing organizations suggest that administration costs o f the overall system are around 10 percent-12 percent, i.e. considerably less.

187. The replacement o f a paper based claims management system by a more efficient electronic claims management system will significantly reduce the cost per transaction, ideally to below U S $ l per claim. In addition, the introduction o f linkages to the providers to enable them to submit claims electronically will reduce the rejected claims rate, which typically i s associated with high costs for both provider and payer.

188. Because o f the current paper based system and the structure o f the HIO, which acts as both a payer and provider, the establishments o f baseline figures for transactions costs and rejected claims rates i s difficult. I t i s however possible to compare a newly reorganized payer organization, with and without, the payer management information system being in place. Internationally it i s often the case that paper based claims processing costs approximately U S $ 7 per claims versus U S $ l for electronically processed claims. I t i s reasonable to assume that the relative difference in cost also applies to Egypt. Given the predicted volume o f outpatient claims for Egypt i s 460 million annually then clearly even a reduction in transaction costs o f U S $ 1 will result in US$460 million savings annually.

189. While the potential administrative savings associated with the introduction o f a single purchaser o f services equipped with modern technologies and with trained cadres o f managers and administrators are significant, there are many factors that may limit the realization o f these administrative savings, such as the complexities o f implementing such a large organizational

57

restructuring program. Therefore an extremely conservative estimate o f administrative savings i s around 1 percent-2 percent o f total health spending, or around US$73 million per year.

Fraud Income maximization Poor practice Efficient

e. Summary

Estimate of Program Overall impact problem effectiveness 10% 25% 2.5% 10% 20% 2% 20% 10% 2% 10% 10% 1%

190. Supported by the HISDP, the new Payor o f the health insurance system would be in a position to address critical issues o f accountability and transparency in the financing and delivery o f health services in Egypt. The project wi l l specifically contribute toward building crit ical managerial and technical capacities in the organization while keeping administrative costs low

National Total Project Total (in 3 Pilot Governorates)

191. summarized in the table below.

The combined impacts o f these benefits on total health care spending per year are

US$370 million per year US$111 million per year

administration 7.5%

192. The above total annual returns of US370 million per year are based on national coverage and health spending estimates. The analysis o f total annual returns was also conducted for the three pilot Governorates where the HISDP wi l l operate. Based on existing data on the level o f health expenditures in the three Project governorates as a share o f total health expenditures, and evidence that the per capita health spending in these governorates i s higher than the national average, a conservative estimate i s that the health spending in these areas would be approximately 30 percent o f the whole. This leads to an estimate o f total annual gross returns within the Project area (and duration) once the system i s functional in all three regions, o f around US$111 million per year.

111. Contributions to Financial Sustainability of Social Health Insurance

193. The financial sustainability o f the activities initiated under the HISDP project i s unlikely to present a problem, given the potential returns from the investment, as outlined above, and the close monitoring o f the project that will be undertaken by the specialized verification and validation company engaged through the project.

194. The HISDP wi l l provide very important support for the financial sustainability o f the Social Health Insurance program as a whole. Financial sustainability o f a SHI program requires a number o f measures to be in place (a) adequate contribution rates; and (b) contribution compliance, (c) a level o f commitment on the part o f the State to provide the necessary subsidies

58

and any additional transfers from State budget to prevent accumulation o f debts and eventual insolvency; (d) clarity over the shared responsibility between the State and the contributory pool in financing the health benefits; and (e) the capacity o f the new health insurance administration to manage the health insurance funds effectively to contain costs while ensuring quality. The technical skills, technologies and systems introduced through the HISDP wi l l support these measures to a significant degree thereby assisting in the sustainability o f the entire system.

BenefitsKosts Benefits: Savings due to fraud, improper use of resources, administrative and management efficiency gains (see above for details) costs: Investment costs plus recurrent costs. Recurrent costs are expected to stabilize at end of investment period and grow at constant rate thereafter; constant depreciation of equipment!machinery Net Present Value Internal Rate of Return

195. A crucial aspect o f ensuring financial sustainability o f the SHI program, where the financial and fiscal space available to the Government i s limited, i s to ensure that priority should be given to coverage o f goods and services that have the most health impact as well as protect those population groups that are deemed particularly vulnerable. The technical skills, technologies and systems introduced through the HISDP will enable the NHIA to more systematically review key elements o f the SHI system such as the benefits package, medical tariffs and contribution rates.

Present Value of Flows (US%)

Cash flow net of recurrent costs: US$1 1 1 million to 2020 (discount rate 10 percent)

Investment: US$75 million (discount rate 10 percent)

US$36 million 48 percent

IV. Internal Rate of Return from Project Investments

196. the project investments, the returns to the project are summarized below.

Based on the set o f assumptions outlined above and on bringing in the financial costs o f

197. The sensitivity o f these returns estimates wi l l depend on the extent o f inefficiencies and scope o f improvements in the three Project governorates. While no evidence on this exists, there i s nothing to suggest that the context i s particularly favorable or detrimental in these governorates compared with the rest o f the country.

198. Assuming that the three pilot Governorates together make up one third o f total health expenditure then the approximate health expenditure for these governorates would be US$ 2.73 billion (total health expenditure in Egypt in 2007 was US$8.2 billion). The break-even point i s found by dividing the health spending for the pilot Governorates by the project costs o f US$75 million which gives approximately 2.7 percent. Improving overall efficiency through the project investments by some 2.7 percent i s likely to occur even in the short te rm covering the immediate project implementation period.

59

Technical Appendix to Annex 9: Rate o f Return and Net Present Value o f Investments

199. The fol lowing analysis calculates the net present value o f the investments based on the above assumptions related to the estimated benefits and associated returns. Furthermore, the calculations assume a uniform disbursement rate over the implementation period, with returns likely to materialize after the first year. Three alternative scenarios are assumed based on the pace with which disbursements are made and returns realized.

Net financial flow Present Value

Note: a discount rate o f 10 percent i s assumed along with a uniform disbursement profile

200. As can be seen in the table above, the NPV i s positive after the second year in al l scenarios. Over the coming 10 years, the project i s estimated to have a financial rate o f return o f 48 percent in the base scenario. Failure to implement the project according to schedule and to fully take advantage o f the benefits will generate a lower return; conversely, rapid and effective implementation may lead to a return o f over 100 percent.

201. The present values o f the returns under each scenario are shown in the figure below.

60

4 5 6 7 8 9 1 0 1 1

Year

-C- PV-base

+ PV-low

PV-high

202. The accumulated present values for all three scenarios are shown in the figure below,

150

0

. . " . .. .. .. ... " " .... ." .. ." . .._"..."...I"."..I..I.. . " ..........I" ..I".."." ""..

________I_ --

1 - - - 1 - - . I 1

6 7 8 9 1 0 1 1

+Accumulated PV-base

+Accumulated PV-low

-.Accumulated PV-high

-50 L.- Year

I

203. can be seen, the estimated returns vary according to the extent to which the benefits are realized.

The figures illustrate the financial returns o f the investment over the coming years. As

204. In addition to the assumptions related to the potential economic benefits o f the investments, these calculations are sensitive to the assumed share o f total health spending in the three project Governorates. By way o f sensitivity analysis, it can be shown that if the share i s only 10 percent o f total health expenditure, the total savings would have to be in the order o f 9.1 percent to reach financial break-even. If the share i s 20 percent, the savings would need to reach 4.5 percent.

61

Annex 10: Safeguard Policy Issues

Egypt, Arab Republic Of

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

205. There are no safeguard policy issues raised by the Project.

62

Annex 11: Project Preparation and Supervision

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

Planned Actual PCN review September 24,2009 September 24,2009 Initial PID to PIC October 5,2009 October 5,2009 Initial ISDS to PIC October 7,2009 October 7,2009 Appraisal October 26,2009 October 26,2009 Negotiations November 15,2009 November 17,2009 Board/RVP approval December 2 1 , 2009 Planned date o f effectiveness June 15,2010 Planned date o f mid-term review December 1 5,20 12 Planned closing date June 30,2015

Key institutions responsible for preparation o f the project: Ministry o f Health Health Insurance Organization

Bank staff and consultants who worked on the project included:

Name Title Unit Trina Haque Lead Economist MNSHH Sami Ali Sr. Operations Officer MNSHD Akram El-Shorbagi Sr. Financial Mgmt Specialist MNAFM Alaa Hamed Sr. Health Specialist MNSHH Amy Champion Operations Analyst MNSHD Andrew Parkes Health Insurance Consultant MNSHD Atter Hanoura Information Technology Consultant MNSHD Ayman El-Guindy Procurement Specialist MNAPR B adr Kame 1 Sr. Procurement Specialist MNAPR Bjorn Ekman Sr. Health Economist MNSHH Brigitte Franklin Program Assistant MNSHD Craig Neal Sr. Public Sector Specialist ECSP4 Francisca Ayodeji Akala Sr. Public Health Specialist AFTHE Mikael Mengesha Sr. Procurement Specialist MNAPR

Bank funds expended to date on project preparation:

Trust funds: PHRD - US$464,33 1 1. Bank resources: -US$450,403 2. 3. Total: - US$914,734

63

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$60,000 2. Estimated annual supervision cost: US$200,000

Strategy for Supervision and Implementation Support

206. The World Bank’s Articles o f Agreement require that managers and staff assume responsibility for supervising the recipient’s implementation o f projects and programs receiving World Bank financing. The principal aim o f supervision i s to ensure that financing i s used only for the purposes intended, with due regard to economy and efficiency and that the operations supported achieve their development objectives. Given the complexity o f the proposed HISDP, as well as i t s substantial risk, the Bank proposes to institute a program o f enhanced supervision and implementation support for the Project.

207. The following principles wil l guide this effort:

208. Supervision should be flexible and responsive and a mechanism for sustaining partnership. Hence it needs to be structured as an ongoing process o f engagement able to identify and respond quickly to implementation challenges that arise in all Project areas. In addition the process should provide a mechanism for close collaboration and dialogue between the Government and stakeholders. Thus in addition to the regular semi-annual formal supervision missions, MOH, HIO, and the Bank have agreed to have regular bi-weekly meetings to assess progress and identify emerging issues, as well as areas where concerted efforts should be made to ensure a coordinated resolution o f cross-cutting issues. To facilitate this mode o f continuous engagement, the Bank has placed a senior TTL and core team members in the field.

209. Ensuring technical rigor and a team-based approach will be critical given the technical complexity and multiple stakeholders o f the health insurance information systems to be developed under the HISDP. To respond effectively to the demands o f implementation, the supervision teams on both the Government and Bank sides will need to be staffed with professionals with appropriate technical skills and experience. This includes, inter alia, technical specialists in the following areas: health insurance management, health insurance information systems, procurement o f complex information systems, economic analysis, institutional development, financial management/disbursements; and communications. During implementation, additional sk i l ls may be required to address specific emerging requirements.

64

Annex 12: Documents in the Project Fi le

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

210. Selected documents available with the World Bank and/or with the M O H are the following:

With the World Bank and the Ministry of Health

Aide Memoire, 27 May-9 June 2008 Aide Memoire, 8-27 October 2008 Aide Memoire, 12- 18 May 2009 Aide Memoire, 24-29 October 2009 (Appraisal) Procurement Capacity Assessment, October 2009 F M Capacity Assessment, October 2009 HISDP Procurement Plan, October 28,2009 Japan PHRD Grant, May 29,2007

With the Ministry of Health

e e e e

National Health Insurance-MIS data flow and provider CIS specification, January 2007 Technical Report on Services Suitable for Outsourcing, November 2007 Impact Evaluation Manual o f the FHIF in Sohag, July 2008 Manual for FHIF Monitoring System, August 2008

65

Annex 13: Lessons Learned

EGYPT, ARAB REPUBLIC OF

HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

Lessons f i om Egypt

2 1 1. governorates such as Menoufia which wi l l be utilized as building blocks for the new project.

There are formative but positive developments in the recent HSRP project in some o f the

The HSRP developed and implemented a series o f contracting and performance-based payment systems, including primary care bonus systems and DRGs for inpatient surgical episodes. These experiences are being formally evaluated under HSRP, and the results wi l l be utilized to implement and scale-up new contracting and payment systems under the new SHI.

These new systems wi l l depend upon good MIS systems as well. The HSRP has piloted a new Clinical Information System (CIS). A Version 6 and then Version 7 went "live", running in over 300 family health units in project governorates (Alexandria and Menoufia) by mid-2007. The M O H has reported that all units are fully equipped with all I T necessary networks and hardware. A final version i s being tested at the central level in MOH. Currently, two major issues would need to be addressed: (i) the CIS lacks an interface with the information systems present at the FHFs, crucial to completing the information cycle to better serve the FHFs; and (ii) the quality and completeness o f data in health facilities.

The CIS, furthermore, must be complemented by a hospital-based system if the benefits package covers hospital services. To date, every indication i s that the standard package wi l l closely resemble the HI0 package which i s quite comprehensive. CIS has been designed to allow a referral module to support a gate-keeping function by the FHM, but the M O H and HI0 wil l need to develop and test the referral protocols to be adopted in the new SHI system.

Lessons from International Experience

21 2. There are several examples o f projects involving health information management programs that provide relevant lessons, including broad-ranging health insurance reform programs in Bulgaria and Slovenia, the introduction o f an HMIS in Latvia, and the introduction o f automated claims management in Lebanon. These projects are, o f course, quite different in scope and size; however, each project has relevance for the proposed Project.

213. Bulgaria. The Bulgaria Health Sector Reform Project was a 5-year program that commenced in 2000 and involved a US$63 million IBRD loan and US$24 million o f government counterpart funding. The program was multifaceted and involved the following key elements: (i) Primary Care and Hospital Reform, which included the provision o f relevant equipment, information systems, training and public awareness campaigns, and labor adjustment strategies to deal with surplus medical personnel; (ii) a National Health Insurance Fund (NHIF) which

66

involved ensuring the NHIF had sufficient information systems and training to manage a national health insurance program; and (iii) capacity building within the health system, specifically the NHIF and the MOH.

214. Overall, the project outcomes for the Bulgaria project were rated as moderately satisfactory. Administrative costs for the NHIF were reduced from over 5 percent in 2000 to approximately 2.6 percent in 2008. Average length o f stay in hospital reduced from 1 1.5 days in 2000 to 6.5 days in 2008. Information systems installed in primary care and hospitals rose from zero in 2000 to 4024 (primary care) and 154 (hospitals) in 2008. The factors contributing to the success o f the project included: significant government commitment to the initial reform process and substantial prior analysis that had been undertaken by various groups to determine the appropriate approach. A key limitation o f the approach adopted under this project was the extremely ambitious nature o f the project, with many reform activities underway simultaneously.

2 15. Regarding the NHIF information systems component, the project was intended to build on existing IT work that had previously been contracted by the government. In reality, those contractors failed to deliver their product and this resulted in significant delays for the project. The entire information system had then to be redesigned from scratch and was not ultimately launched until 2005 and the integrated solution completed in 2009. This extension o f the project placed administrative burdens on the Borrower and the Bank. The ongoing sustainability o f the information system i s o f concern, with the ownership residing with the M O H rather than the NHIF, thus complicating the establishment o f maintenance and support contracts. The disruption that took place in the information system development process resulted in the establishment o f a disasteriback up facility being deferred, an issue that s t i l l needs to be addressed. Despite these issues, it was felt that the introduction o f the information system was one o f the most important achievements o f the project.

216. Latvia. As part o f the Bank-financed Health Reform Project in Latvia which began in 1999, a management information system was to be developed for the health insurance funds at a cost o f US$3.99 million. In addition, US$969,200 was allocated from a complimentary SIDA grant. The system was intended to provide decision makers with the medical and economic data they need, and to enable data to be submitted, and inquiries made from providers using a specially developed PC based package. The approach was to have international competitive bidding for the selection o f a turnkey contractor which would deliver and install all the required hardware and software, including integration o f existing equipment and provision o f training. The objective was to have a country wide and functional MIS operational. Certain technical requirements were specified such as the requirement for a centralized system that could handle 500 concurrent users.

21 7. The Implementation Completion Report in 2004 reported that, following eventual contract signing in 2002, the MIS development was indeed procured and in operation, with the system technically ready to receive al l information on state-paid health services. Implementation o f the system and addition o f new modules was continuing.

218. The MIS development process, however, was subject to considerable delays and it was felt that the magnitude o f the task had been underestimated. The initial tender was delayed by 12 months in part because shortly after the commencement o f the project, the Ministry o f Transport

67

conducted a government-wide review o f information technology activities. There was also lack o f technical capacity within the Ministry o f Welfare as wel l as delays relating to the international consultants. In order to sustain the MIS development process, i t was felt that stronger political support was required from the M O H in addition to public relations support, training and supervision.

219. Based on the relatively smooth implementation o f this project as well as other Bank- financed health management information system (HMIS) projects, a number o f critical success factors have been postulated: robust management and governance, with careful consideration o f management structure; contract construction and change management procedures; professional inputs to augment the project expertise; proactive business process redesign; and technical flexibility and sustainability, including the capacity to adapt to a changing policy environment.

220. Lebanon. The World Bank-financed Emergency Social Protection Implementation Support Program (ESPISP) commenced in 2007. One o f the key groups o f activities was the modernization o f the largest national health insurer, the National Social Security Fund (NSSF), particularly in the areas o f automation o f their claims management systems. The existing systems were manual in nature and characterized by excessively long processing time, being measured in years in some cases, inconsistent decision making and duplication o f effort during the assessment and processing o f claims. The ESPISP program included the development o f an automated claims management system to manage in-patient hospital claims. The claims would be submitted electronically from the hospitals and then processed automatically, with appropriate supervision, followed by electronic approval for payment. The development process involved multiple interviews and workshops with NSSF staff to identify workflows and also NSSF assessment rules, intensive end-user involvement being a major feature o f this project. The assessment rules were then incorporated into a ‘rules engine’ that automatically applied the rules to each claim. The pi lot program involving three hospitals was completed in 2009.

221. There were a number o f lessons learned during the process, including: (i) In addition to the claims management project team, the NSSF had already contracted an IT provider to work on other related issues. Successful interaction between the teams was clearly crucial, and this was at times difficult to achieve. It is crucial that al l teams working on related issues are coordinated by the implementing agency. Effective project management o f the entire project i s o f the utmost importance. (ii) It was at times difficult to keep the project within scope. As separate but related technical issues became apparent, it was necessary to resolve them in order to ensure eventual system functionality. (iii) The implementing agency must be prepared for the gradual but eventual hand over o f the products. There must be sufficient money, staff and training to enable an effective transfer o f skills and technology.

222. Slovenia. The Slovenian Health Sector Management Project commenced in 2000 and supported a wide range o f areas, including health policy support, health standards development, and health information systems involving the establishment o f a national health information clearinghouse that would act as the hub for inter agency exchange o f health related information. Overall, the project outcomes were rated as satisfactory.

223. Regarding specific issues with the information systems component, it became clear early in the project that the concept o f a national clearinghouse was not l ikely to be accepted by the

68

stakeholders. There were also legal issues that would need to be addressed. The Institute o f Public Health (IPH) was the only institution that was allowed by law to review health outcomes data, thus complicating the task o f the health insurance organization to manage a DRG system. If the IPH did not fully support an integrated information system, then progress would be slow. It was decided therefore to reallocate some o f the IT development funding to support the other aspects o f the project, namely DRG development and quality o f care issues, while consultations would continue with stakeholders on the information system design. It was subsequently decided in 2003 to proceed with developing a data management center that would focus on establishing standards and procedures to improve the accuracy o f data and to ensure data security and confidentiality. The initial focus would be on supporting the DRG program. The evaluation team concluded that where IT project components are significant, then more time should be devoted to understanding the legal, institutional and political constraints and then incorporating that understanding into the project design.

224. Summary of international experience. An important lesson that can be learned here from the international experiences i s that ambitious health insurance reform projects that have information systems components are notoriously difficult to keep on schedule and within budget. In several o f the cases reviewed, some o f the problems arose from an overly broad project scope that may not have allowed sufficient attention to have been provided to the information systems component. A key lesson that has been applied to the proposed HISDP is that it i s crucial that the scope o f the project i s very well-defined and realistic, with a central focus on the business system and i t s technical requirements. Supervision and management o f the IT contractors i s also a critical factor in whether the project will be successful. Inadequate supervision o f contractors would likely lead to project failure. This lesson underpins the HISDP’s inclusion o f a VV firm as part o f the core Project activities. The general level o f engagement by the implementing agency has also emerged as a concern in some o f the cases, with a high level o f engagement being crucial. It i s also important that the stakeholders be consulted at al l stages o f the process, that the systems being developed address their needs, and as the project develops, that there i s a steady stream o f products that assist the stakeholders in their day to day activities. In the Egyptian context, i t may be noted that the HI0 and the M O H are working in close cooperation with each other to establish the new SHI system. The Minister himself has the change management effort in hand, with the HI0 Chair as his right hand as well as the Assistant Minister, and a strong communication strategy in place with regard to the different stakeholders. There i s also high- level scrutiny through a SHI Steering Committee chaired by the Prime Minister. Finally, one o f the key sources o f delay in such information system activities i s that the design o f the system requirements and the procurement process take place only after the project has been approved or becomes effective. In the case o f the HISDP, the Egyptian authorities have begun well in advance o f project approval/effectiveness to develop robust technical system requirements and have drafted the SBDs and launched the tendering process already. They have also expressed a willingness to strengthen the SBDs with the advice that the QER panel has provided on technical specifications.

69

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Annex 15: Country at a Glance

EGYPT, ARAB REPUBLIC OF HEALTH INSURANCE SYSTEMS DEVELOPMENT PROJECT

- Egypt, Arab Rep. at a glance 128/09

P O V E R T Y and S O C I A L Egypt

2 0 0 7 Population, mid-year (millions) 75.5 GNI per capita (A tlas method, US$) 1580 GNi (Atlas method, US$ billions) 18.5

Average annual growth, 2001-07

Population (%) 1.8 Laborforce (%) 2.8

M o s t recent ostlmate ( la test year avallable, 2001-07) Poverly (%of population below national PO vertyline)

Llfe expectancy at birth (pars) Urban population (%of totalpopulation) 43

71 Infant mortality (per 1000 live births) 29 Child malnutrition (%of children under5) 5 Access to an improved water source (%ofpopulation) 98 Literacy(%ofpopulation age a+) 71 Gross pnmary enrollment (%ofschool-agepopulation) 0 5

Male 0 7 Female 0 2

KEY E C O N O M I C R A T I O S and L O N Q - T E R M T R E N D S 1887 1887

GDP (US$ billions) 40.5 78.4 Gross capital formationlGDP 26.1 7 .8 Exports of goods and services/GDP 9 . 6 8 . 8 Gross domestic savingslGDP 15.9 115 Gross national savlngs/GDP 8 . 1 7 . 3

Current account baiancelGDP -2.3 0.2 Interest payments/GDP 12 10 Total debt/GDP 0 8 . 9 38.2 Total debt service/exports 7 . 9 0.6 Present value o f debt/GDP Present value of debt/exports

1887-87 1987-07 2 0 0 6 (average annual growth) GDP 4.1 4.4 6.8 GDP percapita 2.0 2.5 5.0 Exports of Ooods and services 6.3 P.0 213

M . East Lower-

AfrlEa Incomo & North mlddlo-

3 0 2,794

876

18 3.6

57 70 34

89 73 0 5 0 8 0 3

2008

07.5 8 . 7

29.9 7 . 1

22.0

16 0.6

26.6 5.4

24.0 63.1

2 0 0 7

7.1 5.2

23.3

3,437 1887

6.485

11 15

42 89 41 25 88 89

m 0 9

in

2 0 0 7

00.5 20.9 30.3 18.3

22.5

2.1 0.6

23.3 5.0

2007 -11

6.5 5.4

218

Dovelopmrntdlmond'

Life expectancy

Gross primary

capita I / enrollment

Access to improved water source

Egypt. Arab Rep - Lower-middle-inwme g m p

Economic ratio@

Trade

Capital savings Domestic + formation

L indebtedness

Egypt, Arab Rep - Lower-mddleinwme gmp

S T R U C T U R E o f t h o E C O N O M Y

(XofGDP) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Imports of goods and services

M anufactunng

(average annual growth) Agriculture industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation Imports of goods and services

Manufacturing

1887 1897

2 0 5 I 7 0 27 1 312 6 5 7 6 5 2 4 518

6 9 9 7 7 2 # 3 113

2 2 8 2 4 9

2 0 0 6

#.I 38.4 6 . 6

47.5

70 8 Q.3 316

1887-87 1887-07 2 0 0 6

2.8 3.4 3.2 6.3 4.4 115 5.3 4.9 5.8 2.7 4.8 5.1

4.7 3.1 5.1 2.3 3.0 3.1 -13 4.3 f3.3 2.5 6.4 218

2 0 0 7

M.1 22.8 15.7 63.1

72.4 11 3

34.8

2 0 0 7

3.7 7.9 7.6 7.4

5.2 0.2

23.8 28.8

I Growth of oapltd and QDP (%)

Growth of expo- and Impotta ( o h ) c 40 - 30 - I

20 I.

"" "" ". .̂ ^^ -10 - EXPOI~L -C Imports

Note 2007 data are preiiminaryestimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators in the country(in bold) comparedmth its income-groupaverage If data are missing thediamondwll

be incomplete

71

Egypt, Arab Rep.

PRICES and GOVERNMENT F I N A N C E

D o m e s t i c p r i ces (% change) Consumer prices implicit GDP deflator

Governmen t f inance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

T R A D E

(US$ millions) Total exports (fob)

Cotton Other agriculture Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (2000=00) Import price index(2000=MO) Terms of trade (2000=00)

B A L A N C E o f P A Y M E N T S

(US$ millionsj Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millions) Conversion rate (DEC, locaVUS$)

1987

311

20.3 -5.4

-15.0

1987

2,264 456 343 665

7,323 2,338

864 1764

87 86 101

1987

5,667 9,466 -3,801

-480 3,356

-924

108 619

13

E X T E R N A L D E B T and RESOURCE FLOWS

(US$ millions) 1987

44,92 IBRD 1703 IDA 692

Total debt service 1660 IBRD 244 IDA 0

Total debt outstanding and disbursed

Compositionof net resourceflows Official grants 560 Official creditors 753 Private creditors 574 Foreign direct investment (net inflows) 948 Portfolio equity(net inflows) 0

Commitments 0 Dis bursements 6 3 Principal repayments 9 5 Net flows 38 interest payments 9 9 Net transfers -91

Wbrld Bank program

1997

6.2 9.9

22.8 2.8

-0.9

1997

5,345 2,578

a 7 1,302

%,565 2,885 1909 4,114

a6 16

108

1997

14,534 8,528 4,994

967 4,145

18

1793 - 1 9 9

3.4

1997

29,951 869

1206

2 , m 297

24

1028 -10 -37 891 5%

75 260 241 8

80 -6 I

2 0 0 6

4.2 7.4

23.4 -6.8 -8.2

2 0 0 6

18,455 10,407

146 5 7 2

30,441 1921

5,443 7,888

150 235 111

2 0 0 6

33,891 36,27 -4,326

53 1 5,547

1752

1502 -3,253

26,660 5.7

2 0 0 6

28,763 544

1481

2,211 93 53

639 -1040

-250 10,043

502

8?7 6 4 108 56 39 m

2007

110 9 . 6

23.2 -3.2 -7.3

2007

22,08 Q223

110 7,589

37,834 2,671 4,336 9,845

s 7 t38 I t3

2007

39,381 44,935 -5,554

186 7,611

2,696

2,587 -5,282

30,320 5.7

2007

30,444

1490

2,422 I44 58

1,181

56 -103

0 737 144 593

58 535

02 03 04 05 OB 07

GDP deflator -C CPI

I I Exportandimportlevels ( U S mill.)

40 000

30 000

20 000

10 000

0

I O7 I 01 02 03 04 05 08

OExportr nlmpofls

I Currentaccount bdancetoGDP(%)

O7 I -, 1 01 02 03 04 05 OB

Composition of 2007 debt (US$ mill.)

G 1.451 A 1,181

A . IBRD E - Bilateral B - IDA D - Other rnu(tllateral F . Private C . IMF G - Short-tern

Note This tablewas produced from the Development Economics LDB database 428/09

W e s t e r n

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W e s t e r n

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25°E 30°E

30°N

25°N

20°N

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25°E 30°E 35°E

ARAB REPUBLICOF EGYPT

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33400

NOVEMBER 2004

ARAB REPUBLIC OF EGYPTSELECTED CITIES AND TOWNS

GOVERNORATE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

GOVERNORATE BOUNDARIES

INTERNATIONAL BOUNDARIES

GOVERNORATES IN NILE DELTA:

123456

KAFR EL SHEIKHDAMIETTAPORT SAIDALEXANDRIABEHEIRAGHARBIYA

DAGAHLIYAMENOUFIYASHARGIYAHQALIUBIYAISMAILIACAIRO

789

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