노트 : - Memorandum and recommendation of the president of the International Bank for Reconstruction and Development to the executive directors on a proposed loan in and amout equivalent to US$60.0 million to the Republic of Korea for a health technology project- 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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Docunent ofThe World BankFOR OFFRCIAL USE ONLY/- M t5 s 3c ksReprt No P-5463-KOMEMORANDUM AND RECOMMENDATIONOF THEPRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTTO THEEXECUTIVE DIRECTORSON APROPOSED LOANIN AN AMOUNT EQUIVALENT TO US$60.0 MILLIONTO THEREPUBLIC OF KOREAFOR A* HEALTH TECHNOLOGY PROJECTAPRIL 24, 1991This documest bks a restricted distribution and may be used by recipients only in the performasce oftheir offical duties. Its contents may not otherwise be disclosed without WoAd Bank authorization.Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedCURRENCY EQUIVALENTS(as of December 1990)Currency Unit - Korean Won (W)US$1.00 - W716.00 (December 1990)WEIGHTS AND MEASURESMetric SystemABBREVIATIONS AND ACRONYMSMUNSA Ministry of Health and Social AffairsNCD = Noncomunicable DiseasePCR = Project Completion ReportPPAR - Project Performance Audit ReportFISCAL YEARJanuary 1 - December 31FOR OFICIL UK ONLYKOREAL$]TH TECHNOLOY PROJECTLoan and Proiect SummaryBorrowers Republic of KoreaBeneficiariess Private HospitalsAm,ounts US$60.0 million equivalent5erm9s Repayable in 15 years including 5 years of graceat the Bank's standard variable interest rate.On-lending Terms: The Government would on-lend the proceeds of theloan to private hospitals at the same Interestrate, maturity and grace periods as the IBRD loanagreement. Sub-borrowers would bear foreignexchange risk.Financing PlantLocal Foreign Total------ u million -----Pzivate Hospitals 13.0 8.2 21.2IBID 090 60.0 60.0Total 13.0 68.2 81.2Economic Rate of Returns Not applicableStaff APpraisal Report: Report No. 9280-K0Maps IBRD No. 22776RThis document ha a rsticted distfibuuon and may be used by reipiats only in te porozunmanof their ofcial duties Its contents may not otherwi be disclosed without WoMld Bank aute' zC -a.MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANTO THE REPUBLIC OF KOREAFOR A HEALTH TECHNOLOGY PROJECT1. The following memorandum and recommendation on a proposed loan tothe Republic of Korea for an amount of US$60.0 million is submitted forapproval. The proposed loan would be at the Bank's standard variable interestrate with a 15 year maturity including a grace period of five years. TheGovernment would on-lend the proceeds of the loan to private hospitals at thesame interest rate, maturity and grace periods as the IBRD loan agreement.The proceeds would help finance a health technology project.2. Background. Korea's rapid economic growth in the last two decadeshas brought about an impressive increase in real living standards and equallyimpressive improvements in traditional health indicators, reaching a lifeexpectancy of 71 years, a natural population increase of 12 p.a., an infantmortality rate of 12.5 per 1,000 live births, and a 922 immunization rate.Economic success and the control of comunmicable diseases have, however,brought about a changed disease burden. The major causes of death anddisability are now noncommunicable diseases such as heart disease, cancer,stroke, and violence and injury. The demand for medical care is risingrapidly as a result of higher income, the introduction of mandatory nationalhealth insurance in 1989, chronic and degenerative diseases, and changingtechnology. At the same time, there is growing concern in Korea over equityissues, including a nerceived increase in income inequality and in equitableaccess to quality me- ^ al care.3. The Ministry of Health and Social Affairs (MOHSA) is responsible forbroad health policy coordination. Health care services in Korea are mostlydelivered by the private sector. Four out of five hospital beds--most of themnot for profit--are privately managed and private sector spending accountedfor 73S of total health sector expenditures in 1989. Direct patient paymentshave declined from 80 of health care expenditures in 1980 to an estimated 51tin 1990 as a result of broader insurance coverage. About 102 of thepopulation is classified as medically needy and the Government pays for mostof their medical care. Private not-for-profit hospitals owned by foundationswith large endowments have been able to respond to the rapid transition in thecountry's disease profile and keep their technology up-to-c'-.te hrough self-financing and leasing of equipment. Hospitals with a more limited financialbase have not been able to mobilize investment funding for neededtechnological adjustments, even in geographic areas that are important to theGovernment's social development policy. Commercial bankers are not familiarwith hospital operations and therefore give low priority to hospital loans.4. Rationale for Bank Involvement. The Bank's first project in thehealth sector was a population project (Ln. 1774-5 KO), which was approved in1979 and closed in 1987. Part of the project monies were on-lent to privatehospitals requiring quality-improving investments and the PCR of October 1989(Report No. 8114) rated project performance satisfactory. While the projectwas designed to expand and strengthen family planning and maternal and childhealth programs at a time when population was a major issue, it underwent- 2 -major changes during implementation as the economy grew rapidly, alteringKorea's health profile. The PPAR (No. 8895, June 29, 1990) praised theproject's redesign to meet the changing needs of the sector and its supportfor loans to private hospitals.S. The Government has requested the Bank's continued assistance inaddressing the epidemiological transition and the recent changes in financinghealth care services. In June 1989 the Bank issued a health sector report(Report No. 7412-iO), which studied the effects and implications of healthinsurance on the sector and raised options for the organization and design ofthe insurance system. Through the proposed project the Bank would furtherassist the Government in addressing critical sector issues, focussing onequity and efficiency in the diffusion of medical technology and privatesector development. In addition, Bank involvement would strengthen MOSA*'sinstitutional capacity for planning and managing hospital sector developmentand financing, and would enable continued dialogue on other important healthsector issues. Furthermore, by participation in this project, the Bank wouldgain experience in helping a middle-income country adapt to an epidemiologicaltransition which could be utilized in similar countries.6. ProJect Obiectives. The project would assist the Government'spolicy of responding to the increased medical care demand resulting fromnational health insurance, rising incomes, tecbnological innovations, changingpopulation structure, and the shift in the epidemiological profile fromcomunicable to noncmaunicable diseases (NCD). It would change the criteriacurrently in use for introducing biomedical equipment from a hospital-sizebased approach to a population and geographic distribution basis. This changein allocation criteria would move policy decision making towards a moreefficient and rational distribution of biomedical equipment and would makequality medical care accessible to more people. The project would alsostrengthen the capability of KOHSA to manage the process of allocation anddiffusion of medical technologies, and the financial performance of thehospitals selected under the project would be monitored and strengthened,setting an example for improved financial management of hospitals in theprivate sector.7. ProJect Description. The project wulds (i) expand the diagnosticand treatment capabilities of NCD specialty units in large referral hospitals;(Ui) replace and add biomedical equipment in secondary care hospitals locatedin large and medium-size cities and distribute it more equitably: and(iii) provide equipment to medium-size city hospitals designated as emergencycenters in the national Emergency Medical Services network. Sets of criteriawould be strictly applied to the selection of participating hospitals and ofequipment. The selection criteria for hospitals would consider the hospital'sfinancial status, its location, its size, and the need for and potentialefficient utilization of the requested equipment. The selection of thebiomedical equipment would take into conslideration the regional distributionamong the eight medical regions, the relevance of equipment to medical needs,the trauinig of equipment users, the availability of a recurrent cost budgetfor operating the equipment, and the sharing of equipment by severalfacilities. The financing of high cost equipment would be excluded from theproject, partly because there is an active leasing market for this type of- 3 -equipment, and partly because some procedures are not reimbursable by thenational insurance and would therefore not be accessible to the poor. Projectimplementation would be the responsibility of the Bureau of Medical Affairs inMOHSA. Independent review panels would be set up to apply agreed criteria forselecting hospitals and equipment. MOHSA staff would receive training tomanage the on-lending process and the subloans with the selected hospitals.8. The Project would be implemented over a three and a half yearperiod. The estimated total cost of the project is US$81.2 million equivalentwith a foreign exchange component of US$68.2 million (84X). The Bank loan ofUSS60 million would finance about 851 of the foreign exchange component. Thebeneficiary hospitals would finance complementary inputs for civil works tohouse the equipment, transportation and installation costs, maintenance andconsumables, and contingencies. A breakdown of costs and the financing planare shown in Schedule A. Amounts and methods of disbursements, and thedisbursement schedule are shown in Schedule B. A timetable of key projectprocessing events and the status of Bank Group operations in Korea are givenin Schedules C and D, respectively. A map is also attached. The StaffAppraisal Report, No. 9280-KO, dated April 24, 1991, is being distributedseparately.9. Actions Agreed. During negotiations, the Goverwaent agreed thatt(i) hospitals would be selected and loan proceeds allocated according tocriteria and guidelines acceptable to the Banks (ii) equipment would beselected according to the criteria and guidelines acceptable to the Bankg(iii) the subloan agreement between MOESA and the beneficiary hospitalsacceptable to the Bank, would be applied to all subloans; and (iv) thefinancial management specialist recruited by MOHSA for the ProjectImplementation U it would be retained for the duration of the project.10. Proiect Benefits. As a result of the project, the geographicaldistribution of biomedical equipment would be improved making it accessible tomore people in all eight medical regions of the country. The equipmentdiffusion criteria would be changed from a hospital size criterion to criteriabased on population to be served and their medical needs. MOHSA would bestrengthened in its ability to monitor hospital performance and to developcost containment strategies. Finally, as transparent accounting practiceswould be required from the participating hospitals, the project would set thestage for the use of uniform accounting procedures and stronger financialmanagement of private hospitals.11. Project Risks. The principal risk would be defaulting by projectlistitutions and inappropriate selection of beneficiary hospitals. Tominimize this risk, procedures have been established to investigate thecreditworthiness of recipients of loan proceeds, and one full-time staffmember with financial skills and a working knowledge of hospital financing hasbeen recruited by MhOSA to monitor their financial performance during the lifeof the loan. The Hospital Selection Committee and the Rquipment SelectionC^omdttee satisfactory to the Bank have already been established and theirrespective members already appointed. Criteria for selecting beneficiaryhospitals have been agreed and their strict application would be monitored- 4 -during project supervision. The experience with on-lending under the previoushealth project was positive and there were no arrears.12. Environmental Aspects. The proposed project is not expected toresult in significant environmental impact.13. Recommendation. I am satisfied that the proposed loan would complywith the Articles of Agreement of the Bank and recommend that the ExecutiveDirectors approve the proposed loan.Barber B. ConablePresidentAttachmentsWashington, D.C.April 24, 1991-5-Schedule AKOREAHEALTH TECHNOLOGY PROJECTBSTIMATED COSTS AND FINANCING PLANEstimated Costs LaLocal Foreign Total---- US$ million ------NCD specialty units 3.8 20.4 24.2Secondary care hospitals 3.8 20.4 24.2Emergency medical services 3.8 20.4 24.2Base cost 11.4 61.2 72.6ContingenciesPhysical 0.6 3.0 3.6Price 1.0 4.0 5.0Subtotal 1.6 7.0 8.6Total Project Cost 13.0 68.2 81.2la Net of taxes and duties, which are estimated at US$4.9 millionFinancing Plan:Local Foreign Total------ US$ million -----IBRD 0.0 60.0 60.0Private Hospitals 13.0 8.2 21.2Total 13.0 68.2 81.2-6-Schedule aPage 1 of 2HALTH TEChNOLOGY PROJECTPROCURIENMT METHOD AND DISBURSEMENTSProject Element ICB LCB Otherja N/A Total costincludingcontingenciesEquipment 57.0 10.1 67.1(51.0) (9.0) (60.0)Equipment transportationand installation 4.0 4.0(0.0) (0.0)Operation, Maintenance 4.7 4.7and Training (0.0) (0.0)Consumable Materials 5.4 5.4(0.0) (0.0)Total 57.0 10.1 14.1 81.2(51.lO) (9.0) (0.0) (60.0)la Includes international and local shopping and direct purchase.Notes Figures in parentheses are the amounts to be financed by the loan.-7-Schedule BPage 2 of 2DisbursementsCategorY Amount 2 of Expenditures to(US$ million) be FinancedEquipment 60.0 lOO1 of foreign expenditures;100? of local expenditures(ex-factory cost); and65Z of local expenditures forother equipment procuredlocallyTotal 60.0Estimated IBID Disbursements:Bank FY 1992 1993 1994 1995-USS million --------Annual 6.5 21.0 29.5 3.0Cumulative 6.5 27.5 57.0 60.0-8-Schedule CKOREAHEALTH TECHNOLOGY PROJECTTimetable of Key Project Processing Events(a) Time taken to prepare: One year(b) Prepared by: Government(c) First Bank mission: December 1989(d) Appraisal mission departures December 1990(e) Negotiations: April 1991(f) Planned date of effectiveness% October 1991(g) List of relevant PCRs and PPARs: Population Project(PCR No. 8114)(PPAR No. 8895)-.9-Schedule DPage 1 of 2THE STATUS OF B3ANK GROUP OPERATIONS IN THE REPUBLIC OF KOREAA. Statement of Bank Loans and IDA Credts La(As of March 31, 1991)Loan or Amount (US$ milion)Credit Fica (tess cancelbos)Number Year Borower Purpose Bank IDA UndisbursedEghtythree loans and nine credits fully disbwsed 5,827.39 115.58Of which SECALs, SALs, and Program Loans2071 1982 Repubric of Korea Stutral Adjustment Loan 250.002354 1984 Republic of Korea Structural Adjustment Loan 1 300.002571.0+1 1985 Republc of Korea Second Indusil Finance 17306723.062491 1985 Repubfic of Korea Water Supply ID 90.00 .932514 1985 SMG Seoul Urban Tanspotaon 28.76 5.87*2571-2 1985 Republic of Korea Second Indusul Finance 4.00 1.462600 1986 Republic of Korea Seou-SBusan Corridor 34.60 3.592726 1986 Republic of Korea Ports 111 134.50 6.80205 1988 Republic of Korea Kyung Regional Transpon 116.00 25.90208 198 Taegu CRy oernmt Taegu Urban Trarspott 30.00 17.492913 1988 Korea Tecnology Corp. Third Technology D lopment 50.00 4.523037 1989 Republc of Korea Technogy Adwanc4em 16.40 12.153S6 199 Republic of Korea Road hpoem t 200.00 182.593178 1990 Republc of Koea Juam Water Supply 34.00 34.003202 1990 Rpublc of Korea Technology Adnment U 31.60 30.503203 190 Republic of Korea Scence Tecnolgy Research 45.00 45.003314 1991 Repblc of Korea Vocatonal Edcaton Project 30.0 30.003315 1991 Republio of Korea Techrology Advcmenr 60.00 60.00Total 6,732.24 115.58 46080of which has been repaid 3.790.79 18.33Total now held by Sank and IDA 2941.4 97.25Amot sold 131.51of hich repaid 86.58Total undlbursed 460.80 460.60I T1e tWs of the pojecs blbd In Pat A is des d In a sepanat report on an BankMiA4nanced Fbjet In execln, which isupdated tbie yealy and cruldated to th Ex"cut Deo an Aprl 30 and Octobe 31.* AL, SECAL or Program Loan-10-Page 2 f2B. Stteet of MC Iesmes(As of March 31, 1991)Total UndisbumedHeld ncWudingOrlinal Commitments by IFC Partkipant.Loan Equiy Total (at cost) PorilonFIscal Year - Obligor Type ol Business US$iN.1988/74/78177 Korea Long Term Deveopme Finance 16.6 24.8 41.4 22.078/80/88/90 Credit Bank L1970 Aas Papet Co. Pulp & Paper 4.5 .5 5.01969 Honam Slk Ind. Co. Texdtes 1.4 .3 1.7 -1971174171 Korea Investmnt & Capial Markets 8.5 8.5 6.980/85/189 Fi"e CorporaIon1975/76M77/79M0 Wd S',ar Co., Ltd. Elctric & Elctros 26.0 24.9 50.9 16.98184/87S1975/7718/82/84 Korea Sec. Fin. Corp. Capital Markets 5.0 34 8.4 2.01975/90 Hae Un Dae Dwevpent Tourism 2.8 1.2 4.0 1.21978188 Tonrg Yaw Nylon Co. Ld. Tire Cord Fabric 6.9 6.2 13.0 5s.197A47 Chnju Paper Mfg. Co. Ltd. Paper 5.0 .9 5.919786/88 Korea Zinc Co. Lid. Zinc Reng 21.0 5.6 26.6 9.7197Jw o rea Dew. easin Corp. Loaing 15.0 1.8 16.8 1.21981 . Taihn Bulk Termn Gain Bulk TemInal 7.0 2LS 9.5 2.51982 Koram Tech. Adv. Corp. Research & Dev. .6 .6I183 Korea Dev. hnvest. Corp. Money a Captl Marts - 8.0 6.0 6.0 2.41984 Hala Cemint Cemnd & Constr. Materl 4.2 3.9 8.16i86 Krea Fund Money & CAplt Mwkets - 1z8 12.819t KRI Money & Capi Mket - .2 .2 -198l Anam bIust Co. Eecrois- 15.7 15.7 15.71i88 Oriental Chemia Chemicals 15.2 15.21154 135.0 250A 89Q 2A4AoVmwd bA not yet sInred1960 Korea 0ev. Ie Corp. Moy & Cap Makets .9 .9 .9 .9Total GrOS Cmimensb 115.4 136.9 251.3 SO.7 _3La Formey knom as Koe developwn Fhance CorpaonIBRD 22776RDEMOCRATIC PEOPLE'S REPUBLIC I ,CHINA S OF KOREA-3?O srw-R EP .OF> 'ULURE. JN KANGWON W.KYONG I DO DOCdI | y<UN~~~~U. CHo7 _ KY O G Du3$,~~-\5>2<r Z. kNAMDt X ( oo z ^" 8 *REPURIC OF KOREAHEALTH TECHNOLOGY PROJECT-~~~ -.--.-- *- ~~~~~~~Railroads- RIlreos Under Con*utfn..4,. Airpors_S~~~~~~~~~~~~~~~~~~~(~ Spech C fiesInternatioW na Bovwk rie# ^," CHEJU~~~CE o 20 40 a o K0 190 lp . ipWO20 AO s0 8 - °APRIL 19S1I

Health technology project

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Health technology project

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