STUDY ON THE SPECIALIZED MEDICAL SERVICE ARRANGEMENT IN JAVA, THE REPUBLIC OF INDONESIA SUMMARY. February Prepared for:

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1 STUDY ON ECONOMIC PARTNERSHIP PROJECTS IN DEVELOPING COUNTRIES IN FY2011 STUDY ON THE SPECIALIZED MEDICAL SERVICE ARRANGEMENT IN JAVA, THE REPUBLIC OF INDONESIA SUMMARY February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: 第 1 章 System Science Consultants Inc. Nippon Koei Co., Ltd.

2 (1) Background and Necessity of the Project Indonesia, showing a steady trend of economic growth in the last decades, has a size of GDP ranked in 18 th in the world in GDP per capita is 2,974UD$ (2010) and it is categolized in a lower middle income country. IMF predicted that Indonesian economy will keep expansion with 7% of annual growth rate. In accordance with the enomomic growth, it is expected that increase of income level and exlargement of middle income group. Changes in the life style based on the economic growth has brought the change of the disease pattern in Indonesia. They are in the transfer period of disease pattern from the structure with a focus on communicable diseases to the structure similar to developed countries, with a focus on non-communicable diseases. Therefore, lifestyle-related diseases will need to be addressed in medical fields. The management of lifestyle-related diseases requires the development of medical systems including specialist doctors and equipment. However, the hospitals meeting these requirements are limited to the tertiary hospitals in major cities or part of the secondary hospitals, and patients in the rural areas have difficulty receiving specialized medical services. Therefore, it is necessary to expand the functions of the secondary hospitals in rural areas and develop them as advanced secondary hospitals, i.e., an intermediate category between secondary and major-city tertiary hospitals and form a system for managing lifestyle-related diseases. Although the medical insurance program has been improving recently in Indonesia, 37% of the citizens are still uninsured, inhibiting the access to medical services. Therefore, it is also necessary to examine a system of assistance for this uninsured group. This project is proposed to deal with above mentioned issues in the health sector in Indonesia. (2) Basic Policy of the Project Based on the comparative study of the candidate area (District of Bekasi, West Java Province, Bantul District, Yogyakarta Special Province, Sidoarjo District, East Java Province), Bekasi District was selected as a target of the study on the ground that they have a highest need for the improvement of district hospital and there numerous Japanese affiliated companies located in the four industrial parks inside of the district. The Government of Indonesia, aiming at a growth strategy through utilization of private funds, 1

3 introduction of a scheme of PPP (Public Private Partnership) was set as a precondition. For the consideration of the development policy of Bekasi District Hospital, two plans are considered: 1) expansion and rehabilitation of the existing facility, 2) New construction in the other location. From the viewpoints of project cost and accessibility by the public, the Study Team concluded that 1) expansion and rehabilitation of the existing facility has higher validity. (3) Outline of the Project 1) Project Components The project consists of three components. The first component is the functional enhancement of the existing Bekasi District Hospital for the purpose of strengthening management capacity of lifestyle-related diseases. Specifically, at Bekasi District Hospital, to add a clinical department for managing lifestyle-related diseases, newly establish a Medical check-up Center for conducting Medical check-ups and to ensure improvement of its medical equipment and carry out personnel training accordingly, all of which shall be the project scope. A PPP scheme will be introduced into the Project, and after the improvement, Bekasi District Hospital s services will be partly outsourced to an SPC. In order to further increase the effectiveness of the Project, to strengthen the functions of Puskesmas to improve the referral system as a second component. This component will upgrade the service level at Puskesmas and contribute to the excessive concentration of the patient. As a third component, health insurance system for the sake of the uninsured will be established in order to improve the access for the medical service by the uninsured population. 2

Figure 1 Project components 2) Utilization of the Target Hospital after the Project Utilization of the Bekasi District Hospital will be increased after the project as shown in Table 1.

4 Figure 1 Project components 2) Utilization of the Target Hospital after the Project Utilization of the Bekasi District Hospital will be increased after the project as shown in Table 1. It is estimated that number of inpatients will be 4.8 times and that of outpatient will be 3.1 times. Table 1 Utilization Status at Bekasi Hospital Improved by the Project 2010 Actual Target after the project Difference Number of inpatients (people) 4,570 22, times Average length of hospital stay (days) Unchanged Number of beds (beds) times Bed utilization (%) 72.6% 85.0% Up 26.5% points Number of outpatients (people) 41, , times Outpatient department's working days (days) Unchanged Average number of outpatients (people) times 3) Newly Established Divisions and Total Floor Areas At Bekasi District Hospital, expansion plan to be completed in 2013 is on going. Based on the 3

5 expansion plan, contents of newly established divisions and total floor areas are decided and shown in Table 2. Table 2 Contents of Newly Established Divisions / Total Floor Areas to be Expected Division Room Area 1) Medical check-up Center a) Laboratory Division Verbal medical examination room Laboratory, cleaning room, phlebotomy room, urine collecting room, interview room b) Services and others Lobby, reception, toilets, corridors, staircases, elevators c) Management Division Administrative office, center director s room, meeting room, staff room 700m 2 a) Training/Learning Division General classroom (30 people x 1 room), training room (30 people x 1 room), library 2) Human Resources b) Services and others Development Center Toilets, corridor 350 m 2 d) Management Division Administrative office 3) New Outpatient Consultation Divisions a) Examination room Comprehensive Examination, Departments: Pediatrics, Otolaryngology, Ophthalmology, Neurology, Surgery, Internal Medicine, Respiratory Organs, Cardiology, Tuberculosis, Health, Dentistry, Pathology, Endocrine Diseases, Circulatory Organ Control, Oncology Phlebotomy room, urine collecting room, interview room b) Pharmacy/ Hospital Pharmacy Division c) Services and others Lobby, reception, toilets, corridors, staircases, elevators e) Management Division Administrative office, Division Head room, meeting room, staff room, warehouse 2,000 m 2 4) New Emergency Care Division 5) New General Ward (Class C: About 110 beds) 6) Infectious Diseases Department/Isolation Ward a) Treatment room, observation room, laboratory b) Management Division Nurse station, on-call room c) Services and others Lobby, reception, toilets, corridors, staircases a) Ward b) Services and others Lobby, toilets, corridors, staircases, elevators c) Management Division Nurse station, warehouse a) Infectious Diseases Department b) Isolation Ward (Ward for highly infectious diseases) c) Services and others Lobby, reception, toilets, corridors, staircases, elevators d) Management Division Nurse station, air conditioning machine room, warehouse 750 m 2 2,500 m m 2 4

6 7) Management/Administrative Division 8) Office Related to Miscellaneous Services a) Hospital Director room b) Management Division, Information Development Division, Healthcare Services Division Healthcare Services Support Division c) SPC Business Division d) Services and others Lobby, reception, toilets, corridors, staircases, elevators a) Connecting corridors b) Machine room Power generation, Electrical room, machine room Proposed facilities total floor area 2,000 m 2 1,000 m 2 About 10,000 m 2 4) Health insurance for the uninsured population The result of simulations of the expenditure and income of the health insurance for the uninsured people are shown in the Table 3 and 4. The preconditions of the simulations are: Number of uninsured households was caluculated by the uninsured population (46% of district population) dvided by the average number of people per household (4.1). A head of household was a sole member to pay monthly premium per household ratio of inpatient: outpatient was 1:9 Average cost for inpatient: 320,000 Rp, for outpatient: 25,000 Rp. Income from the monthly premium paid by the members is shown in the Table 3. As a base of a simulation, it is assumed that. If monthly premium was 50,000 Rp. and participation rate of the insurance was 50% of the total number of uninsured household, total monthly income would be 88,500 million Rp. As for the payment, it is unpredictable because moral hazard among insured people should be considered. If the participation rate was 50% and 50% of insured people utilize a hospital once a year, estimated payment would be 16,300 million Rp. (Table 4). This amount could be covered by the 10,000 Rp of monthly premium with 50% of participation rate = 17,700 million Rp. Under the assumption of stable payment, monthly premium could be reduced to 10,000 Rp. Further discussion with Indonesian side would be needed regarding the amount and method of collection at the stage of of following full scale upcoming full scale F/S. 5

7 Table 3 Health insurance for the uninsured/ Simulation of income (million Rp.) Monthly premium (Rp.) Participation rate 50% 40% 30% 20% 10% 50,000 88,522 70,818 53,113 35,409 17,704 40,000 70,818 56,654 42,491 28,327 14,164 30,000 53,113 42,491 31,868 21,245 10,623 20,000 35,409 28,327 21,245 14,164 7,082 10,000 17,704 14,164 10,623 7,082 3,541 5,000 8,852 7,082 5,311 3,541 1,770 Table 4 Health insurance for the uninsured/ Simulation of expenditure (million Rp.) Hospital utilization rate Participation rate 50% 40% 30% 20% 10% 50% 16,347 6,539 1, % 13,077 5,231 1, % 9,808 3,923 1, % 6,539 2, % 3,269 1, ) Project Cost Total cost for the rehabilitation and expansion of the Bekasi District Hospital is estimated at 433 billion Rp.(approximately 3,700 million JPY). The breakdown of the project cost is shown in Table 5. Among the project cost, cost for facilities and training is assumed to be paid in the domestic currency and cost for equipment is assumed to be paid in the foreign currency 1. Total investment cost including consulting fee is estimated at 628 billion Rp, approximately 5,300 million JPY (Table 6). In addition, 2.34 billion Rp. per one facility will be required for the improvement of Puskesmas. The cost for it is not included into Table 5 because further discussion will be needed to decide the target number of Puskesmas among 39 of them. The cost for the establishment of health insurance for the uninsured population is not included either. 1 Exchange rate: 1 JPY=117Rp=0.0127USD (December 1 st, 2011) 6

8 Discription Facilities Construction (Building J) Equipment Table 5 Cost estimation for the proposed project Cost (Million Rp.) Unit price per square meter (Rp) Floor space 234,000 23,400,000 10,000 Rehabilitation (Building C) 260,000 20,000 5,000,000 4,000 Parking and garden making 6, ,000 10,000 Medical check-up center 42,120 Improvement of screening 149,760 11,700 Improvement of hospital funcution 95,940 Training 23,400 Total 433,160 Cost for facility, equipment and training Consulting fee Table 6 Total investment cost Indonesia Rp. (million) JPY (million) USD (million) Note Portion of domestic currency 283,400 2, a Portion of foreign currency 149,760 1, b Subtotal 433,160 3, c Infration adjusted d (annual inflation 41, (domestic currency) rate=7%, 2 years) Infration adjusted e (annual inflation 3, (foreign currency) rate=1.1%, 2years) Contingency 21, f=c*5% Subtotal 499,196 4, g=c+d+e+f Basic cost 43, h=c*10% Contingency 4, i=d*10% Sub total 47, j=h+i Total 546,843 4, k=g+j Administration cost 27, l=k*5% VAT 54, m=k*10% Grand total 628,870 5, k+l+m 6) Financial Analysis The feasibility of the proposed project is analyzed through the several cases set under different conditions (with/without of initial cost, with/without of subsidy by the district government). The result is shown in Table 7. 7

9 Case1, Case2 are the cases with the assumption that hospital would be responcible for loan and redemption of it. Case1 is the case with the assumption that hospital covers all the project cost (initial cost and operational cost) solely with the hospital income. In this case, NPV is negative and it is not feasible financially. In order to make it feasible, subcontract cost should be reduced to the unrealistic level (32%) of the estimated cost. Case 2 is the assumption that hospital receives subsidy by the district government. In reality, Bekasi District Hospital receives subsidies from the district government for payments to public officers and a part of operation cost. In 2010, the amount of it was 30 billion Rp. With an assumption that the same amount of subsidy (30 billion Rp.) would be paid to the hospital, the project becomes financially feasible. It is sufficiently affordable by the district government because the amount of subsidy after the project is not much different from the current one. On the other hand, Case3 and Case4 are the cases with the assumption that district government would be responcible for loan and redemption of it. In both cases, payments to the public officers are also assumed to be covered by the District government. In Case3, both of initial cost and renewal cost are assumed to be covered by the District government. In Case4, renewal cost only is assumed to be covered by the hospital. Case 3 shows large amount of NPV and high feasibility. Case4 also shows positive NPV, which means hospital can obtain enough financial capacity for additional investment by the project. Initiative cost Table 7 Result of Financial Analysis Case1 Case2 Case3 Case4 100% Hospital 100% District Initiative cost = District Renual cost of equipment = Hospital Payments to public officers 100% Hospital 100% District Subsidy by the Disrict government - 30, (million Rp.) NPV (million Rp.) -452,071 5, ,148 67,193 B/C FIRR - 7.0% - - 7) Economic Analysis The main economic benefits considered to be brought by the proposed project will be summarized in the below mentioned three types. 8

10 1) Reduction of cost for the trip to the hospitals in the distance 2) Upgrade of quality of life through the early detection and early treatment based on the increase of person taking medical check-up 3) Improvement of living environment through the availability of high quality medical service in the neighborhood It is difficult to estimate the accurate amount of benefit prior to the project for 2) and 3), benefits in the case of 1) is shown in this section. The benefit is estimated as a reduced cost (travel cost and opportunity cost) to seek medical treatment in Jakarta in the case of without project. The cost is the total amount of initial and operational cost of the project. The result is shown in Table 8. The estiamated benefit is limited to the partial one in the entire benefits. Therefore, CBR remains at 0.53 (Case1). If the benefit increased by 200% according to the increase of opportunity cost of the people based on the growth of income (Case2), CBR reached to If the benefit has reduced by 50% because of the competition against private hospital inside of the district (Case3), CBR decreased to Table 8 Result of Economic Analysis Case1 (Basic case shown in the preliminary conditions) Case2 (Benefit increased by 200%) Case3 (Benefit decresed to 50%) NPV (million Rp.) -57,789,784 14,861, ,798,078 CBR EIRR % - 8) Environmental and Social Impacts At the target facility, medical sanitary and environmental measures for the entire hospital are managed only by one employee. According to the current expansion plan of the district hospital, the hospital will be about 2.7 times larger in size in the future and just one employee will not be enough to manage these measures. In addition, through a hearing survey made to personnel in charge, a range of measures are apparently taken for medical sanitary and environmental management associated with the current medical activities at the hospital. It is also known, however, no particular measures are taken on the software side to expand such medical sanitary and environmental measures to meet new requirements to be generated in association with the hospital s expansion. Based on the result of the comparative study of the case With/Without Project on the environmental 9

11 and social impacts, it is analyzed that With Project will bring higher positive impacts because of the below mentioned reasons. 1) Without Project remains possibility of underutilization of the building under construction because there is no plan for a period following the expansion plan for ) With Project can enhance medical sanitation and environmental measures by allocating budget based on the entire development plan of the hospital 3) With Project can expand beneficiaries of medical treatment through the improvement of access to the medical service by the poor. At the implementation stage of the proposed project, it is required to obtain UKL-UPL (Policy for Environmental and Social Consideration Efforts), which is a simplified procedure for EIA. The evaluation period is shorter (2 weeks) compared to that of general EIA procedure. There will be no significant problem to obtain approval of UKL-UPL because the social and enviriomental negative impacts by the proposed project are considerd to be smaller than the benefits. (4) Planned schedule Planned schedule for the project is shown in Table 9. After the conclusion of loan Agreement, detailed design of the facility will be completed and construction work will be started during the first year. In the second year, construction work will be completed. In the third year, necessary equipment will be installed. The establishment of SPC will be completed in the first year, facility staff training and establishment of medical insurance for the uninsured will be completed during the second and third year. 10

12 Loan Agreement Consultant Selection Consulting Service Contract Detailed Design Tender Document Preparation Bidding for Facility Construction Table 9 Planned Schedule Construction Works Bidding for Procurement of Equipment (For existing facility) Delivery of Equipment (For existing facility) Installation & Operation Training of Equipment (For existing facility) Bidding for Procurement of Equipment (For new facility) Delivery of Equipment (For new facility) Installation & Operation Training of Equipment (For new facility) Establishment of SPC (Special Purposed Companies) Capacity Building Training Establishment of Health Insurance for Non-insurance People Strengthening of Puskesmas 1 st Year 2 nd Year 3 rd Year (5) Feasibilities of the request and implementation of loan Bekasi District has a wish to use the consessional loan and they may discuss with Ministry of Health on the application of the loan, depending on the amount of loan, which could be further consulted with BAPPENAS and Ministry of Finance. BAPPENAS explained however that Indonesia will put the priority on the infrastructure and energy-related projects to be implemented with the loan from the bilateral and multilateral donors, and such loans will not be used for the projects of medidal and education sectors for the time being. This policy was explained by BAPPENAS to the donors through the meeting, but no official written documents were issued, which is creating some doubt on this policy implementation. 11

(6) Technical Advantage of Japanese Company Japanese companies will be able to greatly participate in the procurement process since Japanese-produced medical equipment is recognized as highly

13 (6) Technical Advantage of Japanese Company Japanese companies will be able to greatly participate in the procurement process since Japanese-produced medical equipment is recognized as highly reliable and is widely used by a number of medical institutions in Indonesia. In the area of facilities development, local joint ventures established by Japan s general contractors have high-level technical capabilities as well as sufficient competitiveness based on long-term performance. (7) Schedule for the Realization of Project and Risks In Indonesia, some project in the sector of infrastructure development have brought PPP scheme. However, Ministry of Health (MOH) does not have an experience of it so far. It is necessary to coordinate with relevant laws and organizations about the introduction of PPP and subcontracting to SPC at the public hospital. For this purpose, Working Group which is established at the both level of central (MOH) and district (Bekasi District Hospital) will continue discussions. Regarding foreign investment, the Presidential Order No.36 dated May 25, 2010 defines that a general hospital must be 100% locally owned. It is necessary to discuss about the possibility of investment by SPC with the relevant governmental organizations. Table 10 Schedule for realization of the Project Preparation of Application Form for upcoming full scale F/S by Executing Agency Applying upcoming full scale F/S by BAPPENAS Adoption of upcoming full scale F/S by Cooperating Agency Consultant Selection for upcoming full scale F/S upcoming full scale F/S SAPROF Appraisal Mission Loan Agreement 1 st Year 2 nd Year 12

14 (8) Map of Project Site Figure 2 Map of project site 13

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