Documentof The World Bank FOR OFFICIAL USE ONLY ReportNo: 27708 PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR13.0MILLION (US$19.0MILLIONEQUIVALENT) TO THE REPUBLIC OF ARMENIA FOR A HEALTH SYSTEM MODERNIZATIONPROJECT INSUPPORTOFTHEFIRSTPHASEOFTHEHEALTHSECTORREFORMPROGRAM May 13,2004 HumanDevelopmentSectorUnit EuropeandCentralAsia 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 be otherwise disclosedwithout World Bankauthorization. CURRENCY EQUIVALENTS (Exchange RateEffectiveFebruary2,2004) Currency Unit = Dram(AMD) AMD567.45 = US$1 US$0.002 = AMD1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Lending MDG Millennium Development Goal B M C Basic Medical College MMR Maternal Mortality Rate CAS Country Assistance Strategy M&E Monitoring and Evaluation CDC Center for Disease Control MOFE Ministry of FinanceandEconomy CFAA Country FinancialAccountability Assessment MOH Ministry o f Health CIS Commonwealth o f Independent States MTEF Medium-TermExpenditure Framework ECA Europe and Central Asia NHA National HealthAccounts EU EuropeanUnion NIH NationalInstitute o fHealth FMR Financial Monitoring Report NIS NewlyIndependent State GDP Gross Domestic Product OOPPS Out o fpocket payments GFATM GlobalFundagainst AIDS, Tuberculosis, andMalaria PAD Project Appraisal Document GOA Government o fArmenia PHC Primary HealthCare H C W M HealthCare Waste Management PHRD JapanPolicy and HumanResources Development Fund HIS HealthInformation System PRSP Poverty Reduction Strategy Paper HPIU HealthProject ImplementationUnit SAC StructuralAdjustment Credit IDA International Development Association SHA State HealthAgency IMF International Monetary Fund S M U State MedicalUniversity IMR Infant Mortality Rate TA Technical Assistance marz an administrative regioninArmenia U 5 M Mortality before five years o f age - Vice President: Shigeo Katsu Country Director: DonnaDowsett-Coirolo SectorManager: AnninFidler Task Team Leader: Toomas Palu FOROFFICIAL USEONLY ARMENIA Armenia HealthSystems ModernizationProject CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and sector issues (details inAnnex 1)............................................................................... 1 2. 1. Rationale for Bank involvement...................................................................................................... 4 3. Higher level objectives to whichthe project contributes................................................................. 5 B . PROJECT DESCRIPTION ................................................................................................. 5 1. Lending instrument.......................................................................................................................... 5 2. Programobjective and phases ......................................................................................................... 5 3. Project development objective and key indicators.......................................................................... 7 4. Project components ......................................................................................................................... 7 5. Lessons learned and reflected inthe project design ........................................................................ 6. Alternatives considered and reasons for rejection......................................................................... l o8 C . IMPLEMENTATION ........................................................................................................ 12 1. Partnership arrangements.............................................................................................................. 12 2. Institutional and implementation arrangements ............................................................................ 12 3. Monitoring and evaluation o f outcomesh-esults............................................................................ 13 4. Sustainabiliv ................................................................................................................................. 13 5. 14 6. Credit conditions and covenants.................................................................................................... Critical risks. and possible controversial aspects........................................................................... . 14 D . APPRAISAL SUMMARY ................................................................................................. 15 1. Economic and financial analysis ................................................................................................... 15 2. Technical ....................................................................................................................................... 16 3. Fiduciary........................................................................................................................................ 16 4. 17 Environment .................................................................................................................................. Social............................................................................................................................................. 5. 17 6. 18 policy Exceptions and Readiness.................................................................................................. Safeguard policies ......................................................................................................................... 7. 18 This document hasa restricted distributionand may be used by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed . without World Bank authorization . Annex 1: Country. Sector andProgramBackground .................................................................... 19 Annex 2: Major RelatedProjectsFinancedbythe Bankand/or other Agencies ........................... 38 Annex 3: ResultsFrameworkandMonitoring .............................................................................. 40 Annex 4: DetailedProjectDescription .......................................................................................... 46 Annex 5: ProjectCosts .................................................................................................................. 57 Annex 6: ImplementationArrangements ...................................................................................... 59 Annex 7: FinancialManagementandDisbursementArrangements ............................................. 62 Annex 8: Procurement Arrangements .......................................................................................... 70 Annex 9: Economic andFinancialAnalysis .................................................................................. 75 Annex 10: SafeguardPolicyIssues EnvironmentalManagementPlan - ....................................... 85 Annex 11: ProjectPreparationand Supervision ........................................................................... 95 Annex 12: Documentsinthe ProjectFile ...................................................................................... 96 Annex 13: Statement ofLoansand Credits .................................................................................... 97 Annex 14: Country at a Glance ...................................................................................................... 98 Maps: IBRD29596 IBRD33225 IBRD33224 ARMENIA HEALTHSYSTEMS MODERNIZATION PROJECT APPRAISAL DOCUMENT Date: M a y 13,2004 Team Leader: Toomas Palu Country Director: Donna Dowsett-Coirolo Sectors: Health (100%) Sector Director: Charles Griffin Themes: Health systemperformance Project ID: PO73974 Environmental screening category: B Lendinginstrument: Credit underAPL: Phase I Safeguard screening category: S3 Does the project depart from the CAS incontent or other significant respects? Re$ PADA.3 oYes X No APL Objective: To improve the organization o f the health care system to provide more accessible, quality and sustainable health care services to the population, inparticular to the most vulnerable groups; and to better manage public health threats. Phase 1 Obiective: To expand access to quality primary health care; improve the quality and efficiency o f selected hospital networks; and This project supports: (i) scaling-up o f family-medicine based primary health care reform; (ii) optimization and modernization o f selected hospital networks; and (iii) strengthening o f the Government capacity to develop and monitor effective health sector policies. Which safeguard policies are triggered, if any? Re$ PAD D.6, TechnicalAnnex 10 Environmental Management Plan A. STRATEGIC CONTEXTAND RATIONALE 1. Country and sector issues (detailsinAnnex 1) Over the past five years, Armenia has begun to overcome the hurdles created by disruptions o f the post- Soviet transition era. Between 1998 and 2003, the economy has grown at an average annual rate o f 9 percent, supported by the Government's reform program o f trade liberalization, improved business environment, and export and investment promotion. Sustained output growth and low inflation have led to a decrease in poverty, with the headcount index o f poverty falling from 55 percent in 1998/99 to 47 percent in2001. Sustainability o f the economic recovery remains, however, a concern as growth has been concentrated in sectors with little employment generation, the business environment remains difficult and macro balances are fragile. Poor revenue collection and large contingent liabilities resulted in persistent quasi-fiscal deficits and low public financing o f the core social services. Public spending on health care was only 1.3 percent o f GDP in 2001, compared to the 3 percent average o f CIS countries and 6 to 10 percent average in most developed countries. Although the quasi-fiscal deficits were cleared in 2003, the deterioration in social sectors and infrastructure from low public financing undermines the country's longer-term growth prospects and raises risks o f social tensions. Health outcomes are commensurate with the socio-economic situation. Armenia's average health outcomes are consistent with those countries at similar socio-economic development levels and compare favorably with those o f other newly independent states (NIS). However, mortality rates o f some o f the main public health challenges, such as hypertension and ischaemic heart disease have increased over the past decade, even as morbidity rates o f these diseases have decreased. This can partly be attributed to diminished access to health services and essential drugs. Progress has been made towards achieving the millenniumdevelopment goals (MDGs), with infant mortality (JMR) dropping from 18 per 1,000 birthsin 1990 to 16 per 1,000 births in 2000; and with maternal mortality (MMR) falling from 40 per 100,000 in 1990 to 22 per 100,000 in 2001. Surveys suggest that IMR and under-five mortality are about 1.5 times higher inrural than in urban areas. The key challenge interms o f health outcomes i s to sustain the current levels by assuring adequate access to essential health services and implementing adequate public health programs.1 Armenia i s currently a low HIV/AIDS prevalence country. However, the regional experience has shown that there i s a substantial threat of outbreak when a significant number o f the population temporarily works in highHIV prevalence countries (e.g. Russia, Ukraine) and no effective preventive policies are in place. Although Armenia has an adequate surveillance and monitoring capacity for infectious diseases, the capacity to monitor behavioralrisk factors o f HIV/AIDS and other public health threats, such as non- communicable diseases and injuries, i s considerably weaker. The poor lack adeauate access to essential health services. The drastic drop inpublic spending on health care since the onset of the transition has been mirrored by a marked drop inhealth care utilization rates as formal and informal out o f pocket expenditures have had to make up for the drop inpublic spending. In- patient discharges amount to about 0.05 per capita while there are about 2.1 visits to outpatient facilities per capita per year (2000). This compares to 0.07 hospital discharges and 4.2 outpatient visits per capita in 1995 and is about is about three times below what international evidence for countries with similar epidemiological profiles would suggest. The Poverty Assessment found that health care utilization varies significantly across income groups and that utilization i s higher among urban than among rural households. Overall, the 2001 household survey suggests that an important share of those in low-income groups forego health care because they cannot afford it. 1 MDGtargets are: IMR- 7 deaths per 1000births; MMR- 10deaths per 100,000 births. These targets are below the levels of developed countries. They are considered met if Armenia continues to make progress in improving the indicators. 1 Oversized hospital infrastructure i s unsustainable and quality o f services i s deteriorating. Armenia, like many other countries in the Eastern Europe and Central Asia region, has inherited an oversized and overstaffed health care system oriented towards hospital based care. Ratios o f hospital beds and physicians per population remain significantly higher than in richer industrialized countries, while hospital utilization and efficiency remain extremely low. Armenia still has 142 hospitals, including 44 in Yerevan where the population i s 1.2 million. Average occupancy rates are between 30 and 40 percent, with an average length of stay of 11.7 days. The over-extended but low performing hospital sector continues to be a wasteful drain on scarce public resources and the quality o f care i s increasingly hampered by low service volumes and deteriorating infrastructure. Underutilized and Poor Quality o f Primary Health Care (PHC). A network o f rural ambulatories and urban policlinics has historically provided primary health care. Because o f chronic under-funding, low professional status and poor quality of primary health care, the population tends to self-refer to hospital specialists and to emergency care. Strengthening PHC as an effective and affordable alternative for hospital based care has been one o f the Government's main reform priorities in the health sector since the mid-1990s. Sectoral Organization, Management and Oversight. The organizational structure o f the health sector has changed substantially over the past ten years. The role o f the Ministry o f Health (MOH) has been redefined as a policy malung and supervisory body. Operation and ownership o f health care institutions has been devolved to local (for PHC) and provincial governments (for hospitals), with the exception of public health service and selected tertiary care hospitals. Pharmacies, the majority o f dental services, and medical equipment support services have been privatized, as have several hospitals in Yerevan. Health care providers are managerially and financially autonomous and derive their income from publicly funded service provision contracts with the State Health Agency and private out o f pocket payments. The Armenia Institutional Governance Review (2000) concluded that significant policy and structural reforms inthe health sector had not been accompanied by the necessary strengthening o f institutional capacity to fulfill newroles and functions, andthat accountabilitymechanisms were underdeveloped. Main sector issues in summary are how to: (i) ensure equitable access to essential health services on a sustainable basis; (ii) manage public health threats and prevent avoidable mortality; (iii) reduce the substantial overcapacity in the hospital sector while improving the role and quality o f primary care; and (iv) strengthen the key functions of the state inhealth sector, particularly inthe areas o f governance and quality assurance. Govemment stratem The Govemment's 2003 Poverty Reduction Strategy Paper (PRSP) (discussed at the Board on November 20, 2003, document number IDNSecM-0566) outlines three main objectives: (i)reducing income poverty; (ii) reducing inequality; and (iii)improving human capital. The PRSP's main goal in the health sector i s to enhance accessibility and quality o f health services, especially for the poor. This is expected to be achieved by ensuring sustainable public financing at a level affordable for the economy, intra- sectoral reallocation o f resources towards more cost-effective care modalities, and through optimization and efficiency improvements in the hospital sector. The PRSP and Medium-Term Expenditure Framework (MTEF) also call for improved governance of the health system and key strategic directions to improve the financial management and accountability o f health care providers. A new Health Law that will update the legal environment for the key Government health reform strategies i s currently under preparation. The Government's sectoral reform program since the mid 1990s focused on: (i) strengthening primary health care; (ii)separating the provider from the financing function, with accompanying reforms inprovider payment methods aimed at enhancing efficiency and ensuring access 2 to essential health services particularly for vulnerable groups; and (iii) initiating the optimization of the extensive health services network. Primary Health Care strategy. The PHC strategy aims at securing access to quality basic health services, in particular for the poor and in rural areas. The strategy's cornerstones are to: (i) integrate various streams of primary health care (children, adult, women) into the institution o f the family doctor and family medicine nurse; (ii) strengthen the qualifications and skills of PHC providers through retraining existing health professionals as family physicians and nurses, as well as developing practice guidelines; (iii) inscopeofworkofnewPHCproviderspreventionandoutreachactivities; (iv)improvePHC include infrastructure inrural areas; (v) put inplace appropriate financing mechanisms; (vi) increase community ownership and responsibility o f PHC services; and (vii) increasethe share o f public expenditures going to PHC. The strategy was launched in 1996 and the first implementation phase was supported by the first Bank health project that closed in December 2003. The Government's plans for 2004-2008 are: (i)to complete the training of family physicians and nurses to ensure coverage for the entire population with family medicine teams; (ii) define the legal status of family doctors; (iii)further improve provider payment mechanisms to increase incentives for provision o f quality care by PHC; (iv) integrate outpatient specialist services with hospital services; (v) strengthen the gate keeping function of PHC; and (vi) achieve better integration of PHC and social care services. Health finance reforms. In 1998, the Government established the State Health Agency (SHA) as purchaser of publicly financed health care services and shifted from line itembudget financing to contract based payments for a defined package o f basic health care benefits. The benefits package provides essential health care services to the entire population and extended benefits for vulnerable groups. Public health care providers were converted to state enterprises (and then subsequently to closed joint-stock companies) to allow them to raise part of their revenues from the private sector. The SHA i s utilizing case-based reimbursement instruments for hospital care (within a capped budget) and capitation-based financing of PHC and buildingcapacity to develop and monitor contracts. However, extremely limited public spending on healthhas not been commensurate with the cost of the benefits package purchased by SHA. As a result, reimbursement rates are below the cost o f service provision for most services. Therefore, the Government plans on utilizing further increases in public hnding to better align reimbursement rates with costs rather than to further expand the benefits package. The establishment of SHA was supported underthe first Bank healthproject. In2001, the Government includedthe recipients of means tested family poverty benefit among vulnerable populations receiving subsidized care. This has helpedto stop the decline inhealthservices utilization among the poorpopulation. Health system optimization. The Government's initial strategy to reduce the excess hospital capacity was based on hopes that decentralization and market forces would result in the required capacity reduction. Thus, hospitals were granted autonomy in 1996. Several of them in Yerevan were privatized and financing was shifted to performance-based payments. When it became clear that market forces did not result inthe desired capacity reduction, the Government tasked regional governments to achieve hospital optimization targets through administrative measures. An evaluation carried out by the MOH in 2002 showed a reduction of 30 percent inbed capacity, space savings o f about 60,000 sqm and a 15 percent reduction in non-medical staff, resulting in estimated cost savings o f about 12 percent. However, reductions had been almost exclusively limited to hospitals outside Yerevan. Therefore, the government adopted a hospital master plan for Yerevan in 2002 with the long-term aim to achieve a sustainable capacity of six-eight hospitals, mainly through mergers o f the current 44 hospitals. InNovember 2003, the Government approved a decree that effectively merged 37 public hospitals and policlinics inYerevan into 10 hospital networks, providing both outpatient and inpatient specialist care, as well as providing facilities for family doctor teams. 3 Health system governance. The MOHhas recognized the needto strengthenits stewardship role inpolicy setting and monitoring and oversight function. The plans to strengthen institutional capacity are reflected in the project design. The MOH has also taken concrete steps to improve oversight of the sector. In September 2003, the Government approved a time-bound action plan to improve financial management and accounting in public hospitals, and has also prepared an action plan to improve governance arrangements that i s based on four pillars: (i)introduction of Hospital Supervisory Committees; (ii) improved SHA contracting; (iii)reporting arrangements for public and private hospitals; and (iv) strengthened regulatory functions of the M O H for public and private hospitals. Health Information to Support Policv Formulation and Monitoring. With support from the Bank's first health project, the MOH undertook initial steps to establish a management information system that integrates information from three vertical management information systems - health financing, public health surveillance, and the health information system. The Government now wishes to further upgrade this system by adding information from household and other specific surveys and to strengthen the analytical capacity in the M O H to analyze and utilize the data to support decision making and monitor performance o f the system. Managing HIV/AIDS and other public health threats. To combat the HIV/AIDS threat, the Government passed HIV/AIDS related legislation in 1997 and adopted a Strategic Program of National Response to HIV/AIDS epidemic in2001. Armenia has receiveda grant o f seven million Euros from the Global Fund to Fight AIDS, Tuberculosis, and Malaria (GFATM) to help to implement its HIV/AIDS strategy with focus on prevention among highriskgroups, support with the treatment of AIDS patients, assuring blood safety and preventing mother-to-child transmission of HIV. The Government is also committed to strengthen its capacity in monitoring the behavioral risk factors related to HIV/AIDS and other public health threats. 2. Rationale for Bank involvement The project will help the Government to scale up and accelerate implementation of key sectoral reforms that without incremental resources would be delayed. Project activities are linked to the consistent and updated Government strategy and build on successful experience from the previous Bank supported health project. The project also complements the Structural Adjustment Credit program that includes policy benchmarks on improved financial management and supervision of hospitals, and targets for hospital optimization. Inaddition, the massivetask of retrainingthe poolof PHCprofessionals requires atemporary increaseof funds that the Government would not be able to provide. Incremental resources will also help the Government to scale up investments into PHC infrastructure along with mobilization of community support. The Bank brings a wealth of experience and valuable lessons to policy dialogue and project design after workmg in the region for more than ten years on the issues that continue to face Armenia. Inmany of these areas, such as health care financing and hospital restructuring, the Bank has developed extensive expertise. Technical assistance from the PHRD co-financing grant, project funds and the Bank team will help to mobilize international experience and further develop evidence based health reforms, strengthen institutions, and lend credibility for the Government reforms. The Bank also has the ability to take a multi-sectoral approachby bringinginstaff from other sectors and country unit. The involvement of the Bank inthe sector also helps to leverage difficult policy decisions by being able to engage the Ministry of Finance and Economy with the use o f structural adjustment and investment 4 lending. These links help to ensure that health reforms are commensurate with overall reforms o f the economy. 3. Higher levelobjectivesto whichthe projectcontributes The project contributes to the existing Bank Country Assistance Strategy (CAS) (discussed on May 22, 2001, document number IDA/R20011:0062) objectives that are to: (i) improve governance and public services; (ii)create jobs through private sector development; and (iii) rebuild human capital.2 The discussion on human capital emphasizes the critical role o f social sustainability and the alleviation of poverty through improvements in the quality of, and access to, health services. The CAS specifically stresses the major challenges that the Government faces "in ensuring better access to health services, particularly for poorer groups and regions, reallocation o f the healthbudget towards primary health care, and health service rationalization, including optimizing excess capacity in the hospital sector. Additionally, both the Structural Adjustment Credit V and the healthproject aim to improve governance of public hospitals. The CAS also emphasizes the emerging need for supporting the Government in , developing a comprehensive HIVIAIDS strategy where the project provides complementary support to the Global Fundgrant. The Bank has prepareda new CAS for 2004-2008. The new CAS and this project will presented to the Board at the same day. The key objectives of the proposed CAS are: (i) promoting private sector led economic growth; (ii) making growth more pro-poor; and (iii) reducing non-income poverty through better health, education and basic services. The project objectives are directly linked to the CAS objective (iii). B. PROJECT DESCRIPTION 1. Lendinginstrument This project is a first phaseof a two phaseAdaptable LendingProgramto support the Government health sector reform program as described the GOA Letter of Health Sector Development Policy (see Annex 1). The program i s expected to last seven years. The estimated total cost of the program i s about US$50 million (US$30 million IDA credit). The second phase o f the program can begin before the end o f the first phase subject to Armenia meetingthe trigger indicators (see Annex 1 for details). 2. Programobjectiveand phases The objective o f the Programis to improve the organization o f the health care system inorder to provide more accessible, quality and sustainable health care services to the population, inparticular to the most vulnerable groups; and better managepublic healththreats. The following key performance indicators will measure the achievement o f the program objective (see Annex 3 for more detailed information): a Increased utilization o f essential health services closer to international benchmarks for countries with similar demographic and epidemiologic populationprofiles; a Reduction in differences in utilization o f essential health care services between the poorest and richest income groups o fpopulation; 2 ReportNo.: 22111-AM. April 25,2001. 5 0 Perceived quality and accessibility of health care services by the population improves as a measure o f welfare; 0 Public health expenditures concentrated infewer hospitals with improved quality and efficiency; 0 Key health sector quality and efficiency indicators improve inthe areas of programintervention;, 0 SelectedMDGs, amenable to health sector interventions, continue to improve; and 0 Financial and health services performance ofpublic hospitals i s transparent and inpublic domain. The programwill help the Government Health Sector DevelopmentPolicy (see Annex 1) to: (i) complete the family doctor based PHC reformthat was launched in 1996to ensure that every Armenian citizen and legal resident will have access to a qualified and well motivatedfamily doctor and nurse of hisher choice; (ii)consolidate the hospital sector to minimize waste o f scarce resources and improve quality; and (iii) develop, implement and exercise oversight for health sector policies that will ensure adequate financial protection from unaffordable health expenditures for the poor, effective and targeted use of public resources under improved accountability and improvement health outcomes amenable to health sector interventions. The Project (the first phase o f the Program) will expand access to quality primary health care; improve the quality and efficiency o f selected hospital networks; and lay groundwork for effective health sector policy making and monitoring. The secondphase of the Program will complete the transition to a family medicine based primary health care system so that every citizen and legal resident has access to a family doctor o f hisher choice; scale up hospital quality and efficiency improvement program to cover critical mass of public hospitals; and, implement policies developed during the first phase for better protection of the poor, improved accountability o f health services and to combat most important public healththreats. The trigger indicators from the first phaseto the secondphaseare the following: 0 Meeting the yearly targets for health sector public expenditures as set out inthe PRSP(these will be updated in accordance to changes o f these indicators in PRSP): in 2005 1.8 percent of GDP and 8.6 percent o f budget expenditures; 2006 1.9 percent o f GDP and 9.2 percent of budget expenditures; in 2007 2.0 percent o f GDP and 9.6 percent o f budget expenditures; in 2008 2.0 percent of GDP and 10 percent o f budget expenditures; and in2009 2.1 percent o f GDP and 10.2 percent o fbudget expenditures; 0 Meeting at least 75 percent o f the targets o f time-bound action plan to improve financial managementand accountability o f public hospitals: (i) that all public hospitalsuse updated ensure financial management and accounting procedures; (ii)all public hospitals are supervised by effective Supervisory Committees; (iii) accounts o f at least 80 percent o f public hospitals are independently audited; and (iv) 20 percent of hospitals issue annual public performancereports. 0 Successful implementation o f the selected hospital network optimization projects under the first phase and realizing the efficiency gains: average stay inthese hospitals is no longer than 10 days and productivity o f inpatient services improvesby at least 20 percent compared to 2003 baseline; 0 At least40 percent of populations is coveredby family medicine practices that: (i) staffed by are trained family doctors and family medicine nurses; (ii) managerially autonomous from specialist care; and (iii)have independent contracts with the SHA; 0 The first Health Sector Performance Report and first set of National Health Accounts will have been issued and an updatednational health strategy drafted with clear performancegoals. For financing the proposed second phase o f the Program (estimated cost of US$25 million) there i s currently a financing gap o f about US$10million. To fill the financing gap, additional donor support will 6 be sought during the implementation of the first and preparation of the second phase of the Program. Also, availability o f increased funding from the Bank will be reviewed. 3. Project development objective and key indicators The objective o f the Project is support the implementation of the GOA health reform program through expanding access to quality primary health care; improving quality and efficiency o f selected hospital networks; and, laying groundwork for effective healthsector policy making and monitoring. The following key performance indicators will measure the achievement o f the project objective (please see Annex 3 for more detailed information): 0 Increased coverage o fpopulation by qualified family medicine practices; 0 Key health sector quality and efficiency indicators improve in the areas of project intervention, including improved access to PHC services, reduction of unnecessaryreferrals to specialist care, improvedproductivity o fhospital operation andreductionof average lengthof stay; 0 Govemment i s able to demonstrate the impact of health policies on health status and access to services from key health policy monitoring documents Health System Performance Reports and - National HealthAccount Report; 0 Public hospitals use updated financial accounting procedures, are supervised by effective Supervisory Committees, have independently audited accounts and publish annual performance reports; and 0 Monitoring and evaluationsystemfor HIV/AIDS prevention strategy inplace. 4. Project components Component A: Family Medicine Development (US$7.1 million). The project will support strengthening of institutional capacity to train well qualified family doctors and family medicine nurses as first line PHC providers using intemationally peer reviewed curriculum; provide incremental support to train and retrain 980 family doctors and 980 family medicine nurses (estimated 60 percent of country's needs); expand the Primary Health Care DevelopmentProgram to improve the PHC infrastructure beyond the 81communities supported under the first health project, and further development o f family medicine relevant PHC guidelines, including primary and secondary prevention o f avoidable mortality. The project will also help to strengthen communities' participation in addressing local health issues through a small grant program. The project will finance: renovating and equipping academic and clinical training facilities; training the trainers; providing technical assistance to curriculum evaluation and improvement; tuition and stipends for the staff to be retrainedas family doctors and family medicine nurses; developing and publishingpractice guidelines; medical equipment and supplies for PHC teams; rehabilitation of PHC infrastructure; and vehicles for PHC inremote communities. Component B: HospitalNetworkOptimizationand Modernization(US%l5.0 million). The project would support the development and implementation o f strategic restructuring plans for selected hospital network organizations (up to four in Yerevan and one per region, subject to resource constraints) which will include: consolidation o f infrastructure and services; modernization o f management structures and improving management capacity; strengthen accountability arrangements; introducing quality assurance systems; help to mitigate social consequences from staff retrenchment, and improve management o f health care waste. The project will: finance relocation o f services due to internal reorganization o f hospital networks; medical equipment; technical assistance for managerial functions and quality assurance; training of management teams; IT equipment for basic financial management systems; training 7 and supplies for health care waste management; technical assistance to update regional health services masterplans. Component C: Strengthening Government capacity to develop and monitor effective health sector policies (US%2.4 million). The project will strengthen capacity of the Ministry o f Health and its key agencies to perform its major functions of policy development and implementationmonitoring, regulation and oversight o f the health sector. It will also support strengthening o f governance and management structures o f health care provider institutions and the oversight function o f regional Government (marz) structures. The project will help to build capacity for evaluation of health sector performance by developing core monitoring instruments that are needed to inform decision makers (Health Sector Performance Report, National Health Accounts); strengthen the legal and regulatory environment, improve quality assurance mechanisms, improve public awareness about health reforms, as well as institutional capacity conducive to improved supervision, accountability and management of public hospitals; improve public expenditure management in the health sector; and improve surveillance of HIV/AIDS and other public healththreats by complementing the activities supported by the Global Fund to fight AIDS. The project will finance: technical assistance and training; publication of policy reports; special studies and surveys; management information systems and office equipment; laboratory equipment. Component D: Project Management (US%l.O million). The project would support the establishment of a supportive structure for the strategc planning and operational management o f the project within the Ministry of Health; the capacity to monitor and evaluate the reform progress and outcomes within the MOH; organized information dissemination and consultation activities; and the operations of a project optimal coordination unit supporting the MOH in the coordination and fiduciary aspects of the project unique to Bank-financed projects. The project will finance the key staff of the project unit; limited rehabilitation ofproject unit office; office equipment and suppliesand incrementaloperationcosts. Table 1. Project costs Indicative Bank- Yo of Component Costs %of financing Bank- (US$M) Total (US$M) financing A. Family MedicineDevelopment 7.1 27.8 6.2 32.6 B. Hospital Network Optimizationand Modernization 15.0 58.8 10.6 55.8 C. StrengtheningGovernmentcapacityto develop and 2.4 9.4 1.3 6.8 monitor effective health sector policies D. Project management 1.o 3.9 0.8 4.2 Total ProjectCosts* 25.5 100.0 19.0 100.0 ~ *Total FinancingRequired* 25.5 100.0 19.0 100.0 Numbersmaynot addupdue to rounding 5. Lessons learned and reflected inthe project design The Bank has reviewedthe experience o f Bank support to health sector development in the Europe and Central Asia region during the past 10 years and the implications for the future involvement inthe sector and services to clients. The key lessons fi-om the review support the notion o f scaling up high-impact activities, investing in infi-astructure when it helps to leverage difficult policy and structural reforms, improving institutions and governance through betterregulation and skills. These lessons were applied to the project design. The project addresses several key lessons learned from the review o f health care reforms in the poorest CIS countries: (i) need to enhance efficiency o f the supply side by changing clinical protocols, reforming outpatient care, changing skills mix o f labor force and strengthening providers' managerial capabilities; (ii) to strengthentheroleofthe Government usingbudgetary andregulatory instruments, by need improving public budget management and supervisory and regulatory role; (iii) to design and need implement mechanisms to meet demand, particularly among the poor; and (iv) improve programs and insurance protection for the The PHC component that scales-up activities from the first Bank supported Armenia health project employs lessons learnedfrom implementing this project. With regard to the PHC reformimplementation, evaluation o f the first project showed the need to improve the regulatory framework for family medicine. The legal status of the family medicine practices needs to be defined. For family doctors to be able to attract sufficient number of patients to their practices the widespread rigid patient assignments by catchment area needs to be relaxed. Family doctors should also be able to contract the SHA directly and the incentives need to be improved for physicians to be re-trained as family doctors. The Government has addressed these issues in the updated PHC strategy and has committed to introduce the following regulations by project effectiveness: (i) free patient enrollment nationwide;(ii) autonomous management and practice for family medicine, (iii) revised financing mechanisms for family medicine, which will be based on capitation formula and performance related indicators; (iv) codification in law and regulation of Armenian Family Medicine Statement. The lessons learned from the first project were also to put higher relative importance on training, modify the training modalities through a revised curriculum and increased share of practical training in real practice settings, and to review some technical aspects o f architectural and medical equipment design andpolicy issues that need to be solved to make the family medicine based PHC model work in policlinics and hospital networks. The project will also extend the scope of successful application of family practice and nursingguidelines' development from the first project, and expand activities inprevention and community outreach. The project team studied hospital optimization experience in other ECA countries where applicable (Estonia, Latvia, Lithuania, Moldova, Poland, Georgia, Hungary). The key lessonsderived were: (i) there i s little evidence regarding successful administrative measures to optimize hospital facilities and staff (beyond closing small rural hospitals) because of political power vested in bigger hospitals (as big employers) and fragmented ownership (central and local government); (ii) of licensing instruments use has not been effective because their enforcement is weakened through exemptions and temporary arrangements; (iii) there i s similarly little evidence that market and selective contracting has achieved optimization o f health services because of pervasive informal payments and difficulties with establishing incontestable criteria for selection by public purchasers; yet where selective contracting i s happening it acts as an incentive for facility mergers; (iv) hospital masterplans have been useful to an extent to clarify rational capacity needs but they are inthemselves not sufficient to implement rationalization; (v) demand driven instruments to support hospital consolidation (e.g. competition for investment funds) require transparent criteria that are difficult to devise; (vi) if optimization i s supported by a Bank project, then postponing optimization decisions to project implementation period will lead to significant delays of project implementation; (vii) hospital optimization requires to have either strong and committed authority inplace for making and implementing administrative decisions, or a conducive policy environment for decentralized optimization decisions led by hospital management, including appropriate legal status of hospitals, proper governance and supervision and financial incentives (performance based financing); (viii) optimization opportunities within a single hospital are limited because of building configuration constraints, meaningful results can be obtained through consolidating services from multiple sites; and 3 Health Care during Transition and Health Systems Reform: Evidence from the Poorest CIS countries." Paper prepared for the CIS-7 conference byBank staff, 2002. 9 (ix) political and social risks can be mitigated by internalizing efficiency issues to the management of health facilities. Based on the lessons learned, the project proposes to support hospital optimization through managerial decision making within hospital networks created through hospital mergers. Hospital masterplans will provide a rational blueprint and project funds will provide leverage to reward selected networks with highest gains in terms o f efficiency and quality improvement. To achieve meaningful impact on efficiency and quality and help the Govemment to mitigate political risks and cover upfront costs related to optimization, scarce project funds may need to be concentrated in selected sites. If the project demonstrates successful results from optimization programs, further resources would be forthcoming from the secondphase of the adaptable lendingprogramand from other donors. The project team also applied lessons obtained from the implementation of successful optimization projects to date in Armenia. In addition to the need for resources to pay for one-time costs related to optimization activities that can be provided through a project, there i s a need to mitigate social consequences and stakeholder politics. The key lessons learned include the following: merger o f the hospitals should precede the optimization of the staff; for staff optimization all possible risk-mitigation and retrenchment strategies should be employed, including natural attrition, compensation packages, retraining, re-deployment; arrears need to be cleared before merger, so that the new hospital would not inheritthe burdenof previous arrears; a new legal entity needs to be created as a result of the merger of equals to avoid "winner-loser'' tensions to arise; management and staff for the new entity need to be selected through fair competition; implementing optimization is a politically difficult exercise that requires transparency, consultation with public, mitigation o f social consequences and time; and an appropriately designed public awarenesscampaign is absolutely crucial inthe success o f the optimization process. The project also used the experience and analytical work done for consolidation of schools under the Bank supported education project, which included such methods as using school boards to improve management o f schools and options for a comprehensive workforce retrenchment strategy. 6. Alternatives considered and reasons for rejection No project alternative. Armenia has launched significant policy reforms to address deep structural problems in the health sector. Pnmary health care reform and health financing reform are well under implementation; hospital optimization reform i s in the initial stages. Policy decision malung requires significant strengthening of institutions and accountability for the roles and hnctions assumed by the MOH, State Health Agency, key training institutions, family doctors and nurses and hospitals. The project would provide a vehicle for continued engagement inhealthpolicy development that i s needed to foster continuity and consistency of policies until the key measures will have been implemented, institutional capacity built and a critical mass for sustainability achieved to ensure expected outcomes. Without the project, expected policy outcomes would be at risk. Project instrument. The key arguments for the APL compared to a standard investment project are: (i) to confirm the commitment to support the full implementation o f the Government PHC reform, the task that extends beyond one project cycle; (ii)to address significant structural problems in the hospital sector through interventions first in selectedhospitals with upstream commitment to continue; and (iii) address key government stewardship functions in a strategc manner by first puttingkey instruments in place for informed decision malung and policy impact monitoring (APL I), and then support the design and implementation of effective policies (AF'L II). The APL program will help to provide incremental resources to accelerate the implementation o f key policy and institutional reforms as well as provide additional leverage and risk mitigation for solving difficult political and structural issues. This would be 10 a natural complement to the policy discussions and decisions achieved under the structural adjustment program. In recent years, selected key health policy issues have also been addressed by Structural Adjustment Credit programs that have helpedto draw wider political attention to health sector issues and policy decisions. However, these steps need to be backed up by targeted support to institutional development and strategc investments for which investment projects are more suitable instruments. Size of the credit. The size of the proposed credit compared to the needs o f the Armenian health care system requires selectivity of focus. The project focuses on targeted support for institutional strengthening (low costhigh impact), scaling up o f primary health care reform (relatively low costhigh impact) and selective support to highcosthigh impact hospital optimization reformactivities. The agreed Adaptable Lending Program of which this project is the first phase, helps to overcome some o f the constraints set by limited credit resources by providing a perspective for follow-up activities to scale-up successful experience from the first phase and build on strengthened institutional capacity o f the MOH and keyhealth sector agencies. Specific design issues. The project's main focus on the financial, institutional and structural issues o f Armenia's health system is based on the premise that the main adverse effects o f the system on the poor are: (1)high-out-of-pocket payments affecting access; and (ii) deteriorating infrastructure, equipment and staff morale impacting quality. Health services do not work for the population and are in fact hurtingthe poor. The main strategic issues that have emerged are the appropriate instruments to address the excess hospital capacity problem; improving access to essential health services for the poor; ensuring affordable and sustainable financing o f health care; and achieving proper balance between classical MDGs and other important public healththreats from non-communicablediseases. Alternative approaches for the excess hospital capacity are administrative closures and/or selective contracting. The administrative closure option i s politically the most difficult and there is no successful experience in the region that go beyond closures o f small rural hospitals. Selective contracting i s also difficult becauseitrequires clear and transparent selection criteria. Experience inthe regiondemonstrates that "soft" quality related criteria would be challenged by health care institutions. A strategic approach emphasizing facility mergers bypasses difficult political issuesby internalizing the efficiency problem o f too many buildingsand duplicate services to the hospital management level where decisions can be made in a less politically charged environment. Mergers as a policy instrument have proved successful in Australia, Austria, Poland, Estonia and in selectedcases inArmenia. Some politicians and experts have proposed a "hospitals for the poor" approach as a possible alternative to the basic package approach and formal targeting instrument for improving access to the poor to essential hospital services. Scarce public resources would be targeted to selected "hospitals for the poor" where the poor people would have access through self-selection. This approach has not been tried inthe reglon and has potential serious problems: (i)if these hospitals were better equipped and funded than others then the non-poor would use these hospitals more than the poor; (ii) - ifthese hospitalswere less equippedand funded than the private hospitals for private patients - then inthe long runArmenia would be initializing clear cut two-tier health care system, or "hospitals for the poor providingpoor service;" and (iii) strategyrequirestheGovernmenttomakedifficultdecisionsandnamethefewhospitals that this would be fully funded to receive the poor (if many hospitals were included then no significant change would happen given the aggregate funding levels). The benefits that could occur under "hospitals for the poor approach" would also be achieved through hospital consolidation where the remaining facilities would be better funded and vulnerable population could realize their entitlements. This would also require the GOA to follow through on improved targeting and design o f essential services entitlements 11 and regularly fulfilling their contractual financial obligations to the hospitals. The approach could be complemented and strengthened through selective contracting. To increase funding o f health care from public sources the Government i s considering introduction of mandatory social health insurance. The Bank has not been supportive of the plan for macro-economic reasons (introduction o f new taxes on payroll is not feasible at this time) and because of empirical evidence from elsewhere inthe region where mandatory health insurance introduced as complementary to budget funding has not resulted in overall increase of public health care resources. However, if these hindering factors could be successfully addressed, the institutional and policy issues addressed by this project would be equally valid and important under a social healthinsurance system. Given the international commitment to the Millennium Development Agenda and achieving relevant development goals, the team considered the feasibility o f targeted support for selected MDG programs, such as maternal and child health. Armenia has made a policy decision about introducing a family physicianbased PHC system that integrates the essential health interventions - hence, the more general support from the project to scaling up PHC reform. However, the project intends to monitor the key MDG indicators. Similarly, some of the issues of non-communicable disease burden will be addressed through PHC reform, inparticular, elements of secondary prevention such as screening and effective case management. Most behavioral health determinants lie outside of the health system where a specific sector investment project can have less impact. The proposed project, however, intends to support strengthening public health surveillance, analytical capabilities, policy making and monitoring capabilities that are expected to enhancethe MOHinter-sectoral leadership role for promoting the public health agenda. C. IMPLEMENTATION 1. Partnershiparrangements The project is supported through a US$1.25 million PHRD co-financing grant from the Japanese Government. The grant supports the institutional capacity buildingactivities o fthe project. USAID is an important partner in helpingthe Govemment to scale-up PHC reform. USAID supports pilot projects to improve the management o f family doctor practices, introduction o f list based enrollment of population with family doctors, training of trainers and fine tuning o f family medicine financing models. These activities are an important testing ground for new models that provide lessons for nationwide implementation o freform supported by the Bankprogram. The project complements the activities supported by a EURO 7 million grant from the Global Fund against AIDS, Malaria and Tuberculosis. In particular, the project focuses on some unmet needs to strengthen capacity to monitor behavioral risk factors and to strengthen national public health reference laboratories with equipment to ensure quality control o f biological surveillance. 2. Institutionalandimplementationarrangements The project will be implementedover a period of approximately four years, estimated to beginon October 15,2004, and endon December 31,2008. The Govemment has designated the Ministryo f Health as the responsible agency for the Project. The Health Project Implementation Unit (HPIU), the coordination unit for the first Bank supported health project, will continue to support the MOH with the implementation of this project. The operational manual, the staffing and responsibilities were updated to reflect the project design and appropriate balance o f responsibilities between the Ministry o f Health and 12 the HPIU. The HPIU will be responsible for the fiduciary aspects of the project and provide project administration and coordination support to the M O H line departments and agencies that are responsible for the areas of project support. Besides the MOH and the HPIU, the Ministry o f Finance, the State Health Agency, the Policy and Analytical Center, the Yerevan and regional (Marz) Health Departments, the management teams o f the affected health facilities, and the PHC chairs in training institutions are the key participants in project implementation. To coordinate and supervise the project, the MOH has established a Steering Committee comprising representatives from key stakeholders within and external to the MOH. Besides general discussion o f policy, the Committee will be involved in such issues as defining terms o f references, participating in technical evaluations, and workmg directly with consultants for the strategic technical assistance assignments. Inaddition, individual project components have specific implementation arrangements (see Annex 6). 3. Monitoringand evaluation of outcomes/results The MOHwill monitor and evaluate the progress and outcomes o f the reforms, includingthe impact of the project. The M O H has mandated its Health Information and Statistical Center to perform this function. The project will support the Center in designingand carrying out an evaluation framework for the reformthat will also generally enhance its capacity to advise on policy reform. The results monitoring framework i s described inmore detail inAnnex 3. 4. Sustainability Potential sustainability issues related to scaling up PHC program are related to communities' ability to continue to mobilize resources to help maintain basic infrastructure o f PHC facilities. This issue was reviewed as part o f the evaluation of the first health project. Government commitment to increase PHC financing to adequate level will address this issue. In addition, the project supports incentives for communities to increase their involvement in local health care issues. The Government has determined that to train and retrain the PHC staff requires a sustained commitment for at least up to 10 years, after which financing i s required on a smaller scale to replace staff lost to attrition and also for continuous training. The project will support the temporary massive re-training effort while the Government will contribute from the beginning by fully funding the family medicine residency program that inthe future will compensatefor staff attrition. The hospital optimization and modernization activities are aimed at improving sustainability o f hospital operations. Assessmento f sustainability i s part o f the financial-economic evaluation o fthe project. 13 5. Critical risks and possible controversial aspects Risk Risk Rating Risk Mitigation Measure From Outputsto Objective Financing o f health sector will not be stable, S Inclusion o f issue in the macro level dialogue mdget execution is poor, arrears develop, between the Bank and the Government. Project Sovernment will not able to meet the MTEF also builds capacity for better management of targets for sustainable increased funding o f health budget and health needs assessment health sector Medical professions threatened by lay-offs S Internalizing optimization decisions to hospital mobilize political forces to stop hospital management level through mergers Appropriate rationalization compensation mechanisms and retrenchment options inplace Government commitment to reformvanishes M Provision o f technical support and incremental financial resources to implement reforms through continuous engagement in policy matters and through the proposedproject Reforms supported by the project can not be M Appropriate design of the project activities replicatednationwide and are not sustainable From Componentsto Outputs Lacking or weak strategic planning o f the M Appropriate technical support during project reforms, no attention to need for links preparation, continuous policy engagement by the between PHC and hospital restructuring Bank team Selected contractors fail to provide quality S HPIU employs its experience in procurement and services intime contract management obtained during the implementation o f the first health project Selection process for hospital sites to be S Selection process and planning process will be supported and concrete optimization plans completed during project preparation; progress on will be delayed optimization program will be monitored under PRSC. Overall Risk Rating S tisk Rating H (HighRisk),S (SubstantialRisl M(ModestRi .), N(Negligib1eor Low Risk) - 6. Credit conditions and covenants Conditions of Credit Effectiveness 0 A Project Account for counterpart fundinghasbeen openedandthe Borrower hasmade a deposit o f US$75,000 equivalent to the said account. 0 The Borrower has approved a time based action plan satisfactory to the Bank for the improvement o f governance o fpublic hospitals. 0 The Japanese Government PHRDcofinancinggrant agreementhas been signed and effectiveness conditions have beenmet. 14 Condition o f Disbursement N o payments will be allowed under the Development Credit Agreement, Category l(a) (i-iv) Category 2(a)(i-iv) and Category 5 until the Borrower has concluded implementation agreements, satisfactory to IDA, for the implementation of the optimization programs under the sub- components B.l,B.2, B.3 and B.4 as described in the Annex 4; and the Borrower has adopted a operational manual to provide support to staff optimization inhospital organizations supported by the project. Specific Dated Covenants 0 By November 30, 2004: (i)establish a high level policy steering group for the coordination of preparation o f Health Sector Performance Reports and National Health Accounts; (ii) expand a working group for National Health Accounts to include representatives from National Statistics Committee, Ministryo fFinance and Health Information and Statistical Centre. 0 Adopt by December 31, 2004, satisfactory to the Bank, guidelines for selection of regional hospital networks to benefit under the Regional Hospital Optimization component (Component B.5, Annex 4). 0 Adopt by December 31, 2005: (i) regulations to allow managerially and financially autonomous family medicine practices based on enrolled population and autonomous financing from the State Health Agency; (ii) re-structure SHA contracts for PHC by distinguishing services provided by family doctor teams and transitional PHC teams from outpatient specialist care. Other 0 The Borrower maintains a Project Steering Committee consisting of representatives of MOH, other key stakeholders with the responsibility for guiding and coordinating the implementation o f the Program, defining terms o f references, participating in technical evaluations and working directly with consultants on strategc technical assistancearrangements. 0 The Borrower designates the HISC with the overall responsibility for monitoring the reforms and shall provide HISC and HIPU with the resources necessary to design and implement an evaluationframework for the Project. D. APPRAISAL SUMMARY 1. Economicandfinancialanalysis Cost-benefit analysis (see Annex 9 for more detailed information). The cost benefit analysis quantifies the direct, and to the extent that available information permits, indirect benefits o f the two main project components, the Yerevan hospital mergers and the primary health care component. These are compared against the costs incurred by these two components as well as against total project costs. Benefits from the institutional development component are difficult to quantify and have thus not been taken into consideration. Similarly, as the detailed design o f the hospital optimization component inthe Marzes will only occur during project implementation, benefits fromthis sub-component couldnotbe quantified. The analysis shows that benefits from the two main project components outweigh total project costs significantly over the ten-year period o f the analysis. The NPV using a discount rate of 5 percent is US$6.6 million and the ERR i s 11 percent. These values increase to US$10.9 million and 17 percent respectively if only costs directly associatedwith the Yerevan hospital mergers and the PHC components 15 are considered. Sensitivity analysis shows that results are robust ifbenefits are delayed by one year or if they are reducedby 20 percent. Cost benefit analysis of each of the two main components indicates that the majority of project benefits are derived from the PHC component. This i s partly due to the fact that indirect benefits o f the PHC component were more readily quantifiable than those of the hospital mergers. The hospital merger component yields a positive rate of return if the period of analysis i s extended beyond ten years. This is due to higher upfront costs for hospital mergers while benefits materialize gradually over time. Furthermore, the key direct benefits from the mergers (utility and maintenance cost savings from closure o f facilities and staff cost savings from staff optimization) are relatively modest due to the serious underfunding operations and maintenance costs for facilities and very low formal staff costs. Applying utility costs per sqm of a reasonably maintained and heated hospital facility, would triple the utility savings from closed facilities. The key benefits from the mergers such as improved utilization (occupancy) achieved through consolidation, improved management and quality o f care will ultimately result inmore efficient utilization o f limitedresources and better healthcare for the population. Ifcarried out properly, the mergers will furthermore have a positive demonstration effect and thus provide an impetus for other hospital managers and the medical establishment to effectively implement optimization programs. All these indirect benefits are difficult to quantify and contribute to the perceived long period to reap direct returns on significant up front investments. Financial analysis (see Annex 9 for more detailed information). The fiscal impact analysis shows that counterpart fimd requirements amount to between 1.7 percent o f the health budget during the first project year to 0.3 percent duringthe last project year. Assurance hasbeen receivedfrom the Ministry o f Finance that adequate counterpart funds will be allocated throughout the life o f the project. Incrementalrecurrent expenditures (including operation and maintenance of project financed equipment and civil works and amortization of medical equipment) will amount to between 0.2 percent and 0.8 percent of projected healthcare expenditures 2. Technical The main technical design issues are related to the hospital optimization component. These include selection of a feasible optimization strategy - administrative closures, mergers, full privatization; developing appropriate legal and regulatory environment for good public hospital govemance; securing access for essential services for the poor people. These technical issues are described inthe section B.6 of this document. 3. Fiduciary By April 2004 PIUhas satisfactorily implementedthe Action Planpreparedby the BankFMS duringthe project pre-appraisal mission. Thus, as of April 2004, HPIU has acceptable financial management arrangements in place to meet the current Bank requirements with respect to the quality o f accounting, reporting and internal controls systemand also with respect to the audit arrangements. The three training institutions involved in the project, namely Yerevan State Medical University, the National Institute of Health and the Yerevan State Basic Medical College have satisfactory payment systems, payment registrations, payment certifications, record keeping and overall adequate accounting functions for the purposes of implementation o f the stipend payment system and reporting on actual payments made to trainees back to the HPIU. All three institutions have significant experience in stipends disbursement, as well as similar accounting system, accounting software and internal controls in place. The sequence of flow o f documents and funds for stipend payments to be implemented under the project is presentedinAnnex 7. 16 4. Social Scaling up the implementation o f primary health care strategy has benefited from the evaluation of the experience o f the first health project. The evaluation included survey and focus group instruments to assess social development outcomes and stakeholder opinions. The first health project found that ccnm-"ities with improved primary health care services evidenced higher utilization rates, an increased number o f preventive consultations, and a lower proportion of population making payments for essential services when compared to communities not benefiting from the program. The evaluation found, however, that regions evidenced significant differences in awareness about their health benefits such as the Basic Benefits Pa~kage.~ The proposed hospital optimization component will likely involve staff reorganization that may include lay-offs and related social consequences. Duringthe project preparation phase a social assessment on the health system optimization program was carried out.' The assessment benefited from the fact that the first round of optimization programs hadbeen carried out in2000-2001 that made it a more tangible issue for the stakeholders. The key lessons from this assessment were the following: (i) Government whereas officials and health sector managers recognized the need for optimization, better communication o f the underlyingreasons, and the Government's approaches to optimization are needed for the health system managers, medical staff and population; (ii) main concerns about possible staff optimization were the associated with the need to have common, transparent and clear criteria for staff retrenchment to remove as much subjectivity as possible from managerial decision making; (iii)as there is disproportionate medical staff distribution between the capital city Yerevan and the regions, incentives need to be created to facilitate staff movement to regions; and (iv) evidence needs to be presented about the benefits o f optimization, e.g. in terms of increased staff salaries or improved situation with drugs, medical supplies and equipment inoptimized institutions. These lessonswere taken into account during the preparation of the project. The project directly engages the communities inthe PHC development program and has a demand driven application procedure as well as the joint development of sustainable community programs to sustain essential health services at the community level. Given the relatively higher participation of NGOs and international donors in the health sector in Armenia, the project carried out consultations during the preparation stage and regular co-ordination activities are envisaged for the implementation stage. On the national level, the key Government stakeholders are representedonthe Project SteeringCommittee. 5. Environment The immediate impact of the project activities on the environment is limited. The main physical investment components for the proposed project are minor rehabilitation o f family medicine training centers and family medicine practices, construction o f five new family medicine practices in rural communities, rehabilitation and refurbishment o f selected space in selected hospital networks to accommodate re-location of existing departments under the restructuringprocess and medical equipment provided by the project, and minor rehabilitation o f HPIU facilities. Inaddition, the project will support the management systems of selected hospitals, including improved handling o f medical waste (note that the project activitiesthemselves do not generate medical waste). 4 HealthFinancing and Primary Health Care Development Project Evaluation. Consultant Report. Yerevan, 2003. 5 Optimization o f Health Care System of the Republic of Armenia: Beneficiary Assessment. Consultant Report. Yerevan, 2003. 17 Duringproject preparation, an expert supported by the PHRD project preparation grant carried out an environmental assessment. Earlier studies by Carelift International (2002) and Medical Waste Management Audit by the U S Centers of Disease Control and Armenian Sanitary-Epidemiology Service (2003) were used. An Environmental Management Plan was prepared in consultations with the main stakeholders, i.e. Ministry o f Health, municipality o f Yerevan, hospital managers, Ministry of Nature Protection, State Hygiene and Anti-Epidemic Inspection (former San Epid) and ECOTECHARD, a private waste management company (see Annex 10). 6. Safeguard policies ______ Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPIBPIGP 4.01) [XI [I NaturalHabitats (OPIBP 4.04) 1 1 [XI Pest Management (u 1[I 1 [XI Cultural Property (OPN 11.03, being revisedas OP 4.11) [XI Involuntary Resettlement(OPIBP4.12) [I [XI IndigenousPeoples(OD 4.20, being revisedas OP 4.10) [I [XI Forests(OP/BP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects inDisputedAreas (OPBPIGP 7.60)* [I [XI Projectson Intemational Waterways (OPIBPIGP 7.50) 1 1 [XI 7. Policy Exceptions and Readiness There are no policy exceptions inthe proposed credit. Fiduciary (financial management and procurement) arrangements are inplace. These arrangementsbuild on the staff and infrastructure from the Health Financing and Primary Health Care Development Project that closed on December 31, 2003, Financial management and procurement assessments confirmed the adequacyo f arrangements. The core project staff continues fi-om the first project and are well familiar with the implementation o f the Bank supported projects. Necessary changes determined by the project scope and review of responsibilities between the HPIUandthe MOHstaff were made duringthe project preparation period. The Armenia 2004 state budget includes required counterpart funds for the implementation needs during the 2004 calendar year. Disclosurerequirementswas addressedandagreedduringthe negotiations. Results assessment arrangements have been completed: monitoring and evaluation (M&E) institutional obligations are defined; the project includes resources to strengthen M&E capacity; indicators have been specified and baseline data collected. Co-financing arrangements with the Japanese Government have been confirmed. The US$1.25 million co-financing grant agreement will be signed together with the credit agreement o f the project. By supporting theproposed project, the Bank does not intend toprejudice thefinal determination ofthe parties' claims on the disputedareas. 18 Annex 1: Country, Sector and ProgramBackground ARMENIA: Armenia HealthSystemsModernizationProject Socio-economic context Armenia has been relatively successful recovering from social and economic disruptions o f the post- Soviet transition era. The economy has been steadily growing at rates between 3.3 percent and 13 percent during the years o f 1998-2002. Since 1994, the Government has been implementinga comprehensive reform program aimed at establishing a liberal trade regime, improving business environment and building capacity for export and investment promotion. The reform effort has been supported by generous development assistance that in late 1990s amounted to 10 percent o f GDP annually. Sustained output growth, accompanied by low inflation, has positively impacted poverty indicators. The share o f population living inpoverty declinedfrom 55 percent in 1998/99 to 47 percent in2001. Inthe same time period, the proportion of population in extreme poverty declined from 27 percent to 19 percent. Despite considerable progress, sustainability of recovery remains a concern: economic growth has been in sectors with limited employment opportunities, business environment needs further improvement, unfinished financial adjustment leads to macro-economic uncertainties, the social sectors are only now beginning to recover from quasi-fiscal deficits caused by fiscal problems on expenditure management and revenue side, and financing o f the core social services remains low. The deterioration in social sectors and infrastructure undermines the country's longer-term growth prospects and raises risks o f social tensions. Also, notwithstandingthe decline, poverty levels remain high. Health outcomes commensurate with socio-economic situation Aggregate health outcomes are commensurate or better with the socioeconomic situation o f the country. Average life expectancy at birth was 76 years in 2001 (compared to 72 in 1990). Armenia compares favorably with average health outcomes of the newly independent states (NIS) such as standardized mortality rates from heart disease, cancer and injuries. Official statistics indicate that whereas morbidity incidence figures for hypertension and cardiac angina have decreased between 1988 and 2000 (hypertension 121.7/10,000 population in 1988 compared to 109.5 in 2000, cardiac angina 221.6/10,000 populationin 1988 compared to 163.2 in2000), mortality from these diseases has increased (hypertension 5.4/10,000 population in 1988 compared to 8.1 in 2000, cardiac angina 18.5/10,000 population in 1988 compared to 29.2 in2000). Part o f causality o f increased mortality can be attributedto diminished access to health services and essential drugs that provide for secondary prevention o f mortality from cardio- vascular diseases (see below) as people do not use health services (morbidity incidence information is collected through patient contacts with heath services). Diminished access to health services i s also corroborated by other data (see below). The key Millennium Development Agenda indicators o f infant mortality and maternal mortality are reasonable given the socioeconomic status o f the country (IMR 16 per 1000 births in 2000 compared to 18 in 1990; MMR 22 per 100,000 births in 2001 compared to 40 in 1990). However, the accuracy o f these official statistics has been questioned by significantly higher indications from survey instruments. These alternative estimates are more in line with the evidence from other countries o f similar socio- economic circumstances butthey have also showed improvement trends inparallel with official indicators - estimated IMR 34 per 1000 births in 2000 compared to 50 in 1990 based on survey estimates.6 Evidence from the survey shows that in rural areas the IMR and under-five mortality is about 1.5 times higher than inurbanareas. Differentials inneonatal mortality account for most o f the difference, butrural 6 Bank analysis o f Armenia Demographic Health Survey (DHS) 2000 data. 19 population also experiences higher child mortality (between ages one and four).7 The key challenge in terms o f health outcomes for Armenia i s to sustain the current levels through securing population access to essential health services, implementing effective public health programs (e.g. salt iodization), and continue to make incremental improvements towards Millennium Development Goals (MDGs). Armenia i s currently a low HIV/AIDS prevalence country. Learning from the experience o f other countries in the region, there i s a continuous threat o f outbreak if effective preventive policies are not implemented. Inparticular, a potential threat arises from large numbers of migrant populations that temporarily work inhighHIV prevalence countries such as Russia and Ukraine. Armenia has taken steps to strengthen public health monitoring and surveillance systems through a long- standing cooperation with the U S Centers o f Disease Control. The information is collected and managed by a vertical system of 37 Sanitary and Epidemiology Centers that are accountable to the Chief Sanitary Doctor who i s also a deputy minister. At the national level the information i s aggregated and analyzed by the Health Information and Analysis Center with the help o f EpiInfo information systems. Surveillance capacity for non-communicable diseases and related behavioral health determinants i s considerably weaker and has reliedonly on fragmented ad-hoc studies. Poor do not have access to essential health services The decline o f economic output of 33 percent experienced by Armenia between 1990 and 2000 led to diminished public expenditures. Public health expenditures suffered disproportionately more. In2001, public expenditures on health care amounted to 1.3 percent of GDP or 4.33 percent o f total public expenditures, average share o f public health expenditures for low income countries with per capita income from US$785 to US$ 3,126 was 2.5 percent of GDP and 12.6 percent of total public expenditures in 1999-2000.8 This is significantly less compared to countries with similar income levels and social indicators. L o w level o f spending was also a result o f the l o w level o f protection o f health care expenditures in the budget execution process - 69.5 percent during 1998-2000 compared to 92.8 percent for the whole budget duringthe sameperiod (see Table 1). Table 1. Public andprivatehealthcare expendituresin 1998-2001 Armenia MTEF2003-2005 1998 1999 2000 2001 Nominal GDP, million drams 955,385 987,443.7 1,031,338 1,175,487 Public expenditures on health care, mln drams (approved in the 17,650.9 20,565.1 19,883.6 18,572.3 budget) Public expenditures onhealth care, mlndrams (actual) 13,687.2 13,605.5 9,663.7 15,745.6 Public expenditures on health care, % o f planned 77.5 66.1 48.6 84.8 Public expenditures on health care, % of GDP (actual) 1.43 1.38 0.94 1.34 Public expenditures on health care, % of total public expenditures 6.69 5.61 4.33 6.44 (actual) Humanitarian aid (mlndrams) 2,906.1 6,178.9 4,838.4 9,964.9 Private expenditures (formal, estimated informal; mlndrams) 20,280.7 41,651.1 29,004.2 48,510.4 Given the low level o f public expenditures on health care, private expenditures have gained an increasing role. Household expenditures and donor contributions have represented between 63 and 69 percent o f total health spending. Ninety-one percent o f patients report to have made informal payments for health 1 Armenia DHS 2000. National Statistical Service, Ministryof Health, ORC Macro, 2001. Millennium Development Goals. Armenia. Status of implementation. Yerevan, 2001. UNICEFreport. 8 2003-2005 MediumTerm Expenditure Framework ofArmenia). 20 services.' Informal payments are regressive reducing access and affordability o f health services for the poor and the sick. Utilization o f health services when reported sick in Armenia was 22 percent in the lowest income group compared to about 33 percent in the top income group in 2001 (this i s an improvement from respective 24.5 percent and 47 percent in 1998/1999, attributedto improved protection by inclusion o f family poverty benefit recipients in the population who receive subsidized health care services, see Table 2). Moreover, during the decline o f public health spending, the utilization rates dropped about two times for the three poorest income groups between 1996 and 1998. It i s interesting to note that utilization declined more for PHC services than for hospital care, reflecting most likely multiple factors -- poor quality o f PHC that would have led to referrals anyway or just avoidance o f seeking care due to costs and perceived quality until higher level care was needed. On aggregate, the utilization of inpatient services was about five hospital discharges per 100 population and for outpatient services about two visits per person per year in 2000 that is about three times less than mainstream international evidence for countries with similar epidemiologicalprofiles. The inequalities inhealth care utilization are also reflected in regressive patterns o f the scarce public expenditures on health. The poorest twenty percent o f population consumed 16 percent of primary health care resources and 13 percent o f hospital care resources compared to respective 28 percent and 43 percent consumed by the wealthiest twenty percent. L o w budgets and l o w execution o f budgets not only led to diminished access to health services and arrears to health care institutions, but they have also seriously undercut the credibility o f Govemment healthreform interventions." Table 2. Armenia: Incidenceof illness/injuryand healthcare utilizationby consumptionquintilesISLC 1998/99,2001 WorldBank,Armenia PovertyUpdate,2003 199811999 2001 Quintile 1 2 3 4 5 Total 1 2 3 4 5 Total A. Percent of individualsreportingsicknesshjury Rural 19.2 17.8 15.1 14.8 20.0 17.3 11.0 10.3 10.1 11.9 16.2 11.8 Urban 17.7 16.4 15.0 18.2 24.3 18.1 17.1 14.4 12.5 13.0 16.6 14.8 Total 18.1 17.0 15.0 16.4 22.0 17.7 15.0 12.6 11.5 12.5 16.4 13.6 B.Percentofsick andinjuredseekinghealthcare Rural 16.5 19.6 29.6 32.9 44.3 30.7 22.8 16.5 23.5 37.2 28.2 26.1 Urban 27.8 35.8 34.3 36.2 49.6 36.7 21.9 27.1 37.0 33.6 36.0 30.5 Total 24.5 29.0 32.3 34.7 47.0 34.2 22.1 23.3 31.8 35.0 33.0 29.0 Oversized hospital infrastructure drains scarce resources, is not sustainable and Quality o f services i s deteriorating Armenia like many other countries in the Europe and Central Asia region inherited from the former Soviet Union an oversized and overstaffed health care system oriented towards hospital based. Ratios of hospital beds and physicians per population were significantly higher than inricher industrial countries. Hospital care efficiency was low with long stays and low occupancy rates. The number o f hospital beds has beenreducedby about 36 percent between 1991and 2001, but mainly on the account o f closing down 9 Impact of Fee-Waiver Programs on Health Utilization in Armenia. Nazmul Chaudhury, Jeffrey Hammer, Edmundo Murmgarra. World Bank Policy Research Working Paper 2952,2003. lo Helping Governments Keep Their Promises: Making Ministers and Governments More Reliable Though Improved Policy Management. Gord Evans, Nick Manning. Draft paper to be published in the Bank South Asia DiscussionSeries. 21 small rural hospitals and reducing bed numbers inregional and urban hospitals (See Table 3). The main cost drivers, staff and hospital infrastructure in towns, has essentially remained the same: in 2001, Armenia still had 142 hospitals, includingthe capital city Yerevan's 44 hospitals for the population of 1.2 millionpopulation with the average occupancy rate of 30-40 percent and average length o f stay 11.7 days. Over-extended but low performance hospital sector absorbed 53 percent o f public health expenditures in 2001 and they still enjoy relative priority before PHC attributable to relative power o f hospital based medical profession: in 2000, healthbudget arrears to PHC amounted to 61percent o f actual expenditures compared to 42.4 percent o f hospital care. Hospitals continue to be a wasteful drain o f scarce public resources where most of the resources go to meager staff salaries and utilities, patients are forced to privately finance drugs and make informal payments to medical staff, and the quality is hamperedby low service volumes and deteriorating infrastructure. Table 3. Health sector capacity 1987-2001. MOH,NationalStatisticalService MTEF2003-2006 Report 1987 1997 2000 2001 2001 as%of1987 Ambulatory/policlinic institutions 503 488 497 281*** 56 % Hospital institutions 176* 179** 146 135*** 77% Hospitalbeds per 1,000 population: 8.4 8.2 6.8 5.4 64 % Doctors Per 1,000 population 3.9 4.2 4.1 3.8 97 Yo * Middle**medical*** 2002; personnel per 1,000 population 9.3 8.9 7.4 6.7 72 Yo 1990; 1998; Primary health care was historically provided by a network o f rural ambulatories and urban policlinics staffed by a mix o f district therapists, pediatricians, ambulatory specialists who were able to perform only the low end specialty interventions, feldschers and nurses. Provision of primary care was fragmented with separate institutions for adult primary care, children primary care and women's consultancies. In 2002, the PHC sector in Armenia employed 1,335 district therapists, 1,121 district pediatricians, 2,207 policlinic specialists and 10,969 nursing staff; 44 percent o f doctors and 27 percent o f nursing staff worked inYerevan. Supply is extensive compared to any international benchmark. Because o f chronic under-funding, low professional status and quality o f primary health care providers and deteriorating infrastructure, the population tended to self-refer to hospital specialist care. Emergency services have taken over part o f the PHC workload; the number o f ambulance calls from patients with chronic diseases has been growing over the recent years. Strengthening PHC as an effective and affordable alternative for hospital based care has been one o f the main Government reformpriorities (see Government strategy section). Humanresources-oversupply and out o f balance slulls mix Armenia still carries the legacy o f the post-soviet medical skills mix and supply. The supply o f doctors is high and the skill mix is out of balance. There are 89 different specialties recognized by the state compared to 33 recognized by EU. There are very few qualified primary health care doctors since historically, doctors without specialty qualification provided primary health care. The number o f nurses i s low compared to international standards and their slulls inadequate for independent work (see Table 2). Since most of dental care and pharmacies have been privatized, the true number o f these health professionals is currently unknown due to incompletereporting. The Government has taken several steps to improve the situation. The intake o f students to the country's only accredited medical school has decreased from 700 in 1992 to 350 in 2002. The Government funds the education of 118 of 350 medical students; the rest pay private tuition fees. The state also runs seven 22 colleges for nursingtraining where reduction o f student intake has been less dramatic. The State Medical Universityhas introducedchanges incurriculum usingexperience and knowledge gained from a TACIS- TEMPUS program in early 1990s. The medical school also has contacts with a number o f medical schools in Europe and America, mainly through extensive diaspora contacts. The university also offers medical training to foreign students. In2003, there were intotal 750 fee-paying foreign students from 20 countries in various stages of training that i s provided in Russian and Englishlanguages. Armenia has also modernizedpost-graduate training by introducing residency programs. Armenia was the first country inthe CIS to establish chairs infamily medicineto provide specialty qualification for primary healthcare providers. Inthe context of primary health care reform, Armenia has also discontinued undergraduate separate specialty program to produce primary health care pediatricians. Pediatrics i s now a post- graduate specialty. In addition to the State Medical University and seven official nursing colleges, there are four private medical schools and ten private nursingcolleges. The Government does not recognize these schools and i s currently not inclined to grant the graduates licensesto practice." The American University o f Armenia, founded in 1991, has developed a Master o f Public HealthProgram that is affiliated with the Johns Hopkins University Bloomberg School o f Public Health. This program has produced a number o f well-trained public health professionals, staffing both the Government and private health services. Inline with overall decentralization processesandgranting autonomy to healthinstitutions, the MOHhas withdrawn from direct planning of human resources and relies on self-regulation mechanisms and decisions by management o f health care institutions to determine the staffing levels and remuneration. In this environment, the key instruments for moderatingthe supply and quality of health care professionals are the State Order for educating health professionals in medical university and nursingcolleges and the licensing process. In 1996, a system o f personnel licensing was introduced with the theory that all practicinghealth professionals would have to submit to re-licensingprocess every five years. The system of licensing has been suspended inrecent years due to concems about the integrity o f the system. There are plans to reintroduce a more objective system, the progress o fwhich will need to be monitored. Overall Dolicv malung, planning, regulation and managementinhealth sector Responsibilities o f the MOHhave changed considerably duringthe decade o f independence. Previously, MOHwas responsible for all planning, regulation, financing and operation o f health services. The health systemtoday comprises a network of independent, self-financing (or mixed financing) health services that provide statutory services (financed and contracted for by the health services contracting agency, or State Health Agency, under the MOH) and private services. Operation and ownership o f health services (except public health institutions and several tertiary care hospitals) have been devolved to local governments (PHC) and provincial governments (hospitals). Almost all pharmacies, the majority of dental services and medical equipment technical support has been privatized as have a number of hospitals inYerevan. Decentralization and privatization steps were not accompanied by strengthened regulation and supervision arrangements. This has raised concems about possible financial mismanagement and fulfillment of social functions (delivering essential services). The functions o f the MOH are now more strategic policymalung, developing o f normative documents, licensing, monitoring and supervision. The Armenia Institutional Governance Review (2000) concluded 11 Health Care Systems inTransition. Armenia. WHO, 2001. 23 that significant policy and structural reforms in health sector were not matched by strengthened institutional capacity to fulfill new roles and functions, and that the accountability institutions were underdeveloped. Several MOH functions need strengthening --in particular, policy analysis and developing legal and normative framework for health sector; ensuring proper accountability and supervision arrangements for performance o f public hospitals, adherence to norms in all institutions; ensuring transparency in planning and use o f public health care finances; and strengthening monitoring and evaluation o fpolicy implementationand outcomes. Main sector issues insummary In summary, the main sector issues are how to: (1) ensure sustainable provision of essential health services that are accessible to population, in particular for the poor people; (ii) manage public health threats and prevent avoidable mortality, both from infectious and non-communicable diseases; and (iii) strengthen the key functions of the state inhealth sector, including ensuring good governance, monitoring and evaluation, ensuring appropriate regulations and norms. The key sector issuesneedto be addressedinthe context o f severe financial constraints o fpublic funding; increased incidence of informal out-of-pocket payments and financial barriers to essential health services; high poverty levels; excess capacity of deteriorating hospital infrastructure, the operations of which is both unsustainable and unaffordable for Armenia; unbalanced supply o f human resources in terms of slulls mix and regional allocation; and continuous threat o f resurgence o f communicable disease that put at risk sustaining the key aggregate health outcomes such as infant and maternal mortality as well as relatively low HIV infection rates at current levels. Government stratem In2003, theGovernment approvedaPovertyReductionStrategywiththreemainobjectives: (i) reducing income poverty; (ii) reducing inequality; and (iii) improving human capital. Giventhese objectives, the main overarchingpolicy priorities for the Government are: (i) supportingpro-poor economic growth; (ii) improving efficiency of public governance at all levels, and (iii) ensuringactive participatoryprocesses in PRSP implementation. The overarching policy goals are translated into sector specific objectives and policies. The PRSP's main goal in the health sector i s enhancing accessibility and quality o f health services, especially for the poor. Enhancing accessibility i s expected to be achieved through ensuring sustainable public financing at a level affordable for the economy; relevant redistribution o f intra-sectoral allocations to more cost-effective care modalities, and optimization and efficiency improvement of health care provision (see Figure 1). The PRSP has programmed to increase the share o f PHC of Government health sector spendingto 40 percent in2006,45 percent in2008 and 50 percent in2015. During the past ten years of transition, the key Government healthpolicy initiatives to deal with 5 15 5 the main sector issues have been consistent with 4 n ~ the key Government overall strategc documents > g, 3 8 Framework and Poverty ReductionExpenditure (notably, the Medium-Term 8 m' 5 Strategy). u- 0 2I % S These initiatives have been and continue to be: S 0 0 (i)strengthen primary health care (PHC); (ii) $9 +P ++ implement health financing reform to create ' 2.O"+Q"2.0' incentives for efficiency and ensure population's +Public healthexpenditures(%of GOA budget) access to essential health care services through +Public healthexpenditures(%of GDP) better targeting, in particular for vulnerable; and, more recently; and (111)take proactive steps to Figure 1. PRSPtargets for public expenditures in health sector. 24 optimize extensive health services network. The strategy was first outlined in 1995 Minister of Health's "Program on Development and Reforms o f the Health Care System in the Republic o f Armenia 1996- 2000." The 1996 "Law on Medical Aid and Services to the Population" provided initial legal framework for the strategy. The PRSP and MTEF also call for improved governance of health system. The key strategic directions for improving financial management and accountability are outlined in the 2003 Government decree on improvement of the financial management, accounting and financial reporting o f those organizations providing hospital health care and services. A new Health Law that will update the legal environment for the key Government healthreform strategies i s currently under preparation. Primary HealthCare strategy The Government o f Armenia approved the first strategy for PHC development in 1997. It identified the PHC service delivery in Armenia as being inefficient and o f low quality. As a result, the Government decided to reorient the health care system towards PHC and introduce Family Medicine as strategc directions to improve quality o f and access to PHC services. The strategy outlined the accessibility, equity, comprehensiveness,continuity of care and coordinationbetween different levels of the healthcare as main principles for PHC reform implementation in the country. It also articulated the nature of the PHC in Armenia, describing it as a systemaimed at:(i) providing broad range o f highquality health care services; (ii) puttinggreater emphasis on health promotion and preventive measures; and (iii) managing the basic health care service delivery in more cost-effective way through introduction o f appropriate financial incentives for the health care providers. The Government in 2003, approved the follow-up PHC development strategy to scale up and complete the PHC reforms. Its' general objective is to secure access to quality basic health services, inparticular for the poor and in rural areas. The current strategy aims at securing access to quality basic health services, in particular for the poor and in rural areas, and reiterates the basic principles o f the PHC reforms in Armenia. The strategy contains: (i) integrating separate streams o f primary health care functions (children, adults, and women consultancies) within an institution o f family doctor; (ii) strengthening the qualifications and slulls o f the PHC providers through retraining and training family physicians and nurses and developing practice guidelines; (iii)improving infrastructure for essential health services in rural areas; (iv) putting in place appropriate financing mechanisms; (v) increasing community ownership and responsibility o f PHC services; (vi) increasing share o f public expenditures going for PHC; and (vii) achieving favorable results in population's health status by focusing on preventive care. Armenia was one of the first countries among the Commonwealth o f Independent States to establish Chairs o f Family Medicine at the State Medical University (SMU), National Institute of Healthand Basic Medical College (BMC) in 1997. The S M U was mostly to provide family medicine training for undergraduate medical students and postgraduate residency programs. The NlH mainly provides re- training programs for district therapists, district pediatricians, nurses and midwives as well as residency training. The BMC provides family medicine training for undergraduate nursing students and postgraduate specialization o f the family medicine nurses. The training centers have also runinnovative training-at-site programs to strengthen confidence o f newly trained PHC providers in everyday practice settings. By 2003,221 physicians have receiveda qualification o f family doctor and 178 nurses improved their skills for PHC. This i s about 11 percent of the needs for family doctors and 5 percent o f nursing staff. Armenia has also developed, published and distributed practice guidelines for family doctors (127 guidelines) and family medicine nurses (56 guidelines). The evaluation o f the first health project indicatedthat 90 percent o f PHC providers regularly used the guidelines intheir work. 25 To improve access to essential services in rural areas, the Government has run a Primary Health Care Development Program that was built on the successful Armenia Social Investment Fundexperience. By mobilizing communities to develop their plans for local health care improvement and raising own revenues to share service improvement costs, the programhas improved PHC infrastructure in81 villages (17 percent o f population, excluding Yerevan). The program was closely linked with the health services decentralization policy that transferred the ownership and responsibility for PHC services to local governments; and, with the PHC training programs to ensure that the outfitted rural facilities are also staffed with qualified staff. PHC share o f public expenditures on health care increased from 11.3 to 21.9 percent between 1997 and 2001, and i s projected to reach 40 percent by around 2006. Once the expenditures reach the level adequate for supporting essential PHC services, further increases over inflation will not be necessary, The health care financing agency has introduced capitation based financing system and rewards more extensive PHC provisionbynewly qualified family doctors with higherrates. Implementationo f the PHC strategy was supported by a Bank health project. Govemment has approved an update to primary health care strategy to provide direction for the rest o f the transitional period of PHC strategy implementation. The strategy sets objectives for medium- (2003-2004) and long-term (2004- 2008) developments. The medium-term objectives include completion o f integration o f primary health care institutions (adult, children policlinics and women consultancies); acceleration o f training and retraining process o f family doctors and nurses (total need for family doctors i s 1500-2000); definition o f the status and legal environment for family doctors and group practices; improvement of PHC funding mechanisms; development o f referral system; introduction of patient lists and choice o f primary health care provider; adoption o f new list o f medical professions; and strengthening primary prevention and treatment o f socially significant diseases. The long-term objective include integration o f outpatient specialist services with hospitals; implementation policlinic reform; and creation o f an institution of community nurse. The strategy also recognizes the need for better integration o fprimary health care and socialcare services.12 Health financing reform In 1998, the Govemment established the State Health Agency (SHA) to administer public health care funds. Continuation of the line-item budget financing system not only had disincentives for efficiency but ithad also become out ofplace since it covered only part ofthe costs ofhealthfacilities. Health care institutions had also been converted to state enterprises to reflect that part o f their revenues came from private sector. This reform essentially introduced purchaser-provider split and contracting inhealth care in a quasi-market environment. The SHA committed to reimburse health care providers for health services that belonged to the package o f essential health programs and/or were provided to vulnerable population. Establishment o f the SHA was also a step to develop institutional capacity for possible introduction o f mandatory social health insurance if it were to become feasible under macro-economic conditions. Duringthe years of existence, the SHA has developed case based reimbursement instruments for hospital care (within a capped budget) and capitationbased financing o f PHC and capacity to develop and monitor contracts. Strengthening o f SHA institutional capacity was also supported by the first Bank healthproject. Evidence on how well the Govemment has been able to protect access to essential care for vulnerable populationhas beencontroversial. Benefit incidence studies for 1996 and 1998 show that access to health services has declined to all population groups and there was little or no protection for the poor. The 12 Republic of Armenia Strategy on the Primary Health Care of Population for 2003-2008. Government Decree. 26 reasons for the failure were three-fold: (i)overly extensive benefits package with below cost reimbursement rates resulted in no factual protection from out-of-pocket expenditures; (ii) targeting instruments based on Soviet era categorical privileges (war veterans, etc) were ineffective; and (iii) low execution rates of already meager health budget (see Table 2). More recently, the Government has addressed the targeting issue by linkmg it to means-tested social assistance benefit system and has also significantly improved budget execution. There is some evidence from very recent studies that the improved targeting has stopped the decline o f access to essential health services for the The level o f public financing in health sector i s projected to increase under the PRSP and MTEF. The Government strategy with increasing revenues in short term is to not expand the benefits package but to raise the reimbursement rates to reduce the gap with the cost o f service. Given that reimbursement for health services is based on outputs (case in a hospital) and patient lists (primary care), the Government needs to improve costing o f services to be based on real cost, optimal and efficient resources to properly account for public funds used and for incremental increases o f the budget. There also appears to be further scope to improve needs assessment and for streamlining the basic package that currently consists o f the following programs that have overlaps: (i) primary health care; (ii) treatment of infectious diseases; (iii) obstetrics; (iv) treatment o f mental and addiction related diseases; (v) hemodialysis; (vi) rehabilitation o f TB patients inhealth resorts; (vii) urgent health care; (viii) health care o f children under three years of age; and (ix) all health services (except plastic surgery, organ transplants expensive dental services) for vulnerable population (see Table 4). 13 Impact o f Fee-Waiver Program on Health Utilization in Armenia. Nazmul Chaudhury, Jeffrey Hammer, Edmundo Murrugarra. World Bank Policy Research Working Paper 2952,2003. Project Files. 27 Table 4. HospitalservicesBBPas plannedfor 2003 Backgroundpaperfor MTEF2003-2006. ProjectFiles Healthcare expenditures by type of Service Users Number o f State budget medical aid cases (000 drams) 1 Hospital healthcare, including 120000 11 502 874 2 Healthcare o f children age 0-7, including (without 33 557 2 653 909 infectious diseases) 2.1 Children under 7 yrs Children under 7 yrs 31 157 2 486 329 2.2 Children 7-15 yrs Urgent conditions,lO%; social groups, 2 400 167580 10% 3 Treatment o finfectiousdiseases, including 6 931 1492 460 3.1 TB treatment All cases 1600 790 020 3.2 Treatment o f infectious diseases, including Intestinal and other acuteinfections 4 500 691 268 3.2.1 Children under 15 yrs Intestinal and other acuteinfections 4 000 614460 3.2.2 Syphilis Syphilis patients 440 70 224 3.2.3 Chronic gonorrhea Only chronic cases 191 13 718 3.3 Skin diseases Only social groups 200 11 172 4 Obstetrics/gynecology, including 50 645 2 938 625 4.1 Childbirth All pregnant 36 187 1 804 827 4.2 Prenatal and postnatal healthcare All pregnant and women in labor 13 458 1 073 948 4.3 Gynecologic aid Only acute conditions and socially 1000 59 850 vulnerable groups 5 Treatment of mental and narclogypatients 2 266 1450 345 5.1 Mental patients' care All cases 700 1019 445 5.2 Acute mental cases All cases 950 159201 5.3 Enforced treatment All cases 100 182044 5.4 Forensic mental expert assessment All cases 100 14 963 5.5 Treatment o fnarcologic diseases All cases 416 74 693 5.6 Other mental disorders 6 Hemodialysis (1 session) All cases 160 729 600 7 Treatment o f other diseases inhospital 26 441 2 967 535 7.1 Poisoning and trauma All poisonings and life-threatening 4 000 438 900 conditions 7.2 Neoplasms Malignant neoplasms 5 415 972 263 7.3 Blood and bloodorgan diseases All cases 259 31 002 7.4 Endocrinediseases Only for social groups 440 24 578 7.5 Congenital anomalies All cases 767 91 810 7.6 Neural diseases Only for social groups 986 68 847 7.7 Bloodcirculationdiseases Stroke, infarction and socially vuln groups 7 000 754 110 7.8 Respiratorysystemdiseases Acute cases, Social groups 1432 128 540 7.9 Gastro-intestinal tract diseases Acute cases 3 696 265 418 Social groups 7.10 Urology diseases Acute cases 1 847 147 378 Social groups 7.11 Osteomuscular and tissue diseases Social groups 400 28 728 7.12 Unconfirmed diagnoses 200 15 960 InOctober 2003, the Government introduced formal co-payments on a pilot basis for hospital care inthe capital city Yerevan. The objective was to tackle informal payment problem inhealth care byreplacing at least part o f the informal cash flows. As an incentive for physicians to comply, part o f the co-payment revenue would be used as performance based incentive payments to medical staff. The pilot will be evaluated after first six months to analyze to what extent co-payments actually replaced the informal 28 payments and what was the link between these co-payments and improved quality o f care needs to be established for bothpatients (reduction o f informal payments, better availability o f drugs) and physicians (part of co-payment being used as a performance related remuneration to medical staff). To clarify accountability, in the summer o f 2002 the previously quasi-autonomous State Health Agency was directly subordinated to the MOH. The SHA along with the economic department inthe M O H has been the key institution for estimating the volume and costing out the health services included inthe basic benefits package. These capacities need continuous strengthening. Health system optimization Strategy for dealing with excess hospital supply has been less consistent. Initial hopes were linked to market forces and decentralization that would lead to closure of some hospitals. Hospitals were granted autonomy in 1996, and several hospitals in the capital city o f Yerevan were privatized and the SHA started to finance actually performed services. When it became clear that the market did not work, the Government adopted a resolution in 2001 that tasked the regional governments to achieve hospital optimization targets through administrative measures. Outcome o f this measure varied by region but seldom went beyondclosures of small low cost rural hospitals. Evaluationof the results conducted by the Ministry of Health in 2002 showed about 30 percent reduction in bed capacity and about 15 percent reduction innonmedical personnel throughout the country. About 60,000 sqm o f space was freed up and associated fixed costs eliminated. In total, the Government estimated that this optimization measure achieved about 12 percent cost reduction. However, there was less optimization in hospital capacity (virtually no change inYerevan) and only 5 percent change inthe number o f doctors. Nevertheless, there was evidence that where optimization occurred, the legal merger approach worked. A successful merger of two 100 bed acute care hospitals in Gyumri resulted in consolidating all clinical services in one building, retuming the other building to the local Government, increase of patient throughput on the remaining 100 beds, 25 percent reduction of staff and a market improvement o f the remaining facility's financial situation, including increased ability to purchase critical drugs and supplies. On December 5, 2002, the Government adopted another resolution approving a hospital masterplan for the city of Yerevan with a long term aim to achieve a sustainable capacity o f six-eight hospitals, mainly through mergers o f the current 44 hospitals. Hospitaloptimization inYerevan i s politically more difficult process, evidenced by no progress so far. Nevertheless, the gains from consolidation would also be highest in the capital city where the bulk of excess capacity lies. And, in November 2003, the Government approved a decree that effectively merged 37 public hospitals and policlinics inYerevan into 10 hospital networks providing both outpatient and inpatient specialist care as well as provide facilities for family doctor teams. The MOH has recognized the needs to strengthen its stewardship role in policy setting and monitoring and oversight function. The Government approved a decree in September 2003 that sets out the implementationplan to improve financial management and accountability inpublic hospitals. The decree calls for introduction o f uniform set o f accounts and a set o f standard forms, training o f accountants in hospitals, introductiono f hospital governance boards, requirement o f independent audits and introducing new reporting mechanisms to Ministryo f Finance and Economy. The MOHhas prepared an action plan to improve governance arrangements that i s based on three pillars: introduction o f Hospital Supervisory Committees; improved SHA contracting; reporting arrangements for public and private hospitals; and, strengthened regulatory functions of the M O H for public and private hospitals. The plan calls for strengthening the hospital supervisory committees, clarifymg the roles and responsibilities o f the supervisory committee and executive management, introduction o f strategic planning and performance targets, independent audits, assembling and disclosingannual performancereports. 29 Managing HIV/AIDS and other public health threats To combat the HIV/AIDS threat, the Government passedHIV/AIDS related legislation in 1997 (Law on Prevention of the Disease Causedby Human Immunodeficiency Virus) and adopted a Strategic Program of National Response to HIV/AIDS epidemic in2001. Armenia has received a grant o f 7 million Euros from the Global Fund to Fight AIDS, Tuberculosis, and Malaria (GFATM) to help to implement HIV/AIDS strategy. The proposal supports activities in several strategc directions, namely to: reduce the spread of AIDS in the general population and particular segments of the population such as youth, migrants and refugees; reduce the spread of AIDS inthose segments o f the population particularly at risk such as intravenous drug users, female sex workers, men who have sex with men, and prisoners; provide care, support and treatment to people living with HIV/AIDS; ensure donated blood safety; and prevent mother-to-child transmission of HIV. The Government i s also committed to strengthen its capacity in monitoring the behavioralrisk factors relatedto HIV/AIDSand other public healththreats. HealthPolicy Making andMonitoring To better utilize information for decision malung and strengthenhealthpolicy malung function, the MOH has expanded the functions of the Health Information and Analysis Center to include integrated information management from three vertical management information systems - healthfinancing system, public health surveillance system and health information system; and add analytical capacity for using this information for policy analysis and recommendations. The Bank's first health project supported the first steps to develop management information systems for integrating the information flows from the various systems. The plans for further development include adding to the sources o f information the survey instruments such as household surveys and specific surveys, as well as to begin producing regular analytical reports on health sector performance. Adaptable LendingPropram The current project i s the first phase of the two-phase adaptable lending program to support the Government healthreform. Government healthreformprogram is described inthe Letter o f Health Sector Development Policy (Attachment 1 to this Annex ). The program builds on and expands on the achievements o f the first health project. The objective o f the program i s to improve the organization o f the health care system in order to manage public health threats; and, to provide more accessible, quality and sustainable health care services to the population, in particular to the most vulnerable groups. The programwill help the Government to: (i) complete the family doctor basedPHC reformthat was launched in 1996to ensurethat every Armenian citizen and legal resident will have access to a qualified and well motivated family doctor and nurse of his/her choice; (ii)consolidate the hospital sector to minimize waste of scarce resources and improve quality; and (iii) develop, implement and exercise oversight for health sector policies that will ensure adequatefinancial protection from unaffordable healthexpenditures for the poor, effective and targeted use o f public resources under improved accountability and improvement health outcomes amenable to health sector interventions. The program is expected to last seven years with the estimated total cost o f about US$50 million (US$30 million credit). The first phase ofthe programwill: (i) and scale-up the re-training family doctors and nurses and expand ensure that they will have adequate financial resources and worlung environment, as well as enabling regulatory environment; (ii) implement efficiency and quality improvement programs in selected hospital networks; and (iii) lay ground work for effective health sector policy malung and monitoring through buildingcapacity inthe MOHandkey agencies. The secondphase of the program will: (i) resources to reach the full coverage o f population by provide trained family doctors and nurses and complete the transition to family medicine based primary health 30 care system; (ii) scale-up hospital optimization program subject to successful completion o f and learning the lessons from the selectedhospital optimization programs under the first phase (it i s also expected that broader donor support can be mobilized if the project i s successful); and (iii) support the design and implementation o f health policy measures to further improve health dimension o f welfare of Armenian people and improve healthoutcomes from the main public healthrisks. The trigger indicators that need to be met to launch the second phase were designed based on the following rationale: they should reflect progress on key health policy measures inthe PRSP and for the development program supported by the APL; and, demonstrate sufficient implementation progress in the first phase to ensure that critical inputs for the design o f the second phase are there. The following have been agreedupon as trigger indicators from the first phaseto the second: e Meeting the yearly targets for health sector public expenditures as set out in PRSP (these will be updated in accordance to changes of these indicators in PRSP): in 2005 1.8 percent of GDP and 8.6 percent of budget expenditures; 2006 1.9 percent o f GDP and 9.2 percent o f budget expenditures; in 2007 2.0 percent o f GDP and 9.6 percent o f budget expenditures; in 2008 2.0 percent of GDP and 10percent of budget expenditures; and, in2009 2.1 percent o f GDP and 10.2 percent o f budget expenditures; e Meeting at least 75 percent o f the targets of time-bound action plan to improve financial management and accountability o f public hospitals: (i) ensure that all public hospitals use updated financial management and accounting procedures; (ii)all public hospitals are supervised by effective Supervisory Committees; (iii) accounts of at least 80 percent o f public hospitals are independently audited; and, (iv) 20 percent o f hospitals issue annual public performancereports. e Successful implementation o f the selected hospital network optimization projects under the first phase and realizing the efficiency gains: average stay inthese hospitals i s no longer than 10 days and productivity of inpatient services improves by at least 20 percent compared to 2003 baseline; e At least 40 percent ofpopulations is covered by family medicinepractices that: (i) staffedby are trained family doctors and family medicine nurses; (ii) managerially autonomous from specialist care; and, (iii) have independent contracts with the SHA; and e The first Health Sector Performance Report and first set of National Health Accounts will have been issuedand anupdatednational health strategy draftedwith clear performance goals. Subject to trigger indicator being met, the second phase of the program could be launched before the closing o f the first phase o f the program. For financing the proposed second phase o f the Program (estimated cost of US$25 million) there is currently a financing gap o f about US$10 million. To fill the financing gap, additional donor support will be sought during the implementation o f the first and preparation of the second phase of the Program. Also, availability o f increased funding from the Bank will be reviewed. 31 Attachment 1to Annex 1 Letter ofHealth Sector Development Policy 32 Attachment 1 to Annex 1 Letter of Health Sector Development Policy 33 Attachment 1to Annex 1 Letter of Health Sector Development Policy 34 Attachment 1to Annex 1 Letter of Health Sector Development Policy 35 Attachment 1to Annex 1 Letter of Health Sector Development Policy 36 Attachment 1to Annex 1 Letter of Health Sector Development Policy 37 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies ARMENIA: Health SystemsModernization Project Several Bank activities in Armenia address health sector issues. The Health Financing and Primary Health Care Development Project (the first "Health Project) focused on improving access, quality and sustainability o f essential health services. The project invested in development of capacity in the State Medical University, the National Institute o f Health and the Basic Medical College to train family physicians and family practice nurses, developed evidence based practice guidelines, improved infrastructure in 81 communities covering about 17 percent o f rural population. Communities were mobilized to co-finance the infrastructure improvementto improve sustainability. This design element of the project built on the experience of the h e n i a Social InvestmentFundproject. The health project also supported capacity buildingin State Health Agency that introducedperformancerelatedpayments to hospitals and PHC providers as incentives for efficient service provision. The Structural Adjustment Credit IV (2001) addressed the need to optimize health services and led to adoption by the Government a decree on regional health services rationalization plans. The SAC V (2002) addresses the need for further optimization of health services inthe capital city Yerevan, measures to improve governance and financial management inpublic hospitals, introduction o f formal co-payments for health services in attempt to legalize informal cash flows in the health care sector and measures to improve transparency and sustainability of the benefits covered by the state as well as targeting. Economic and sector work has provided important insights to barriers for health services utilization among the poor. The Poverty Assessment (2001) and it's updates; andpolicy research worlung paper "The Effects of a Fee-Waiver Program on Health Care Utilization among the Poor in Armenia" have effectively established the baseline and allow now to monitor the effectiveness o f policies to improve access to essential health services for the vulnerable. The Public Expenditure Review discussesthe public sector fiscal management issues. The Government's Medium-Term Expenditure Framework and the draft Poverty Reduction Strategy are the basis for determining public priority inthe coming few years and the fiscal environment to look at sustainability of the investments. The Armenia Institutional Governance Review (1999-2000) used health sector as the basis of analysis and revealed a number o f weaknesses, such as unpredictable budgets, arbitrary policies and weak contracting mechanisms, civil service incentives and accountability arrangements. The review has led to initiatives to address the weaknesses underthe SAC programandMTEF. Inadditiontoabove, therearemorecross-linkages withother sectors. Improvedtargetinginhealthsector i s linkedto implementation o f system means tested targeted family benefits system under the Ministryof Social Protection. Policies to improve financial management and accountability o f public health institutions, as well as service optimization issues are being developed in parallel to similar issues in education sector, as well as through the Country Financial and Procurement Assessment instruments. The proposed Public Sector Modernization project will also address cross cutting issues in improving transparency, accountability, effectiveness and efficiency o f the public sector. There i s also an agreement among international development agencies on the main development issues in health sector and related reforms. After years o f focusing on humanitarian aid, most o f the development projects have now begun to focus on strengtheningprimary health care, often through pilot projects to develop and test worlung models that could be replicated in Armenia. The international community has also mobilized support to tackle emerging HIV/AIDS and TB threats. 38 Latest Supervision Sector Issue Project (PSR)Ratings Implementation Development Bank-financed Progress (IP) Objective (DO) Improve access, quality and sustainability Health Financing and Primary S S o f essential health services Health Care Development Project (HFPHCDP) Optimize health services capacity to a Structural Adjustment Credit IV S S level that is affordable and sustainable for Armenia Strengthen govemance and accountability Structural Adjustment Credit V S S inhealthsector Improve quality and sustainable provision Armenia Social Investment Fund S S o f essential services for communities (incl. Project PCH) Optimize and improve management social Educational Quality and Relevance services Project (not effective yet) Improve transparency, accountability, Bank Public Sector Modernization effectiveness and efficiency o f the public Project (underpreparation) sector Other development agencies Improve access, quality and sustainability USAID Armenia Social Transition o f essential health services Project -support to Primary Health Care reform UNICEF - supports essential immunizationprograms Strengthen govemance, policy making, USAID Armenia Social Transition monitoring and evaluation, regulatory and Project - support to strengthen supervision functions o f Government in licensing and accreditation systems health sector for health care providers DIFID - civil service reform program Strengthen capacity to manage public Global Fundfor HIV/AIDS, TB and health threats Malaria supports implementation o f HIV/AIDS strategy; a proposal for support for TB programs i s being sought UNICEF programfor salt iodization IPDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U(Unsatisfactory),HU(Highly Unsatisfactory) 39 Annex 3: Results Framework and Monitoring ARMENIA: Health Systems Modernization Project Results Framework PDOAPL Outcome Indicators Use of Outcome Information For Program 1. Increased utilization o f essential Demonstrate the impact o f Armenian health care system i s health services, reduction in Government policies and make better organized in order to provide differences in utilization between the adjustments ifneeded. more accessible, quality and poorest and richest income groups o f sustainable health care services to population the population, especially the most 2. The perceived quality and vulnerable groups; and, to manage accessibility o f health care services by public health threats the population improves 3. Public health expenditures concentrated in fewer, better quality hospitals 4. Key health sector quality and efficiency indicators improve in the areas o fproject intervention; 5. Selected MDGs that are amenable to health sector interventions improve; 6. Financial and health services performance o f public hospitals is transparent and inpublic domain; 7. Government i s able to demonstrate dynamics o f improvement o f key indicators o f HIV/AIDS and other public health threats PDOPhase 1(Project) Outcome Indicators Use of Outcome Information For PhaseI 1. Increased coverage o fpopulation by Lessons learned will be applied to Support the implementation o f the qualified family medicine practices; the APL 2. GOA healthreformprogramthrough 2. Key health sector quality and expanding access to quality primary efficiency indicators improve in the health care; improving quality and areas o fproject intervention. efficiency o f selected hospital 3. Government is able to demonstrate networks; and, laying groundwork the impact o f health policies on health for effective health sector policy status and access to services from key making and monitoring. health policy monitoring documents - Health System Performance Reports and NationalHealthAccount Report; 4. Public hospitals use updated financial accounting procedures, are supervised by effective Supervisory Committees, have independently audited accounts and publish annual performance reports; 5. Monitoring and evaluation system for HIV/AIDS prevention strategy in place. 40 IntermediateResults ResultsIndicatorsfor Each Use of ResultsMonitoring One per Component Component ComponentA: Component A: ComponentA: Family Medicine Based Primary 1. Proportion o f Armenian population To ensure that supply issues for Health Care Strategy covered by qualified family medicine ensuring adequate access to quality Implementation ScaledUp practices increased from 17 percent to primaryhealth care are addressed 60 percent 2 Unnecessary referrals to specialist care decline ComponentB: Component B: ComponentB: Selected Hospital Network 1. Selected hospital networks improve As a demonstration o f impact o f Optimization and Modernization efficiency and quality o f services restructuring for follow-up activities1 Plans Implemented 2. Hospital waste management Lessons learned will be applied to regulations developed and appropriate APL2. procedures implemented in selected hospitals 3. Accountability and management o f selected hospitals improves Component C: Component C: ComponentC: Government capacity to develop and 1. Health System Performance and For demonstrationof Govemment policy monitor effective health sector National Health Accounts reports are impact and making necessary policies strengthened available and used for adjustment o f adjustmentsto policies. reform strategy andbudget design 2. Institutional capacity o f state Preparationof APL2 institutions responsible for control o f public health facilities increased; 3. Proportion o f physicians licensed according to new procedures 4. Proportionlnumber o f public hospitals with trained key management staff 5. Contracts between SHA and health care providers are timely, based on sound planning and enforceable 6. Government has reliable information about determinants o f HIVIAIDS euidemic and can evaluate effectiveness o f interventions ComponentD: Component D: ComponentD: Project Management Supported 1. Effective strategic and project Adjustments to project design and management structures inplace management arrangements ifneeded 2. Project Monitoring and Evaluation System inplace 3. Stakeholder communication and consultation systems inplace 4. Project coordination, procurement and financial management satisfactorily implemented 41 Arrangements for resultsmonitoring APL Targe !a& - Data Collc ion and Rep0 ing Outcome Baseline YRl YR2 YR3 YR4 End Frequency Data Responsibility Indicators Program and Collection for Data Reports Instruments Collection 1.1 Utilization of 5 6 8 10 Annual MOHdata Health hospital services Informationand (admissions per 100 Analytical per year) - - Centre 1.2 Utilization of 2 3 4 5 Annual MOHdata Health outpatient services Information and (per personper year) Analytical Centre 1.3 Differences in 11%-points - - 10% 10% 10% Annual Household Health utilization of (2001) survey Information and essential health (23%- Analytical services (poorest pointsin Centre quintileirichest 1999) quintile of population) 1.4 OOPS for BBP 34.2 (2001) Annual Household Health health services for survey Information and poorest quintile as Analytical percentage of Centre consumption 2. Percentageof Baselineto Bi-annual Omnibus PIU populationrating be survey quality andaccessto established PHChealthservices at the start satisfactoryor ofthe higher program 3. Number of SHA Annual SHA PIU hospitalcontracts database 4.1 Referralrate to Bi-annual Special MOHHealth specialist care ("hof studies Dpt. PHC PHC visits) - unit/PIU 4.2 Occupancy rate 40% 75% 75% Annual Hospital Yerevan in projecthospitals data municipalityRIU 5.1 U5Mfor rural 59.2 populationdeclines (2000 DHS survey) - 5.2 Rationbetween 1.5 U5Mruraliurban declines - 6. Proportionof 0 30% 80% Annual Verification PIU public hospitalswho ofpublic have unqualified information independentaudits 6.2 Publichospitals 0 0 80% Annual WB staff MOH Chief that issue public assessment PublicHealth performancereports Officer 7. Governmenthas Limited Annual WB staff MOH Chief reliableinformation and assessment PublicHealth on HIViAIDS and sporadic Officer other public health information threats 42 T APL Phase 1 I Targ value- Data Collr :ion and Repa ing Outcome YR2 YR3 YR4 End Frequency Data Responsibility Indicators Program and Collection for Data -- Reports Instruments Collection 1.1 Proportionof 17% 40% 60% 90% Annual SHA SHMPIU Armenian l- contracts population coveredby qualified family medicinepractices - I- 2.1 ALOS in 10 8 Annual Hospital HISCPIU project hospitals -- data 2.2 Hospital see below 20% Annual Hospital PIU productivity under data improvement Component 7 (FTEsll000 B patientdays) I - 3.1 Health No report X Bi-annual Verification Nla System of reports Performance ReportPublished 3.2 National X Bi-annual Verification Nla HealthAccounts ofreports Published - 4.1 Public 100% Annual State budget PIU hospitalsthat use updatedfinancial management and accounting procedures -- 4.2 Public Baselineto 100% 100% Annual State budget PIU : hospitalsthat are supervisedby established effective Supervisory Committees -- 4.3 Public 80% 90% Annual State budget PIU hospitalsthat have accounts independently audited -- 4.4 Public 20% 40% Annual State budget PIU hospitalsthat issue public performance reports -- 5. Monitoring and X X X Annual Verification MOH, Chief evaluationsystem by Bank Public Health for HIV/AIDS staff Officer strategy in place 43 Results Target Value Data collectionand reporting Indicators for Each Component 1I Baseline IYR1IYR2 I YR3 IYR4 I End Frequency Data Responsibility and Collection for Data Reports Instruments Collection Annual Statebudget PIU Idata I Annual Training institutions data Annual PIUdata PIU Annual Hospital Yerevan data municipalityPIU Annual Hospital Yerevan data municipality/PIU (FTEi1000patient days) Productivity in 22.4 8.2 Annual Hospital Yerevan mergerB.4 data municipality/PIU (FTE/1000 patient days) Productivity in 9 Annual Hospital MOHHealth mergerB.5 data DPTPIU (FTE/1000patient days) t Reductionof sq. 0% metersofhospital space (% of original) Projecthospitals No yes yes Annual Hospital Yerevan applyupdated annual municipality/PIU environmental reports management guidelines (yesino) 44 Component C: Government capacity to develop and monitor effective health sector policies improved - Survey based Limited Yes Bi-annual M O H data informationon Fragmented PIU reports health determinants, service utilization - Baseline to 80% Annual SHA data SHA w i health services be providers are established concluded not later than 30 days after budget approval inthe Parliament - Management o f Baseline to 80% Bi-annual Special M O H SHA contracts is be survey o f satisfactory or established health better to health facilities care providers ("3 I o f respondents) - Proportion o f 0% 70% 100% Annual MOHdata MOH physicians licensed according to new procedures Proportion o f 0% 15% 30% 75% 90% Annual PIU reports PIU public hospitals with trained key management staff --- Reliable data No X X X X Annual Verification MOH, Chief available on risk by Bank Public Health behavior and staff Officer effectiveness o f interventions Component D: Prl :ct --- Yes Yes Yes Yes Annual staffed and -- Yes Yes Yes Yes Annual ---- assessment Yes Yes Yes Yes Annual - 45 Annex 4: DetailedProject Description ARMENIA: Health SystemsModernization Project ComponentA - FamilyMedicine Development(US$7.1 million) This component puts relative emphasis on training and retraining o f the currently practicing PHC providers in family medicine in order to complete the transition phase o f moving the PHC system from current ambulatory-polyclinic system to family medicine practice. In the context o f poverty reduction and increased targeting o f publicly funded health care programs for the poor, a priority for the sector is to increase accessibility o f health services, with a major emphasis on the primary health care system. The goal of the FMD component i s to provide family medicine to the whole population o f Armenia, with the objectives of: (i) retraining and residency training o f family physicians and family nurses; (ii) further development o f the training infrastructure; faculty development, establishment o f another training practice inYerevan, establishment o f training centers affiliated to training practices inthree marzes, revision o f curricula and study tours; and (iii) improvement o f the work environment for family medicine practices; basic equipment for re(trained) family medicine physicians and nurses, urgent repairs in selected family premises; (iv) engaging communities and local government in addressing local priorities through provision of grants and implementing small-scale infrastructure rehabilitation projects. It has three sub- components: A.l. Strengthening Institutional Capacity for Training of Family Doctors and Family Medicine Nurses (US0.7 million) This subcomponent supports establishment o f the clinical training infrastructure to meet the needs for the highvolume of the proposed traininghetraining o f therapists, narrow specialists and nurses into family physicians and family nurses. It will support faculty development and creation o f clinical re-training centers inYerevan and regions (marzes). Within the framework of the first Health project, PHC staff had been re-trained at the established faculties o f family medicine of NE,S M U and BMC. The curricula for the undergraduate, retraining and vocational training o f family nurses and physicians have already been established and improved. Unified curriculum for further postgraduate training was developed with assistance o f USAID funded ASTP program together with FM chairs Family Medicine and approvedby MOHin2003. The project will finance: (i) rehabilitation o f the training centers inYerevan and marzes; (ii) provision o f medical equipment, furniture and office equipment to the training centers; (iii) provision o f medical literature, s h l l labs and learning materials to the training institutions; (iv) training o f physicians' and nurses' trainers; (v) developing and printingFM guidelines, including on reproductive health issues and integrated childhood disease management; (vi) vehicles for training institutions. A.2. Retrainingand ResidencyTraining of Family Doctors and Family Nurses (US%2.2million) This component would help the Government to significantly scale-up the up grading o f the PHC work force. Within the frame o f the first healthproject about 300 physicians and 150nurses hadbeen retrained at established Faculties o f Family medicine o f National Institute o f Health (NM), State Medical University (SMU) and Basic Medical College (BMU). In2003, the MOH approved the improved unified Family Medicine curriculum re-training programs that include four months academic education and eight months practical/clinical training. The unified curriculum combines international standards and experience with the regional and local requirements. It includes 33 modules, each comprising o f introduction, attitudeshalues, knowledge, skills, implementation guidelines and literature reference. All 46 clinical trainings are closely correlated with practical clinical service delivery, either in their working facility or in the clinical training sites established in Yerevan or regions. The curriculum puts broad emphasis on preventive aspects of family medicine, two modules specifically relate to women's health and obstetric and gynecological care. The family nurse training curriculum i s based on the Family Nurse Statement. The retraining program at the B M C and NIH aims to follow the conceptual framework and the curriculum outlined in the publication "The Family Health Nurse: Context, Conceptual Framework and Curriculum" (World Health Organization, 2000). The goal of the programs is to train nurses who have completed basic nursing education to become competent family nurses. The project will finance re-training of 930 physicians using the 12 months curriculum and 930 nurses using6 months curriculum over the period of 2005-2009. Inaddition 80 physicians will undergo the FM residency program at the NIHand the SMU and 80 nurses at the BMC. Academic training will be carried out in National Institute of Health, State Medical University and Basic Medical College. Practical (clinical) training will be provided in training and family medicine centres in Yerevan, Shirak, Lori and Syunik marzes. Trainees will be selected from presently working district therapists, district paediatricians, narrow specialists (cardiologist, neuropathologist, endocrinologist, gynaecologist, etc) and nurses under age o f 50-55 employedby urbanpolyclinics, rural ambulatories and health centres. The project will finance tuition fees and stipends for the trainees and lodging costs. The credit will support the re-training program that has no upstream sustainability issues and the Government contribution will support the residency programthat will continue after the project completion. A.3. StrengtheningPHCInfrastructure(US$4.2 million) This subcomponent will improve the PHC infrastructure that is important for both health care professionals and the respective populationsreceiving care. It will also provide grants to communities ho undertake initiatives to strengthen community role inlocal healthcare issues. The project will rehabilitate health centers in fifteen and construct new health centers in five communities. Although the total needs are to rehabilitate about 130 health centers, this phase of the adaptable lending program puts relative emphasis on training. Further support to infrastructure is envisaged in the proposed second phase o f the APL. The beneficiary communities will undergo a standardized cycle micro-project implementation cycle that includes information activities about PHC reform in communities, development of community proposal, meeting certain requirements (clear legal status o f facility, facility management board exists, letter o f intent signed by community chairman, medical staff either re-trained or undergoing training under the project, etc.). The micro-project cycle and appraisal criteria are defined in the project implementationplan available inproject files. The communities will also contribute 5 percent o f the cost of the rehabilitation or construction costs. All retrained family medicine teams (doctor and nurse) will be provided with standard set of medical equipment that i s commensurate with the scope o f work o f the team and licensing requirements. Two types o f sets will be provided: a larger set for group practices that include items o f more sophisticated medical equipment (such as multi-channel electro cardiographs) and smaller basic set o f instruments for individual use. A community grant program will support communities who benefited from the first health project to obtain further support from the current project to address local health issues. The communities need to demonstrate their commitment to support the local PHC provider and local health initiatives and contribute with 30 percent co-finance towards the micro-project submitted to for project financing. The Project will make grant funds available to rural ambulatories on the basis o f expenditure priorities 47 determined by their elected Health Facility Management Board. The list o f eligible activities will be made available for the interested communities to apply for, mainly covering provision o f supplies, minor medical equipment and furniture, IT equipment, medicine, minor civil works. Any community which can demonstrate that it meets the specified criteria may submit proposal to a maximum o f US$2,000. Modified Primary Health Care Development Program Operational Manual from the first project will guide the process. The program will be administered by HPIUwhich will also be responsible for central procurement of some items, for an information program to publicize the objectives and operational criteria o f the program, and arranging assistanceto health facilities, though regional health authorities and local government, in satisfying the eligibility criteria. Micro-project proposals will be appraised by a special steering committee which will be responsible for ensuringthat eligibility criteria are meet and that proposals meet specified guidelines. The project will finance: limited civil works; medical equipment; furniture and supplies; IT equipment; vehicles for renovated facilities, technical assistance in architectural design and supervision; environmental issuesrelated to construction; community outreach; and grants to selected communities. ComponentB HospitalNetwork OptimizationandModernization(US$l5.0 million) - This component intends to support internal optimization of selected newly established hospital networks in Yerevan and on a competitive basis from the regions. The component is based on the GOA Decree from December 5,2002 that approved a hospital masterplan for the city o f Yerevan as a basis for hospital modernization program and on the GOA Decree from November 21, 2003, that effectively merged 24 hospitals and 13 policlinics into 10 hospital networks. In order to ensure consistency with the Government optimization concept and the overall aims and objectives o f the project, the selection of hospitals to be supported by the project was basedon the following criteria: Political will expressedby commitment by the Ministry o f Health, municipality o f Yerevan and the regions to follow through on optimization through mergers. Consistency with the policy and principles contained in the Yerevan Master Plan and regional masterplans. The selected hospital merger groupings should contain a significant proportion o f the multi-profile hospital facility type since the Yerevan Master Plan specifies that the hospital network providing a standard range o f secondary and some tertiary care services represents the most appropriate model for the healthcare needs o f the majority o fthe population. Access should not be compromised in terms o f maximum travel time to hospital as well as in terms o fpopulation still havinghe freedom to choose the hospital they go. Eauitv as expressed in benefits arising from efficiency improvements from selected hospitals reach the poor and disadvantaged. The selected hospital merger groupings should account for a significant volume and cost o f the care contracted for by the State Health Agency through the Basic Benefits Package. For the selected sites beyond Yerevan, equity in regional coverage i s also important. Critical mass. The hospital merger groupings to be supported by the project should constitute a significant first tranche of the overall hospitalcapacity (facilities, beds, staffing) inthe ten merger groupings in the city o f Yerevan and in the regions. The first phase o f the optimization process shouldnot be concerned with marginal facilities. Cost reduction and enhancement utilization. The selected hospital merger groupings should offer significant potential for an initial fixed cost reduction from the rationalization o f facilities and the enhancement of the remaining facilities into a highutilization and efficient health care provider. This would require the consolidation of the current patient volume in a merger grouping into an infrastructure that was capable o f occupancy rates (initially at least 70 percent but increasing to 85 percent) lengthso f stay and other indicators that are consistent with modem acute care. 48 0 Management. The selected hospital merger groupings will have by-laws that define appropriate management structures and accountability mechanisms (supervision boards). The hospitals should also have a motivated chief executive supported by a capable management team to implementthe internal optimization programs. The selected hospital groupings inYerevan represent 25 percent o f total hospital bed capacity in Yerevan (public and private). From the 10 merger groupings, the sites represent 53 percent o f facilities included, 49 percent o f physical space, 46 percent of beds, 45 percent of hospital admissions, 38 percent o f outpatient contacts, 65 percent of physicians and 44 percent of funding from the State Health Agency, Giventhat most o f the other mergers are tertiary care facilities, the proposed sites represent the majority of secondary hospital care admissions (73 percent) among the merged hospital organizations. There i s a significant potential for bed reductions along with elimination o f duplication and overlap in administration and maintenance, diagnostic capacity and clinical departments. The hospitals supported by the project will be subjected to improved governance and management arrangements as described in the Govemment action plan and including: supervision by Oversight Committees set up by the appropriate level of Govemment (MOH, municipality o f Yerevan or regional (marz) administration; modemizing management structures; introducing new financial management systems and accounting methodologies; developing and abiding to consolidated budgets (private and public revenues); strategic development plans and performance plans for top executive management; publication o f annual reports; and, independent audits. Prior to making funds available for the optimization programs, implementation agreements acceptable to the Bank will be signed between the MOH, owner of the hospital (if other than MOH) and the chief executive o f the hospital confirming the commitment to the optimization program, implementation of management and governance arrangements, resources available under the project and hospital contribution to the project. The governance arrangementsfor hospitals are described inand supported by the Component C.2 o f this project. Inaddition to supporting intemal optimization processes, the project will also provide essential medical equipment to improve quality and safety o f care, strengthen capacity o f the management teams o f selected hospitals and improve handling of healthcare waste. The activities supporting the improvement o f handling health care waste are part o f the environmental management plan linked to this project. The project will support to establish a clear responsibility for health care waste handling in each hospital, develop a comprehensive management plan, hospital based guidelines and Code o f Practice, train a network o f staff representatives inthe different hospital units and provide equipment and supplies for health care waste management. The activities will be first piloted under the B.2 subcomponent and then expanded to other hospitals. Individual hospital plans are supported by national guidelines development supported by the Component C.2. B.l Merger of "Mkhitar HeraciYerevan State MedicalUniversity Hospital" (US$3.8 million) This hospital organization comprises a merger of the multi-profile inpatient facility "Hayk Medical Center", University Hospital #1 and University Children's hospital. The merger also includes two policlinics contained in the wing o f the Hayk Medical Centre and the University policlinic. The optimization program proposes the following service changes: all surgical specialties will be located on the University Medical School site and all medical specialties on the Hayk site. The University will regroup clinical chairs and service bases currently dispersed in hospitals across the city into the merged network. The expected optimization will reduce overall space by 1821 sqms (vacation o f rented facilities), bed capacity from 485 beds to 292 beds to reach the occupancy levels o f 70-85 percent and staffing from 733 to 628 (reduction 14 percent, mostly through natural attrition over four years) based on expected workloadratios for achieving 85 percent occupancy rates. Improvement o f hospital operations i s 49 expected from better functional organization of treatment and supporting services. The actual staffing and bed reductions will be calibrated and phased according to actual volume o f clinical services. The current estimates are based on the clinical volume in 2003. The expected internal rate o f return (IRR) from hospital business case point of view i s 7 percent. In addition to quantified benefits, additional benefit i s expected from improvement o f clinical training conditions for medical students. The project will support relocation costs; medical equipment for diagnostic imaging, laboratory services, operating theatres, intensive care unit and functional diagnostics; management information systems and training for the management team; and, training and supplies for management o f medical waste. The hospital will rehabilitate using its own resources the facilities necessary to ensure appropriate conditions for operatingthe medical equipment provided under the project B.2 Merger of "Surb Grigor LusavorichMedical Center" (US$3.2 million) This hospital organization comprises the merger o f State Emergency Care Hospital (SEMC), Maternity Hospital #4, Children's Neurological Hospital #6, Children's Policlinic #5 and Policlinic #14. Under the optimization program proposal the matemity services will be relocated to suitably adapted accommodation in the SEMC and matemity hospital facility will be closed; facilities o f neurology hospital will be relocated to SEMC and the facility will be closed; and, services o f the policlinic #5 will be re-located into policlinic #14 in order to create a combined service from one facility. The facility of the policlinic #5 will be closed. The optimization i s expected to result inoptimized space by 7,976 sqms, bed capacity from 563 beds to 276 beds to achieve the occupancy levels o f 70-85 percent and staffing would be reduced from 1259 to 888 (reduction o f 29 percent, over half of which through natural attrition over four years) based on expected workload ratios for achieving 85 percent occupancy rates. The actual staffing and bedreductions will be calibrated and phased according to actual volume o f clinical services. The current estimates arebasedonthe clinical volume in2003. The expected intemalrate ofreturn (RR) from the hospital businesscase point o f view is 67 percent. The project will support relocation costs; medical equipment for diagnostic imaging, laboratory services, operating theatres, intensive care unit and functional diagnostics, blood transfusion services; management information systems and training for the management team; and, training and supplies for management o f medical waste. The hospital will rehabilitate using its own resources the facilities necessary to ensure appropriate conditions for operating the medical equipment provided under the project B.3 Merger of "Surb Astvatsamayr Medical Center" (US$2.6 million) This hospital organization comprises the merger of the Children's Emergency Care Hospital (CEMH) together with children's policlinic, a secondary care hospital "Medical Union #6", "Surb Astvatsamayr" Maternity Hospital" and policlinics #6, 9 and 18. The optimization programproposes to relocate services from Medical Union #6 to CEMH and the facility be closed; maternity and gynecology services at the maternity hospital will be consolidated into one o f the two blocks; services from policlinic #6 will be relocated to the children's policlinic at the CEMH. The optimization program i s expected to result in optimization o f space by 9795 sqm, bed capacity from 427 beds to 255 beds to achieve the occupancy levels o f 70-85 percent; and, staffing would be reduced from 996 to 632 (reduction o f 26 percent, over thirdof which through naturalattrition over four years) based on expected workload ratios for achieving 85 percent occupancy rates. The actual staffing and bed reductions will be calibrated and phased accordingto actual volume of clinical services. The current estimates are based on the clinical volume in 2003. The expected intemal rate of return (IRR) from the hospital business case point o f view i s 11 percent. 50 The project will support relocation costs; medical equipment for diagnostic imaging, laboratory services, operating theatres, intensive care unit and functional diagnostics, blood transfusion services; management information systems and training for the management team; and, training and supplies for management of medical waste. The hospital will rehabilitate using its own resources the facilities necessary to ensure appropriate conditions for operating the medical equipment providedunder the project B.4 Merger of "Kanaker-Zeytun"MedicalCentre" (US%3.0million) This hospital organizations comprises a merger o f the Institute of Cardiology (IC), a secondary care hospital "Medical Union #8," an Institute of Hygiene and Occupational Diseases, (IHOD) a "Zeytun" Medical Center," policlinics #11, 16 and "Arabkir children policlinic." The optimization program proposes to relocate in-patient services fiom Cardiology Institute to Medical Union #8 and research activities to National Institutes of Health; the relocate research activities o f IHOD to the National Institutes of Health; the facilities o f IC and IHOD will be closed; the policlinics will be reconfigured to accommodate dedicated space for PHC. The expected optimization program will reduce the space by 15,202 sqms, bed capacity from 490 beds to 246 beds to reach the occupancy levels o f 70-85 percent and staffing from 1163 to 467 (reduction 60 percent, a third of which throughnatural attrition over four years) based on expected workload ratios for achieving 85 percent occupancy rates. The actual staffing and bed reductions will be calibrated and phased according to actual volume of clinical services. The current estimates are based on the clinical volume in 2003. The expected internal rate o f return (IRR) from the hospital business case point of view i s 37 percent. The project will support relocation costs; medical equipment for diagnostic imaging, laboratory services, operating theatres, intensive care unit and functional diagnostics, blood transfusion services; management information systems and training for the management team; and, training and supplies for management of medical waste. The hospital will rehabilitate using its own resources the facilities necessary to ensure appropriate conditions for operating the medical equipment provided under the project. B.5 Support to regionalhospitaloptimization programs (US%1.9million) This component will support regional initiatives (outside Yerevan) to optimize and modernize hospital capacity. This component will start from the second year of the project. Selection will be competitive and based on the same criteria that were used for the selection o f hospitals in Yerevan. To help the regions to prepare proposals the project will provide support for updating the regional optimization masterplans from the first optimizationround in2001. This subcomponent would finance essential equipment for the key hospital functions such as diagnostic radiology, intensive care, operating theatre, etc.; and, technical assistance for regional masterplan updates for up to US$300,000 per regon. The civil works that are needed for optimization and for ensuring adequate facilities for the equipment will be required to be a contribution from the participating regional hospitals. A draft operational manual for supportingregional initiatives was preparedduringthe projectpreparation. Adoption by the Government of final operational manual acceptable to the Bank for selecting regional programs i s a condition for project effectiveness. B.6 Improvement of hospitalmanagement systems (US$0.4 million) This subcomponent will provide for management support for the hospital programs supported by the project. In addition to the standard management training provided through the Component C.2, the selected hospitals will receive ad hoc support to develop and implement their particular management 51 systems and functions, including developing strategic plans, management procedures, quality assurance systems, internal communications, etc.). This component will also provide resources on a small scale to pilot measures to mitigate social risks from staff reduction (total budget of US$l50,000). The staff optimization strategy foremost relies on natural staff attrition through mandatory retirement age o f 63. Over four years, between 30 to 50 percent of staff optimization needs could be met through enforcing retirement. The project will support the secondary strategy for managed incentive packages o f early retirement for the staff within five years of retirement (additional cash benefit equal to hisher six months salary) and relocation and mobility grants for staff who would elect to relocate to under-serviced regions inArmenia. The staff electing to relocate will receive assistance from National Employment Service for locating job vacancies, assistance in finding a flathouse in new locality and liquidating existing flat. These services are financed from the NESregular budget. The project will provide for reimbursement for costs o frelocationupto a maximum of US$500 per family. The staff in the mergers i s also eligible for applying for retraining program o f family doctors and family medicine nurses also supported by this project. Project Operational Guidelines on Managed Redeployment and Severance Program were drafted duringthe project preparation and will be finalized to be approvedby the Bank before project effectiveness. The project will finance technical assistance and training for hospital management functions, quality assurance, internal communications strategy and management information systems development; mobility and training grants andcompensation for early retirement. Component C Strengthening Government capacity to develop and monitor effective health - sector policies (US$2.4 million) This component aims to strengthen capacity o f the Ministry o f Health and its key agencies to perfonnits major functions o f policy development and implementation monitoring, regulation and oversight o f the health sector. It also supports strengthening governance and management structures o f health care provider institutions and the oversight function o f regional Government (marz) structures. Most of the training and technical assistance included in this component will be financed from the PHRD Grant for institutionalcapacity building. Duringproject preparationit was concludedthat althoughthe boardmodel is internationally considered as best practice for the supervision of independent public hospitals, given the limited experience with corporate governance in Armenia this model would not be feasible in the short term. It was therefore agreedthat ina first phase the Yerevan Municipality Hospital Supervisory Committee for public hospitals subordinated to the Municipality will perform the role o f supervisory boards and the Ministry o f Health for MOHhospitals and each marz health department for their respective hospitals would establish similar supervisory committees. These committees will have clearly defined roles and responsibilities and appropriate staffing. Subcomponents C.2 and C.3 support implementation o f the activities included in the time-bound action plan for improvement of accountability o f public hospitals, approved by the Government prior to negotiations (assumption, needs update). The main interventions included in the plan aim to: (i) strengthen oversightlgovernance arrangements for MOH, Municipality and marz-owned hospitals; (ii) improve SHA contracting and reporting arrangements for public and private hospitals; and (iii) strengthen the regulatory functions o f the MOH for public and private hospitals. The component has the following subcomponents: 52 (2.1. Building capacity for evaluation of health sector performance (US$0.6 million) This sub-component would focus on providing core instruments that are needed to inform decision makers in the process of health policy development, and monitoring: reports on the performance o f the Armenian health sector and National Health Accounts (NHA). This would be means to foster greater accountability on how the health care systemis serving society, providing to the Govemment, politicians, media and the general public an objective diagnosis o f the effectiveness, efficiency, equity and satisfaction dimensions of health systemperformance. The Health Information and Statistical Center, Ministry o f Health departments, State Health Agency, State Hygiene and Anti-Epidemic Inspection, National Statistical Service will receive support to improve their capacity to monitor and evaluate progress o f health sector reforms, reporting regularly on the health o f the population and the functioning o f the health care system. It i s expected to produce over the life o f the project at least two reports on the performance o f the Armenian health sector and establish capacity for annual production of NHA. At the end of the project, the institutions supported by the project will be able to continue the periodic issue ofperformance reports andNHA. A steering committee will be created to oversee the analytical work on sector performance and the preparation of NHA, including representatives o f the Ministry o f Health, Ministry o f Finance, State Health Agency, National Statistical Service (NSS), andHISC. To report on health sector performance a comprehensive set o f methods will be used: analysis o f health status and health care utilization indicators constructed from routine administrative data; analysis o f data from existing surveys performed on an ongoing basis by the National Statistical Service (e.g. Integrated Survey of Living Standards) or customized modules attached to such surveys; design, implementation and analysis of additional surveys o f health care users and providers. A special attention will be given to the assessment o f equity issues related to health and health care and evaluation o f impact o f health programs and policies on the poor. Support will also be provided for the development and institutionalization o f National Health Accounts (NHA). By offering comprehensive, consistent and internationally comparable information on how healthresources are spent, on what types of services, and who pays, it i s expected that NHA will improve transparency o f health sector financing and offer a better base for policy decisions in this area. NHA development under the project will build on work already carried out to date: in2002-2003 the National Statistics Service conducted surveys to estimate volume and costs o f health services as part o f the System of NationalAccounts; in2003-2004, with USAID support staff from MoF, MOHand SHA was trained in NHA methodology and a working group with representatives from MOH, SHA, USAID contractor and PMUwas established. To carry out project activities inthe first part ofthe project, the technical working group will be expanded with representatives o f MoF, NSS andHISC, and will receive additional technical support from local and foreign consultants. Regulations regarding access to data o f health care providers will be improved and a sustainable institutional arrangement for NHA maintenance will be designed and implemented. The sub-component would finance local and foreign TA for the preparation o f the health reports and development of NHA, surveys (stand-alone and additional modules to the Integrated Survey o f Living Standardscamed out by NSS), training of staff, publishingand dissemination of reports. Staff involvedin the preparation of the performance reports will participate in courses on health sector reform and sustainable financing, developed by WBI and its regional partners. Training in epidemiology and statistics will be providedto staff from MOH, HISC and public healthinstitutions (State Inspection, CDC, HIV/AIDS Center). 53 C.2. Strengthening of health sector regulation, governanceand management (US$l.O million) This sub-component will provide support for revising and improving health legislation, developing quality assurance mechanisms, improving M O H capacity as regulatory agency for the health sector, strengthen central and local Government oversight function, building up management structures o f hospitals, and developing regulations for healthcare waste management. The following activities will be implemented: 0 Legislation will berevised and improved, with special focus on the following areas: (i) and rights responsibilities of the executive management and supervisory committees o f hospitals; (ii) regulation instruments of public and private hospital capacity by MOH; (iii) definition of better boundaries for SHA decision making authority and performance criteria, strengthening o f its governance arrangements and purchasing role; (iv) licensing and accreditation o f professionals and institutions; and (v) primary care issues: autonomous management and practice for family medicine, free patient enrollment, codification inlaw o f Armenia Family Medicine Statement. 0 Quality assurance mechanisms will be developed. Support will focus initially on improving licensing for healthcare provider unitsand restarting licensing for health professionals, reviewing norms and standards for health care services, to be followed by establishment o f capacity to prepare clinical standards and guidelines. Licensingmechanisms will be developedby the MOH with assistance from international and local experts, in consultation with stakeholders in the sector and will be consistent with internationalbest practices. 0 Regulatory and oversight functions will be improved through technical assistance to the MOH and training activities for the hospital supervisory committees, to be established inthe Ministry of Health, Yerevan Municipality and marz health departments. Technical work will focus on development and implementation o f key governance and supervision instruments, including approval and monitoring of consolidated hospital budgets, approval and monitoring o f hospital strategic development plans and performance agreements with top executive management, approval and monitoring key operational procedures, public disclosure o f annual performance reports, independent audits. Training will be provided to around 100 staff from MOH, Yerevan Municipality and marz health departments through a program including six basic management modules and four health care governance modules. The project implementation plan includes details on proposed content o f the training program, as well as on the process o f preparation and delivery o f the training modules. 0 Activities to increase public awareness about health reforms will be conducted, including public information campaigns, opinion surveys, printed materials, etc. 0 Basic management training will be provided to hospital managers, starting with the merged hospitals included in the project. The training program will include the same six modules delivered to members o f the oversight committees. It i s expected to train up to 600 managerial staff, including executive directors, departmental heads and supervisors o f clinical, paramedical, clinical support, nursing, administrative and logistic services or divisions. Training will be provided to management teams o f all Armenian hospitals, however the number and mix of trainees from each hospital will be adjusted according to hospital size and complexity of organization. The project implementation plan includes details on training content, program preparation and delivery, and targeted participants. e IT and office equipment will be provided to MOH, to support execution o f the regulation, licensing and oversight functions. Accounting software will be provided to hospitals and limited investments in IT equipment will be supported for public hospitals without computers in accounting departments. 54 0 Regulations and guidelines for handling medical waste will be developed with support of foreign and local experts. Disseminationofthose guidelines will be supported. The project will finance technical assistance for health sector regulation, licensing and accreditation, management training development, training of hospital supervisory boards' members, IT and office equipment for the MOH, IT equipment for hospital financial management information systems, TA for financial management software development, technical assistance for developing national H C W M guidelines and regulations. C.3. Improvement of Public Expenditure Management in the Health Sector (US$0.5 million) This sub-component will provide support to the State HealthAgency (SHA) for improving its capacity to use efficiently public funds for purchasing o f health care services. It will finance local and foreign TA, training activities, IT equipment and software for SHA. The following activities will be implemented: 0 Contracting and payment mechanisms for primary care and hospitals will be evaluated annually and improved. The technical work will focus on information requirements and indicators for effective contract monitoring, assessment of impact o fpayment mechanisms on provider behavior and alignment of financial incentiveswith broader health sector policy objectives. A consultation process with hospitals regarding improvement of contractingwill be put inplace. 0 A basic benefit package (BBP) costing study will be conducted, to assess affordability and appropriate targeting o f BBP and support establishment o f a mechanism for continuing monitoring o f the BBP costs. T he study will aim to assess the actual costs o f services for providers and patients. Based on the results o f the study and subsequent monitoring o f costs, changes will be made in annual budget allocations, financing and contracting arrangements for services included inthe BBP. 0 The organization and governance arrangements o f SHA will be reviewed and improved. The review will addresscurrent weaknesses inthe performance o f the strategic purchaser role of SHA and definition of boundaries for SHA decision making authority. Performance criteria for SHA will be better defined and procedures for increased transparency o f its operations will be developed and introduced (e.g. setting o f explicit annual performance targets, external auditing and performance review, publicationo f annual report and financial statements). 0 The management information system of the SHA will be further developed. Investment in IT hardware, software development and training for implementation o f the MIDAS 2-system (expansion o f the existing management information system o f SHA) will be supported. MIDAS 2 will include data collection and processing capabilities to support monitoring o f improved payment and contractingmechanisms. C.4. Develop monitoring and evaluation of national HIV/AIDS strategy (US$0.3 million) The objective o f this sub-component i s to increase Government capacity to monitor and evaluate implementation of interventions included in the national HIV/AIDS strategy. Activities included inthis sub-component will complement HIV/AIDS prevention and control activities financed by the approved grant from Global Fundfor AIDS, TB and malaria. The following activities will be implemented: 0 Design and introduction o f the monitoring and evaluation system o f national strategies and programs for prevention and control of HIV/AIDS ; 0 Conductinga formal needs assessment and preparing an actionplan for development o f a national systemof public healthreference laboratories. 55 The sub-component would finance: limited investment inlaboratory equipment to fill gaps incapacity of diagnosis and surveillance o f opportunistic infections, IT equipment, surveys for behavioral and biological risk factors, local and foreign TA, training in epidemiology and survey methods, consensus meetings and disseminationworkshops, printingof manuals and guidelines, software development. Activities o f this sub-component will mainly support building the capacity of the Center o f AIDS Prevention, however staff from other public health institutions (State Hygiene and Anti-Epidemic Inspection, Center o f Disease Control and Prevention) will be also involved intraining and development activities of monitoring and evaluation tools. Component D ProjectManagement(US$l.O million) - The role o f the Health Project Implementation Unit (HPIU) during implementation o f the project would be more o f a coordinating body rather than an implementing agency. Implementation responsibility will rest more with the relevant departments o f the Ministry o f Health, the management o f hospitals to be supported under the project and with the training institutions. The PIU core staff will comprise: Director, Procurement Officer, Financial Manager, Accountant, Secretary/Translator, Architect-Engineer, Office Manager, Legal Specialist, Monitoring-Evaluation Specialist, three component coordinators and 2 Drivers. Other consultants may be hiredto support specific needs under a particular component for short term well defined assignments (e.g. medical equipment specialist). The project will finance the core PIU staff, technical assistance, training, incremental operating costs, upgrading office and IT equipment and supplies andrehabilitationof HPIUoffice. 56 Annex 5: Project Costs ARMENIA: Health SystemsModernization Project Components Project Cost Summary % %Total Project Cost By Component Local Foreign (US$ '000) (US$ '000) U S $million Exchan e Foreign Base Costs Family Medicine Development 1,462.0 5,061.90 6.52 78 28 Hospital Network Optimization 3,778.0 10,300.6 14.10 73 60 and Modernization Strengthening Government 850.3 1,129.9 1.98 57 8 capacity to develop and monitor effective health sector policies Project Management 638.4 174.7 0.81 21 3 Total Baseline Cost 6,728.6 16,667.0 23.40 71 100 Physical Contingencies 518.3 645.4 1.16 55 5 Price Contingencies 487.5 453.3 0.94 48 4 Total Project Costs' 7,734.35 17,765.65 25.5 70 100 'Identifiable taxes and duties are US$ 878,000, and the total project cost, net o f taxes, i s US$24.6 million. Therefore, the share o ftaxes inproject cost is 3 percent. ComponentsProjectCost by Financiers (US$ million) Project Cost By Component Community Hospitals* GOA IDA PHRD Total Family Medicine Development 0.1 - 0.9 6.1 0.1 7.1 HospitalNetwork Optimization and Modernization 3.2* 0.9 10.6 0.2 15.0 Strengthening Government Capacity to Develop and Monitor Health Sector Policies 0.1 1.4 1.0 2.4 Project Management -- 0.1 0.9 - 1.0 Total Project Costs** 0.1 3.2* 2.0 19.0 1.25 25.5 * Estimated value o f local hospital contribution for renovations required to accommodate medical equipment procuredunder the project. ** Numbers may not addup due to rounding. 57 Expenditure categories by financiers (US$ million) Expenditure community GOA IDA PHRD Hospitals Total* Category Amount % Amount % Amount % Amount % Amount % Amount % Civil Works 0.03 0.6 0.3 5.5 2.4 44.2 - 2.7 49.7 5.3 21.3 Goods - 11.4 100.0 11.4 44.8 Consultant Services 0.3 13.4 0.8 35.7 1.14 50.9 2.3 8.8 Training -- 0.3 12.4 2.0 83.0 0.11 4.6 2.4 9.4 Community grants 0.04 28.6 - 0.1 71.4 ---- 0.2 0.5 support to Redundant Staff - 0.2 100.0 0.2 0.8 Lodging of trainees - 0.4 100.0 - 0.4 1.6 Incremental Operating Costs - 0.4 26.7 0.6 40.0 - 0.5 52.2 1.5 5.9 Unallocated 0.3 16.7 1.5 83.3 1.8 7.1 Total* 0.1 0.3 2.0 7.8 19.0 74.5 1.25 4.9 3.2 12.5 25.5 100.0 * Numbers may not add up due to rounding 58 Annex 6: ImplementationArrangements ARMENIA: HealthSystemsModernizationProject The overall responsibility for project implementationrests with the Ministryof Health. The Ministryhas designated the First Deputy Minister as Ministerial focal point for overall project implementation. The Ministrywill be supportedby aProjectCoordinationUnitwhich will betaskedwith overall coordination, planning and project management, including procurement and financial management. As i s the case for all Bank supported projects in Armenia, a Project Steering Committee will supervise overall project implementation. While the Committee will thus have overall fiduciary oversight responsibility, sub- sector specific Supervisory committees have been established to guide and monitor implementation o f individual project components or sub-components. The Project Steerinv Committee is established within the MOHto oversee the Project. The members of the committee represent the stakeholders to the Project implementation. The Committee comprises: (i) Minister of Health; (ii) Deputy Minister if Health; (iii) Minister of Regional Government First Deputy and Coordinating the Operation of Infrastructures; (iv) Deputy Minister of Health responsible for Economic and Financial issues; (v) Chief o f the Staff of MoH, (vi) Head o f the Department o f Budget Planning o f the Ministry o f Finance and Economy; (vii) Head o f the Department o f Health Services Organization; (viii) Deputy-head of the Department o f the Legal issues o f the Ministry o f Justice; (ix) Director o f HPIU. The TOR for the Committee are the following: (i)review and approve the reallocations o f more than US$lOO,OOO o f the projects' budgets when necessary and submitting these amendments to the Government for approval with the prior agreement of the WB; (ii) supervise the operation o f the PIU; (iii)supervise the expenditures made under PPF or grants during the preparation period o f the projects, and credits during implementation; (iv) review and approve the project annual time schedules and the budgetsafter approvalof Credit/Grant Agreements; (v) review and approve progress and financial reports of the projects components; (vi) review and approve the final results o f tenders for procurement o f works, services and goods costing more than of US$50,000; (vii) approve the amendments to the contracts, when the amount inthe cost of the contact i s changed by more thenUS$50,000; (viii) present suggestions to the Government on the use of any savings during the implementation o f the projects funds, as well as their reallocation withthe prior agreement o f the Bank; (ix) adopt decisions on actions eliminating the breaches and deficiencies revealed during implementation o f the projects and supervise the implementation of those decisions; and (x) convene an out o f term meeting duringBank missions and discuss the progress made on the project implementation with the Bank team, and present a report to the Government on the outcomes o f the Bank missions. The Project Imulementation Unit will have a core group o f professional staff throughout the duration o f the project including: Project Director, Procurement Officer, Procurement Assistant/Office Manager, Financial Manager, Accountant, Community Mobilization Specialist and coordinators for each component. Three additional professionals will support the HPIU for up to two years and then on an as need basis, these include Civil EngineedEnvironmental Specialist; Legal and regulatory specialist; and M&E Specialist. A secretaryandtwo drivers will also support the HPIU. The HPIU will be in charge of overall coordination, planning, management and fiduciary aspects of project implementation. The HPIU component coordinators will work closely with the relevant Ministerial Departments and other concerned implementingagencies (see below) to prepare yearly and quarterly implementationplans, coordinate implementation o f all activities, assure regular implementation monitoring and preparation o f progress reports. Implementation plans and progress reports will be 59 reviewedby the component specific Coordination Committees and approved by the Ministryof Health. In addition to providing overall legal advisory services to the HPIU, the lawyer will also assist the Ministry o f Health with the development of the necessary legislative and regulatory framework pertaining to hospital supervision and independent family medicine teams. The monitoring and evaluation (M&E) specialist will help set up the overall M&E system for the project and prepare the framework for various impact evaluation studies which will be carried out at specific times duringproject implementation. The civil engineedenvironmental management specialist will assure technical inputs to procurement of architectural, engineering and construction services for the hospital mergers, PHC facilities and training centers and assure adequacy o f designs, bills o f quantities and construction supervision reports on behalf o f the MOH, as the M O Hno longer has a civil works unit. H e will also coordinate implementation o f the environmentalmanagement plans for the PHC and merger components. The HPIU's current core staff is well versed with Bankprocedures and project management, as they were involved during implementation of the Bank's First Health Project. All component coordinators were fully involved inprojectpreparation andworked inclose coordinationwith PHRD supported international technical assistance and concerned implementing agencies. Component coordinators were also in charge of preparingcomponent specific project implementationplans. HPIU will coordinate the assembly of regular project monitoring reports and will submit them to the Steering Committee and the Bank. The HPIU will also be responsible for timely preparation and submission to the MOFE and the Bank the FinancialManagement Reports and audit reports. Componentspecificimplementationarrangements Family Medicine Based Primarv Health Care Component: This component will be implemented under the overall supervision and guidance o f the PHC Coordinating Committee which i s headed by the First Deputy Minister and includes relevant MOH Department and Unit heads, representatives of the Family Medicine Chairs, the State Health Agency (SHA) and the HPIU Director. The PHC component coordinator will be in charge o f overall implementation planning and coordination, in close coordination with the Ministry's Unitsfor PHC and for Educationand Staff Management. The component coordinator will also work withMarz health offices and the Family Medicine Chairs o fthe training institutions for the family medicine training sub-component. The upgrading o f training centers and PHC facilities will be managed by the HPIU, facilities will be selected from a list o f potential facilities approved during the Bank's first health project. The HPIU community mobilization specialist underthe supervision o f PHC Coordination Committee will administer the PHC Community Development grant scheme. MOH Unit of Education and Staff Management will assure overall coordination o f the family medicine training program incollaboration with the HPIU PHC Component Coordinator. Marz health offices will be involved in the selection o f doctors and nurses to participate in each round o f family medicine retraining, based on selection criteria established by the MOH PHC Unit. Actual organization and implementation o f the training courses will be the task o f the Family Medicine Chairs at Yerevan State Medical University, the National Institute o f Health and the Medical College. Hospital Network Ootimization and Modernization Component: This component will be implemented under the overall supervision of the National Coordination Committee on Health Sector Optimization, whichwas establishedduringproject preparation. The Committee is chaired bythe Minister o fHealthand includes high level representatives o f MOH, Yerevan Municipality, the State Health Agency and the HPIU Director. Overall, the HPIU Hospital Optimization Component Coordinator and the Hospital Services Unit of MOH Health Department will assure implementation coordination. For each hospital network an implementation agreement will be concluded between the MOH, owner of hospital (if 60 different fkom MOH) and hospital network manager outlining the content to the optimization and modernization program, incl. (i)commitment to modernize the management and governance arrangements; (ii) commitment to functional re-programming and optimization of units and facilities; (iii) hospitals contribution to the project, e.g. rehabilitation of space for housing medical equipment procured under the project; (iv) plan of action for dealing with vacant premises; and (vi) specific performance improvement targets. Actual implementation of hospital mergers and management improvements in specific hospitals will be the responsibility of respective hospital network managers, under the supervision o f the Hospital Supervision Committees that will be established under the Government action plan for improvement o f hospital govemance. Project activities in support o f hospital staff retrenchment will be implemented by individual hospitals under the manual satisfactory to the Bank and in cooperation of the National Employment Service. MOH Hospital Services Unit in Coordination with the HPIU will manage the Marz Hospital Optimization Program. For each participating Marz hospital, a local supervisory committee withrepresentatives from Marz and Local Govemments will be established. Institutional Development Component: Implementation o f the first sub-component (strengthening capacity to evaluate health sector performance) will occur under the guidance o f the Health Policy Steering Committee to be established for this purpose. Overall implementation o f the first sub- component will be assured by the national Health Information and Statistics Center in coordination with other relevant MOH Departments and the SHA. Implementation responsibility o f the second sub- component (strengtheninghealth sector regulation, govemance and management) will rest with the MOH Health Department (unit for hospital services and unit for licensing). Implementation o f the third sub- component (improvement o f health sector expenditure management) will be assured by the SHA, while the National AIDS Prevention Center will be in charge o f the fourth sub-component (monitoring and evaluation o fnational HIV/AIDSStrategy). 61 Annex 7: FinancialManagementandDisbursementArrangements ARMENIA: HealthSystemsModernizationProject CountryIssues The most recent CFAA was conducted inArmenia in spring2003, and its main findings and conclusions were discussed with the Government representatives inFebruary 2004. The report, however, has not yet been finalized and made public. Inmalung the overall fiduciary assessment, the CFAA assessedthe overall fiduciary riskI4as significant. Among the reasons for such a rating are: (i) still inadequate capacity of core control and supervisory agencies performing the audits within the public sector; (ii) even though most o f the basic laws are in place with respect to various entities' (private sector and public enterprises, including state non- commercial organizations) financial reporting, compliance remains a problem and authorities need to improve the quality o f auditing, monitoring and supervision. However, the fiduciary risk in the stand- alone financial management arrangements for Bank-financed investment projects in Armenia is considered to be low. The CFAA team identifiedthe following financial management issues for Bank-financed projects: Government counterpart funding(GCF). Historically, there have been two types of problems with GCF: (a) delayed counterpart contributions against the goods, works and services procured, i.e. payments for requests presented by the PIUs to the MOFE beyond the agreed 30-day deadline, and (b) failure to replenish the accounts for project counterpart funds to the level required inDevelopment Credit Agreements for some projects. The World Bank Yerevan Office continually monitors the GCF to the PIUs. Recently, a new database was developed to monitor them each month; this has enabled the Bank and Government to more closely check the status o f GCF and address potential cash flow problems in a timely manner. Project bank accounts. Weaknesses in the commercial banking sector should be managed in relation to maintainingproject/transit accounts and Special Accounts on Bank projects. Currently, only one local bank (a branch o f a large international bank) is authorized to manage Special Account funds. The other Special Accounts are held in reputable banks outside Armenia. Projecdtransit accounts have been opened in other local commercial banks; however, the CFAA recommended that (a) the balances in these accounts be minimized and (b) the accounts only be usedfor upcoming, short-term payments. Projectfinancialmanagement staff. The financial management (FM) staff are local consultants employed on terms o f reference, durations of contracts, and salaries which vary among the different PIUs. Some of these units have had significant staff tumover due, inpart, to the higher salaries available inthe private sector (which raises the issue of providing regular training to the PIUs' FM staff, both in IFRS and in World Bank financial management and disbursement procedures). Overall, the CFAA concludedthat PIUstaff arrangementsare satisfactory. Issues arising from project audits. At the time the CFAA was prepared, the Government was substantially in compliance with all audit covenants o f Bank-financed projects. Most projects l4 Risk o f illegal, irregular or unjustified transactions not being detected, measured on a four point scale accordingto the CFAA Guidelines (low, moderate, significant or high). 62 received clean audit reports for fiscal years 2000, 2001 and 2002, although at least half had significant internal control issues (raised in management letters) such as failure to reconcile debtors and creditors, and failure to reconcile PIUand World Bank accountingrecords. 0 Complianceissues.The audits o frevenue-earning entities, requiredfor World Bank credits, have raised several fundamental compliance issues. It should be noted, however, that n o involvement o f a revenue-earning entity i s plannedunder the Project. e Audit arrangements. These are satisfactory. All Bank-financed investment projects are audited annually by an independent private sector firm acceptable to the Bank. Strengths andWeaknesses The significant strengths that provide a basis o f reliance on the project financial management system include: (i) significant experience o f PIU in implementing Bank-financed projects (Health 1 project has been implemented by PIU for last six years); and (ii) the unqualified audit reports issued by PIU's project auditors for the last two years. There are also weaknesses identified at the pre-assessment stage relating to the lack o f experience in producing o f FMRs. The three training institutions involved in the project namely Yerevan State Medical University, the National Institute of Health and the Yerevan State Basic Medical College have satisfactory payment systems, the payment registration, payment certification, record keeping and overall adequate accounting functions for the purposes of implementation o f the stipend payment system and reporting on actual payments made to trainees back to the HPIU. All three institutions have significant experience in stipends disbursement, as well as similar accounting system, accounting software and internal controls in place. The arrangement o f flow o f documents and funds will be same for all training institutions and is presentedbelow. 63 Training institution \\ \ Key: Flow of funds Step Description 1 At the beginning of each training course, the Training Institutions prepare a list of all trainees in the course. The list will be signed by the Chair o f the institution and verified and co-signed by an authorized representative o f the Government, independent o f the Training Institution. The latter will make visits to the training institution to verify authenticity o ftrainee list. . Independent official should inform the PIU (if slhe is outside o f the PIU) about the verification done ina reasonable period after commencement o fthe training. At the end o f the month the Chair responsible to conductlcoordinate trainings submits to the Accounting Department the list o ftrainees participated inthe relevant training. Based on the actual participation list received form the responsible Chair with the relevant participant's signatures the Accounting Department prepares and External Official submits the invoice to the HPIU to transfer the required amount to their account. The invoice should be supported with the detailed list o fthe relevant trainees. HPIU makes payment to the bank account o f the training institution (TI) reconciling on a sample bases the invoice amount with the supporting participants' list. The Accounting department makes payment to the relevant trainees via transfer to their plastic card bank accounts. Formerly, it used to be via cash payments on hands from petty cash of the training institution, which is considered to have high inherent risk and is not recommended for this project. Bank statement received verifying the transfer o f the stipend amounts to relevant trainees. Formerly trainees usedto sign the form for receipt of stipends. Accounting department o f Training Institution submits to the PIU the Bank statements verifying the relevant payments to trainees (or the list of signatures o f trainees verifying the receipt o f those amounts). This list is submitted to the PIU together with the following month's invoice for payment (as indicated in the 1 above). The PIU reconciles this list on a sample bases with the formerly provided list of participants and amount transferred to TI'S bank account for stipend payment purposes. Duringthe annual audit of the project accounts, the external auditor will also audit the accounts of the training institutions pertaining to stipend payments. 64 FundsFlow Project funds will flow from: (i) Bank, either via a single Special Account which will be replenished the on the basis of SOEs or by direct paymenton the basis of direct payment withdrawal applications, and (ii) the Government, via the Treasury at the Ministry of Finance and Economy (MoFE) on the basis of paymentrequests of PIU. The funds flow diagram is presentedbelow: 1. Withdrawal application ._ 1 1 14. Direct paymentrequest 4. Paymenutransferrequest (HSBC Bank) 15. $ funds HPIU 12. USD funds 5. $ fun1 I I III 8. Payment request I 4. Paymentrequest I ~1 (Econom Bank) I I Treasury at MoFE funds 13. AMD IO. Payment .equest * 11.AMD funds 6. AMD funds r 1 f 65 Step Description 1-2 Replenishment of Special Account. As required, the Financial Manager prepares a withdrawal application together with relevant supporting information - SOE listings for expenditures below the prior review thresholds and full documentation details for expenditures greater than the prior review thresholds. The withdrawal application is then approved and signed as appropriate and sent to the WB Loan Department for the replenishment o fthe Special Account. 3-12 Payments to contractors, suppliers, etc. Payments are effected intwo ways, depending uponthe source o f financing: (i) from WB funds -abankpayment orderfromthe SAispreparedandfundsaretransferred fromthe SAdirectly to the foreign suppliers (in USD) or to the local suppliers (in AMDL5via transit account in Econom Bank); and (ii) GOA funds - payment orders are prepared, these are approved by from MoFE, presented to Treasury for payment, and funds flow from the Treasury's bank account to AMD account ofPIU. Note 1. Government contribution funds are transferred to the AMD account o f P I U upon request o f PIU. PIU sends to MoFE the payment request together with the copies o f invoices for contracts involving Government contribution. For the request to be paid by the Government, payments on such contract must have been included in the budget presented by PIU to the Government on an annual basis and approved by the Government within the framework o f the annual state budget. Note 2. PIU make conversions from USD (SA) to AMD16(AMD transit account in Econom Bank) for payments in AMD. The price o f contracts is specified in AMD, USD or USD equivalent with exchange rate based on the Central bank exchange rate on the day o f transaction. The AMD Project account is used only for receipts o f Government contribution and for rehnds o fmoney sometimes made by local contractorsisuppliers. There is also a separate account opened for interest accumulation, penalties, guarantee payment and bidding documents sales fees. Note 3. There are normally no direct payments from GOA (Treasury) to the local suppliersand contractors. 14-15 World Bank Direct Payments. Direct Payment requests are sent from P I U to the World Bank Loan Department when circumstances require. The payment request is prepared on Form 1903 and authorized as for normal Withdrawal Applications (see above). The World Bank makes direct payment to the suppliers as directed. Staffing PIU includes the Director, a finance team comprising Financial Manager, Accountant and Procurement Specialist, and various teams established to implement the various projects' components and sub- components. CVs of accounting personnel are available inproject files. Accounting Policies and Procedures The accounting books and records are maintainedon an accrual basis and project financial statements are presentedinUnitedStates dollars. 15 AMD amounts above the minimumapplicable sue. 16 sufficient for 30 days. 66 Accounting policies and procedures are documented in the new Financial Management Manual, developed for the new project, are under review. InternalAudit PIU has no internal audit function and none is considered necessarygiven the size o f the organization. ExternalAudit The auditing arrangements for the project will follow the standard procedures adopted for ECA, and, more specifically, for its Hub-North part (comprising CIS countries). The audit o f the project will be conducted by independent private auditors acceptable to the Bank and on terms o f reference (TOR) acceptable to the Bank. There i s a list of audit firms pre-qualified to conduct audits o f World Bank financed projects in HUB-North region, which i s updated regularly, and there is a standard audit TOR applicable for ECA, which i s also updated regularly to take account of the developments in the overall Bank audit policy. The project will choose the auditor from the above-mentioned list and use the ECA standard audit TOR as a basis for preparation o f its own audit TOR, which i s to be cleared with the project FMS annually irregardless of the term o f contracts concluded with the auditors (one year contract or several year contract). The annual auditedproject financial statements will be provided to the Bank within six months of the end of each fiscal year and also at the closing o f the project. The contract for the audit awarded during the first year of project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit will be financed from the proceeds o f the credit. The following chart identifies the audit reports that will be requiredto be submitted by PIUtogether with the due date for submission (incompliance with the revised ARCS settings and with the new Bank audit policy). Audit Report Due Date Financial statements - continuing entity Not applicable. There is no continuing entity involved inimplementation o f the Project. Project - audit opinion on: (i) project financial Within six months o f the end o f each fiscal year and statements (balance sheet, statement o f sources and also at the closing o fthe project uses of funds, and statement o f uses o f funds by project activity), (ii) account statement, and special (iii)adequacy o f supporting documentation maintained by the PIU in respect o f expenditures claimed for reimbursement via SOE procedures and eligibility o f such expenditures for financing under the respective Credit Agreement Other (specify) None ReportingandMonitoring Project management-oriented Financial Monitoring Reports (FMRs) will be used for project monitoring and supervision and the indicative formats o f these should be included in the PIU new Financial Management Manual. Project FMS will visit PIUto monitor the implementation o f the recommendations specified inthe Action Plan developed as a result of the project assessment. 67 Information Systems PIU's information systems consists in I C accounting software, which i s used for recording the transactions and preparation of financial reports denominated in local currency for the local authorities. During the project preparation period, I C accounting software is being upgraded (basically, a new package was procured and installed), and shortly the software will be capable to automatically generate all necessaryreports (including FMRs). Statutory reports are already generatedfrom the system. Disbursement Arrangements Allocation o f credit proceeds: The proceeds o f the Credit will be disbursed in accordance with the guidelines provided in the IDA "Disbursement Handbook". The Project which is to be supported by the Credit has been designed to be implementedover a four year period. The disbursement arrangements are based on IDA'Sappraisal of the financial management capability o f the implementing ministry and its institutions, as well as the experience and lessons learned from the previously implemented healthproject and other projects inthe Armenian portfolio. Project procurement and disbursements are synchronized in a manner that allows for a six-month disbursement lag from the time of completion o f a Credit-funded activity to the release of the Credit funds to the supplier/contractor. Credit funds are expected to be fully disbursed within 18 quarters after the expected effectiveness date o f October 15, 2004. The Project Completion Date i s December 31, 2008, with a Credit Closing Date of June 30, 2009. The disbursement categories and amounts and percentages to be financed under each category are presented inthe table, as follows: Table A: Allocation of Credit Proceeds Expenditure Category Amount in US$ million Financing Percentage 1.Civil Works, incl. 90% (a) Works under 0.5 (i) rehabilitationinB.l Hospital (ii) rehabilitationinB.2 Hospital 0.5 (iii) rehabilitationinB.3 Hospital 0.3 (iv) Hospital rehabilitation inB.4 0.5 (b) Works under other parts of 0.6 project 2. Goods, incl. 100% of foreign expenditures; (a) Goods under 100% (ex-factory cost) of local (i) equipmentinB.1 Medical 1.5 expenditures; and 90% for other (ii) equipmentinB.2 Medical 1.5 items procured locally (iii) equipmentinB.3 Medical 1.5 (iv) Medical equipmentinB.4 1.5 (c) Goods for other parts o f the 5.4 project 3. Consultants' Services 0.8 100% of foreign expenditure; 92% of local expenditures 4. Training 2.0 100% 5. Community Grants 0.1 100% 6. Support to Redundant Staff 0.2 100% 7. Incremental Operating costs 0.6 90% 8. Unallocated 1.5 TOTAL 19.0 68 Use of statements of exuenditure (SOEs): Disbursement arrangements under the Project will be carried out using SOE procedures (i) for works; (ii) goods costing less than US$lOO,OOO equivalent; (iii) for for services o f consulting firms costing less than US$lOO,OOO; (iv) for services o f individual consultants costing less than US$50,000; (v) for training, under such terms and conditions as the Association shall specify by notice to the Borrower; (vi) community grants; and (vii) support payments for redundant health professionals. The required supporting documentation and other records will be retainedby the HPIU for at least one year after the receipt by IDA of the audit report for the year in which the last disbursement was made, This documentation will be made available for review by the independent auditors and by the visiting IDA staffuponrequest. Special Account: To facilitate timely project implementation, the Borrower will establish, maintain and operate, under terms and conditions acceptable to IDA, a Special Account for the HPIU, denominated in US$ ina commercial bank acceptable to IDA. The selection process and criteria for selection o f the bank would follow IDA standard selection procedures. Payment o f eligible expenditures (civil works, goods, services, grants, severance payments, and operating costs) may be made by the HPIU out o f the Special Account. The authorized allocation i s US$1,500,000. The initial deposit into the Special Account will be US$750,000, untilthe aggregate amount of withdrawals from the Credit Account plus the total amount of all outstanding special commitments entered into by IDA shall be equal to or exceed the equivalent of SDR3.O million. The Special Account will be replenished at regular intervals, preferably monthly. Replenishment applications will be submitted on a monthly basis and will be accompanied by full documentation, including monthly bank statements o f the Special Account, for all items except those eligible for disbursement on the basis of the SOEs. All other applications for direct payment or issuance of Special Commitments must for an amount 20 percent or more o f the Special Account allocation. The HPIU will also open a project account into which a share o f the Government's contributions will be deposited every year. A deposit by the Government for counterpart funding inthe amount o f US$75,000 i s a condition o f project effectiveness (estimated to be the counterpart funding requirements for the first t h e e months of Project implementation). Thereafter, the amount deposited by the Government shall be in accordance with the Project Financial Monitoring Reports submittedquarterly to the Ministryo f Finance and to IDA by the HPIU. All Project accounts will be autonomous and will be audited annually by an independent auditing firm acceptable to IDA on terms o f reference previously agreedwith IDA. The proposedActionPlan The Action Plan proposed during pre-assessment mission has been implemented by the PIU. The only Action pending is upgrade o f the Accounting software used by the PIU to incorporate FMRs report formats, which i s agreed to be done by the PIU shortly, and which was recommended as an improvement of the report generation facility and requires minor modifications in the sofhvare, and therefore i s not considered as a condition for effectiveness of the credit. SupervisionPlan Duringproject implementation, the Bank will supervise the project's financial management arrangements intwo main ways: (i) the project's quarterly FMRs and six-monthly management reports as well review as the project's annual audited financial statements and auditor's management letter; and (ii) during the Bank's supervision missions, review the project's financial management and disbursement arrangements (includinga review o f a sample o f SOEs and movements on the Special Account) to ensure compliance with the Bank's minimumrequirements. As requiredby the Bank and ECA guidelines, Country Financial Management Specialist for Armenia will carry out regular FMsupervisions o fthe project. 69 Annex 8: Procurement Arrangements ARMENIA: HealthSystemsModernization Project A. General Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure categories i s described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The procurement arrangements for the PHRD co-financing grant will be agreed separately under the co-financing grant agreement. Procurement of Works Works procured under this project (approximately US$2.6 million equivalent, would include: renovation o f training centers inYerevan, Gyumri, Vanadzor, Kapan, nursingtraining centers inthree marzes, BMC, rehabilitation ofhealth centers infifteen and constructioninnew health centers infive communities. Civil works for hospital rehabilitation, to be procuredunder Component B: Hospital Network Optimization and Modernization for different hospitals are not consolidated into one package, since Credit funds for that procurement will only be releasedon the condition that the beneficiary hospital networks have concluded implementation agreements with the Borrower. National Competitive Bidding (NCB) procedures used for public procurement in line with the Law on Public Procurement (LP) will be followed. The Bidding Documents for Procurement of Works (NCB), The World Bank, Europe and Central Asia Region translated into the local language and Standard Bid EvaluationFormwill be used accordingly. The Bank willpriorreview the first two NCB and SHprocedures. Procurement of Goods Goods procured under this project (approximately US$12.0 million equivalent) would include: medical equipment and supplies for training centers, office and training furniture, computer equipment with associatedperipherals, software, printingmaterials textbooks and periodicals. Goods will be grouped to the extent possible and considering project objectives in package sizes that will encourage competitive bidding. Goods, medical, diagnostic and waste management equipment, IT hardware and software, to be procured under Component B: Hospital Network Optimization and Modernization for different hospitals cannot be packaged, since Credit hnds for that procurement will be released on the condition that the beneficiary hospital networks have concluded implementation agreements with the Borrower. The procurement will be done using Bank's SBD for all ICBs. The Borrower will create short list of firms invited under Shopping procedures to compete for standard off-the-shelf computer equipment, using the Bank's IT shopping web site: http://www,worldbank,org/htmlopr/shop-IT. The Bank will priorreview all ICB andthe first two SH procedure. 70 Procurement of non-consulting services Training (approximately in amount of US$2.O million equivalent) will be provided through training courses, study tours, seminars, workshops, conferences and other training activities not included under a goods or service provider's contract. Training activities include: (i)training o f general practitioners and pediatricians as family doctors; (ii) training of nurses to become family medicine nurses; (iii) training of trainers to subsequently provide training to physicians andnurses; and (iv) training for hospital oversight and hospital management teams. The only institutions in Armenia which have capacity to provide high quality re-training for family medicine are: for activity (i)The Yerevan State Medical University (SMU) and the National Institute for Health (NIH);for activity (ii)NMand the Yerevan State Basic Medical College (BMC); and activity (iii) -- -NM. Taking into account limited capacity within the country to provide such training and the fact that utilization o f foreign training providers for re-training of family physicians or family nurses i s not possible due to language constraints, ECA RPA office has agreed to allow single-source selection o f these three institutions (contracts in range o f US$200,000 to US$400,000 total amounted US$1.5 million), that operate under the administrative control of the Government, to be hired for training o f family physicians and nurses inview o f the fact that there are no private sector firmdindividuals which (i) have a capacity to fulfill these assignments and (ii) meet qualification requirements. Bank financing will cover costs o ftravel, accommodation and subsistence for the training participants. The PIUwill administer all overseastraining and study tours. Selection of Consultants Consulting Services procured under this project (approximately US$1.O million equivalent) are required for preparation o f regional master plan updates; hospital management; training centers' design, seismic stability assessment, civil works supervision, design and institutionalizationo f Q A projects, strengthening of health legislationand licensing, improvement o f contracting, payment mechanisms and BBP, support to component management, etc. Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o fnational consultants inaccordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Operational Costs Incremental operating costs (USS0.7 million equivalent) incurred by the HPIU for salaries, communications, office supplies and utilities would be financed under Credit for the duration o f the project. The HPIU score staff will comprise: Director, Procurement Officer, Financial Manager, Accountant, Secretary/Translator, Architect-Engineer, Office Manager, Legal Specialist, Monitoring- Evaluation Specialist, three component coordinators and two Dnvers. Other consultants may be hiredto support specific needs under a particular component for short term well-defined assignments (e.g. medical equipment specialist). Other Community grants (approximately US$O.1 million equivalent) will be provided to the communities selected under the Operational Manual developed by the PIU. Grant funds will be used by communities and local government for implementation o f small-scale health infrastructure rehabilitation and/or improvement projects and/or to obtain critical supplies pharmaceuticals for family medicine practices. 71 B. Assessmentofthe agency's capacityto implementprocurement The Health Project Implementation Unit (HPIU) under the Ministryo f Health will carry out procurement activities. The HPIU staff includes a full-time procurement specialist who was selected in October 2003 before the completion of the first health project. In accordance with local legislation, to coordinate and supervise the project, the MOH will establish a Project Steering Committee comprising key stakeholders within and external to the MOH. The committee will be involved in such issues as defining terms of references, participating in technical evaluations, and workmg directly with consultants for the strategic technical assistance assignments. The Committee will approve all contract award decisions when the estimated contract price exceedsUS$50,000 equivalent. The OperationalManualofthe HPIUusedfor the implementationofthe first healthproject was updatedto reflect the project design and appropriate balance of responsibilities between the Ministry o f Health and the HPIU. An assessment o f HPIU capacity to implement procurement actions for the project was carried out by A. Astvatsatryan (ECSPS) inFebruary 2004. The assessment reviewed the organizational structure for implementing the project and the interaction between the project's staff responsible for procurement and, the Ministry o f Health and Project Steering Committee. This capacity can be considered to be satisfactory, however, there i s room for improvement in a number o f areas. Inparticular, the procurement capacity of the PIUneeds to be strengthenedindrafting o f technical specifications for modemmedical and IT equipment in anticipation of ICB for computer and medical equipment and software and civil works contract management. Most of the issuedrisks concerning the procurement component for implementation o f the project have been identified and include: (i)procurement officer's small experience inBank's procurement, (ii) procurement o f numerous IT and medical equipment which should be carefully specified, and (iii) civil works contracts for renovation will require not only high quality design and proper supervision in place, but also timely provision of funds (under Component B civil works contracts will be financed from three different sources- IDA, Government and Hospital Owners). The corrective measures which have been agreed are: (i) training for procurement officer; and (ii) provide develop an Operational Manual setting up explicit responsibilities o f all parties involved in procurement process (i.e. PIU- Ministry o f Health - Beneficiaries (hospitals and communities) identifying the role of each o f them in preparation o f bidding documents, bids evaluation, contract monitoring and timely provision o f funds. The overall project risk for procurement is high. C. ProcurementPlan The Borrower, at appraisal, developed a Procurement Plan for project implementation that provides the basis for the procurement methods. This plan has been agreedbetween the Borrower and the Project Team on April 30, 2004 and i s available at the HPIU at the MOH. It will also be available in the Project's database and inthe Bank's external website. The Procurement Plan will be updatedin agreement with the Project Team annually or as required to reflect the actual project implementationneeds and improvements ininstitutional capacity. D. FrequencyofProcurementSupervision Inaddition to the prior review supervision to be carriedout fi-om Bankoffices, the capacity assessment of the implementing agency has recommended that every six months a supervision missions visit the field to carry out post review of procurement actions. The HPIU will maintain complete procurement files, which IDA supervision missions will review. All procurement related documentation that requires IDA prior review will be cleared by Procurement Accredited Staff (PAS) and relevant technical staff. No packages above mandatory review thresholds by RPA are anticipated. Procurement information will be recorded by the PCU and submitted to the IDA as part o f the quarterly (FMRs) and annual progress reports. A simple management information system with a procurement module would be established to assist the HPIU procurement specialist to monitor all procurement information. 72 Attachment 1 Details of the Procurement Arrangement involvinginternationalcompetition International Competitive Bidding (ICB). Medical, and computer equipment, software for project estimated to cost not less than US$lOO,OOO equivalent per contract and civil works for hospital rehabilitation estimated to cost that exceeds US$600,000 equivalent, will be procured using ICB procedures inaccordancewith the Bank's Procurement Guidelines; Shopping (SH) procedure will be used for readily available off-the-shelf goods that have standard specifications and estimated to cost less US$lOO,OOO equivalent per contract includingvehicles, small set of kits for FPs, publishing and printing, laboratory equipment. SH procedure will be used also for renovation works o f FMP and training centers estimated to cost less than US$50,000 equivalent per contract. This procedure will be based on obtaining and comparing price quotations from at least three suppliers/contractors. The HPIUwill create a short lists of firms for procurement o f standard off-the-shelf computer equipment that have the automatic no-objection by the Bank listed at the new Bank's IT shoppingweb site at the following address: http://www.worldbank.org/htmlopr/shop-IT/. Direct Contracting. Where certain goods are available only from a particular supplieror in cases where compatibility with existing equipment so requires goods may be procured under Direct Contracting have obtained prior approval from IDA (inaccordance with para. 3.6 of the Procurement Guidelines) Procurement from UNagency. Medical equipment, and supplies for the family medicine practices can be procured from a specialized agency o f the United Nations (in accordance with para. 3.9 of the Procurement Guidelines). Goods and Works and non-consulting services (a) List o f contract Packagesthat will be procured followingICB and Direct contracting: Description Estimated cost Proc. Priorlpost Issue Ctr. Sign. Ctr. (US$ `000) Method review BD/RFP Compl NHI SMU, BMC, Yerevan I1and Vehicles Medical andDiagnostic equipment for Merger # 1 1,533.1 ICB prior TBD TBD TBD Medical and Diagnostic equipment for Merger # 2 1,533.1 ICB prior TBD TBD TBD Medical andDiagnostic equipment for Merger ## 3 1,533.1 ICB prior TBD TBD TBD Medical andDiagnostic equipment for Merger # 4 1,533.1 ICB prior TBD TBD TBD 73 Attachment 1 I I I I I Description Estimated cost Proc. Prioripost Issue Ctr. (US$ '000) Method review BD/RFP Ctr. Sign. Compl Medical equipment (for Marz hospitals) 1,533.1 ICB prior TBD TBD TBD IT equipment (laptop, computer projector, copy machine) for M o H and 206.7 ICB 1 prior 1 Mar-05 1Jun-05 1Oct-05 1 itals IThardware and software 156.4 Periodicals and literature 8.0 prior Textbooks and periodicals 14.0 prior (b) ICB procurement for goods estimated to cost above US$lOO,OOO equivalent per contract, civil works procurement estimated to cost above US$600,000 equivalent per contract, and all Direct contracting will be subject to priorreview by the Bank. Consulting Services (a) List o f ConsultingAssignments with short-list of international firms I Description 44.351 I C prior 11.091 I C II Drior 1I 232.30 QCBS prior Strengthening of HealthLegislation and Licensing (expertise) 44.66 CQ post Development o f the H C W Mregulations (expertise) 85.52 CQ post (b) Consultancy services estimated to cost above US$lOO,OOO equivalent per contract and Single Source selection o f consultants (firms) for assignments will be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract, may be composed entirely of national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. 74 Annex 9: EconomicandFinancialAnalysis ARMENIA: HealthSystemsModernizationProject Macro-Economic Context. Over the past five years, Armenia has relatively successfully started to overcome the hurdles createdby disruptions o f the post-soviet transition era. The economy has grown at an average annual rate o f 9 percent between 1998 and 2003, supported by the Government's reform program focused around trade liberalization, improved business environment, export and investment promotion. Sustainability of the economic recovery remains, however, a concem as growth has been concentrated in sectors with little employment generation, the business environment remains difficult and macro balances are fragile. Poor revenue collection and large contingent liabilities have resulted in persistent quasi-fiscal deficits and low public financing o f the core social services. Public spending on health care dropped to below 1percent of GDP and less than 4 percent of public sector spendingin 2000 and has only recently started to recover somewhat. It currently amounts to about 1.5 percent of GDP 6.5 percent o f public sector spending, compared to the 3 percent o f GDP average of CIS countries and 6 to 10 percent of GDP in most developed countries. The PRSP targets an increase inhealth sector spending to 2.5 percent o f GDP by 2015. Minimal public sector spending on health care has led to a marked deterioration inthe still overextended health care infrastructure, sharp reduction inthe quality o f care and an increased need for out of pocket payments. Overall low public sector spending on social sectors and infrastructure undermines the country's longer-termgrowth prospects andraises risks o f social tensions. Socio-Economic Context. Despite strong economic performance over the past five years, poverty in Armenia remains at a relatively high 48 percent (compared to 55 percent in 1998/99) (see World Bank Poverty Update, 2003). Some 20 percent live in extreme poverty. Urban poverty decreased between 1998/99 and 2001, while rural poverty increased slightly. Urbanand ruralpoverty are now roughly equal, but poverty in Yerevan is lower than in other urban and inrural areas. Household size, the presence of children and elderly, low educational attainment and unemployment are key determinants o f poverty. In rural areas, poverty i s positively correlated with the size o f landholdings. Non-income indicators of poverty are deteriorating, including quality o f and access to education and health care, and adequate housingand public services. Deterioratingquality and the continuously increasing need for households to make up for low public spending in these sectors through out o f pocket payments drives the continued deterioration o f access to education and health care. The social protection system, while well-targeted and providing an important cushion againstpoverty, remains modest andresource-constrained. Both national statistics and household survey data, indicate that the use of health care services has fallen over time. Outpatient contact rates are less than a third of what they were prior to transition and in-patient admission rates have dropped by almost two thirds. While the reduction may also reflect an over- utilization o f health services prior to transition, present utilization rates are substantially below European averages. At the same time, the reported disease incidence, particularly for non-communicable diseases, has increased significantly duringthe past decade. 75 ARMENIA IN AND OUT-PATIENT ADMISSIONS 1990 1995 1996 1997 1998 1999 2000 Outpatient care: contactsper person per year 6.9 4.2 4.6 3.2 2.4 2.3 2.1 In-patient care admissionsper 100 population. 13.9 7.5 7.5 6.7 6.2 5.8 5.1 Source: Health for All. Evolution ofMorbidityand Mortality Ratesfor Socially SignificantDiseases Disease Diseaseincidence Mortality incidence (in absolute numbers) (in absolute numbers) 1988 2000 1988 2000 Tuberculosis 3 250 5 458 63 157 Malignant neoplasm 21 228 21 975 3 013 3 958 Diabetes mellitus 29 575 38 685 405 1266 Hypertension 42062 32831 1869 2437 Cardiac ischemia 76607 48925 6405 8745 Acute cardiac infarction III 1 542 III 1725 III 1633 III 2719 III Memo item: Number ofpopulation (in thousand) 3 457.0 2 996.8 3 457.0 2 996.8 The combination o f lower utilization rates and increased morbidity incidence suggest that people postpone seeking health care, which inturnmay worsen their health status and lead to increased mortality rates. The 1998/99 and 2001, household surveys confirm the trend depicted by the above national statistics. They show that both the share of the population reporting an illness or injury during the month prior to the survey and the share of those who reported being sick and sought health care dropped considerably over the three-year period. Like the drop inutilization, the drop inreported illness i s likely a reflection of increasedcosts and access barriers to health care, as international evidence sows that cost o f and access to healthcare services affect self-reported m~rbidity.'~ " Two experimental cases in the U.S. and Indonesia showed that when prices for health inputs (drugs, services) increased, the affected population reported an improvement intheir health status, despite unchangedhealth status when objectively measured (Dow et al, 1997). This is an argument for objective rather than subjective (self- reported) health indicators. 76 Armenia: Incidence of illnesslinjury andhealth care utilizationby consumption quintiles 199811999 2001 1 2 3 4 5 Total 1 2 3 4 5 Total A. Percent of individualsreportingsicknesshjury Rural 19.2 17.8 15.1 14.8 20.0 17.3 11.0 10.3 10.1 11.9 16.2 11.8 Urban 17.7 16.4 15.0 18.2 24.3 18.1 17.1 14.4 12.5 13.0 16.6 14.8 Total 18.1 17.0 15.0 16.4 22.0 17.7 15.0 12.6 11.5 12.5 16.4 13.6 B. Percent of sick and injured seekinghealth care Rural 16.5 19.6 29.6 32.9 44.3 30.7 22.8 16.5 23.5 37.2 28.2 26.1 Urban 27.8 35.8 34.3 36.2 49.6 36.7 21.9 27.1 37.0 33.6 36.0 30.5 Total 24.5 29.0 32.3 34.7 47.0 34.2 22.1 23.3 31.8 35.0 33.0 29.0 Source: ISLC 1998/99,2001, World Bank, Armenia PovertyUpdate,2003 Armenia: Choice of providers by consumption quintiles (percent o f those seekingcare) 1 2 3 4 5 Total 98199 2001 98/99 2001 98199 2001 98/99 2001 98199 2001 98199 2001 PHC 61.5 60.9 41.9 55.0 56.9 64.3 47.4 43.8 42.7 45.8 47.4 51.5 Rural Hospitals 34.6 34.8 39.5 40.0 25.9 28.6 37.2 41.7 44.8 45.8 38.5 39.5 private/other 3.8 4.3 18.6 5.0 17.2 7.1 15.4 14.6 12.6 8.3 14.1 9.0 PHC 65.1 63.7 63.6 60.5 69.2 66.0 66.7 55.2 56.9 44.4 63.3 56.8 Urban Hospitals 30.3 29.7 18.7 33.3 20.9 22.7 28.1 28.1 36.2 43.7 28.1 32.4 privatelother 4.6 6.6 17.8 6.2 9.9 11.3 5.2 16.7 6.9 11.9 8.7 10.8 PHC 64.4 63.0 57.3 59.1 64.4 65.5 58.0 50.5 50.5 44.9 57.3 55.1 Total Hospitals 31.1 31.0 24.7 35.0 22.8 24.4 32.2 33.6 40.1 44.4 32.0 34.6 private/other 4.4 6.0 18.0 5.9 12.8 10.1 9.8 15.8 9.5 10.7 10.7 10.2 Source: ISLC 2001, World Bank Poverty Update,2003 Note: Figurescorrespondto percentages of individuals self-reportingillness/injury and seekinghealthcare. Health care utilization in Armenia varies across socio-economic groups and increases with income. It is substantially higher among the urban than the rural population, though the gap has decreased over time. Primary care services continue to be the most common health care options, but higher income groups, especially in urban areas, are increasingly seeking other care options. These trends may reflect the increasing cost of care to individuals; a decline in the quality o f primary care; and better services in mainly urban hospitals as a result o f larger budget allocations to the hospital sector. With limited budget funding, private expenditures on health care are significant-some 64 percent of surveyed individuals in 2001 report making payments for health care. OOPS increase with income: somewhat lessthan halfinthe lowest quintile seeking care pay for services, while three quarters inthe top quintile pay. This reflects both the higher use o f private and hospital services by higher income groups and some protection from OOP provided under the basic benefits package which was extended to all recipients o f family benefits in 2001. However, the share o f those making OOP has risen in the three lowest quintiles since 1998/99, particularly in urban areas. A comparison o f data collected in villages which are served by a retrained family physician with other villages, indicates that patients seehng care incommunities servedbyaretrainedfamily physicianareonly halfas likely to pay for consultations than those in other communities. Data furthermore indicate that informal payments are twice as likely among patients not servedby a family physicianthan among those served by a family physicianl8. Overall, total OOP for treatment in a family medicine setting were about 10 percent lower than in other primary care settings. '* Data collectedas part of the evaluation of the First Health Project. 77 Armenia: Out-of-pockets payments for health care by consumption quintiles and location 199811999 2001 1 2 3 4 5 1 2 3 4 5 %paying, out ofthose sick 65.4 69.8 63.8 78.2 77.6 56.5 70.0 82.1 52.1 79.2 Rural & seekinghealthcare average paymentfor those paying 2324 3147 3007 7259 32393 2346 3039 5130 5580 37047 %paying, out ofthose sick 33.9 43.0 53.8 72.9 77.0 42.9 48.1 63.9 72.9 73.3 Urban & seekinghealthcare average payment for those paymg 2157 2958 2652 5081 25490 1997 3777 5471 7151 19693 %paying, out ofthose sick 40.0 50.7 57.7 75.3 77.3 46.4 53.7 69.1 64.4 75.3 Total & seekinghealthcare average paymentfor those paying(in AMD) 2209 3032 2805 6095 28618 2107 3533 5356 6633 25695 Source: ILCS 1998/99and 2001. World Bank, Armenia PovertyUpdate, 2003. Implications for Health Proiect. The proposed project i s expected to have a positive impact on quality and access to health care, particularly among lower income groups. As demonstrated during the evaluation o f the first health project, treatment in a family physician setting results in less OOPS (both formal and informal) for care seekers. Furthermore, the referral rates o f family physicians to specialists and to hospital care are significantly lower than among traditional primary care provider^'^, resulting in reduced travel costs and time loss for care seekers in rural and peri-urban areas and reductions in unnecessaryhospital stays, which intum again lead to substantial savings inOOPS. I t is also likely that lower income groups will increasingly seek care when needed, ifthey know that reliable quality care can be obtained locally. To the extent that the hospital optimization and institutional development components will support improved hospital management and payment mechanisms and aim at formalizing OOPS, the project may also have a positive impact on access o f lower income groups to hospital care. Cost Benefit Analvsis. The cost benefit analysis has been carried out for the two main project components, the Yerevan hospital mergers and the primary health care component. An analysis covering all project costs, but only benefits from the hospital merger and primary health care components has also been carried out. Benefits from the institutional development component are difficult to quantify and have thus not been taken into consideration. Similarly, as the detailed design o f the hospital optimization component in the Marzes will only occur during project implementation, benefits from this sub- component could not be quantified. The analysis hasbeencarriedout over a period of 10years, includingyears following project completion. The analysis includes recurrent costs and excludes taxes. Operation and maintenance costs for equipment purchased and facilities newly constructed under the project are accounted for throughout the period of analysis. Localcosts were converted to US$ at an exchange rate o f 1US$=530 drams. To the extent that available data has allowed to do so, the analysis includes both direct benefits and indirect benefits from the Yerevan hospital merger and the primary health care components. Benefits included inthe analysis are summarized below: l9 Analysis o f physician records during the evaluation of the First Health Project indicated the following referral rates: referral to specialist outpatient care 13 percent of new cases by family physicians vs. 29 percent by traditional PHC providers, referral rates to hospital care 5 percent of new cases by family physicians vs. 13 percent bytraditional PHC providers. 78 Component Direct Benefits IndirectBenefits Yerevan Hospital Savings from staff reductions Mergers as indicated in detailed merger plans Savings in space costs (utilities and maintenance for vacated txoaertv) Savings in rent for vacated rental property, rental income specialist outpatient care cardio-vascular, endocrinological and respiratory system Key assumptions underlyingthe benefits calculations are as follows: Savings from staff reductions in the four hospital mergers supported under the project are based on the detailed merger implementation plans which foresee the following staff reductions during the period 2004-2008. Staff reduction savings are based on the average cost per physician, nurse, aid, administrative/technical staff inYerevan hospitals. Merger 1: 49 physicians, 53 nurses, 5 aids Merger 2: 153 physicians, 162 nurses, 46 aids, 10administrative/technical staff Merger 3: 58 physicians, 213 nurses, 25 aids, 68 administrative/technical staff Merger 4: 232 physicians, 252 nurses, 63 aids, 149 administrativehechnical staff Savings in space costs: Saving in utilities are determined based on actual utility and maintenance expenditures o f the facilities which will be closed as a result o f the mergers. It must be noted that these savings will indeed be limited because of gross underspending on utilities and virtual absence of maintenance expenditures. Most hospitals are barely or not at all heated and some of the facilities which will be closed do not even have runningwater. Thus, if facilities were properly maintained and heated, actual savings would be substantially higher. Sensitivity analysis, using utility costs commensurate with those o f a reasonably heated hospital in Yerevan (Children's hospital) show that if the facilities were adequately supplied with utilities, savings would be substantially higher, thus increasing returns to the hospitalmergers. Rental income/savings: Inthe case of one merger, rented facilities would be given up and rent payment saved. For other owned facilities which will be vacated, it is assumed that the property value is equal to the discounted rental value (dram 5,0OOm2/year). 79 Per merger plans, vacated facilities/space savings are as follows: Merger B.1: 1,821m2 vacation o frentedfacilities Merger B.2: 7,976 m2 vacation o f owned facilities Merger B.3: 9,795 m2 vacation o f owned facilities Merger B.4: 15,202 m2 vacation o f owned facilities Decrease in unnecessary hospital bed days - merged hospitals: It i s assumed that overall increased management and provision o f key diagnostic and surgical equipment to the hospital mergers will result in a reduction o f 10 percent o f unnecessary bed days (through reduction o f ALOS and increased day care procedures) over 10 years in the hospitals to be merged. As hospitals are merged and downsized to allow for increased occupancy rates, the reduction in unnecessary hospital bed days, does o f course not mean that overall hospital bed days will be reduced in the merged hospitals. Indeed, merger plans strive to achieve an 85 percent occupancy rate, compared to the current rates o fbetween 30 - 40 percent. Decrease inunnecessaw hospital stays as a result o f improvedprimary care: Improvedquality o f primary care (trained family physicians) will result in a reduction in unnecessary referrals to hospitals, as well as in shorter hospital stays to the extent that referred cases will be less severe (referral at an earlier stage). Hospital admissions are expected to drop by 10 percent over 10 years, driven by reductions inadmissions for infectious diseases (5 percent), diabetes complications (15 percent), neurological problems (10 percent), circulatory problems (20 percent), respiratory problems (25 percent), intestinal diseases (20 percent), renal disease (5 percent), pregnancy complications (10 percent). This does not meanthat overall hospital admissions in Armenia will drop, as the current admission rate per capita is extremely low, driven by quality and access problems. Indeed, as quality o f and access to care will increase, the overall hospital admission rates may increase. The project benefit analysis values the 10 percent reduction in unnecessary hospital admissions/stays. Evaluation o f the first Bank supported health project showed that referrals to hospitals were over 60 percent lower among doctors who had received family physician training than among primary care physicians. It i s furthermore expected that unnecessary self-referrals will decrease as access to and confidence in the quality o f primary care will increase. Based on experience in other ECA countries (see, for example, Sherman and Glodin, 1996), it i s assumed that 30 percent o f savings fkom unnecessary hospital admissions goes to increased costs o f primary and specialist outpatient care and drugs. Reduction in referrals to oufaatient specialist care: The evaluation o f the first health project has shown that the referral rate to specialist care i s three time lower among family physicians than among primary care providers who have not undergone the family physiciantraining. Similarly, surveys have shown that self-referrals to specialist were less than half as highinareas served by retrained family physicians than in other areas. Based on these rates, the expected reduction of referrals to specialists for patients in rural areas has been calculated inview of the project's training o f family physicians. The reduction inreferrals will in the short to medium term not result in any direct cost savings, as unit costs o f treatment by specialist physicians are currently not higher than those by family physicians, due to the still very l o w case load o f family physicians inrural areas. Therefore, only savings intravel costs for reducedreferrals o f rural patients have been quantified for the purpose o f the cost benefit analysis. For urban patients, it is considered that travel costs to family physicians and specialists are the same. It must be noted, that reduced referral rates to specialists and particularly also to hospital care, also result in substantial reductions in the need for personal out of pocket payments, as evidenced by survey data from the First Health Project. These benefits have not been quantified for the purpose o f this analysis, though they are of particular importance from a poverty alleviation view point. 80 Averted productivity losses: It i s assumed that 30 percent of hospital bed days saved from improved primary health care will also result in averted productivity losses, similarly, reduced referrals to specialists for the rural population are assumedto result inreducedproductivity losses (0.5 daydreferral), as patients who are treated at the PHC facility nearby do not need to travel to town for specialist consultations. Averted productivity losses are valued at the average daily wage inArmenia, with an adult labor force participation of65 percent, basedon census data. Benefits of reduced mortality: Improved primary care, particularly improved care and regular monitoring o f hypertension, cardio-vascular conditions, diabetes patients and patients suffering from respiratory ailments (early detection and treatment of pneumonia, particularly in children) can reasonably be expected to result in reduced mortality rates o f conditions associated with these ailments. Based on experience elsewhere and expert opinion, it is assumed (conservatively) that mortality due to the following indications will be reduced by between 5 percent over a 10 year period: endocrinological problems, heart attacks, stroke and respiratory problems. The monetary value attached to lives saved i s determined by using the discounted annual per capita income for each year o f life saved, this i s a conservative estimate o f the economic value o f life as a consumption good. Inthe absence o f age and sex specific mortality data, it i s conservatively estimated that each averted death from endocrinological and circulatory problems results in 5 life years saved, while an averted death from respiratory problems results in 15 life years saved. Economic Analysis o f Labor Retrenchment Program: The hospital merger restructuring component will result inabout 1553 staff reductions o f which somewhat over half will be natural retires and the rest will be retrenched (about 770). The project supports three types of activities to support the retrenchment of these estimated 770 staff on a pilot basis: (i)provision of a separation grant (six months salary) for those within five years o fretirement; (ii)mobility grant and other support services for those willing to retrain a as family physicians and relocating to the marzes; and (iii) training grants and counseling and advisory services to others. Economic analysis o f the retrenchment program includes on the cost side redundancy payments, mobility and training grants, training costs for family medicine training o f those willing to relocate as family doctors, cost o f advisory services, unemployment benefits paid to terminated workers and an estimate of the marginal product value of these workers prior to restructuring. Economic benefits are valued as the estimated marginal product value o f freed up labor, as determined by future eaming o f those who reenter the labor market in productive jobs. The assumption i s that the current marginal product value of retrenched workers is close to zero as the hospitals are vastly overstaffed and their retrenchment will not result in a reduction of hospital productivity. However, those who will reenter the labor force in more productivejobs will contribute to Armenia's GDP bytheir future earnings. The following assumptions withrespect to labor market reentry are made: e Twenty-five percent of those receiving redundancy grants will reenter the labor market for an average duration o f five years and eam 50 percent o f the current average market wage (the average market wage i s above that of hospital physicians). One hundred people are expected to take redundancy grants. e Fifty percent of those undergoing training and counseling will reenter the labor force after one year. They will eam 60 percent of the average market wage. Duringthe year o f unemployment they will receive unemployment benefits. Annual drop out rate is assumed at 3 percent. Four hundredpeople are expectedto take advantageofretraining andadvisory services. e One hundredpercent of those receiving mobility grants and family medicine training will reenter the labor force after retraining. Annual drop out rate i s assumed at 3 percent. One hundred people are expectedto be retrainedand relocate. 81 e Thirty percent of those retrenched without any benefitswill reenter the labor force after one year and eam 50 percent o f the average market wage. During one year they will receive unemployment benefits. Annual drop out rate i s assumed at 3 percent. One hundred seventy people are expected to fall inthis category. Retrenchment support programs are estimated to cost US$850 per person for mobility grants and related support services; US$l50 per person for training grants and advisory services; US$350 for redundancy payments. Family physiciantraining is costed at US$lOOOper physician as under the PHC component. With the above assumptions, the overall retrenchment program yields an NPV o f US$268,000 over 10 years at a discount rate o f 10 percent, while the redundancy program alone results in an NPV of US$21. The rates o f retum are estimated at 34 percent and 10 percent for the overall retrenchment program and the redundancy programrespectively. Results The cost benefit analysis carried out over a period o f 10 years indicates that the NPV (using a discount rate o f 5 percent) consideringall project costs i s US$6.6 million and the ERR is 11percent. These values increase to US$10.9 million and 17percent respectivelyifonly costs directly associated with the Yerevan hospital mergers and the PHCcomponents are considered. Cost benefit analysis for the two main components individually suggests that the majority of benefits are derived from the PHC component. The latter yields an NPV o f US$14.7 million and an ERR o f 47 percent over a 10 year period. For the Yerevan hospital merger component, on the other hand, positive retums can only be achieved over a longer time period - the component's ERR over 20 years i s 8 percent (-3 percent over 10 years). These relatively low returns for the hospital merger component are due to three principalreasons: first, the mergers require substantial up front costs, while most benefits occur only after several years. Second, actual savings from utility and maintenance costs for the mergers are small despite substantial space reductions. This i s due to the vast under fimding o f hospital operations. Applyingutilitycosts per m2 of a reasonably well heated hospital (children's hospital inmerger 1) to all facilities to be closed, would indeed more than triple the utility savings from closed facilities. Iffacilities were furthermore adequately maintained, cost savings from closed facilities would be even higher. Third, official salaries and thus recorded costs o f medical personnel are extremely low in Armenia (based on data from merger hospital the total annual cost o f a physician, including wage payments and social contributions i s less than US$SOO/year for a physician, and only somewhat over US$400/year for a nurse), this then results in limited official cost savings from staff reductions. However, it is widely known that informal payments prevail and are substantially higher in hospitals than at the primary care level. These were not quantified due to lack o f data and uncertainty prevailing over the effects o f the project on elimination of informal payments, though improved management, higher case loads, performance based payments and efforts to formalize out o f pocket payments are expected to yield positive results. Other benefits which were not quantified due to lack o f data include averted deaths due to improved treatment conditions (through investments in equipment) at the merged hospitals and the overall expected improvement inhospital care through improved efficiency, higher case loads, improved management and improved diagnostic and operating environments. It must also be noted that a key objective o f the hospital mergers component is to demonstrate the feasibility and benefits o f hospital mergersto the medical establishment and managers o f other hospitals. Fromhospital managers' point o f view the most tangible benefits will obviously be improved cash flows, due to higher occupancy rates (merger plans foresee an increase in current occupancy rates of 30-40 percent to 85 percent over five years) and lower operating costs, as well as improved quality o f care. These demonstration effects are difficult to quantify but are expected to be substantial. Overall, there are thus substantial indirect benefits from the hospital mergers which could not quantified for this analysis, this invariably contributes to the 82 perceived long period to reap retums on significant up front investments for the mergers. The alternative, however, is to let hospital infrastructure further deteriorate and underutilized facilities put a continued drain on very limited resources, while providing increasingly lower quality o f care which ultimately will result in substantial increases in morbidity and mortality and thus carry a high economic cost that at this point is difficult to quantify. Sensitivity analysis was carried out to test the effects o f delayed or reduced benefits on the NPV and ERR. Results o f the analysis are presentedinthe table below and show that the project's NPV and ERR remain positive with a one year delay inbenefits or a 20 percent reduction inbenefits, but turn negative with more substantial delays or benefits reductions. The NPV would be zero if overall benefits were reduced by about 23 percent percent. Discount rate 5% Given the substantial upfront costs and the fact that benefits only gradually buildup after a several project years, sensitivity analysis, utilizing a 20-year time frame, but a 10 percent discount rate was also carried out. The results are shown inthe table below and indicate that benefits are not only more substantial in the base case scenario, but they are also more robust over a 20-year period, even if the discount rate is doubled from 5 to 10 percent. This is due to the fact that most benefits, materialize gradually over a period of five- to ten-year or even longer and a one to two-year delay in benefits under a ten-year time horizon, results ina substantially reduced benefits stream. Discount rate 10% FiscalImpact Analysis The table below describes the fiscal impact and the financial sustainability prospects o f the project. The analysis considers two scenarios: total public sector expenditures on health as projected in the PRSP, increasing from the current 1.7 percent o f GDP to 2.5 percent in2015, and health sector expenditures as a constant share o f GDP (1.5 percent). The analysis shows that counterpart fund requirements range from 1.7 percent o f the health budget during the first project year to 0.3 percent during the last project year. The Ministry o f Finance has confirmed that this amount can be accommodated. Recurrent costs, which 83 include replacement costs for medical equipment, operation and maintenance o f IT equipment, vehicles and project financed civil works range from 0.2 percent to 0.8 percent o f health spending under the PRSP scenario and from 0.4 to 1 percent o f spending under the more conservative scenario. This assumes that the state budget will cover about 50 percent o f replacement costs for hospital equipment and of hospital based civil works maintenance (through SHA financed state order contracts with hospitals), while the other 50 percent will be covered through non-state financed revenues generated by the concerned hospitals. All incremental recurrent costs for primary care are expected to be finance fi-om public funds (again through S H A financed state order contracts with primary care providers). This i s a reasonable assumption, given that financing outside state orders already account to about half of hospital revenues in some o f the mergers. While the recurrent cost impact on the state budget is not negligible, it appears manageable, particularly if the Government lives up to its commitment under PRSP to increase health spending. Fiscal Impactof the Project: 2005 2006 2007 2008 2009 2012 2015 healthspendingas a share of GDP(PRSP) 1.5 1.8 1.9 2 2.1 2 2.5 healthbudgetaccording to PRSP (USSmillion) 46.5 66.4 75.0 84.7 98.5 137.0 189.0 healthspendingremaining at 1.5% of GDP 46.5 55.3 59.2 63.5 70.4 102.8 113.4 ProjectDisbursementsas % of healthbudget (PRSP) 20.5% 15.2% 4.4% 2.9% 0.0% ProlectDisbursementsas % of healthbudget (constantGDP share) 20.5% 18.3% 5.5% 3.8% 0.0% counterpartfunds as % of healthbudget (PRSP) 1.7% 0.5% 0.4% 0.3% 0.0% counterpartfunds as % of healthbudget (constantGDP share) 1.7% 0.6% 0.5% 0.5% 0.0% total recurrentexpenditures as % of healthbudget (PRSP)(1) 0.4% 0.3% 0.8% 0.7% 0.5% 0.3% 0.2% total recurrentexpenditures as % of healthbudget ( constant GDPshare) (1) 0.4% 0.4% 1.0% 1.0% 0.7% 0.4% 0.4% 84 Annex 10: SafeguardPolicy Issues-EnvironmentalManagementPlan ARMENIA: HealthSystemsModernizationProject EnvironmentalCategory The immediate impact o f the activities supported by the project on the environment would be limited. The mainphysical investment components for the proposedproject are: e Rehabilitation o f Family Medicine Training Centers (Yerevan I1 Training Center, Gumri, Vanadzor, Kapan, BMC, and 3 Nursingtraining Centers inmarzes); e Rehabilitationo f 15 selected Family Medicine Practice Centers inmarzes; 0 Construction o f 5 new Family Medicine Practice Centers in selected marzes; e Rehabilitation and refurbishment o f selected space in selected hospital networks to accommodate re-location o f existing departments under the restructuring process and medical equipment providedby the project; and e Rehabilitationo fthe new Health PIU Office. Potential adverse environmental impacts are summarized below and are restrictedinscope and severity: 0 Dustandnoise due to demolition andconstruction; 0 Encroachment into private property; 0 Risko fdamage to unknown historical and archaeological sites; e Dumping of demolition and construction wastes and accidental spillage o f machine oil, lubricants, etc.; 0 Risk for inadequate handling o f hazardous wastewater, waste gases and spillages o f hazardous material duringoperation o f the hospitals; and 0 Riskfrom inadequate handlingo fmedicalwaste. These risks were reviewed during project preparation and measures were designed mitigate these risks in the design, planning and construction supervision process as well as duringthe operation o f the facilities. The project i s classified under the Environmental Category B inaccordance with World Bank operational policies and an Environmental Management Plan (EMP)was prepared. InstitutionalandImplementationArrangements The project will be implemented over a period o f approximately four years, estimated to begin on October 15, 2004 and end December 31, 2008. The Ministry of Health i s designated by the Government as the responsible agency for the Project. The Ministry i s supported by the Health Project Implementation Unit (HPIU), the coordination unit for the on-going Health Financing and Primary Health Care Development Project. The operational manual, the staffing and responsibilities were updated to reflect the project design and appropriate balance o f responsibilities between the Ministry o f Health and the HPIU. The HPIU will be responsible for the fiduciary aspects o f the project and provide project administration and coordination support to the MOH line departments and agencies that are responsible for the areas o f project support. Besides the MOH and the HPIU, the Ministry of Finance, the State Health Agency, the Policy and Analytical Center, the Yerevan and regional (Marz) Health Departments, the management teams o f the affected health facilities, and the PHC chairs in training institutions are the key participants in project implementation. 85 To coordinate and supervise the project, the MOH established a Coordination Board consisting o f representatives from key stakeholders within and external to the Ministryfor the purposes of guiding and coordinating the policy of optimizing the health sector. Besides general discussion o f policy, the Board (or by decision o f the Board, certain members) will be involved in such issues as defining terms of references, participating in technical evaluations, and working directly with consultants for the strategic technical assistance assignments. InstitutionalStructureinProtectionofEnvironmentand CulturalHeritage The main organization addressing and working on the environmental issues is the Ministry o f Environmental Protection, which prepares national reports on environmental management once a two- years. The only organization which takes the responsibility of the management o f the cultural resources and monuments i s the "National Cultural Monuments Protection" State Agency close to the Ministry of culture which works under relevant law. National architectural planning and construction i s being implemented under the supervision of Permanent Intersectoral Committee on Architecture an Construction, which adopts general architectural plans. The activities related to the above-mentioned spheres is being implemented under two relevant laws. ConsultationProcess Consultations were held during the project preparation by an environmental specialist inthe project team with the main stakeholders, i.e. Ministryof Health, municipality of Yerevan, hospital managers, Ministry of Nature Protection, State Hygiene and Anti-Epidemic Inspection (former San Epid) and ECOTECHARD, a privatewaste management company. ENVIRONMENTAL MANAGEMENT PLAN Introduction The Environmental Management Plan (EMP) was prepared in order to integrate environmental concerns into the design and implementation o fthe proposed project. The EMP would support: (a) establishment of environmental expertise within the PIU and inclusion of environment issues in the Project Operational Manual; (b) environmental capacity buildingand training program; (c) site-specific environmental screening concerning all project supported activities for the rehabilitation of PHC centers and hospitals; (d) monitoringand evaluation o f mitigation measures identified inthe site-specific reviews; (e) developing Environmental Guidelines for ecological planning and design of health care facilities and for waste handling (including demolition and construction debris); and (f) developing capacity and operational guidelines for medical waste management in health care facilities supported by the project. Establishmentof EnvironmentalExpertisewithinthe HealthPIU One staff member inthe PIU will combine civil works and environmental specialist responsibilities. The EMP follow-up responsibility will be defined in the Terms o f Reference. The staff member will be 86 environmentally trained technical staff assistedon short-term basis o f local or international experts during the initial preparation of the project. He/she will be responsible for coordination and supervision o f the environmental work undertaken in the project and work in close coordination with Ministry o f Nature Protection and MOH. He/she will: (a) coordinate environmental training for staff, designers and local contractors; (b) develop environmental guidelines in line with Bank standards for implementation, monitoring and evaluation o f mitigation measures; (c) coordinate environmental reviews of micro- projects; and (d) conduct periodic site visits to review progress. The responsible staff member will also be responsible for the preparation of the Environmental management guidelines o f the PIU Operational Manual andtraining of staff. Environmental Capacity Building and Training Program The respective departments and the structures of MOH, as well as PIU staff would receive environmental training as an integratedpart of the capacity buildingand training includedinthe project. One o f the duty o f the team would then be to prepare environmental training programs and to coordinate the training for local contractors. The training program would be designed and implemented with assistance on short- term basis o f local or intemational experts and the Ministryo f Nature Protection specialists. The training o f staff would focus on one or two-day seminars on environmental awareness and other specific environmental aspects related to design and implementation o f small-scale projects for the upgrading of health infrastructure. The training of local contractors would be provided through one or two-day workshops focusing on public awareness, case studies o f environmental issues experienced in similar projects, use o f environmental guidelines, implementation o f mitigation measures and the use of specific procedures inthe event unrecorded archaeological sites are uncovered duringthe construction activities. Site SpecificEnvironmental Screening, Review As a part o fthe EMP, all project-supported activities for rehabilitationo f FMPcenters wouldbe subjected to a site-specific environmental screening and review process. The MOWPIU team, with technical assistance o f intemational expertise, would elaborate and design the screening and review program. The PIU civil works and environment coordinator inclose coordination with the environmental department of the local government offices and the Ministry o f Nature Protection would conduct the screening and review process. This process would minimize site-specific environmental impacts and prevent damage to archaeological and historical sites. All activities for the evaluation and the assessment of cultural properties would be reviewed with the Ministry o f Culture (MOC). The Project would also develop specific procedures in the event unrecorded archaeologcal sites are uncovered during the construction activities. The screening and review process would use a standardized appraisal format that includes, but i s not limitedto, review of: (a) current environmental problems(soil erosion, water supply contamination, etc) at the sites; (b) potential environmental impacts, ifany, due to the project (disposal waste from demolition and construction, medicalwaste, constructionnoise and dust, etc); (c) potential impacts on archaeological andhistorical sites; and (d) potential requirements, if any, for involuntary resettlement or temporary relocation o f a limited number o fproject affected persons duringthe constructionactivities. As a precaution of encroachment of private property, none o f the proposed construction of five PHC clinics will be allowed to involve private property. This requirement will be assured through the sites screening process. 87 Monitoring and Evaluation of mitigation measures identified inthe site-specific reviews Reports would be prepared on each o f the environmental reviews, specifying mitigation measures and assigning responsibilities for implementation. The findings and recommendations o f the reportswould be discussedwith representatives o f the cooperating marzes and, as appropriate, with other organizations and neighbors concemed. Any proposal for permanent involuntary resettlement or temporary relocation o f residents would be reviewedby the World Bank to assure compliance with the provisions of Operational Directive 4.30, "Involuntary Resettlement" (the present planning o f the project will not entail any involuntary resettlement). The PIU would prepare quarterly reports outlining progress in EMP implementation as part o f the quarterly Project Management Reports (PMRs). The EMP reports would highlight environmental issues arising from project-supported activities, the status o f mitigation measures taken, and next steps, ifany. The reports would be submittedby PIUto the Ministryo f Nature Protection and the World Bank. The use of a site-specific environmental screening process will allow potential environmental concems to be addressed on a case-by-case basis in consultation with local government authorities and respective local departments o f environment, culture, architecture and construction and other representatives of Yerevan municipality and marzes concemed, as well as with the Ministry o fNature Protection. Environmental Guidelines This section details the specifics to be addressed inthe ecologicalhiologic concept, design and planning of small-scale projects for the upgradingo f health infrastructure. The guidelines cover the site evaluation, handling of demolition and construction debris generated, selection of construction materials and construction methods with limited impact on the environment, energy saving methods as well as the handlingo f medical and non-medical wastes under project supported activities. The guidelines are a base for training, programming, research, discussions and workshops, as well as for the practice o f ecological design and architecture. However, in selecting suitable construction methods and materials for the clinics, great attention shouldbe paidto locally available local traditions, skills and resources inthe clinic sites. The Site The best use o f the site is to orient the clinic for the best solar and climatic advantages (such as effective cross-ventilation duringthe summer period), to gain the best use o f indoor and outdoor space, and to use the land forming and the vegetation to create comers of privacy and to protect the site and architecture from climatic extremes. Within the objectives of ecological design, the site-specific electives can achieve practical, economic and energy benefits. The following are areas where fundamental information would beneededas abasis for ecologically sound design: e Site-specific daily and seasonalmicroclimatic projections (temperature, humidity,precipitation); e Site-specific angles o f daily and seasonalsolar access and solar flux; e Site-specific wind patterns and velocities for windrose development; e Site-specific influence o fneighboringstructures and properties; e Site-specific topographic land survey, covenants, and zoning andbuildingcode regulations; e Site-specific road access, automotive emissions, and projected effect upon outdoor and indoor space; e Criteria for the project and how it may be conceived and developed to fulfill needs and desires with ecological accord; Plan and volumetric consideration that addresses all the above and the concordant influence upon the local atmosphere; Most efficient, energy-conserving, non-polluting earth handling, earth placement, land forming, and embankments; Value o f topsoil, prevailing trees and other vegetation to be saved; Data pertinent to the optimization of sky, sun, earth, air and water energies; Fieldtesting information from power line and other adverse electromagnetic sources; Insite localavailability andsuitabilityofmaterials andmethods for construction(thegreater the distance from source to use, the greater the trail o fpollution); Appropriate manner inwhich to handle wastes and recycling; Short-term versus long-term flexibility and suitability for project modification and extension; Initial and life-cycle cost-benefit evaluations; and Long-term ecological effects and ultimate disposition of the architecture, contents and systems. Orientation relative to solar radiation and prevailing refreshing summer winds and cold winter winds i s one of the factors most frequentlynot regarded in site planning and architecture. All openings within the architecture bear a thermal and experiential relationship to the sky, the sun, extemal views, the earth, and seasonal change. The site-specific screening and review should carefully assessthe following issues: 0 Dustandnoisedue to demolition andconstruction; 0 Encroachment into privateproperty; 0 Riskof damageto unknownhistorical and archaeological sites; 0 Dumping o f demolition and construction wastes and accidental spillage of machine oil, lubricants, etc; 0 Riskfrom inadequatehandling o fmedicalwaste; and 0 Potential requirements, if any, for involuntary resettlement or temporary relocation o f a limited number ofproject affectedpersonsduringthe constructionactivities. These risks can be effectively screened, reviewed and assessedinadvance o f Project implementation and addressedby direct mitigation activities inthe design, planningand construction supervisionprocess. Architecture Orientation and location are critical to optimize the benefit of solar radiation, daylight, and controlled air movement and thermal efficiency. Architectural climate-responsive forms, surfaces, and openings require site-specific analysis to most effectively accord with microclimatic sun, earth, air and water energies. A construction-efficient planning module can conserve the use o f materials, minimize waste and conserve labor. Maximizing the interior volume to exterior surface ratio conserves energy and materials. Natural cooling is most effectively achieved by providing cross-ventilation o f all interior rooms and spaces. Orientation to the east-to-west axis can effectively favor solar exposure during the cold winter period. Avoidance of energy-intensive materials benefits Nature's ecosystem sustainability. Providing cross- ventilation o f all interior rooms and spaces is most effective for ventilation and natural cooling. Gaining the Solar Advantage The clinics can thermally benefit by passive and hybridsolar design as well as by active solar design for domestic hot water heating and space heating. Solar collection systems can effectively use air, water and other fluids to store heat for space heating, air tempering and heating o f water, concrete and other forms 89 o f thermal mass. Passive and hybrid solar subsystems can be most beneficially suitedto space function, economy and efficiency. Maximum glass to south, moderate amount to east, and minimumto west and northcorrespond best for the south solar advantage duringthe cold winter season. Shading should not be neglected for spring, summer and particularly fall (when passive solar is prone to excess heat). Fixed versus movable forms of shading and solar attenuation are factors for consideration. Earth Coupling The earth provides year-round more stabilized temperatures than outdoor air, and basements/foundations surrounded by earth are an example o f effective earth coupling (they tend to remain at a more uniform temperature than above-grade portions of a building). Ventilation and Openings Screened ventilation intakes sized, detailed with insulatedclosure panels, and located to maximize cross ventilation can be more effective than operable window ventilation. Window locations relate to view, light and privacy control and interior space functions. Windows best serve for lighting, thermal gain and view. It i s best to cross-ventilate interior spaces from low outdoor air intake to high exhaust. Interior doors properly locatedcan aid and control cross ventilation of rooms and all interior spaces. Insulationand Vapor Barriers Cooling is a greater thermal need than heating in acute care facilities, therefore isolating a buildingfrom the exterior climate with adequate insulation saves energy. The insulation o f roofs and external walls needs to be determined includingthermal break sheeting to reduce energy loss through framing members (or an insulate thermal break o f rigid insulation under interior drywall). The insulation should be tailored to the seasonal impacts of climate, internal thermal load, and characteristics o f exposure. Vapor barriers should prevent moisture intrusion in the roof insulation and outer wall cavities. Cross-laminated polyfilms are less permeable than conventional types. Mechanical Systems Mechanicalventilation - High-efficiency systems for heating domestic water (including solar systems) and for hydronic interior space heating provide comfort and economy. Radiant (wall mounted) radiator zoned hydronic heat i s good option for zoned comfort, space-by-space energy control and conservation. Plumbingstacks favor economy and function when coordinated to minimize plumbingand also water service to toilets, lutchen and utility rooms. Water-saving faucets and other devices will also save energy to heat the water. All plumbinglines should be copper (insulated hot water lines), with waste lines in cast iron to avoid PVC out gassing. Exposed plumbing and pipe insulation should be of nontoxic material. Lead-free solder shouldbe usedfor soldering copper water line pipes. Filtration Using electrostatic, activated charcoal, and high-efficiency filters can greatly improve the indoor air quality. Filters that remove particulates down to 0.3 microns are advisable. Molecular absorbing filters can be usedto remove toxic gases originating from internal and external sources. Electrical electrostatic filters are possible to clean but these are particularly subject to short-term reduction in efficiency. Self- actuating electrostatic filters are possible to clean, less expensive, and use no electricity. Electrical electrostatic filters should have an activated charcoal filter inorder to subsequently remove ozone that can be generatedby the particles on the filter. When sequential filtering for primary particles, HEPA (high efficiency particulate air filtration) is used, then the use o f charcoal, potassium permanganate, or other 90 molecular absorbers plus negative ionization at the delivery point of distribution are desirable. Smoking areas or rooms, if any, should be isolated by partitions and equipped with outside exhaust that creates a negative pressure inthe space. Certain medical equipment, copy machines, as well as other reproduction equipment, should be separately ventilated to remove their particulates and gases. Maintenance, including duct cleaning, filter cleaning and changes, and cleaning positive plate receivers and ionizing tips, shouldbe routine. ElectricalSystems Incomingcables should be located underground. Main entrance feed and panel locatedaway from places of work and waiting i s prudent in avoidance of electromagnetic fields. Ground fault wiring near any plumbingfixture is a precaution. Selecting the most energy-efficient light fixtures, lamps, appliances and equipment will reduce energy demand but can introduce undesirable electromagnetic fields. Be aware that close proximity to table, floor and desk halogen, fluorescent and other high-efficiency fixtures and lamps can cause an exposure to harmful electromagnetic fields. CabinetryandWood Nontoxic finishes are available but expensive. Selecting the least toxic finishes i s advised. Finishes Water-based interior nontoxic, non-allergenic paint for drywall or plaster surfaces is preferable to latex or oil-based paints from a respiratory standpoint. Any enamel coating for doors or other surfaces that require a more durable finish i s advised to be applied away from interior spaces and be fully aired for over a monthbefore installation. Indoor space shouldnot be occupieduntilodor and toxins o f the paint or finishhasbeen adequately aired. Flooring Traditional tile, marble, stone and terrazzo floors can be hard to stand and walk upon but have legendary durability. Nontoxic grouts and methods of installation shouldbe used. Window Treatments Vertical blindsprovide light control, are easy to maintain, andrequire minimal stachng room. Horizontal blindcan incombination with a white or light ceiling reflect daylight more deeply into a room. Exterior roller blinds, operable from the interior, are particularly effective in controlling solar thermal gain and interior heat loss, and give the benefit of security. Direct solar radiation can be attenuated by fabric mesh. ExteriorandInteriorColors Inclimates like inArmenia withhot summers, reflective roofsprovide acoolingadvantage. When cold season occur, darker-colored exterior walls will benefit by low-angle winter solar gains but be less heated by the high angle of the summer sun. White or very light-colored ceilings and interior side walls allow for deeper reflective penetrationo f natural light. Doors between interior room spaces can act as reflectors. Gloss white lacquer or enamel doors in the path o f incoming daylight can lighten adjoining spaces. Interior paints and finishes can affect patients and staff directly. Outdoor finishes with odorous and toxic emissions can also have an effect upon persons indoorsthrough windows, doors and other openings. 91 Demolition W o r k Existing buildingelements (walls, foundations, ground cement slabs etc.) should be carefully demolished and the debris should be sorted and removed as directed by the Environmental Management Plan (to be determined during the preparation phase of the Project). Used concrete blocks could be crushed and reused as gravel substitute in road and construction projects. All valuable materials (doors, windows sanitary fixtures etc.) should be carefully dismantled and transported to the storage area assigned for the purpose. Valuable materials should be recycled within the project or sold. Selection of Construction Materials and Construction Methods Environmentally sound goods and services should be selected. Priority should be given to products meetingstandards for recognized international or national symbols. Traditionally well-tried materials and methods should be chosen before new and unknown techniques. Construction sites should be fenced off in order to prevent entry of public, and general safety measures would be imposed. Temporary inconveniences due to construction works should be minimized through planning and coordination with contractors, neighbors and authorities. Indensely populatedareas, noisy or vibration generating activities should be strictly confined to the daytime. Local authorities should carry out environmental monitoring inorder to ensure thatmeasuresareenforcedto minimize constructionimpacts. Handlingof Medical andNon-medical Wastes Inthe absence of explicit environmental standards and procedures there is a risk that non-disinfected medical wastes from the clinics are collected and co-disposed with household wastes at uncontrolled dumping sites, creating conditions that may lead to proliferation of diseases and groundwater contamination. Some o f medical wastes are burnt on site and some are collected and incinerated at the central hospitals. Inadequate handling and disposal o f medical wastes may lead to transmission o f HIV, hepatitis, meningitis and other infectious diseases through injuries caused by synnge needles contaminated by human blood. The groups most at risk are medical care workers, waste management operators and scavengers. The managemento f medical wastes requires diligence and care from a chain o f people, starting with medical care staff, continuing through collection workers, and finishing with disposal operators. If any o f these are lachng o f knowledge and careless in their work, or allow scavengers or children access to the waste, the chain isbroken and dangers of infection follow. The activities planned under the project aim at improvement o f hospital waste management through development of the waste management regulations, guidelines and training o f respective staff, as well as provision of the waste management equipment. Inthe new management structure o f the pilot hospitals, clear responsibility for medical waste management will be assigned to a member o f the executive management team. The training courses will beprovided for all staff involved inthe management o f medical wastes to make them aware of hazards from the waste, especially from infected sharps, and to educate the patients and visitors to clinics hygiene and cleanliness with reference to waste. Public awareness campaigns shouldbe held to raise awareness of the risks posed by medical waste, so that people keep away from risks themselves and warn authorities if they see unacceptable practices. Specific training module will be inserted in the re-training program of health personnel and it will not solely explain routine procedures, but would also cover emergency procedures, such as what action should be taken as a result of a spillage of particular types of waste, or an injury involving a needle. It will also be the responsibility o f the MOH to develop and monitor supplies and consumer policies, which aim to minimize the level o f waste generatedinthe operation of services. 92 The segregation o f waste shall be introducedinall upgraded clinics, and monitoringprocedures shouldbe developed. The waste generatedinclinics i s to be categorized as follows for management purposes: 0 Clinical waste -this includes sanitary dressings, human tissue, specimens, infectious materials (includes items incontact with infectious patients, infectedlinenetc); 0 Sharps - thisincludes hypodermic needles and syringes, scalpel blades, razor blades etc; 0 Organic domestic waste food wastage, garden wastage etc; 0 Non-organic domestic waste - this -includes this includes plastics, non aluminum cans, cardboard packaging etc; 0 Domestic recyclablewaste - this includes bottles, newspapers, aluminum cans etc; and 0 Cytotoxic and hazardouschemical waste (ifany). Specialist contractors for disposal should remove all waste generated in clinics as appropriate and to be agreed. It i s necessary to provide a fully equipped lockable waste disposal store in the clinics for full control o f the medical waste waiting for off site transportation. A universal biological hazard symbol shouldbe posted on the door o f the store. Inorder to ensure the safe and efficient handling and disposal of waste generated in the clinics it will be necessary to develop operational policies which are based upon the central MOHprinciple of strict segregation between medical (clinical waste and sharps) and domestic waste and appropriate disposal of cytotoxic waste (ifany). Inorder to becompliant with emerging guidelines andpromote anenvironmentally conscious approach to waste management, operational policies should also be based on the segregation o f domestic waste into organic, non-organic andrecyclable. Waste generatedinthe clinics shouldbe segregatedas follows: 0 Clinicalwaste Yellow bags; - 0 Sharps - Special puncture-resistant containers; and 0 Domestic waste (non-organic) - Black bags; and stored in the waste disposal store awaiting collectionby waste collection staff. The only organic waste generated in the clinics will be food waste and garden refuse which should be - composted in the demonstration garden for health nutrition education. The medical waste should be collectedby specialist contractors for treatment at central plants in each district (preferably at the central hospitals). Since landfill operations may cause loss o f containment integrity and dispersal o f infectious waste it is recommended that all infectious waste be treated prior to disposal. Medical waste management standardsrecommend: 0 Establishingstandard operating procedures for eachprocess used for treating infectious waste; 0 Monitoringof all treatment processesto assure efficient and effective treatment; and 0 Use o f biological indicators to monitor treatment (other indicatorsmay be used provided that their effectiveness has been successively demonstrated). Recommended techniques for treatment o f infectious waste are steam sterilization, incineration, microwave or ultraviolet heating systems, ionizing radiation or chemical treatment. The choice of technique depends on which category o f infectious waste to be treated. Infectious waste which have been treated i s no longer hazardous and may be mixed with and disposed o f as ordinary solid waste, provided the waste does not pose other hazardsthat are subject to national regulations. 93 EMPCost EstimateandTime Schedule The cost o f the EMP implementation i s covered in the project components as an integrated part o f the capacity building and training, project preparation, design and construction supervision. The cost of respective staff is included in the Project Management Component. The training o f staff and the preparation of procedures and standardized appraisal formats for the site-specific environmental screening and review process will be included inthe PIU OperationManual. The site-specific screening and review activities would follow the project cycles o fthe micro-projects and pilot hospital restructuringprograms. Supervision The Bank, the Ministry o f Nature Protection, MOH and the Ministryo f Culture (MOC) would supervise the environmental issues including mitigation measures periodically. Progress in implementation of mitigation measures will be included inregular Bank supervision reports including the Mid-Term Review and the Implementation Completion Report. 94 Annex 11: ProjectPreparationand Supervision ARMENIA: Health SystemsModernizationProject Planned Actual PCNreview InitialPID to PIC May 20,2003 Initial ISDSto PIC May 30,2003 Appraisal April 19, 2004 Negotiations May 3,2004 BoardRVP approval June 15,2004 Planned date of effectiveness October 15, 2004 Planned date of mid-termreview Planned closing date June 30,2009 Keyinstitutionsresponsible for preparation o fthe project: Ministry o fHealth, Armenia, Bank staff and consultants who worked on the project included: Name Title Unit Toomas Palu Task Team Leader ECSHD MonikaHuppi Senior Human Development Economist ECSHD SilviuRadulescu Senior Health Specialist ECSHD Susana Hayrapetyan Senior Health Specialist ECSHD Tamar Gotsadze Projects Officer ECSHD Edmundo Murrugarra Senior Economist ECSHD April Harding Senior Economist (Health) HDHNE Daniel Miller Health Specialist HDHNE Nightingale Rukuba-Ngaiza Senior Counsel LEGEC Andrina Ambrose-Gardiner Senior Disbursement Officer LOAGl Alexander Astvatsatryan Procurement Officer ECSPS Arman Vatyan FinancialManagement Specialist ECSPS Anna Goodman ProgramAssistant ECSHD Bank funds expendedto date onproject preparation: 1. Bankresources: US$222,953.60 2. Trust funds: 3. Total: US$222,953.60 EstimatedApproval and Supervision costs: 1. Remaining costs to approval: US$50,000 2. Estimatedannual supervision cost: US$85,000 95 Annex 12: Documentsinthe ProjectFile ARMENIA: HealthSystemsModernizationProject Government o f Armenia, 2003. Poverty Reduction Strategy Paper. Yerevan Government o f Armenia, 2001-2002. Evaluation of Optimization of Armenia Health Care System. Yerevan World Bank, April 25, 2001. Memorandum of the President of the International Development Association to the Executive Directors on a Country Assistance Strategy of the World Bank for the Republic of Armenia. Washington, D.C. World Bank, 2002. Health Care During Transition and Health Systems Reform: Evidence from the Poorest CIS Countries. Paper for the CIS-7 Conference. Washington, D.C. World Bank, 2003. Health Financing and Primary Health Care Development Project Evaluation. Washington, D.C. Government o f Armenia, 2003. Optimization o f Health Care System of the Republic o f Armenia: Beneficiary Assessment. Yerevan. National Statistical Service (Yerevan, Armenia), Ministry of Health (Armenia) and ORC Macro (USA) 2001. Armenia: Demographic and Health Survey (DHS) 2000. UNICEF, 2001; Armenia DHS 2000; National Statistical Service, Ministryo f Health, ORC Macro, 2001. Millennium Development Goals. Armenia. Status of implementation, Yerevan, UNICEF. World Bank, 2003. Impact of Fee-Waiver Programs on Health Utilization in Armenia. Policy Research WorkingPaper 2952. Washington, D.C. World Bank, Helping Governments Keep Their Promises: Making ministers and Governments More Reliable Through Improved Policy Management. Draft paper to be published in the Bank South Asia Discussion Series. Government o f Armenia, 2003. Strategy on the Primary Health Care o f Population for 2003-2008. Government Decree. Yerevan. WHO, 2001. Health CareSystems in Transition.Armenia. Consultant report, 2004. Preparation of Policy Recommendations and Detailed Plans Supporting Improved Hospital Governanceand Hospital Mergers in Armenia. Consultant report, 2004. Review of healthJinancing andprovider payment systems in Armenia. 96 Annex 13: StatementofLoansand Credits ARMENIA: HealthSystemsModernizationProject Differencebetween expected and actual Original Amount in US$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO74503 2004 EDUC QUAL & RELEVANCE (APL #1) 0.00 19.00 0.00 0.00 0.00 19.61 0.00 0.00 PO57847 2002 NAT RES MGMT 0.00 8.30 0.00 0.00 0.00 9.22 0.10 0.00 PO55022 2002 IRRIGDEVT 0.00 24.86 0.00 0.00 0.00 22.20 4.59 0.00 PO44852 2002 ENT INCUBATOR LIL 0.00 5.00 0.00 0.00 0.00 4.75 3.01 0.00 PO76543 2002 FIEF LIL 0.00 1.00 0.00 0.00 0.00 0.84 0.20 0.00 PO69917 2002 NAT RES MGT (GEF) 0.00 0.00 0.00 5.12 0.00 5.92 0.11 0.00 PO57838 2001 JUDICIAL REFORM 0.00 11.40 0.00 0.00 0.00 9.21 -3.19 0.00 PO57952 2000 SIF 2 0.00 20.00 0.00 0.00 0.00 10.75 -12.15 0.00 PO44829 2000 TRANSPORT 0.00 40.00 0.00 0.00 0.00 14.18 -26.76 0.00 PO64879 1999 IRRIGDAM SAFETY 0.00 26.60 0.00 0.00 0.00 11.21 5.82 0.00 PO57560 1999 TITLE REG 0.00 8.00 0.00 0.00 0.00 0.63 0.62 0.00 PO08276 1999 ELEC TRANSM & DISTR 0.00 21.00 0.00 0.00 0.00 17.82 17.19 11.15 PO35805 1998 MUNDEVT 0.00 30.00 0.00 0.00 0.00 7.62 6.75 0.00 PO35806 1998 AGR REF SUPPORT 0.00 14.50 0.00 0.00 0.00 0.48 0.61 0.30 Total: 0.00 229.66 0.00 5.12 0.00 134.44 - 3.10 11.45 ARMENIA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ACBA Leasing 2.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 2000/04 Hotel Armenia 0.00 1.25 0.00 0.00 0.00 1.25 0.00 0.00 Totalportfolio: 2.00 1.52 0.00 0.00 0.00 1.52 0.00 0.00 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. 2002 Armenia SME Fund 0.00 0.00 0.00 0.00 Totalpendingcommitment: 0.00 0.00 0.00 0.00 97 Annex 14: Country at a Glance ARMENIA: Health SystemsModernization Project Europe & Lower- POVERTY and SOCIAL Central middle- Armenia Asia income Development diamond' 2002 Population,mid-year(millions) 3.1 476 2,411 Lifeexpectancy GNIper capita (Atlas method, US$) 790 2 3 0 1,390 GNI(Atlas method, US$ billions) 2.4 1030 3,352 T Average annual growth, 1996-02 Population (%) -11 0.1 10 Laborforce (%) 11 0.4 1.2 GNI Gross per __ , Dnmarv .~ M o s t recent estimate (latest year available, 1996-02) capita enrollment Poverty(%of population belownationalPOverfyline) 48 Urbanpopulation(%of totalpopulation) 67 63 49 Lifeexpectancyat birth (years) 75 69 69 Infant mortality (per iOOOlivebirfhs) 34 25 30 Childmalnutrition (%ofchildren under5) 3 11 ' Access to improvedwatersource Access to an improved water source (%ofpopulation) 91 81 Illiteracy(%ofpopulation age 159 1 3 13 Gross primaryenrollment (%of school-agepopulation) 99 102 in ----Armenia Male 99 103 in 1 - Lowermiddle-income group Female 99 101 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 11 2.1 2.4 Gross domestic investmentIGDP 16 8.6 8.8 Exports of goods and services/GDP .. 39.8 25.6 29.2 Trade Gross domestic savings/GDP .. -8.6 -17 3.2 Gross nationalsavings/GDP 9.5 14.2 Currentaccount balance/GDP -9.5 -6.8 Domestic Interestpayments/GDP 0.8 10 savings Investment Total debtlGDP 46.7 48.5 Total debt serviceiemorts 7.4 9.0 Present valueof debt/GDP 30.9 Present value of debt/exports 88.8 indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannualgrowth) GDP .. 5.4 9.6 P.9 6.3 -A nnenia GDP percapita .. 6.8 10.4 13.5 -0.7 Lower-middle-incomegroup ~ STRUCTURE o f the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP ( O h ) (%ofGDP) Agriculture 310 27.7 25.9 30 - Industry .... 39.4 34.2 33.2 20 - Manufacturing .. 33.1 22.4 216 10 Services .. 29.6 38.1 40.9 - 0 Private consumption .. 1013 910 86.3 97 98 99 00 01 02 Generalgovernment consumption .. 8.5 0.7 0.5 Imports of goods and sewices .. 613 45.9 45.8 -GDI -GDP 1982-92 1992-02 2001 2002 Growth of exports and imports (X) - (average annualgrowth) I Agriculture .. 2.7 116 4A 30 - Industry .. 4.2 6.8 24.2 Manufacturing .. 3.7 3.8 YI.2 Services .. 4.4 9.3 9.7 Private consumption .. 3.3 15.2 -7.9 Generalgovernment consumption .. -0.3 3.3 8.6 -10 w 01 02 Gross domestic investment .. 7.7 24.8 77.7 Imports of goods and services .. -2.9 2.1 8.2 98 Armenia ~~ PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 - Inflation Domestic prices ( O h ) I (%change) Consumer prices 726.7 3.1 11 ImplicitGDP deflator 568.8 4.0 2.3 Government finance (%of GDP,includes current grants) Current revenue 4.0 6.3 6.7 Current budget balance -7.7 0.3 0.5 Overallsurplus/deficit -7.7 -4.3 -2.6 TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 220 342 507 1250 - Gold,jewelry,and other precious stones P 3 259 Machinewandmechanical equipment 28 21 ,000 1 Manufactures 89 Total imports (cif) 334 877 991 Food 211 200 Fueland energy 60 187 Capital goods 62 Export price index(895=t70) 96 97 98 99 00 01 02 Import price index(895-r)O) I IExports 3 Inports Terms of trade (895=t70) BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balance t o GDP (%) Exports of goods and services 230 540 700 Imports of goods andservices 364 978 Ill7 Resourcebalance -u5 -438 -4l7 Net income -39 64 68 Net current transfers 174 169 Current account balance -201 -60 Financingitems (net) 2l7 234 Changesinnet reserves -16 -73 1-25 - Memo: Reserves includinggold (US$ millions) 334 360 Conversion rate (DEC,local/US$) 0.3 555.1 573.4 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.; Total debt outstandinganddisbursed 989 1119 IBRD 7 8 G14 IDA 428 530 I F 3 2 A 8 Total debt service 55 74 IBRD 1 1 IDA 3 4 Compositionof net resourceflows Official grants 42 0 Official creditors 59 63 Private creditors 0 -4 Foreign direct investment 70 0 Portfolio equity 0 0 c 195 World Bank program Commitments 75 9 Disbursements 55 66 l A IBRD ' E- Bilateral B IDA -- D -Other rmltilateral F Private - Principal repayments 0 0 C-IMF G- Short-ter 99