The World Bank Romania Health Program for Results (P169927) DOCUMENT OF THE WORLD BANK FOR OFFICIAL USE ONLY Romania: Health Program-for-Results (P169927) Technical Assessment Report Page 1 of 140 The World Bank Romania Health Program for Results (P169927) JUNE 27, 2019 TABLE OF CONTENTS TABLE OF CONTENTS..................................................................................................................................... 2 ABBREVIATIONS AND ACRONYMS ................................................................................................................ 3 COUNTRY CONTEXT ...................................................................................................................................... 4 SECTORAL AND INSTITUTIONAL CONTEXT.................................................................................................... 7 GOVERNMENT PROGRAM .......................................................................................................................... 11 PROGRAM-FOR-RESULTS SCOPE................................................................................................................. 12 STRATEGIC RELEVANCE AND TECHNICAL SOUNDNESS .............................................................................. 16 IMPLEMENTATION AND INSTITUTIONAL ARRANGEMENTS ....................................................................... 21 MONITORING AND EVALUATION FRAMEWORK ......................................................................................... 23 PROGRAM TECHNICAL RISKS AND MITIGATION STRATEGIES .................................................................... 24 PROGRAM EXPENDITURE FRAMEWORK..................................................................................................... 26 ECONOMIC AND FINANCIAL ANALYSIS ....................................................................................................... 33 Page 2 of 140 The World Bank Romania Health Program for Results (P169927) ABBREVIATIONS AND ACRONYMS BCR Benefit Cost Ratio DHIH District Health Insurance House DLI Disbursement-linked Indicator DPHA District Public Health Authority EC European Commission HER Electronic Health Records EU European Union GDP Gross Domestic Product GNI Gross National Income GO General Objective HCOP Human Capital Operational Program HTA Health Technology Assessment IRR Internal Rate of Return LPAA Local Public Administration Authority MEA Managed Entry Agreements MoH Ministry of Health MoI Ministry of Interior MoPF Ministry of Public Finance MTEF Medium-Term Expenditure Framework NAMMD National Agency for Medicines and Medical Devices NHIF National Health Insurance Fund NHIH National Health Insurance House NIPH National Institute for Public Health NCD Non-Communicable Disease NOCP National Office of the Centralized Procurement NPV Net Present Value OOP Out-of-pocket PHC Primary Health Care SA Strategic Area SCD Systematic Country Diagnostic SIUI System of Integrated Unique Information SO Strategic Objective WBG World Bank Group Page 3 of 140 The World Bank Romania Health Program for Results (P169927) COUNTRY CONTEXT 1. Romania is an upper-middle income country with a gross national income (GNI) per capita of USD 9,970 and a population of approximately 19.7 million in 2017. The population has been declining at an average annual rate of 0.6 percent since 1990 due to low fertility, high premature mortality, and high levels of migration. These demographic changes have resulted in a relatively older population. The old-age dependency ratio – or the number of people aged 65 and over as a share of the working age population – is 27 percent. 2. Following parliamentary elections in December 2016, Romania has been governed by a coalition. The governing coalition consists of the Social Democratic Party and the Liberal-Democratic Alliance. In January 2018, the coalition appointed a Cabinet led by Prime Minister Viorica Dăncilă, the first woman to lead the Romanian Government. The Government’s priorities for 2017 –2020 include investments in infrastructure, health care, education, agriculture, job creation, and small and medium enterprise development, and tax and pension reforms. There has been a high turnover of ministers in the first two years of the coalition – three prime ministers and over 70 ministers have taken office since the December 2016 elections – which has affected the predictability of policy- making and the investment climate. 3. Romania’s membership to the European Union (EU) has triggered a positive social and economic transformation in the country. Since Romania joined the EU in 2007, the state has benefitted from the free movement of capital and labor and access to grants associated with membership. Entry into the EU has also enabled modernization linked to economic markets and institutions in the EU. As a result, the EU has become an anchor for Romania’s prosperity and has spurred the process of income convergence with the other members. Since 2007, the country’s gross domestic product (GDP) per capita at purchasing power standard increased from 30 percent of the EU28 average in 1995 to 61 percent in 2017.1 Over 70 percent of Romanian exports go to the EU, which is also the primary source of investment into the country. 4. While Romania enjoys high rates of economic growth, macroeconomic imbalances are widening. Romania’s economy grew by 7 percent in 2017 and 4.1 percent in 2018, driven by consumption, investment and exports. The information and communication technology sectors are among the most dynamic in Europe, but foreign direct investment inflows of around 2 percent of GDP per year remain below potential. External migration has triggered increased labor shortages for both skilled and unskilled jobs. A series of pro-cyclical fiscal measures were undertaken in 2017, consisting mainly of tax cuts and increases in pensions and public sector wages. These measures boosted private consumption, leading to a peak in inflation in May 2018, at 5.4 percent, and the widening of the current account deficit, which reached 4.7 percent of GDP in 2018. Recurrent public spending 1EU15 are the 15-member countries in the EU prior to the accession of ten candidate countries on May 1, 2004; the EU13 are the countries that have acceded to the EU since 2004; and the EU28 are all member states of the EU. Page 4 of 140 The World Bank Romania Health Program for Results (P169927) expanded by 16.5 percent in 2018 but the fiscal deficit was contained at 2.9 percent of GDP at the expense of the investment budget. Public debt, at 42.1 percent of GDP as of November 2018, remains one of the lowest in the EU. 2 5. The high rates of economic growth have been associated with poverty reduction. Accompanying the robust economic growth and labor market improvements, the poverty rate declined to 22.3 percent in 2018, from 25.6 percent in 2015, after peaking at nearly 32 percent in 2012.3 The incomes of the bottom 40 of the population were boosted by employment gains in sectors with a large share of low-skilled workers. The impact has been stronger for those in the bottom 80 percent of the income distribution, who have seen an increasing share of the total income over this period. This has contributed to a reduction in income inequality, reversing the rise in the Gini index seen between 2010 and 2016. Since 2014, poverty has declined in both rural and urban areas, but by 2016 poverty rates in rural areas remained six times higher than in cities and just over twice as high as in towns and suburbs. 6. Romania has also made substantial progress in building human capital over the last two decades, but challenges remain. Between 1990 and 2016, life expectancy increased from 69.7 to 75.0 years, while under-five mortality declined from 31.1 to 8.5 deaths per 1,000 live births. Expected years of schooling were 12.2 years in 2017. However, after adjusting schooling for quality, the learning- adjusted years of schooling falls to 8.8 years. This combination of shortfalls from complete education and full health translate into Romania’s relatively low human capital index of 0.60. This value is significantly below the predicted value for its income level and puts Romania in the 67th place out of 157 countries surveyed. A human capital index of 0.60 indicates that a child born in Romania today will only be 60 percent as productive when the child grows up as she could be if she enjoyed complete education and full health. 7. There are large spatial disparities in socioeconomic inclusion, presenting a significant development challenge. The incomplete structural transformation in Romania is associated with an uneven spatial distribution of opportunities – 45 percent of the population still resides in rural areas, where poverty and mortality rates are substantially higher. Disparities in living standards between urban and rural areas are striking: the urban-rural gap in mean equivalized net income is the second- highest in the EU, with mean urban income almost 50 percent higher than mean rural income. Poverty rates also vary significantly across regions, with poverty in some counties in the North-East region being more than ten times higher than that of Bucharest (Figure 1). Poorer counties suffer overlapping vulnerabilities – with higher rates of mortality and lower rates of schooling. 8. This duality of falling poverty rates and persistence of socioeconomic disparities is a manifestation of unequal opportunities and access to markets in Romania that have no parallel in any other EU country. Differences in human capital endowments and various factors that influence the returns to endowments combine to shape social and regional disparities. Hitherto, fiscal policies have failed to counter high levels of inequality. To address the consequences of a shrinking and aging population and boost socioeconomic inclusion, Romania must continue to foster growth while enhancing equality of opportunities between groups and across regions. Therefore, the Government of 2 Ministry of Public Finance. 3 Using the USD 5.50/day 2011 purchasing power parity poverty line. Page 5 of 140 The World Bank Romania Health Program for Results (P169927) Romania must foster broad-based improvements in living standards and enable those at the bottom to contribute more actively to economic growth, triggering a virtuous cycle of inclusive growth and development. 9. The persistence of unequal opportunities and access to markets that produce disparities in socioeconomic outcomes and the accumulation of human capital is institutional failures, including weak governance. These disparities reinforce the notion of two Romania’s - one urban, dynamic, healthy, skilled and integrated with the EU; the other rural, poor, less healthy and skilled, and isolated from economic markets. While de jure Romania has adequate administrative structures in place to ensure access to services and opportunities, implementation of key governance functions and legislation reinforces existing inequalities. Political instability results in limited continuity in the implementation of policies to promote social inclusion, while weak coordination between public institutions reduces the efficiency of public financing and prevents multisectoral action to address the overlapping causes of disadvantage faced by vulnerable groups. Underfinancing of social sectors, such as health and education, also reduces access and quality of social services, preventing Romania from achieving its full human capital potential. Figure 1: The spatial distribution of poverty in Romania Source: Romania SCD based on World Bank (2016). 10. In recognition of the need to reduce disparities in access to opportunities in Romania, the Government has developed the 2015-2020 Strategy on Social Inclusion and Poverty Reduction. In the strategy, vulnerable groups are identified based on their experience of poverty and lack of access to social services. These groups require targeted and integrated interventions to address the barriers to their social and economic participation. The main categories of vulnerable groups identified in the Government’s strategy are poor people, children, youth deprived of parental care and support, lone or dependent elderly, Roma, persons with disabilities, people living in marginalized communities, and other vulnerable groups.4 In 2013, vulnerable groups in Romania included an estimated 1.85 million 4This category includes persons suffering from addiction, persons deprived of freedom or on probation, homeless people, victims of domestic violence, victims of human trafficking, refugees, and immigrants. Page 6 of 140 The World Bank Romania Health Program for Results (P169927) Roma, 1.4 million poor children aged between 0 and 17 years, over 725,000 people aged above 80 years, 687,000 children and adults with disabilities living in households, 16,800 children and adults with disabilities living in institutions, 62,000 children living in placement centers or family-type care, and 1,500 children abandoned in medical units. SECTORAL AND INSTITUTIONAL CONTEXT 11. Health outcomes have improved in Romania over the past two decades but remain below the EU averages with significant geographic disparities. Between 2004 and 2014, life expectancy at birth increased from 71 to 75 years. Healthy life expectancies in Romania at 57.9 years for women and 58.6 years for men are lower than the EU averages of 61.5 years for women and 61.4 years for men, respectively.5 The national statistics hide inequalities within the country. The mortality rate in rural areas is 15.4 deaths per 1,000 people compared to 11.7 deaths per 1,000 people in urban areas.6 Cardiovascular diseases, Alzheimer’s disease, and cancers are the leading causes of death for both genders.7 In addition to the high burden of chronic diseases, akin to other countries in the EU, there has been a resurgence of vaccine-preventable illnesses in Romania. In 2018, Romania reported 1346 cases of measles, accounting for 10 percent of all cases in the EU. 8 The rate of amenable mortality in Romania is the highest in the EU for women and the third highest for men, which indicates that there are opportunities to improve health through essential services and public health interventions (Figure 2). Figure 2: Amenable mortality rates in EU countries, 2015 Source: Eurostat. 5 European Commission. Civil society monitoring report on implementation of the national Roma integration strategy in Romania. 2019. 6 National Institute of Statistics. Romania. 2015. 7 Institute of Health Metrics and Evaluation. Romania. 2017. 8 European Centre for Disease Prevention and Control. Monthly measles and rubella monitoring report, January 2019. Stockholm: ECDC; 2019 Page 7 of 140 The World Bank Romania Health Program for Results (P169927) 12. The coverage of essential services provided through primary health care (PHC) is considerably lower than coverage levels in countries with stronger health systems, preventing an effective response to population health challenges. The proportion of women aged 20 to 69 years who are screened for cervical cancer within the recommended three-year interval is 25 percent in Romania, relative to an average of 60 percent in the EU.9 In 2017, while 94 percent of children across the EU received at least one dose of the measles vaccine before age one, in Romania the vaccination rate was 87 percent, and coverage had declined from 97 percent in 2000.10 Between 2004 and 2015, the proportion of pregnant women aged 15 to 49 years who received at least one antenatal care consultation from a skilled health worker also fell from 94 to 76 percent.11 In 2013, the number of PHC contacts per person per year in Romania was 4.8, which was lower than the EU average of 6.9.12 While levels of health care use are suboptimal overall, among vulnerable groups, health care coverage is even lower. For example, in 2015, the proportion of Roma pregnant women who received antenatal care at least once from a skilled health worker was 14 percent, having fallen from 30 percent in 2000.13 To increase the coverage of essential services, Romania must identify and address barriers to health care access, particularly among vulnerable groups. 13. The underutilization of PHC is a result of demand- and supply-side barriers to health care access. On the demand side, lack of insurance presents financial barriers to the use of essential care. Almost 3 million Romanians or approximately 14 percent of the population do not have health insurance. Notably excluded are agricultural workers, the Roma who lack identity cards, the informally employed, and the unemployed or self-employed who are not registered for unemployment or social security benefits. Among vulnerable groups, the rates of lack of insurance coverage are significantly higher. Only 50 percent of Roma are covered by health insurance.14 The uninsured tend to use emergency care for non-urgent and non-emergent conditions, increasing overall health care costs to the system. On the supply side, there are urban-rural disparities in the supply of PHC. A total of 211 local authorities, over 90 percent of which are rural, lack a family physician or primary care doctor. An additional 226 local authorities are predominantly inhabited by vulnerable groups that face sociocultural barriers to accessing health services and navigating service delivery including discrimination. For example, up to 9 percent of Roma are not registered with a family physician, which is double the rate of non-registration in the general population. 15 In combination, these 439 local authorities, which face supply-side barriers to PHC access, are considered underserved. 14. Demand- and supply-side barriers to access to health care in Romania persist in a fiscal environment constrained by low health care spending. Over 80 percent of the Romanian health sector is financed through public sources, including the National Health Insurance Fund (NHIF) (67 percent), the Ministry of Health (MoH) budget (9.1 percent), and local authority budgets (3.1 percent). Up to 75 percent of 9 OECD/EU (2018), Health at a Glance: Europe 2018: State of Health in the EU Cycle. 10 OECD/EU (2018), Health at a Glance: Europe 2018: State of Health in the EU Cycle. 11 National Institute of Statistics. 12 World Health Organization. European Health Information Gateway. January 2018. 13 European Commission. Civil society monitoring report on implementation of the national Roma integration strategy in Romania. 2019. 14 Romania Systematic Country Diagnostic Background Note: Roma Inclusion. June 2018. 15 European Commission. Roma Health Report: Report on the health status of the Roma population in the EU and monitoring data collection in Roma health in the Member States. August 2014. Page 8 of 140 The World Bank Romania Health Program for Results (P169927) the NHIF budget is derived from contributions from the insured population, amounting to USD 5.1 Billion in 2016. Nonetheless, Romania allocates less than 5 percent of GDP to health care compared to an average of about 10 percent in the rest of the EU. In addition, while government health expenditures grew between 2013 and 2017 in Romania, per capita spending, at EUR 983, was far below the EU28 average of EUR 2,773 in 2017, and five times less than the weighted health spending per capita in the EU15 countries.16 As a result, there are high levels of formal and informal out-of- pocket (OOP) expenditures on health care. Up to 19 percent of health care expenditure is formally paid out-of-pocket to private providers and for co-payments for drugs and other services.17 In 2017, nearly one in five Romanians reported informal payments for health services, the highest in the EU, implying that OOP expenditure may be underestimated.18 The resulting financial barriers to health care access disproportionately affect the poor: 13.2 percent of the adult population in the bottom income quintile reported having unmet health care needs, compared with 4.8 percent in the top quintile. 15. Fiscal space for health in Romania is further constrained by inefficiencies introduced by a hospital- centric system and lack of strategic use of information in the purchasing of health services. Service delivery is predominantly hospital-centric. Primary care physicians have a gatekeeping role in Romania but bypassing to emergency services or specialists occurs even for non-urgent and non- emergent conditions. Thus, 55 percent of annual expenditure is on hospital care in Romania, relative to 40 percent in the EU. In 2018, at least USD 400 million of hospital spending could have been avoided through effective primary care. There is also a lack of strategic use of information in the health sector to purchase health services efficiently. The data system of the National Health Insurance House (NHIH), the dominant fund holder in the health sector, is disconnected from the MoH, limiting expenditure reviews across databases, to prevent provision of unnecessary care and intentional and unintentional errors in claims. Furthermore, fund flows to providers from NHIH are not linked to health system goals of quality or efficiency. 16. Ineffective pharmaceutical sector policy drives overspending on medicines, medical devices and supplies, contributing to fiscal inefficiency. Between 2006 and 2017, medicines and medical devices accounted for 37.5 percent of health spending, which is more than double the EU average. This inefficiency is in part a function of decentralized procurement of drugs, supplies, and devices. Over 350 public hospitals individually procure almost all medicines, medical supplies, and medical devices, with substantial differences in the unit prices of identical goods among hospitals. In 2017, EUR $1.3 billion expenditure on medical products could benefit from centralized procurement. Romania has introduced pharmaceutical policies proven to be effective at cost containment including price referencing, health technology assessment (HTA), clawback taxes, and managed entry agreements (MEA), but their design and implementation constrain efficiency gains. Price referencing is not regularly implemented; HTA assessments do not account for cost-effectiveness in the Romanian context; claw back taxes are uniformly applied to generic and non-generic drugs with withdrawals of cheap generics due to unprofitability; and MEAs to ensure access to innovative medicines while 16 EU15 are the 15-member countries in the EU prior to the accession of ten candidate countries on May 1, 2004; the EU13 are the countries that have acceded to the EU since 2004; and the EU28 are all member states of the EU. 17 OOP spending amounted to an estimated USD 1.9 Billion in 2016; cost sharing is applied for pharmaceuticals received in ambulatory care and hospital admissions. 18 European Commission. Special Eurobarometer 470: Corruption. 2017. Page 9 of 140 The World Bank Romania Health Program for Results (P169927) containing costs are underutilized – the number of medicines under MEA, approximately 30 in 2018, is much lower than in other countries in the region. 17. Akin to the broader challenge of socioeconomic inclusion in Romania, institutional factors underlie the barriers to access and drivers of inefficiency in the health system. The institutional barriers to access to health services and efficiency within the health sector include fragmentation in institutional coordination, misalignment of incentives in public financing relative to the goals of access and efficiency, and limited implementation capacity in key institutions. 18. Poor coordination among multiple agencies hinders the design and implementation of policies to improve access to care and efficiency in health spending. At the national level, the MoH is responsible for defining the general objectives and regulatory framework of the health system, while the NHIH manages the NHIF. The MoH is responsible for preventive programs and the NHIH contracts providers for curative services. However, there is little coordination between the two agencies. The Ministry of Public Finance (MoPF) oversees the management of health care financing. Local authorities are responsible for PHC facility operating spaces, funding operating costs, and supplementing personnel costs for community health care, but are often excluded from national health strategy. Coordination challenges at the institutional level are also reflected at the service delivery level. The implementation of community health care requires coordination between the MoH to pay personnel; the local authorities to employ the personnel and provide for operating costs; district public health authorities (DPHAs) to supervise service delivery; and family physicians who ensure continuity of care between PHC and community health care. While in principle, community health nurses and Roma health mediators, who provide community care, should coordinate with family physicians, only 20 percent of family physicians report regular meetings with community health personnel. 19 There are no official protocols for community health care, for coordination with family physicians, or for supervision by DPHAs. 19. The public financing system creates incentives that are inconsistent with reducing disparities in access to care and inefficiencies. The allocation of the NHIF budget to family medicine has remained flat at six percent since 2012. While survey evidence suggests PHC facilities are underequipped for service delivery, family physicians have little financial incentive to improve service conditions as facility infrastructure is owned by the local authority. As 96 percent of PHC practices are individually and privately owned, traditional means of accessing finance through the public sector and commercial financial institutions are infeasible. Thus, the underfunding of PHC perpetuates gaps in the supply of PHC. The supply of effective PHC is further limited by incentives presented by payments to providers. The framework contract between the NHIH and providers does not allow for performance-based payments for quality or service coverage targets; imposes caps on fee-for-service reimbursements that lead to undersupply of preventive and case management services as well as under-reporting of services above the cap; only adjusts capitation payments for age creating incentive for risk selection; and restricts PHC providers to a narrow scope of services that drives the high use of emergency and other expensive hospital care. Financial flows in the health system also perpetuate inefficiencies. For example, annual transfers from the state budget to the NHIH are targeted at closing deficits in the NHIF, creating disincentive for NHIH to operate inefficiently. Within the NHIF, contracting mechanisms 19 WHO. Evaluation of the structure and provision of primary care in Romania: a survey-based project. 2012. Page 10 of 140 The World Bank Romania Health Program for Results (P169927) perpetuate fragmentation in service delivery and miss the opportunity to stimulate coordination across the continuum of care. 20 20. Limitations in the capacity and mandate of key institutions in the health sector limits the implementation of reforms. These limitations stem from technical gaps and regulatory provisions that restrict policy implementation. The National Authority for Quality Management in Health Care, established in 2015, lacks the technical capacity to design a methodology to systematically assess service delivery. The absence of systematic assessments of health care quality in Romania constrains efforts aimed at improving the supply of effective PHC. The National Agency for Medicines and Medical Devices relies on an HTA methodology that does not consider the cost-effectiveness of medicines in the Romanian context. The gaps in the existing HTA methodology in turn constrains efforts to improve fiscal efficiency while ensuring access to medicines. Although a centralized procurement agency – the National Office for Centralized Procurement (NOCP) – was recently established, it does not have the legal mandate to procure goods and services for the health sector, resulting in inefficiencies from decentralized hospital procurement of medicines and medical supplies. Finally, the Community Health Unit within the Ministry of Health that is tasked with the development of community health program has only one staff, while NOCP has 10 of the 43 positions filled. The lack of sufficiently skilled technical and managerial staff in these cases has limited efforts to close disparities in access to essential services in underserved populations and to scale up centralized procurement in the Romanian public sector. 21. Addressing these institutional challenges are a necessary condition towards ensuring access to PHC and fiscal efficiency in the health sector. The National Health Strategy 2014-2020 aims to restructure the inefficient pyramid of health services, currently focused on hospital care, towards a system that leverages community and primary health care to ensure a wider coverage of the population health needs. In addition, the Strategy identifies cross-cutting solutions that would improve the sustainability and predictability of fund flows in the health system to ensure financial protection and access to care. However, the vision of improved access to care and efficiency of the health sector is yet to materialize, owing to persistent institutional challenges of poor coordination, misaligned incentives, and limited capacity for implementation. Effective strategies to address service delivery challenges in the Romanian health sector must tackle these institutional challenges head on. GOVERNMENT PROGRAM 22. The EU's cohesion policy aims to strengthen economic and social cohesion by reducing disparities in the level of development between regions. The policy focuses on key areas which will help the EU face up to the challenges of the 21st century and remain globally competitive. As the EU’s main investment policy, it defines investment priorities of EU funds. About one-third of the EU budget is allocated for implementation of the cohesion policy. The cohesion policy framework is established for a period of seven years. The current period covers the years 2014-2020 and the next period for years 2021-2027. Promoting equal access to health care for a more inclusive Europe has consistently been the priority of EU’s cohesion policy. 20The NHIH contracts providers separately for each type of service according to the budget classification. Thus, a hospital signs several contracts with the NHIH, instead of just one, as do family physicians and specialist physicians. Page 11 of 140 The World Bank Romania Health Program for Results (P169927) 23. In alignment with EU’s cohesion policy’s implementation in the health sector of Romania, National Health Strategy is developed in two phases: 2014-2020 and 2021-2027. The National Health Strategy (NHS) promotes social inclusion and introduces discipline in managing public financing, as health services are a critical factor in equalizing opportunities and the health sector budget accounts for a non-trivial 10 percent of the total Government budget. 24. Overall, the NHS has identified eight main areas. Seven areas focus on ensuring access to specific types of care: public health, community health care, primary health care, specialist care, inpatient care, emergency care and palliative care. The eighth area focuses on cross-cutting measures for health system strengthening, including implementation of health financing, human resource, service quality improvement and pharmaceutical policies, use of modern information technology in health sector, and institutional strengthening (Table 2). Table 1. Care-specific areas and cross-cutting measures in the National Health Strategy Areas 1-7 (Care-specific). Ensuring access to: 1. Public 2.Community 3.Primary 4.Specialist 5.Inpatient 6.Emergency 7.Palliative health health care health care care care care care Area 8. Cross-cutting measures for health system strengthening: • Implementation of health financing policies for better efficiency and financial sustainability • Accelerating the use of modern information technology or eHealth • Implementation of health human resource policies • Development and implementation of evidence-based pharmaceutical policies • Improvement of service quality • Building administrative capacities PROGRAM-FOR-RESULTS SCOPE 25. The boundary for the PforR within the NHS has several dimensions. First, it will focus on community health care and PHC among the seven care specific areas, and all the cross-cutting measures to the extent that they are related to community health care and PHC, as well as efficiency improvement of health expenditure (areas 2, 3 and 8 in Table 1). Focusing the Program resources on these areas will contribute to achieving universal coverage of PHC and increasing the efficiency of public financing in the health system. Second, the Program will have national coverage, but its most intense efforts to expand PHC coverage will be in reducing the barriers to health care use by underserved populations. 26. Focusing on community health care and PHC is justified on several grounds. In countries that have high coverage of services and good health outcomes, PHC tends to have a central role, with comprehensive care for most conditions provided by the family physician. Strengthening PHC in Romania is a necessary condition for improving access to services and increasing the efficiency of the health system; PHC reaches the largest share of the population and can help shift patients out of hospitals for better efficiency in resource use. Community health nurses and Roma health mediators, who facilitate linkages between underserved populations and family physicians, are essential to Page 12 of 140 The World Bank Romania Health Program for Results (P169927) addressing physical and social barriers to access to care. While other types of care in the seven care- specific areas may contribute to health outcomes, access, and efficiency, they are covered by the ongoing Health Reform Project (Loan No. 8362-RO) that provide support to hospitals. 27. The cross-cutting areas of the Government program are included in the PfoR because they address critical drivers of inefficiency identified in the Public Expenditure Review. Therefore, the PfoR will support activities that improve the implementation of innovative pharmaceutical policies that have the potential to increase cost containment and the predictability of expenditures in the system. Likewise, the Program will support efforts to develop a health information system that facilitates collaboration across institutions and provides data on health expenditures to enable decision-makers to reduce intentional and unintentional inefficiencies in the health system. The PforR will not address the full array of issues identified under the NHS in these cross-cutting areas. For example, efforts to improve human resources for health in hospital service delivery, while important, are outside the Program focus on PHC and critical drivers of inefficiency. 28. The proposed Program scope is informed by the findings of analytical work and the experiences of previous engagements, and defined by the country’s demand and application of the CPF filters. Analytical work (e.g., the SCD and PER) show that Romania’s health sector, financed mostly by public funds, is underfunded and inefficient, and is not effectively delivering services for the poorest and most vulnerable peopple, including Roma. Furthermore, previous engagements have shown that sound technical solutions are often left not implemented or are unsustainable because of inherent institutional constraints. The Government requested the Bank’s support in expanding access to basic services for the entire population, particularly the uninsured and underserved, including Roma. As noted in Section I.C (Relationship to the CAS/CPF and Rationale for Use of Instrument), the proposed operation meets the core WBG engagement filter and two additional IBRD financing criteria. 29. The proposed Program focuses on three results areas in which the Government requested the Bank’s support and where the Bank’s engagment is likely to make a signficant impact. Results area 1: Improving PHC coverage for underserved populations 30. This results area aims to improve PHC coverage for underserved people by addressing the physical, financial, and social challenges they face. • To address physical challenges related to access to PHC, the Program will expand community health care and strengthen its collaboration with PHC. The National Health Strategy has identified community health care as a cost-effective means of providing access to essential services in rural areas and for underserved populations. The MoH will provide funding for local authorities to hire community health nurses and Roma health mediators, if required, for delivery of community health care. These community health care providers will conduct household visits to promote health and specific preventive interventions, develop resident rosters and identify those with high disease risks, promote the demand of health services when needed, and support community- based interventions. All these activities will promote early detection, improve treatment compliance, and increase health care use, thus leading to improvement in health outcomes. Page 13 of 140 The World Bank Romania Health Program for Results (P169927) • Guidelines will be developed to guide and standardize the daily work of community health workers (including both community health nurses and Roma health mediators). A template agreement is being developed for collaboration between public community health care and PHC providers who are private. The agreement will define specific steps for information exchange between community health care providers and PHC providers working in the same areas. Through such information exchange, community health care providers will inform family physicians about specific health situations of individuals included in their rosters, and support family physicians in reaching out patients that require follow up. Community health care providers will be trained to ensure their compliance with the protocols. To improve the governance of community health care and PHC, the MoH will strengthen the existing unit to ensure the strategic planning at the institutional level for primary and community health care services and to improve the supervision of implementation, in partnership with DPHAs. • To address social challenges faced by vulnerable groups, the targeted communities (including marginalized communities) will receive health education and support in navigating the health system, particularly PHC. As part of the communities, community health nurses and Roma health mediators will map out specific social challenges and help address them. As needed, primary care providers and community nurses in these communities will also be trained in working effectively with different cultures and ethnic minorities. • To address financial challenges to PHC, the Government recently announced an initiative to provide the basic package of PHC to the uninsured in Romania. This will entail amending the health law to extend this benefit to the uninsured. In addition, state budgets and the NHIH’s framework contract21 with family physicians will be revised to reflect the cost of providing this benefit. Furthermore, public campaigns will be conducted to make the population aware of the benefit to which they are entitled. Their awareness of the new benefit will be monitored, and grievance mechanisms will be strengthened to facilitate people’s access to PHC services. Results area 2: Rebalancing the hospital-centric system toward effective PHC 31. This results area aims to rebalance the hospital-centric system toward effective PHC by addressing the underlying institutional challenges: chronic underinvestment in PHC, the misalignment of incentives that is embedded in NHIH’s provider payment mechanisms, and regulatory restrictions on the scope of PHC services. The Government plans a set of initiatives to make PHC comprehensive, widely accessible, and effective. 32. One initiative will revise the package of services in PHC to expand the number of services, including prescriptions for exams and medications to control the most prevalent noncommunicable diseases (NCDs) and increase the supply of preventive services for adults and children such as regular check- ups. In consultation with physician associations, the MoH will modify clinical guidelines to expand the 21“Framework Contract� means the legal document, approved by the Borrower, defining the health service package and the terms and conditions of their provision, including PHC services, to be provided within the Borrower’s social health insurance system. Introduction of new groups of beneficiaries (e.g., basic package of PHC for the uninsured) will require change in the law. However, changes to the specific contents of services and specific parameters of provider payment mechanisms (e.g., fee level and caps on volume of claims reimbursed) can take place through its annual updating process. Framework contract is updated and signed annually. Page 14 of 140 The World Bank Romania Health Program for Results (P169927) scope of services in PHC to include initiation and coordination of care for some medical conditions such as diabetes mellitus, asthma, chronic obstructive pulmonary diseases, psychiatric conditions, and chronic pain, including prescription of related medication and the required diagnostic tests. The basic package of PHC will be updated to reflect these normative changes that will be available for both the insured and uninsured. 33. To increase the supply of PHC, the NHIH also aims to revise provider payment mechanisms, incentivizing family physicians to improve effectiveness of services. Specifically, NHIH will reimburse family physicians to provide services—for example, to enable them to initiate treatment of Diabetes Mellitus. It will also use a combination of mechanisms such as capitation (adjusted by age and gender), fee-for-service, and performance-based payment (payment made when pre-agreed performance criteria are achieved), and will adjust specific payment terms (e.g., rate of capitation, threshold for fee-for-service volume) to reflect global experiences and country context. With respect to performance-based payments, family physicians will be rewarded for attaining service coverage targets (e.g. vaccination rate of 90 percent for all children under-five on the list) and delivering effective care (e.g. bonuses for adherence to clinical guidelines for annual preventive checks for adults above 40 years). 34. Chronic underinvestment in PHC will be addressed through a two-pronged approach. First, the allocation of NHIH budget to PHC will be substantially increased during the next four years as the expanded scope of and access to PHC increase its use. This will greatly improve the funds inflow for family medicine practices. Second, a de minimis aid22 scheme will be established to provide grants to facilitate the establishment of family medicine practices in areas where they are not available. It will also provide interest-free loans for practices to improve the quality of care, such as acquiring necessary equipment, training, or transportation and conducting minor refurbishment. The de minimis aid scheme will be first piloted and then expanded to about 20 percent of family medicine practices. Results area 3: Improving health expenditure efficiency by addressing critical cost drivers 35. This results area aims to increase the efficiency of health expenditure by addressing critical cost drivers, including high spending on pharmaceuticals, devices and supplies and inefficient spending that can be detected through effective use of information. 36. To better control spending on pharmaceuticals and supplies, the Program will focus on more effective implementation of centralized procurement and pharmaceutical policies. This will entail refining the current policies (set out in Emergency Ordinance no. 71/2012, which notes that other European countries that implemented centralized procurement realized price reductions of 10-30 percent) and strengthening institutional capacity to implement them. Other proposed actions include modifying costing methodologies, setting health services prices by category of service providers, increasing the transparency of public spending using annual reports prepared by the NHIH and MoH, using risk- 22 de minimis aid means: “aid granted to a single undertaking over a given period of time that does not exceed a certain fixed amount� from public funds as defined by the Commission Regulation (EU) No. 1407/2013 of December 18, 2013. Page 15 of 140 The World Bank Romania Health Program for Results (P169927) sharing mechanisms and cost-volume regulations for all new high-cost drugs, and revising the positive drug lists to ensure cost-effectiveness. 37. Under the Program, improvements in health information management are envisioned to ensure standardization, and interoperability of the existing subsystems, to facilitate access to information and enable evidence-based decision-making, including commitment controls. The application of state-of-the-art data analytics will help identify and prevent inefficient spending in many areas—for example, unnecessary care (referrals, visits, laboratory tests, etc.), failure to adhere to best practices, duplication of services, non-optimized drug prescriptions (e.g., less use of generics than expected), non-optimal use of infrastructure and medical equipment, low workforce productivity, detectable high-cost centers (e.g., population with high number of readmissions, over-prescribing centers), errors (e.g., coding, claimed services not connectable to medical conditions), and frauds. STRATEGIC RELEVANCE AND TECHNICAL SOUNDNESS 38. The Program is aligned with recommendations from the European Council on structural and institutional reforms to promote responsible fiscal policy-making, social inclusion and population health. These recommendations focus on the need to address institutional barriers to universal health coverage, including overall low funding, inefficient use of health resources in the health sector and hospital-centric service delivery. 23 The Council also recommended a focus on responsible fiscal policy, promoting social inclusion, and strengthening of public procurement to promote efficiency. In keeping with this focus, the Government’s National Health Strategy (2014-2020) aims to address significant health system and institutional barriers to health care access and efficiency in the Romanian health sector overall. The Program interventions will alleviate financial barriers arising from exclusion from insurance coverage; reduce geographical and sociocultural barriers in access to PHC in underserved populations; address the chronic underinvestment in PHC quality and misalignment of provider incentives with quality and efficiency; eliminate barriers to institutional-level coordination required for improvement of PHC supply and quality; and address critical cost drivers in the system including inefficient pharmaceutical policies and lack of strategic use of health information for service purchasing and cost containment. 39. The Program objectives are also aligned with the World Bank’s twin goals of reducing poverty and boosting shared prosperity in Romania and globally. The Program will address key challenges to achieving the twin goals identified in the Systematic Country Diagnostic, including the functioning of public institutions and the quality of governance. The Program also contributes to the Country Partnership Framework FY18-FY23 goal of an inclusive Romania, through the implementation of interventions that reduce disparities in access to primary health care, with a priority focus on underserved areas. Achieving universal primary health coverage is in alignment with the first area of focus for Bank’s support under the CPF, “to ensure equal opportunities for all�, and its second objective, “to improve access to modern health care�, particularly for the poor and vulnerable. 23 European Commission. Council recommendation on the 2018 National Reform Programme of Romania and delivering a Council opinion on the 2018 Convergence Programme of Romania. 2018. Page 16 of 140 The World Bank Romania Health Program for Results (P169927) 40. Investing in PHC is a cost-effective means of boosting stocks of human capital, through evidence- based management of non-communicable diseases (NCDs) and the resulting improvements in labor productivity. A high burden of NCDs leads to premature death and loss of productivity from absenteeism and presenteeism. Increasing the supply and effectiveness of PHC, including in underserved areas that also bear a higher burden of NCDs, the operation will contribute towards reducing mortality and morbidity from chronic diseases. Reducing the burden of diseases will facilitate higher labor productivity for the working population and improved quality of life overall. 41. There is a clear justification for support from the World Bank to strengthen PHC and boost health system efficiency. Investing in PHC generates positive externalities, as a healthy and productive work force faciliates economic growth that benefits society in ways that are not captured by individiual transactions in the health sector. However, PHC is underfunded in Romania and resources are distributed inequitably, in favor of urban areas and high-income groups. Improvements in health system efficiency can further expand fiscal space for PHC. This provides a rationale for investments in strengthening PHC and boosting health system efficiency by the Government. However, persistent institutional challenges due to poor coordination, misaligned incentives, and limited capacity for implementation, have prevented prior investments from addressing service delivery challenges. The Bank is uniquely qualified to provide cross-sectoral support to improve PHC and efficiency by addressing key institutional barriers, drawing on expertise and global experience in health service delivery, IT, and governance. The proposed Program, which addresses critical institutional and health system drivers of disparities in health care access and fiscal inefficiency, will help Romania achieve a healthy and inclusive society. 42. Reviews of reform experiences in improving coverage of essential health services and efficiency of the health sector indicate a central role for strong public institutions in addressing service delivery challenges. The capacity to raise sufficient revenues is essential to the provision of a comprehensive package of services to the population, in health systems with underfunded primary care. Through active purchasing of services, using strong information systems, countries can implement measures to ensure providers act in the interests of the population, promoting access, quality, and efficiency. In addition, medical and financial audits, rewards for performance, and sanctions for fraud and errors, can promote accountability and improve efficiency. In addition, capacities for convening, negotiating, consensus-building, and interagency collaboration are needed for health sector decision-making, including harmonizing benefit packages, defining payment methods, and ensuring access to medicines and other health care. 43. Global experience on the importance of strong public institutions for universal health coverage is particularly salient in the Romanian context where the key institutional barriers to health care access and effficiency, including poor coordination, misaligned incentives, and low implementation capacity have stalled previous reforms.24 The programs in the 2011 and 2013 stand-by arrangements between the Government of Romania and the International Monetary Fund, included commitments to shift service delivery from hospitals to primary health care, allocate resources towards primary care, and monitor hospital budget execution. However, funding levels for primary care remained flat as the higher financial flows to family medicine were not tied to specific service delivery results; the 24Tangcharoensathien, Viroj, and David B. Evans. "Beyond clinical skills: key capacities needed for universal health coverage." (2013): 801-801A. Page 17 of 140 The World Bank Romania Health Program for Results (P169927) deficits due to lack of expenditure commitment controls persisted in the absence of health information systems that incentivize transparency and accountability; and the hospital-centric nature of health services remains given the misaligned incentives embedded in the framework contract and clinical guidelines. The Country Partnership Strategy for FY14-17 also included an objective of improved health service delivery, including the introduction of additional roles and payment methods for family physicians. However, the roles and payment of family physicians were not modified, in part due to poor coordination between the MoH, physician associations, and the NHIH. Finally, the second fiscal effectiveness and growth development policy loan included a prior action focused on implementing centralized procurement in the health sector. However, the newly-created NOCP lacked the mandate or technical capacity to undertake centralized procurement of medical products and the mechanisms for coordination between the NOCP, MoH, and other agencies for implementation were non-existent. As a result, there was limited introduction of centralized procurement through the MoH. Addressing critical institutional barriers is thus a necessary step towards increasing access to primary health care and improving health sector efficiency in Romania. 44. There is relatively strong evidence regarding the effectiveness of financial incentives in encouraging the establishment of family medicine practices and influencing the geographic distribution of family physicians. Bärnighausen et al. analyzed programmes that offered financial incentives, including loans, to health workers to set up primary care practices in Japan, Canada, and New Zealand.25 They found that these incentives also attracted a significant number of health workers to underserved areas. In Canada, an increase in reimbursements for general practitioners in rural and underserved areas and reduced reimbursements for areas with oversupply reduced geographical disparities in primary care provision. 26 In France, interest-free loans from local and national authorities were successful in encouraging the setup of practices in rural areas.27 Given the significant cost of refurbishing PHC practices in Romania, the introduction of a scheme that finances these costs – small facility repairs, equipment, and training – may facilitate the increase in supply of primary care, including in underserved areas. 45. Expanded access to insurance has been implemented in other contexts to eliminate financial barriers to health care use. A 2016 systematic review of the global literature on the association between financial coverage of health services and utilization, concluded that health insurance significantly increases utilization, and thus access to care.28 The only experimental evidence on the impacts of health insurance coverage have been conducted on populations in the United States. Findings from a randomized controlled trial indicate that access to insurance leads to substantial increases in the use of primary and preventive care, lower out-of-pocket medical expenditures, and better self-reported health.29 The same experiment also found a higher likelihood of early diagnosis 25Bärnighausen T & Bloom DE. Financial incentives for return of service in underserved areas: a systematic Review. BMC Health Services Research 2009, 9:86 (available via www.biomedcentral.com). 26 Wilson NW, Couper ID, De Vries E, Reid S, Fish T, Marais BJ. A critical review of interventions to redress the inequitable distribution of healthcare professionals to rural and remote areas. Rural and Remote Health 9: 1060. (Online), 2009. 27 Bruguière M-T. Rapport d’information, fait au nom de la délegation aux collectivités territoriales et à la décentralisation, sur les territoires et la santé. French Senate document nr. 600, 14 June 2011 28 Nosratnejad S, Shami E Health Insurance and The Utilization of Health Care: A Systematic Review. BMJ Open 2017; 7: bmjopen-2016-015415.70. doi: 10.1136/bmjopen-2016-015415.70 29 Finkelstein, Amy, et al. "The Oregon health insurance experiment: evidence from the first year. The Quarterly journal of economics 127.3 (2012): 1057-1106. Page 18 of 140 The World Bank Romania Health Program for Results (P169927) of and adherence to prescribed therapy for diabetes mellitus when service users were insured.30 While hospitalizations and the use of emergency care may also increase in the short term, strengthening emergency care triage systems and instituting PHC’s gatekeeping function can prevent this effect.31 The inclusion of the uninsured population of Romania in the basic package will increase PHC use while reducing expensive hospital care use, boosting health care access and making efficiency gains to the health system. 46. Payment mechanisms provoke realignments in service delivery by shaping the incentive structure for health care providers. Capitation payments create incentives to provide care more efficiently and contain costs. However, to function well, capitation payments must be adjusted for the expected health needs of patients to prevent risk selection. On the other hand, fee-for-service reimbursements encourage providers to increase the units of the rewarded services and may lead to unnecessary utilization and increase costs. Given the constraint placed on primary care delivery in Romania by the caps for fee-for-service reimbursements introduced to encourage cost containment, performance- based financing will be introduced. This model, which ties reimbursements to specific output and outcome targets rather than inputs, has proven successful in improving quality while containing costs in low-income countries (such as Rwanda and Uganda) as well as higher income settings (including Croatia, Estonia, and United Kingdom).32, 33, 34 47. Improving the supply of family physicians and the incentives for effective care in Romania must be accompanied by an expanded service scope. Comparative studies of primary care in Europe have concluded that stronger health systems in the region have a central role for primary care provision. In these health systems, primary care is the main entry point to rest of the health care system, coordinates care for the patient within the system, and monitors diagnosis, treatment, prevention and follow-up for most illnesses. 35 Relative to other countries in the EU, including Bulgaria, primary care in Romania is significantly less comprehensive in terms of the scope of services family physicians can provide.36 Modifying clinical pathways to enable family physicians to initiate care for most chronic diseases, including diabetes mellitus and asthma will improve the effectiveness of care and efficiency in the health system by reducing expensive inpatient care use. 30 Baicker, Katherine, et al. "The Oregon experiment—effects of Medicaid on clinical outcomes. New England Journal of Medicine 368.18 (2013): 1713-1722. 31 Van den Heede, Koen, and Carine Van de Voorde. "Interventions to reduce emergency department utilisation: A review of reviews. Health Policy 120.12 (2016): 1337-1349. 32 Eldridge, Cynthia, and Natasha Palmer. "Performance-based payment: some reflections on the discourse, evidence and unanswered questions." Health policy and planning 24.3 (2009): 160-166. 33 Hindle, Don, and Karolina Kalanj. "New general practitioner payment formula in Croatia: is it consistent with worldwide trends?" Croatian medical journal 45.5 (2004): 604-610. 34 European Health Observatory. Paying for performance in health care: implications for health system performance and accountability. 2014. 35 Kringos, Dionne et al. “The strength of primary care in Europe: an international comparative study� British journal of general practice: the journal of the Royal College of General Practitioners vol. 63,616 (2013): e742-50. 36 Kringos, Dionne et al. “The strength of primary care in Europe: an international comparative study� British journal of general practice: the journal of the Royal College of General Practitioners vol. 63,616 (2013): e742-50. Page 19 of 140 The World Bank Romania Health Program for Results (P169927) 48. Systematic reviews examining community health programmes worldwide have found that these cadres are effective at service delivery related to health promotion and other preventive care. 37 With minimal training in clinical service delivery, lay health workers have been found to increase immunization uptake among children, reduce child morbidity from common illnesses, promote exclusive breastfeeding, and improve adherence to treatment, including for tuberculosis. The National Health Service in the United Kingdom has a key role for multidisciplinary primary care in managing chronic illnesses. Nurses are paid by local authorities to provide care at home for specific groups and share responsibility for patient care with the physician. Systematic reviews of similar models conclude that nurses can effectively impact health knowledge and positively influence health- seeking behaviour, consistent with the objective of promoting PHC access in Romania through community health nurses. 49. Centralized procurement of medical products can provide significant cost savings and increase health system efficiency. In 2016, the MoH approved a centralized procurement plan for antibiotics and oncology medication which was successful in reducing the average price of drugs. Centralized procurement in Romania of 31 antibiotics and 11 oncology drugs, representing 15 per cent of total public spending on medication, led to a reduction in the average price of drugs from RON 22.2 in 2015 to RON 20.0 in 2017. Centralized procurement has been undertaken for vaccines, tuberculosis and HIV medication, HIV ELISA tests, contraceptives, powdered milk, and implantable medical devices, and fuel. However, there is room to expand the range of products and volume of medical purchases subject to centralized procurement. The total expenditures for medical products amenable to centralized procurement was estimated at US$ 1.3 billion in 2017. There is significant evidence38 that centralized procurement can achieve cost savings by creating economies of scale and improving purchasing power. It is estimated that Romania can yield US$300 million saving each year if all hospitals implement centralized procurement of medical products. 50. There is strong evidence that systemic investments in electronic health can contribute to increased efficiency, significant monetary savings and implementation of informed policies. 39 Most middle- and higher-income countries strive for the use of electronic health records to improve healthcare quality, patient safety, and health system performance monitoring.40 Integrated, patient-centered health care built around modern and efficient PHC requires robust data and communication mechanisms that will enable provider-to-provider communication and empower patients for stronger engagement. Furthermore, the linkage of health care use and financial information through 37 Gilmore, Brynne, and Eilish McAuliffe. "Effectiveness of community health workers delivering preventive interventions for maternal and child health in low-and middle-income countries: a systematic review." BMC public health 13.1 (2013): 847. 38 Some countries have benchmarked the prices obtained through framework agreements with the standard prices in the price lists of suppliers. This benchmarking indicates savings of around 20-50 percent (Denmark, France, Hungary, Italy). In some systems, the assessment of additional savings has been made in terms of savings on transaction costs. A research in Sweden has shown that all transaction costs have decreased for about EUR 50 million on the annual level due to the centralized procurement system. Finland estimates that savings that come out of centralized procurement range between EUR 100 – 150 million annually. Association Aven in Italian region Emilia Romagna stated that they made savings of 45 percent for pharmaceuticals and 20 percent for medical supplies through centralized procurement in 2008. The savings consist of both lower prices and reduced transaction costs. 39 Bartlett C, Boehncke K, Johnstone-Burt A, Wallace V. Optimising eHealth value: using an investment model to build a foundation for program success. PwC. 2010. 40 Strengthening Health Information Infrastructure for Health Care Quality Governance, OECD, 2013. Page 20 of 140 The World Bank Romania Health Program for Results (P169927) integrated financial management information systems, can support the management of health sector financial operations, improve public financial management and cost containment. 51. Pharmaceutical policies aligned to ensure transparency, access to medicines, and cost containment can be powerful tools for promoting fiscal efficiency. Clawback taxes are effective at preventing budget overshooting and increase the predictability of public pharmaceutical spending. Several countries, such as Germany, France, Italy and Portugal, have reported substantial savings due to clawback policies. Most countries that implement such policies have exemptions for generic medicines, which is indicated in Romania given the indications that older and cheaper generics are being priced out of the market. Regarding HTA, a review of the top 50 medicines by expenditure in Romania found substantial scope for potential savings through delisting medicines that are ineffective for their indications or for which superior, better value alternatives are available. For example, estimated savings related to bevacizumab amounted to EUR 18.9 million per annum. HTA can be a central tool for the control of expenditure in the health sector and to ensure that resources are spent on interventions that provide the best value. Finally, through MEAs, access to innovative medicines can be enabled while controlling cost escalation. However, in scaling up cost-volume and cost-volume- result contracts, there is a need to balance concerns regarding confidentiality of agreements with transparency of budgets. IMPLEMENTATION AND INSTITUTIONAL ARRANGEMENTS 52. Program implementation will be supervised at the national level using existing institutions and supervision practices. The MoH will provide overall oversight of the Program, facilitate strategic decision-making, and ensure cross-agency coordination during Program implementation. For this purpose, a Steering Committee, headed by the General Secretary of the MoH and comprising representatives of the MoH, MoPF, and the NHIH, will be established to provide strategic oversight and guidance during Program implementation. The Steering Committee will meet at a minimum every quarter during Program implementation. A Program Coordinator will serve as the secretary to the Steering Committee (prepare the minutes, organize the meetings, and provide relevant documents to the Committee). The Program Coordinator will also provide support in the day-to-day implementation of the relevant DLRs related to the results areas, liaise with the World Bank on all matters pertaining to the Program, and submit evidence on the achievement of DLIs/DLRs to the World Bank in accordance with the verification protocol. 53. The MoPF, MoH, and NHIH will be jointly responsible for the national-level day-to-day supervision, technical guidance, and actual implementation of the Program. Within each entity, a team of three to four key staff members will be designated as focal points. They will be responsible for supervising Program implementation according to their areas of competencies and ensuring timely coordination with the relevant departments within each entity that are responsible for the implementation of the activities to achieve the DLIs/DLRs. They will work in close collaboration with the Program Coordinator of the MoH. At a minimum, the following supervisory teams will be established: (a) MoPF: authorized representatives of the General Directorate of International Financial Relations, Directorate of Analysis and Streamlining of Public Spending, and ONAC (responsible for achievement of DLI 7 in collaboration with other agencies, including MoPF, MoH, Ministry of Interior, NHIH); (b) MoH: authorized representatives of the General Secretary, of the General Directorate of Medical Assistance and Public Page 21 of 140 The World Bank Romania Health Program for Results (P169927) Health, General Directorate of Procurement, Informatization and Patrimony, National Agency of Drugs and Medical Devices, and Institute of Public Health; (c) NHIH: authorized representatives of the Chief Medical Doctor office, Contracts with Health Providers Directorate, Legal Department, Economic Department, and IT Department, Control and Antifraud Department, and Financial Management Department. These supervisory teams are expected to work in close collaboration to ensure timely achievement of the Program DLIs/DLRs. 54. Sub-national level. The Local Public Administration Authorities, under the coordination of the Ministry of Regional Development and Public Administration, and the DPHAs, under the coordination of the Ministry of Health, will be involved in the implementation of community health care and of the de minimis aid scheme. Under the framework of Emergency Ordinance 18/2017, the DPHAs will supervise the implementation of community health care at the local level, including collaboration with family physicians. The DPHAs will also be responsible for monitoring and evaluation of activities under the responsibility of Local Public Administration Authorities, Community Health Nurses, and Roma Health Mediators. The Local Authorities are tasked, under the same Ordinance, in providing work space and funding of operational costs of Community Health Nurses and Roma Health Mediators. The protocols to guide these functions will be supported through the Program. Within the de minimis aid scheme, family physicians will be expected to enter into agreements with Local Authorities to refurbish primary health care facilities provided by the Local Authorities as needed. In accordance with the scheme implementation guidelines to be developed, the DPHAs might be involved in assessing the eligibility of the applications by family physicians for financial support from the scheme and monitor the implementation of the scheme. Table 2. National-level Key Oversight and Operational Bodies Bodies Ministry of Public National Health Responsibility Ministry of Health Finance Insurance House Provide overall oversight of the Program, facilitate General Secretary (Chair) strategic decision- Representatives of the Representatives of Steering Committee and other key making, and ensure MoPF NHIH cross-agency representatives coordination during Program implementation Provide supervision Authorized Authorized Authorized and technical representatives of the representatives of the representatives of the guidance and oversee General Secretary Office, Chief Medical Doctor General Directorates of the implementation of General Directorate of Office, Contracts with International Financial the Program. Ensure Focal points Relations, Budget and Medical Assistance and Health Providers timely coordination Finance; Directorate of Public Health; General Directorate; Legal with the relevant Analysis and Streamlining Directorate of Department; departments within each entity that are of Public Spending; and Procurement, Economic responsible for the ONAC Informatization and Department; IT implementation of the Patrimony, National Department; Control Page 22 of 140 The World Bank Romania Health Program for Results (P169927) Bodies Ministry of Public National Health Responsibility Ministry of Health Finance Insurance House activities to achieve Agency of Drugs and and Antifraud the DLIs/DLRs. Work Medical Devices; and Department; closely with the Institute of Public Health Financial Program Coordinator Management of the MoH Department Secretariat to the Steering Committee. Supports the Program Day-to-day Coordinator of the MoH, implementation and as required support for the achievement of the DLRs. Liaises with the World Coordinates the Supports the Program Program coordinator for Program Coordinator Bank on all matters preparation of periodic Coordinator of the pertaining to the the results areas financial reports and MoH, as required Program. Program audits for Submits, as relevant, onward submission to the evidence on Program Coordinator of achievement of the MoH, who is DLIs/DLRs to the responsible for World Bank in accordance with transmitting the verification protocol documents to the Bank MONITORING AND EVALUATION FRAMEWORK 55. The country’s routine data reporting system is robust to be used for monitoring purpose. There are two main sources of routine health data reporting systems in the country: health statistics from the National Institute of Public Health and those from the NHIH. The National Institute of Public Health regional directorates (Regional Centers for Public Health) routinely collect medical and administrative data from providers which are then aggregated at the national level. Reporting on communicable diseases is managed under a different department of the MoH and has online reporting. The NHIH collects primary care data from about 11,000 PHC facilities. The data related to insurance reimbursement payments (changes in empanelment, visits, services, referrals, etc.) are collected monthly by the NHIH Integrated Unique Informatics System (SIUI) and are reliable, detailed, and fully electronic. In addition to payment data, primary care providers provide medical data to the central Electronic Health Record (EHR) system of the NHIH. The NHIH also has detailed reporting from the e- prescription system. In addition to these two major routine data reporting systems, the software package for community health care reporting provides detailed data and indicators on community health care, such as nurses’ visits. NHIH databases (mostly, SIUI, EHR and e-prescription) and the community health care database will be used to monitor progress related to community health care and PHC (Results Areas 1 and 2). These systems will be strengthened as needed to enhance the timeliness and quality of the data. Page 23 of 140 The World Bank Romania Health Program for Results (P169927) 56. The Program Coordinator of the MoH will be responsible for the timely collection of all documentation about Program implementation progress. The Program Coordinator will ensure that the institutions/agencies responsible for each DLI have documented and verified progress in these indicators. The Program Coordinator will also consolidate all Program activity and fiduciary reports as required, review them, and prepare a twice-yearly progress report. The progress report will include information on achievement of the Program indicators, highlighting bottlenecks and proposed corrective measures. The MoH will submit the monitoring data and progress reports to the Bank twice each year. 57. To monitor the progress and impact of the major reform agendas embedded in the Program, policy analysis activities may be included in the results monitoring framework. The proposed Program addresses major reform areas: provider payment mechanisms, drug pricing and reimbursement policies, increased resource allocation for primary care, de minimis aid scheme for improving service delivery conditions, and extension of the primary care benefit package to the uninsured. Systematic policy analysis will help the Government monitor both the expected impacts and unintended consequences of these major reforms. Examples of policy analyses include periodic public expenditure reviews that examine public spending and its equity and efficiency, periodic primary care system assessments (based on existing tools) to review the status of primary care practice and its coordination with other providers, and periodic patient experience surveys on the use of primary and community health care. PROGRAM TECHNICAL RISKS AND MITIGATION STRATEGIES 58. Based on the integrated risk assessment carried out during preparation, the overall risk of the Program is considered Substantial. Specific risks related to the technical design, institutional factors, implementation, and monitoring and evaluation, as well as mitigation measures, are summarized in Table 3 below: Table 3: Summary of risks to the Program and mitigation strategies Risks Mitigation Risks related to the technical design Exacerbation of national disparities in access to family The design of the state aid scheme will ensure that medicine due to insufficient incentives to work in there are additional incentives provided through underserved areas. grants, as opposed to loans, for investments in PHC supply and quality in underserved areas. Sufficient funds should be made available under the state-aid scheme to incentivize family medicine providers to deliver services in underserved areas. Demand-side barriers, such as cultural norms and The protocols for integrated community and primary misinformation, prevent increases in PHC use. health care will specify mechanisms for health promotion in the community to boost health care use, particularly among vulnerable groups. Increase in PHC demand overwhelms primary care Service delivery regulation places a cap on the number physicians leading to a fall in the quality of care. of service users registered with each family physician to prevent overwhelming of provider capacity. The enforcement of this regulation will be monitored Page 24 of 140 The World Bank Romania Health Program for Results (P169927) through registration on the revised basic benefit package list in PHC. Risks related to institutional factors Delay in development and adoption of legislation and The development and adoption of required legislation other regulation required to address barriers to PHC and regulation will be supported through technical access and improve health system efficiency assistance and incentivized as prior actions linked to disbursement. Uncertainty surrounding continuation of PforR Involvement of mid-level policy officials in the design of following elections in late 2019. the operation with significant buy-in should protect the Program scope with political transitions. The link between results and disbursements should further reduce incentive to discontinue the Program. Resistance of local authorities to increase in tenure of The Government aims to introduce regulation that concession and lease of infrastructure for family facilitates agreements with local authorities to mitigate medicine. the risk to the state aid program of refusals to provide office space to family physicians. Gaps in technical and managerial capacity for Investment in technical assistance to strengthen implementation, including of integrated community implementation capacity in MoH and NOCP, as well as and primary health care, and centralized procurement disbursements linked to adequate staffing of MoH unit in the health sector. for implementation of integrated community and PHC. Risks related to the non-implementation Resistance from specialist physicians to the expansion Extensive consultations to be held with specialist and of the scope of care in family medicine. family physicians on the proposed changes in the scope of PHC. Decisions on changes in scope to be informed by systematic assessments of service profile of PHC in comparator countries in the EU. Family physicians do not demand funds from state aid The design of the state aid scheme is to be informed by scheme. a systematic needs assessment that will ensure that the guidelines of the scheme are incentive compatible with the needs of family physicians. Lack of fiscal space to finance expansion of basic benefit Involvement of the MoPF in the design of the Program package to the uninsured population. scope, to ascertain that agreements are compatible with funding provisions. Ensure high-level commitment to expand PHC access to the uninsured through legislation and attendant regulation. The revised benefit package for PHC should be incorporated into the health care law 95/2006 to guarantee funding. Risks related to monitoring and evaluation Lack of information on health service utilization among Investments in improving AMCMSR for data collection uninsured population and vulnerable groups. through community health workers within underserved areas. Inadequate data quality (untimely, incomplete, or Significant investments in strengthening health inconsistent) for indicators obtained outside the SIUI. information systems, including data quality assurance and governance. Surveys should be conducted to supplement HMIS data, including a household survey on patients’ insurance coverage, knowledge of their entitlements, and care-seeking experiences with family medicine physicians, as well as a survey among family medicine practices on supply conditions and Page 25 of 140 The World Bank Romania Health Program for Results (P169927) experience with Program interventions. In addition, public expenditure reviews should be conducted to analyze existing data and make data-driven policy recommendations. PROGRAM EXPENDITURE FRAMEWORK 59. The following will: (1) provide a brief overview of public healthcare expenditure in Romania, which approximately estimates the expenditure of the government program, National Health Strategy 2014- 2020; as well as its principal sources of financing, intermediary agencies that manage the public healthcare budget – National Health Insurance Fund (NHIF) and the Ministry of Health (MoH) – and their budget programs as specified in the 2018 budget execution and 2019 approved budget; (2) assess the government program budget performance, including the intermediary agencies that manage the public healthcare budget – National Health Insurance Fund (NHIF) and the Ministry of Health (MoH) – and their budget programs as specified in the 2018 budget execution and 2019 approved budget; and (3) analyze the Program (“P�) expenditures in view of the planned budget appropriations and forecast laid down in the Government Medium-Term Budget Framework (MTBF) for 2019-2021. Government Health Expenditure in Romania 60. Romania’s public expenditure in healthcare (Government program, GP) has been growing rapidly in recent years. Although it has varied historically below 4 percent of GDP, its share has been growing in recent years following successive rounds of pay rises for health sector employees. Between 2014 and 2018 it grew faster than both GDP and total Government expenditure with a compound annual growth rate of 12 percent. As a result, by 2018 the share of the GP increased to 4.3 percent of GDP and 13 percent of total Government expenditure. In 2018, total public expenditure in health has exceeded 41,000 million lei, or US$ 10,000 million. Based on the past trend and forecast laid down in MTEF, it is estimated that the total public health expenditure for the Program period 2020-2023 will be US$ 55,437 million. Table 4: Yearly estimated values of Government Program 2020 2021 2022 2023 2020-2023 Government program (million lei) 48,051 55,259 57,494 60,944 221,748 Government program (million euro) 10,401 12,013 12,553 13,307 48,206 Government program (million US$) 12,013 13,815 14,373 15,236 55,437 Source: Ministry of Finance, WB team estimates. Note: Government Program estimates includes only National Health Insurance Fund and Ministry of Health consolidated expenditure, not local budgets. Note: For data outside the MTEF (2019-2022) or estimates visibly astray from past trends, such as the case of MoH forecast expenditure 2019- 2022, a CAGR of 6 percent was used. The value is deemed conservative in the light of past growth (2014-2018). 61. Public expenditure on healthcare in Romania stems from three main sources. By far, the biggest source of expenditure is the NHIF, which is mainly funded from social health insurance contributions. Page 26 of 140 The World Bank Romania Health Program for Results (P169927) The NHIF accounts for more than three-quarters of all public healthcare expenditure. The state budget is funding more than 20 percent of public healthcare expenditure, including budget allocated to MoH and subsidies to the NHIF. Local budgets cover the remaining 1 percent of expenditure. Table 5: Share of public expenditures on health by budget source 2017 2018 preliminary 2019 plan NHIF (%) 73% 76% 76% state budget (%) 26% 23% 23% local governments (%) 1% 1% 1% public HC expenditure (%) 100% 100% 100% public HC expenditure (mil. lei) 33,624 41,248 47,665 public HC expenditure (mil. euro) 7,374 8,870 10,207 public HC expenditure (mil. USD) 8,406 10,312 11,916 public HC expenditure (% of GDP) 3.9% 4.3% 4.6% Source of data: Ministry of Finance. Note: public HC expenditure represents the Government program (“p�). Note: the share of the state budget includes subsidies to the NHIF; the share of NHIF is net of state budget subsidies. 62. Corresponding to the financing sources, the two main institutions that manage public healthcare expenditure are the National Health Insurance House and the Ministry of Health. The NHIH is the single payer in the social health insurance system and is managing 82 percent of total Government healthcare budget, including both NHIF contribution and state budget transfer. It buys services, medicines and devices from approximately 25,000 providers. The MoH, which spends 17 percent of total, is responsible for stewardship in the healthcare system, but also implements public health interventions and preventive National Health Programs, funds emergency services and other specific expenditure items, such as resident physicians’ wage-bill and capital improvements in public health infrastructure. 63. More than 80 percent of NHIF revenues are made of health insurance contributions. Health insurance contributions from employees and self-employed made for 84 percent of the NHIF revenues in 2018. They were supplemented by revenues from the clawback tax on medicines (10 percent) and state budget subsidies (6 percent). The latter are calculated to offset the NHIF deficit. Supported by Romania’s recent high economic growth rates, revenues from health insurance contributions also posted a strong performance, in correlation with the growth in wages and labor force. Between 2014- 2018 they increased by 14.4 percent annually. For 2019-2022, the medium-term expenditure framework (MTEF) envisages a growth rate of 11.7 percent annually, with net revenue to the NHIF set to reach US$9,900 million, in 2022, up from US$8,100 million, in 2019. However, the WB estimates are more conservative, pointing to a 9 percent CAGR over the same period, based on the official forecasts for labor force and average gross wages. Government Program Budget Performance Page 27 of 140 The World Bank Romania Health Program for Results (P169927) 64. For budget formulation, execution and reporting, a uniform budget classification is used for all levels of the budget system that ensures the unification of the forms of budget statistics and comparability with international practice. The budget classification is part of the Chart of Accounts used for the bookkeeping of operations on the execution of budgets and economic activities of budgetary institutions in the general government sector. The budget classifications are in line with the basic principles of the GFSM 2001. The composition of budget appropriations and budget execution is organized based on economic and functional classification. 65. The fiscal responsibility law allows for flexibility in adjusting the budget through maximum two amendments in the second half of a budget year. In-year reallocations of budgetary appropriations between items of the economic classification of expenditures are permitted also in the second half of the year. In-year reallocations of budgetary appropriations between institutions within the limits of one administrator of budgetary funds are permitted within the limits of quarterly appropriations. 66. The budget statements distinguish three key concepts when it comes to budget approval and execution: (i) “Initial appropriations,� or originally approved budget, that is stated in the yearly budget law approved by the Parliament, usually in December of the preceding year; (ii) “Definitive appropriations,� or the budget that is rectified during the course of the year and is usually approved by the Government through Government Ordinance, based on a mandate from Parliament; and (iii) “Effected payments,� or the actual expenditure. 67. Comparing “definitive� with “initial appropriations� reveals how much short-term predictability one could obtain with the budget that is originally approved. In most cases the budget rectifications have added to the initial appropriations. While variations of the NHIF initial budget were lower and rather limited, those related to the MoH budget were wider and bi-directional. The same is true for budget appropriations on NHIF’s family medicine versus MoH’s community care. In the latter case, the significant growth in 2017 following in-year rectifications is due to pay rises enacted during that year. Table 6. Short-term predictability of the healthcare budget, 2016 – 2018 (%) final budget Government NHIF – total MoH - total NHIF family MoH community vs. plan program medicine care 2016 100.6% 101.4% 98.0% 103.3% 70.4% 2017 103.1% 102.2% 106.2% 100.0% 130.8% 2018 (prelim.) 104.8% 103.5% 109.6% 105.8% 107.8% Notes: a. This indicator measures the share of the rectified budget in the originally planned budget for the year in question. Source of data: Ministry of Finance, NHIH. b. MoH family medicine and MoH community care are presented in the table as two major budget line items that contribute to Program expenditure framework. 68. Comparing “effected payments� with “definitive appropriations� reveals that the budget execution rate is high for both NHIF and MoH. Within NHIF, expenditure on family medicine services is executed Page 28 of 140 The World Bank Romania Health Program for Results (P169927) close to 99 percent. Likewise, MoH’s community care expenditure is executed close to 100 percent41. In 2018, the rectified budget for community care was exceeded by the actual payments following a reallocation of appropriations from a budget item within the same budget chapter. Table 7. Execution rate of the healthcare budget, 2016 – 2018 (%) Year Government NHIF – total MoH - total NHIF family MoH Program medicine community care 2016 95.6% 97.7% 87.9% 99.1% 98.8% 2017 99.1% 99.6% 97.5% 98.6% 98.7% 2018 (prelim.) 99.2% 99.7% 97.5% 99.3% 104.2% Source of data: Ministry of Finance. Note: MoH family medicine and MoH community care are presented in the table as two major budget line items that contribute to Program expenditure framework. Mapping the Program expenditures 69. Classification of health sector budget by expenditure function allows the definition of the boundary for the Program (“P�) expenditure framework. The Program envisages interventions in primary care, reimbursed medicines, centralized procurement and e-health systems, which will be funded from the budgets of the National Health Insurance Fund, the Ministry of Health and the Ministry of Finance. In the case of the NHIF, the Program will pertain to expenditure with family medicine services and with the Fund’s administration by the NHIH. In the case of MoH, the Program will relate to expenditure items dealing with community care, including school health units, the de minimis aid scheme for investment support to family physicians, pricing and HTA of medicines and MoH administration for related policy making and program management. For the MoF budget, the Program will include the administration of the National Office for Centralized Procurement (ONAC). Additionally, expenditure on e-health systems will be split between the NHIH and MoH, based on assigned activities. All these expenditure programs mark the boundary of the Program. 41In community care, appropriations are transferred to local budgets where community nurses and roma mediators work. They are employees of local governments, while the Ministry of Health is funding their wagebill via the above transfers. Page 29 of 140 The World Bank Romania Health Program for Results (P169927) Figure 3: Government budgets in healthcare (government program) and Program boundary, 2018 Source: Ministry of Finance, National Health Insurance House, Ministry of Health. Note: MoH and subordinated units wage bill includes the expenditure for MoH at central and county level and for ambulance services. Note: NHIF expenditure does not include sick-leave allowances, which classify as social assistance expenditure. 70. The estimation of Program expenditure items uses the budget classification and information from budget statements, the responsible institutions and regulations on public sector pay . The administration costs calculated in the Program for NHIH were based on the budget statements for 2017 and 2018 and forecast using a 6 percent CAGR. They include wage bill and goods & services for the central office of the National Health Insurance House, which is involved in planning and regulating primary care services. Likewise, ONAC administrative expenditure were estimated based on the wage bill and goods & services reported for 2018. The administration costs related to MoH include the wage bill associated with the departments responsible for community care, medicines prices and HTA and rely on data from MoH on the current number and future needs of personnel. Data on average pay was estimated based on the provisions of the Public Sector Unitary Pay Law. The cost of family medicine services was projected based on the Government’s commitment to increase the share of family medicine in NHIF expenditure to 10 percent. Consequently, annual increments were added to the 6 percent share budgeted for 2019, based on the agreed action plan. The growth will accommodate the expenditure related to primary care services to uninsured population. The estimate of the de minimis aid scheme costs included the subsidies for interest rates, as well as grants to physicians in underserved areas, using an average grant and loan value of US$40,000 and the targets the Government committed to by 2023. The data management interventions’ costs were estimated by activity using expert assessment based on previous experience. Table 8. Expenditure items used to estimate Program budget and calculation method Expenditure item Budget Calculation 2020-2023 Source classification NHIH administration Wage bill, goods Forecast using a 6% cagr, based NHIH budget costs & services on 2017-2018 expenditure statements Page 30 of 140 The World Bank Romania Health Program for Results (P169927) Expenditure item Budget Calculation 2020-2023 Source classification MoH specialized units Positions and estimated annual Wage bill MoH, unitary pay law running costs average wage (cagr 6%) Wage bill, goods Forecast using a 6% cagr, based ONAC running costs ONAC, unitary pay law & services on 2018 expenditure Community nurses’ Forecast using a 6% cagr, based Wage bill 2019 state budget law running costs on 2019 expenditure Gradual increase from 7.1% Family medicine services Goods & services 2019 state budget law (2019) to 10% (2023) Family medicine cost of Included in the family medicine Goods & services services for uninsured expenditure above Data management Goods & services, Cost per activity Expert estimates integration capital Expert estimates based on average value of loan (US$ 40,000), De minimis aid scheme Transfers to interest rates and a 3- supporting primary Interest rate subsidy lenders year grace period; health care services Estimated value of grants is also US$40,000 71. As shown in table 9, the most important contribution to the Program budget is made by the National Health Insurance Fund. By 2023, it will have exceeded to 86 percent of total expenditure, most of which is related to the purchase of family medicine services. Until 2018, family medicine allocation from the NHIF has grown nominally, but it remained around 6 percent of the total Fund’s healthcare expenditure. The 2019 state budget law draft envisages a growth in family medicine funding which will raise its share to 7 percent to NHIF expenditure. The interventions planned with a view to expanding access to services and the scope of the basic service package, coupled with the overhaul of the payment systems, are set to increase the share of primary care from 7 to 10 percent by 2023, in line with the Government’s commitment. The main MoH contribution to the program budget is related to community care (13 percent of the Program budget). The MoH's main contributions to the program budget are related to community care and the de minimis state aid scheme for family physicians (13.4 percent of the Program budget). 72. Most of the Program’s expenditure is made of goods & services. Total NHIH contribution to the Program relies on goods and services, but it also includes wage bill for the Fund’s administration (at central level) and capital expenditure (for data management infrastructure). The MoH contribution is distributed between wage bill (community care and medicines policy-making administration), goods Page 31 of 140 The World Bank Romania Health Program for Results (P169927) & services (data management software), transfers (de minimis state aid scheme), and capital (data management infrastructure). The MoPF contribution is made of ONAC administration (wage bill and goods & services). Table 9. Breakdown of Program expenditure by budget source and item 2020-2023 (mil. lei & %) Agency/item 2020 2021 2022 2023 2020-2023 % of Program NHIF 724 899 1,046 1,244 3,914 86.4% Wagebill 9 10 10 11 40 0.9% Goods & 715 890 1,035 1,221 3,861 85.2% services* Capital - - - 13 13 0.3% MoH 136 142 157 174 609 13.4% Wage bill 136 139 143 146 564 12.5% goods & services 0 1 3 2 6 0.1% transfers - 2 12 20 34 0.7% capital - 0 - 5 5 0.1% MoF 2 2 2 2 7 0.1% Wage bill 1 1 1 1 5 0.1% goods & servicesP 0 0 0 0 2 0.0% Total 862 1,043 1,204 1,420 4,530 100.0% Source of data: MoPF, MoH and NHIH, WB calculations. Note 1: data reflects only the expenditures related to the Program not the entire budgets of the respective institutions. Note 2: in the case of NHIH, the expenditure referred as goods & services includes family physicians services purchased by the NHIH based on the framework contract provisions; in the case of MoH, the expenditure within goods & services refers to data management, which are subject to public procurement. 73. The value of the Program throughout 2020-2023 will add up to RON 18.1 billion (EUR 3.94 billion/US$ 4.53 billion) from government sources, and US$ 5.1 billion together with Bank financing. Total government expenditure pertaining to the Program is expected to grow incrementally, as the interventions foreseen in primary care will be rolled out nationally. As a share in total Government expenditure, the program will grow from 0.9 to 1.3 percent from 2020 to 2023. 74. The Program is not expected to impose any significant burden on the state budget. Achievement of Program results will depend on: 1) better use of existing budget for PHC, community care and administration, about 82 percent of total Program expenditure; 2) increased allocation for PHC through re-prioritization of the NHIH overall budget, about 11 percent; and 3) additional budget increase for new activities such as state budget transfers for the uninsured, additional allocation for community care, establishment of de minimis aid scheme and health data integration, about 7 percent. Such additional budget requirements translate into less than 1 percent of total public financing in health sector during the Program period, imposing a negligible impact on the total government budget. Page 32 of 140 The World Bank Romania Health Program for Results (P169927) 75. Moreover, the Program is expected to have some positive impact on the country’s fiscal situation. Specifically, reduction is foreseen in the need for state budget on emergency care and state transfer to NHIH that fulfills the deficit. In the past years, on average US$500 million each year were transferred to NHIH to fulfill the deficit that is largely driven by hospital expenditure. With the Program interventions, 2.5 percent of NHIH expenditure (DLI 6) will be saved due to better use of information to detect inefficient spending, which means US$250 million a year. Furthermore, about US$400 million inpatient care spending can be saved through enhanced PHC. This will significantly reduce the likelihood of NHIH running deficit and hence the need for state budget transfer related to it. 76. The program’s financial sustainability is ensured by the existing fiscal and budgetary arrangements, as well as Program interventions. First, NHIH’s key role in financing the Program ensures high funding predictability for the Program, consistent with the country’s Medium-Term Fiscal Framework. NHIH revenue, mostly from social insurance contribution, has grown by a nominal 12 percent each year from 2015 to 2018. It is projected to continue to grow by another 10 percent in 2019 and at a similar pace throughout the implementation of the Program. In addition, the state budget recurrent revenues are also projected on a stable growth trajectory, around 6% annually up to 2023, which ensures predictability for the state budget-funded share of the Program. As a result, the Program expenditure will account for around 10 percent of the total public financing for health sector. Second, the Program locks in key reform areas through adoption of regulatory changes and revision of budget law, thus minimize the risk of withdrawing financial inputs within state budget or NHIH budget after the Program closes. ECONOMIC AND FINANCIAL ANALYSIS 77. There is a strong economic rationale for investing in strengthening PHC as proposed by the Program. The Program is intended to support continued effort of the government to strengthen the primary care services and improve efficiency of public spending. The Strategy recognizes the need for sustainable financing of the health sector and proposes an action plan to increase health sector efficiency through cost control and sustainable growth of public funding for health. The additional resources provided by the Program will generate efficiency gains from further development of centralized procurement on healthcare, data-driven systems for decision-making, and improvements to pharmaceutical policy. The anticipated increased financing of the Program will require an additional 0.1 percent of GDP compared with the baseline expenditures for the program of 0.3 percent of GDP in 2019. Such costs are feasible given the important priorities that the Program will support and anticipated improvements in the health outcomes and fiscal space. 78. Taking action through the Program can be expected to tackle these issues and yield direct economic benefit through increased efficiency in health spending (by reduction of unnecessary referrals for specialized outpatient care, of avoidable emergency visits and hospital admissions for both insured and uninsured population, the more streamlined procurement of medication and consumables); improved health status (due to averting premature deaths and disability-adjusted life years (DALYs) through improved access and quality of primary care and maternity services, improved prevention and management of NCDs, and improved management of chronic diseases such as diabetes); and, improved equity (by preventing the use of more expensive emergency care services and improved Page 33 of 140 The World Bank Romania Health Program for Results (P169927) health outcomes). In addition, spillover effects from strengthening purchasing of services for cost containment can be expected to generate substantial benefits across the health system. 79. An economic analysis was conducted to estimate the costs and benefits of the Program. The economic analysis focused on estimating the returns to improved health status and reduced pharmaceutical spending. These two analyses are then combined to give a single net present value (NPV) of the proposed investment. Costs were calculated in US$ and health benefits were estimated in terms of disability-adjusted life years (DALYs). The analysis draws on an extensive review of data from Romania and the international literature. It also relies on several assumptions, in line with previous economic analyses conducted for World Bank projects in the Romanian health sector supporting similar interventions. 80. The costs of the Program are mostly determined by the expenditures of the National Health Insurance House as explained in the Program Expenditure Framework. The Bank financing of the Program will help increase the share of the expenditures of the NHIH allocated to the health care and other critical activities that will support achievement of the Program’s DLIs. By 2020, the total cost of the Program will have amounted to 95 percent of total expenditure, most of which is related to the purchase of family medicine services. For the cost-benefit analysis, costs for medicines and medical goods are also included to estimate efficiency gains in the second area. The investment to the Program will amount to a total of US$ 4.3 billion. Total expenditure pertaining to the Program is expected to grow incrementally, as the interventions foreseen in primary care will be rolled out nationally. The contribution from the Bank will be absorbed by the total cost of the Program (Table 15). Table 10: Total expenditures associated with the implementation of the Program Program expenditures 2020 2021 2022 2023 2020-2023 Total cost of the Program (million US$) 862 1,043 1,204 1,420 4,530 Bank contribution (million US$)42, approximated allocation 165 56 141 207 570 81. The monetary value of the Program’s health gains was modelled by estimating the potential impact on the burden of chronic diseases. The benefits attributable to the Program were measured by comparing the situation with the Program to the continuation of an existing activities. In the absence of the program, the DALYs associated with chronic diseases were projected using an average annual change in DALYs between 2010-2017. The interventions of the Program ware estimated to produce additional benefits by helping avert more DALYs than the interpolated trend. 82. The cost-benefits of the project were calculated for a 15-year period (2020-2034) using three scenarios (baseline, lower impact and higher impact). The assumptions used in the cost-benefit analysis are summarized in Table 10. 42 included into the total. Page 34 of 140 The World Bank Romania Health Program for Results (P169927) Table 10: Key inputs and assumptions used for the cost-benefit analysis Sensitivity Analysis Key Inputs Baseline Scenario Assumptions Low scenario High Scenario Monetary value of 1 x GDP per capita 1 x GDP per capita 3 x GDP per capita DALY Discount rate of the monetary value of 3% 5% 3% future health benefits 5.7% (2.7% inflation; 3%-time Basic discount rate 4.5% 6.5% value of money) Increasing access and effectiveness of primary health care: total 10% reduction in Same as in the Same as in the DALYs related to chronic baseline baseline diseases (excluding DALY related to diabetes type 2) over Benefits of 15 years interventions in terms Same as in the Same as in the of DALYs averted baseline baseline Increase of metformin prescriptions at primary care Same as in the Same as in the level: up to 0.5% annual baseline baseline reduction in DALYs related to diabetes type 2 Pharmaceutical savings 2% reduction in 7% reduction in from Centralized 5% reduction in government government government procurement for spending on pharmaceuticals spending on spending on health sector and starting in 2021 pharmaceuticals pharmaceuticals revised policy starting in 2021 starting in 2021 measures 83. Under the default scenario, the program is estimated to prevent a total of 576,415 DALYs due to chronic diseases, as shown in Figure 4, between 2020 and 2034, compared to the counterfactual scenario. Page 35 of 140 The World Bank Romania Health Program for Results (P169927) Figure 4: DALYs averted by year due to chronic diseases compared to counterfactual scenario 80,000 70,000 60,000 DALYs averted 50,000 40,000 30,000 20,000 10,000 - 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 84. The total expenditures for medical products amenable to centralized procurement was estimated at US$1,265 million in 2017. We also estimated potential savings from the implementation of the centralized procurement and revised pricing and reimbursement mechanisms. Using the expected inflation rates and the assumptions about the potential 5 percent reduction in government spending on pharmaceuticals, we estimated the potential efficiency gains of the Program in the second area and included the generated savings to the total monetized value of the benefits. 85. The received benefits from implementation of the project are almost 2.5 times as large as the total investment. Under the baseline scenario, the benefit cost ratio (BCR) is 2.43; internal rate of return (IRR) is 31 percent, and the net present value (NPV) of the project is US$5,266 million. The sensitivity analysis shows relatively sustainable results in terms of the economic indicators. Table 11 presents the results of the economic analysis. Table 11: Results of the economic analysis: benefit cost ratio, internal rate of return, net present value Baseline Scenario Low Scenario High Scenario Benefit cost ratio (BCR) 2.43 1.99 2.42 Internal rate of return (IRR) 31% 25% 36% Net present value (NPV), US$ million 5,266 3,732 5,148 86. It is important to note that results are likely to be conservative. Only the direct health benefits and efficiency gains are estimated, and indirect costs, such as those related to lost productivity, are not included. We also did not include the potential effects related to the decreased hospitalization rates and less frequent use of the emergency care because of strengthening the primary care service Page 36 of 140 The World Bank Romania Health Program for Results (P169927) delivery. Our estimations, therefore, for the potential reductions in DALYs and reallocation of spending, are quite conservative. Page 37 of 140 The World Bank Romania Health Program for Results (P169927) 38