ONA TO THE AZERBAIJAN REPUBLIC FORA HEALTH REFORM PROJECT

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No: AZ Public Disclosure Authorized Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ONA PROPOSED LEARNING AND INNOVATION CREDIT IN THE AMOUNT OF SDR4.0 MILLION (EQUIVALENT TO US$5 MILLION) TO THE AZERBAIJAN REPUBLIC FORA HEALTH REFORM PROJECT May 16, 2001 Public Disclosure Authorized Human Development Sector Unit South Caucasus Country Unit Europe and Central Asia Region

2 CURRENCY EQUIVALENTS US$1 = Manat 4,500 (Exchange Rate Effective February 2001) FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MOF Ministry of Finance CAS Country Assistance Strategy MOH Ministry of Health CQ Consultant Qualification NCB National Competitive Bidding CVD Cardio-Vascular Disease NGO Non-Governmental Organization DC Direct Contracting NIF Non-IDA Financed ECA Europe and Central Asia Region NS National Shopping EPI Expanded Program of Immunization OM Operational Manual FBS Fixed Budget Selection PAD Project Appraisal Document FSU Former Soviet Union PCU Project Coordination Unit GDP Gross Domestic Product PHC Primary Health Care GOA Government of Azerbaijan PMR Project Management Report GPN General Procurement Notice PRSP Poverty Reduction Strategy Paper HNP Health, Nutrition and Population QCBS Quality and Cost Based Selection IDA Intemational Development Association RDF Revolving Drug Fund IDP Intemally Displaced Person RFP Request for Proposal IMF International Monetary Fund SAC Structural Adjustment Credit EMR Infant Mortality Rate SBD Standard Bidding Documents IS International Shopping SOE Statement of Expenditures LACI Loan Administration Change Initiative SSA State Statistical Agency LCS LIL Least Cost Selection Learning and Innovation Loan SW TA Small Works Technical Assistance M&E Monitoring and Evaluation TB Tuberculosis MNI Mandatory Health Insurance UNICEF United Nations Children's Fund MIS Management Information System WHO World Health Organization Vice President: Johannes Linn Country Director: Judy O'Connor Sector Manager: Annin Fidler Team Leader: Michael Mills

3 Azerbaijan Health Reform Project CONTENTS A. Project Development Objective Project development objective Key performance indicators... 2 B. Strategic Context Sector-related Country Assistance Strategy (CAS) goal supported by the project Main sector issues and Government strategy Sector issues to be addressed by the project and strategic choices...8 C. Project Description Summary Project components Key policy and institutional reforms supported by the project Benefits and target population Institutional and implementation arrangements D. Project Rationale Project alternatives considered and reasons for rejection Major related projects financed by the IDA and/or other development agencies Lessons learned and reflected in the project design Indications of borrower commitment and ownership Value added of IDA support in this project E. Summary Project Analysis Economic Assessment Financial Assessment Technical Assessment Institutional Assessment Social Assessment Environmental Assessment Participatory approach F. Sustainabiity and Risks Sustainability Critical Risks Possible Controversial Aspects G. Main Credit Conditions Board Conditions Effectiveness Conditions Dated Covenants... 23

4 H. Readiness for Implementation I. Compliance with IDA Policies Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Table 1: Components Project Cost Summary Table 2: Expenditure Accounts Project Cost Summary Annex 4: Financial Management Annex 5: Financial Summary Annex 6: Procurement and Disbursement Arrangements Table A: Project Costs by Procurement Arrangements Table Al: Consultant Selection Arrangements Table B: Threshholds for Procurement Methods and Prior Review Table B 1: Summary of Procurement Activities, Methods and Schedules Table C: Allocation of Credit Proceeds: Table D: Schedule of Disbursements Table E: Estimated Schedule of Government Counterpart Funds Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Country At A Glance Annex 11: District Selection Annex 12 Monitoring Evaluation Plan Annex 13: Proposed Organization Structure Map: IBRD

5 Azerbaijan Health Reform Project Project Appraisal Document Human Development Sector Unit South Caucasus Country Unit Europe and Central Asia Region Date: May 16, 2001 Team Leader: Michael Mills Country Manager/Director: Judy O'Connor Sector Manager/Director: Arnin Fidler Project ID: P Sector: Health Lending Instrument: Learning and Innovation Loan (LIL) Theme(s): Human Development; Poverty Reduction Poverty Targeted Intervention: [X] Yes [] No Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other [Specify] For Loans/Credits/Others: Amount (US$m): US$5 million (SDR 4 million equivalent) Proposed terms: Standard Credit Grace period (years): 10 Years to maturity: 35 Commitment fee: Standard Service charge: 0.75% 3overmment IBRD (DA Jther (specify) rotal: orrower: Azerbaijan Republic Yuarantor: Not applicable lesponsible agencies: Ministry of Health Lstimated disbursements (Bank FY, US$M): Annual Cumulative 'roject implementation period: 36 months nxpected effectiveness date: 7/31/01 Expected closing date: 12/31/04 mplementing agencies: Ministry of Health; Xacmaz, Samkir, Salyan, Goycay, and Sarur Districts; managed by the Project Coordination Unit Contact person: Azer Maharramov Address: Ministry of Health, 4 Kicik Daniz Street, , Baku 'el: Fax: medis@medis.baku.az I

6 A: Project Development Objective 1. Project development objective (see Annex 1): The development objective of the proposed project is to test ways to strengthen and reform district primary health care services. 2. Key performance indicators (see Annex 1): Project Development Key LIL Questions Indicators Objective Increased knowledge of (i) How should outside agencies such as the World (i) Development by the Ministry of Health Bank support the Government in carrying out health Govemrnent of a midterm strategy officials in appropriate reform activities? for health reform, with World strategies to strengthen (ii) How can the district authorities be strengthened Bank assistance. and reform district to play a larger role in health reform? (ii) Development and use by the primary health care (iii) How can the process of health reform support the district health authorities of services. national poverty reduction strategy? district-specific annual work plans. (iv) How can the existing primary health care services (iii) Development by the be strengthened? Government of a policy paper on (v) What are the best strategies to integrate the lessons improving health services and of primary health care reforms into national health policy decision making? access for the poor. (iv) Improvements in access, quality and utilization of primary health care services in the targeted districts. (v) Increased knowledge among the staff in the MOH and the targeted districts about strategies for strengthening and reforming primary health care services. Component Outputs Indicators of Strengthened Primary Health Care Indicators of Increased Services in Targeted Districts Knowledge and Capacity in the Ministry of Health. (i) Increased knowledge Targets in the selected districts: (i) Regular meetings of Ministry of and capacity among (i) An increase of 40 percent in the number of Health and inter-ministerial Ministry of Health patients seen at reformed PHC facilities. colleagues to discuss primary officials to design and (ii) An increase of 20 percent in the proportion on health care reforms. implement appropriate infants in the population that receive imnmunization (ii) The development of a model primary health care (DTP3) on time. and plan for primary health care reformns. (iii) An increase of 30 percent in the proportion of reforms for the country. (ii) Provision of pregnant women in the population who have at least (iii) Ministry of Health officials improved primary six prenatal visits. trained to become familiar with health care services in (iv) An increase of 50 percent in the proportion of health financing options and issues. the targeted districts by adult patients seen in the reformed PHC facilities for (iv) The adoption of a national physicians and other whom a blood pressure is recorded in the patients' essential drug policy and formulary health workers. medical records. for use at facilities supported by (iii) Improved (v) A decrease of 50 percent in the proportion of the Ministry of Health. utilization by the public outpatients seen in the reformed PHC facilities who (v) Hardware for management of primary health care receive antibiotics by means of injection. information system installed and services and facilities in (vi) A decrease of 25 percent in the per capita key Ministry of Health and targeted the targeted districts. number of hospital and polyclinic beds. district staff trained to use it. (vii) An increase of 20 percent in patient satisfaction with access and quality of care provided in the reformed PHC facilities. 2

7 The proposed project would be a Learning and Innovation Loan (LIL), with a strong emphasis being placed on learning from the experience of this first IDA support to the health sector in Azerbaijan. The project would represent only an initial effort on the part of the Government in the process of health care reform; and it is, therefore, considered to be particularly important to measure the impact of the measures taken, to learn whether the strategies are successful or not, to create a basis for later refinement of the reform strategies, and to build support and momentum for a further phase and expansion of health reform program in the country. As opposed to a "technical" learning content (which would be customary for LILs), the purpose of this LL is to emphasize leaming in operational terms. Specifically, the aim for the World Bank is to explore ways of providing support to a new client by capitalizing on strong partnerships, by effectively engaging with the districts, in addition to the central government, and by using the project to complement the Poverty Reduction Strategy Paper (PRSP) process and so to establish a dual track for policy dialogue on health reform. The specific questions and issues which would be tested and answered by the design of the project would relate to the piloting and expansion of new methodologies for strengthening and reforming primary health care (PHC) services; the process of institutional capacity building in the Ministry of Health (MOH); and more generally the ability of the World Bank to contribute operationally to the development of the health reform process. The evaluation of the project would, therefore, seek to assess the effectiveness of support by the World Bank to the process of health reform; the impact of improved PHC services; the extent of the integration of the lessons of the PHC reforms with national health policy decision making; and the degree of institutional capacity strengthening in the MOH. The key performance indicators would reflect the engagement by the Government and district health authorities in health reform, the strengthening of primary health care services in the targeted districts, and the extent of knowledge among MOH officials in appropriate strategies to carry out such reforms. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex J): GAS Document number: AZ Date of latest CAS discussion: 09/14/99 The World Bank Economic Report on Azerbaijan in 1993 was entitled "From Crisis to Sustained Growth". Since then, Azerbaijan has overcome both political and economic crises, and has committed itself to a financial and structural reform program. While the overall picture is that of a macro-economic success story in a transition economy, a deeper analysis reveals that the economic progress has been uneven and that major social problems persist. After five years of steady drastic decline, output increased substantially in 1997 and But the resumption of growth was mostly attributed to strong investment activity in oil and oil related sectors. On the other hand, the agricultural sector, which provides employment to over one-third of the labor force (and livelihood to 45 percent of the households) remains in crisis. The major stimulus to the economy has been the extraordinarily rapid growth of direct foreign investment, which accounted for about 65 percent of gross fixed investment. Public expenditures have borne the brunt of fiscal adjustment following the adoption of a tight fiscal policy stance since early 1995, and have declined by about one third in revenues in relation to GDP since Because restructuring public expenditures and the elimination of inefficiencies take time, the fiscal adjustment has hit hard public investment and the non-wage component of current expenditures. In particular, the fiscal measures have negatively affected the social sectors. There is also substantial concern that poverty may not have decreased in the second half of the 1990s, even though the data do not yet exist for a definitive judgment. It is clear, however, that the inequality in the distribution of expenditures has increased in Azerbaijan, and that major strengthening and reform of the social services are urgently needed. More will be known about trends in living standards when the results of a new household survey carried out in Year 2000 are analyzed. 3

8 The Country Assistance Strategy (CAS) program objective is to "persuade and work with the authorities and civil society at large to help create the appropriate institutional and policy framework which would steer the country to the path of good governance and equitable development." There are three program targets: (i) to support the radical reform of public sector institutions; (ii) to strengthen the regulatory and business environment for private sector development; and (iii) to invest in social developments including poverty alleviation measures. In the health sector, the CAS has the objective of addressing the inefficient health financing system and also the over-reliance on specialist facilities and physicians. Unfortunately, the country program for Azerbaijan is presently in the low case scenario, due primarily to failure so far to reach agreement on the reform of the public sector. Nevertheless, there have been some major indications of movement in recent weeks on these issues; the President has established a Steering Committee for the development of a Poverty Reduction Strategy Paper; and there are good prospects for a renewed program of support from the International Monetary Fund (IMF). The proposed LIL project would address two of the three program targets of the CAS: contributing to poverty alleviation and supporting public sector reform. The focus of the project would be on the strengthening of the MOH to design and carry our primary health care (PHC) reforms through: (i) building up institutional capacity and training officials working on health reform policies; and (ii) enhancing critical PHC services and assisting the most vulnerable in five targeted districts, building on the ongoing and largely successful pilot program already being carried out by UNICEF. These strategies would be intimately linked, as MOH officials would be directly involved in the PHC reforms and investments in the targeted districts, and the policy work in the MOH would utilize the experience from the targeted district. The involvement of UNICEF would enable the MOH to learn more about the model of PCH reforms which has already been piloted by UNICEF in five districts of the country, and it would also provide a platform for the further refinement and development of the model with various additional elements. Some of the key questions to be evaluated include how best to support the Government in the process of health reform; how to support the decentralized authorities in contributing to health reform; how to ensure that the process of reforming the health sector also complements and supports the PRSP process; whether the availability of medications in or near clinics and the provision of basic laboratory and medical equipment significantly increase patient utilization of primary care services, especially among children; whether the use of a revolving drug fund mechanism is sustainable; whether the retraining of specialist physicians in limited topics related to PHC improves their knowledge and their use of that knowledge in clinical practice; whether on-site in-service training and clinical facilitation improve the uptake of new approaches and knowledge in clinical practice; whether integrated approaches to providing clinical services at the PHC level improve the quality of care; whether training in rational drug use with clinical facilitation actually changes physician prescribing habits; and whether the provision of integrated PHC services improves patient satisfaction. The evaluation of the extent of capacity building in the MOH would be based on such indicators as to whether the Government produces a midterm strategy for health reform; whether the decentralized district health authorities develop and use district-specific annual work plans for health planning and management; whether the government produces a policy paper on improving the access of poor people to health services; whether there are regular meetings of MOH officials and their inter-ministerial colleagues to discuss and analyse PHC reforms; whether their involvement in the district-level pilots leads to the development of a model and plan for PHC reform for the country as a whole; whether MOH officials become familiar with health financing options and issues; whether the training and technical assistance provided lead to the actual adoption of a national essential drug policy and formulary for use at facilities supported by the MOH; and whether the existing management information system is reoriented through their experience of the district-level investments and reforms. In addition, the implementation of the proposed project, along with the other ongoing activities in the human development sectors (particularly the existing education project and the forthcoming social protection project) would contribute to further improvements in donor coordination, which is also a key feature of the country program in the CAS. 4

9 2. Main sector issues and Government strategy: The World Bank has not carried out a full review of the health sector, but a short "concept paper" was written in 1997, and the main issues facing the sector have also been reviewed in the context of various macroeconomic missions and the 1996 poverty assessment. In summary, the main sector issues include: (a) The health status of the population and especially the poor. Azerbaijan has a population of about 7.5 million, but determining their health status is difficult, as there are serious doubts about the reliability of official statistics. Nevertheless, it is clear that Azerbaijan experienced a worsening of the health status of its people in the period immediately following independence from the former Soviet Union, as a result of the economic difficulties of transition and also the war with Armenia (nearly 20 percent of the country's population is still intemally displaced or a refugee). Since about 1995, many of the national health status statistics are reported to have improved and are now at the same levels as at independence. The national infant mortality rate (IMR) increased in the years immediately following independence, reaching a peak in 1993, but it has since fallen to below the 1990 level. The rate for 1998 was 18 deaths per 1,000 live births (but this rate is underestimated compared to other non-fsu countries, as the definition of IMR in Azerbaijan and in most other FSU countries does not cover neo-natal deaths in the first week). The overall mortality rate also increased between 1990 and 1995, but then fell to resume its pre-independence level. Life expectancy also fell in the first half of the 1990s, particularly for men, as happened in many other countries in transition from Soviet rule. The fall occurred swiftly - from 67 years for men in 1990 to 64 years in However, by 1998, estimated life expectancy had improved to be 68 years for men and 75 years for women. Despite this encouraging rebound in the official health status statistics since the mid-1990s, there are still some serious grounds for concern. While the official data seem to indicate recent improvements in most of the health indicators, the evidence from social assessments and household surveys indicates that much of the apparent improvement is due to non-reporting, as households are increasingly not using public health facilities from which official statistics are generated. Living conditions for many of the population (including particularly the internally displaced and refugees, who together, total more than 800,000 people) are very poor, with few sources of employment and income. This renders them vulnerable to diseases associated with overcrowding, poor nutrition, insufficient sanitation facilities, and lack of access to basic primary health and preventive care services. There are some substantial regional variations in reported health status among the 65 districts. In contrast to the national average of 18, the IMR is as high as 78 in Zardeb and 63 in Kuba. In rural areas in general, the reported IMR may be around one-third higher than in urban areas. Much of the infant mortality is preventable, as acute respiratory infections are responsible for 50 percent of these deaths. The two main causes of mortality are cardiovascular disease and cancer. Cardiovascular disease remains the chief cause of death in Azerbaijan, responsible for approximately 50 percent of all mortality. The rate of cardiovascular disease has also been increasing in recent years, but it may be somewhat exaggerated, as "heart attack" is the most standard cause of death given in official documents when the actual cause of death is unknown or unclear. The reported national rate for maternal mortality increased dramatically after independence, but it has not returned to the pre-transition levels and remains extremely high. In 1998, there were 41.1 matemal deaths per 100,000 live births. For other reproductive health statistics, worrying trends are also emerging: abortion rates are very high, at 269 per 1,000 live births in 1998, an increase of 38 percent as a proportion of live births since It is the most commonly cited method of birth control for women in Azerbaijan. There has also been an increase in the number of people giving birth at home: nationally 10 percent of births in 1997 took place at home, according to the official data, although in some districts the figure was as high as 30 percent. In fact, the actual rate of home deliveries of uncomplicated pregnancies may be as high as 50 percent. There has also been a significant re-emergence of morbidity from infectious causes. There are still significant gaps in immunization programs and the incidence of tuberculosis has increased in recent years. There have also been outbreaks of polio, diphtheria and malaria. 5

10 (b) Decline in real public spending on health. A major challenge for the system has been the collapse in real public spending on health, despite the Govemment's efforts to protect public health expenditures as a share of total spending in recent years. Like all FSU countries, Azerbaijan entered independence with a health system that was common to the entire FSU. However, the collapse of the economy in the early to mid-1990s had a serious effect on the country and specifically on the health sector. Inflation eroded the real budgetary capacity of the Govemment as much as ten-fold in some areas, particularly in preventive programs such as immunization. According to the MOH, public health expenditures amounted to $9.92 per capita in 1998, but were reduced to a projected figure of only $7.58 in The data from the latest edition of Azerbaijan Economic Trends has lower figures, and suggests that there may have been a slight increase in public health spending from $4.41 in 1998 to $5.25 in 1999, but in any event, it is clear that the available resources are highly constrained. Reduced budgets to the district health systems in Azerbaijan have led to cost cutting in all areas. Drug shortages have been common, and equipment has not been maintained adequately. For people with serious illness that requires a stay in hospital, a lack of government budget for food and gas for heating has meant that in-patients must now cover these costs. Many prefer to discharge themselves early rather than do so. The insufficient wage levels of health staff, and the late payment of salaries, have led to serious governance problems. 'Gifts' to health staff in the form of goods or small payments of money were considered tokens of gratitude under the old system. These have gained greater significance in recent years as health staff seek to complement low wages, and they now occur at all levels of the health system and may be the source of as much as 80 percent of doctors' income. In addition, staff often now rely on growing their own food to supplement the government salary, and this discourages them from spending extra time at their posts. (c) Inefficiency and inequitv of resource use. The health care system remains characterized by major inefficiencies. For example, there is an over provision of doctors and medical staff. Like other FSU countries, there are many more doctors and nurses per 1,000 population than in the established economies of Europe and North America. In the mid-1990s, Azerbaijan employed 3.9 doctors for every 1,000 people - this compares with 1.6 doctors in the UK and 2.1 in Canada. There is also a reliance on specialist doctors at the primary care level. This leads to low-productivity and a lack of integration of care. Family medicine, as a specialty, does not exist, nor does an effective referral system. The levels of competence of the medical staff are mostly low, and treatment protocols for even the most common primary health conditions are often outof-date. There is evidence of considerable over-treatment as a means of supplementing income in the environment of low salaries and over-supply of doctors. There is also an over provision of hospital beds and infrastructure. In 1998, there were 8.4 hospital beds per 1,000 population in Azerbaijan. This figure had been reduced from 10.5 beds in 1992, but remains higher than in other countries with greater resources to spend on healthcare. The Western European region average for 1994 was 7.8, and lower figures were recorded for many countries. The hospitals in Azerbaijan also have a very low bed occupancy rate: in 1998, the average was only 28 percent. In addition, there is still a reliance on historic "norms" based methods of resource allocation. The provision of resources to hospitals is still based on the number of beds and previous utilization trends. As a result, there is a financial incentive to keep both bed levels and also lengths of stay high. This is a serious disincentive to a more efficient deployment of resources at the local level, and encourages continued operation of moribund facilities in order to retain funding. This is accompanied by an over emphasis on secondary hospital care at the expense of primary care. People seeking health care tend to visit hospital facilities to access primary care treatment. This contrasts with western systems, such as in the UK, where an estimated percent of all health conditions are managed outside of hospitals, at the primary care facilities. Lengths of hospital stay are also unduly long. These are a characteristic of all FSU countries, but in 1994, Azerbaijan recorded the longest length of stay in hospital amongst these countries at 17.9 days. By 1998, the national length of stay figure had still not substantially declined, and remained very high at 17.1 days. Some of the reasons for this relate again to the low levels of competence of, and inappropriate incentive system for, the medical staff. There is also general lack of drugs. This encourages those seeking medical care to bypass the primary health care facilities in favor of the central district hospital facility where the few drugs in the system are more likely to be found. This has made the implementation of prevention and public care programs such as immunization much more difficult. Furthermore, many of the 6

11 lower-cost items of essential drugs available on the local market have proven to have low efficacy in terms of treatment. While these are sectoral characteristics, generally, the inefficiency of the sector militates against the poor in particular. (d) Reduction in quality and access to health services. The quality of, and access to, health services have considerably deteriorated. There are various reasons for this, including the high informal costs of care, the lack of essential drugs and equipment, and the poor quality of service and facilities. Many buildings are dilapidated, and staff typically have little incentive to work hard or well for their patients. As a result, about half of the population does not seek health care from the formal health system when they are acutely ill. Results from the 1995 nationally representative Azerbaijan Survey of Living Conditions indicated that private expenditures then amounted to just over 6 percent of official GDP, or about four times the level of official expenditures in the same year. This conclusion is supported by survey evidence from ECHO, CDC/UNICEF/MOH, and the WHO. Survey, social assessment and anecdotal information suggest that the situation in Azerbaijan is significantly worse than in many other FSU countries, where at least some drugs for inpatient and emergency care continue to be provided free of charge. (e) The planning and implementation of health reforms. A new law on "Health Protection of the Population" was passed in In 1998, a Health Reform Commission was established by Presidential Decree to develop a reformn strategy, and in 1999, a document entitled "General Concept of Health Care Reorientation" was produced. Some of the characteristics envisioned for the new system are planned to be: (i) the rational use of the health delivery network, funding mechanisms, staff and other resources; (ii) the establishment of a new legal base for the system; (iii) primary care as a priority; (iv) reform of the sanitaryepidemiological services; (v) transition to the principles of insurance; (vi) the development of fee-for-service; (vii) reform of the pharmaceutical sector; (viii) privatization of public health services; (ix) the accreditation, certification and licensing of medical establishments, personnel, medicines and foodstuffs; (x) the reform of medical education; (xi) the reform of medical science; and (xii) the reform of the health information system. The publication of the general concept document was then followed by the publication of the "State Program of Health Care Reform". This document includes a broad timetable for the introduction of various reforns and also suggests an allocation of responsibilities for their implementation. But it is far from being a detailed action plan, and some of the proposals (such as increasing the public health budget from 1.6% GDP to 6.6% GDP by the year 2005) are unrealistic. To date, most of the actual reform work of the MOH has focused on trying to deal with the financial collapse of the public system. So far, its strategy appears to have been to try to find ways to increase cost recovery for almost all medical services, but with fee exemptions for selected social groups. There is a schedule of fees that has been developed by the MOH, though it is not clear on what basis the fees for specific services have been calculated. The fees would in principle allow a large share of budget-funded health facilities to become self-financing entities, but it appears that "self-financing entities" would continue to get some budgetary support and have salaries set according to public pay scales. To protect the poor during the introduction of fees into the public system, the MOH has adopted "the policy of exemption", which defines fee exemptions in public facilities for specified groups. There are at least 12 groups of exempted citizens in principle. Although estimates from different sources vary, these groups and their families account for between 40 and 50 percent of the population. There is also no empirical evidence that the identified categories coincide well with the poorest groups. The MOH strategy of charging for nearly all services with exemptions for large social groups is, therefore, unlikely to have the desired effect of protecting access for vulnerable and the poorest groups. The MOH has also developed draft documents on the introduction of mandatory medical insurance, and a Law on Health Insurance was adopted by the Parliament in However, it is not clear that there is fiscal capacity to introduce a mandatory health payroll tax, given the already heavy tax burden on enterprises and the financial position of the public pension system. Many of the important implementation issues (e.g., pooling of resources) have yet to be addressed. 7

12 The MOH has also been willing to collaborate with UNICEF on district health care reform. UNICEF established a pilot program in 1996 as part of an attempt to reform the financing and delivery of PHC to ensure access to effective, efficient and equitable services. The program started in Kuba District and has more recently been expanded to Masalli, Lenkeran, Celilabad and Neftcala Districts. The evolving model provides a useful basis for an expanded district-level pilot program which could be supported under the proposed IDA-financed operation. The pilots have: established outpatient, primary care clinics where none existed before; significantly increased community involvement in identifying and meeting the medical service needs in the districts; introduced the use of revolving drug funds (RDF); introduced the development of transparent fee schedules (including exemption schedules) and mechanisms for allocating fee revenues at the facility level; and developed an essential drugs package in public health facilities. Some rationalization of facilities and personnel has been achieved in the pilot districts implemented under the UNICEF project. The UNICEF program has recently been evaluated by an external team. The main conclusions of that evaluation were that: (i) the level of poverty in the country made it difficult to introduce user fees, ancl the large number of patients exempt from drug charges reduced revenue as compared to the plans; (ii) the falling price of imported drugs reduced the price at which UNICEF sourced drugs could be sold; (iii) the impact of the project could not easily be seen in terms of the main health indicators, as local data were available for only some indicators for some districts; (iv) the level of use of services in the project districts is still low, and there is some evidence that people are deterred from using them for fear of the cost; (v) however, satisfaction with the services seems to be improving, especially in relation to drug availability; (vi) there has been some success in the rationalization of services, in increased community involvement, and in local management training; and (vii) the main constraints to achieving the full benefits of the project include the lack of sufficient local control of health sector resources, too high a level of exemptions to charges, very scarce government funds, and the very low incomes of staff making it difficult to achieve greater efficiency levels. Overall, the evaluation concluded that there is enough evidence of success to justify further development, especially with more focus on specific objectives and targets. The proposed project would add substantially to the UNICEF pilot strategies. The project would modify and build on aspects of the UNICEF pilot strategy to address the issues identified in the evaluations. The policies and procedures related to the RDFs would be significantly strengthened (e.g., requiring the use of a drug formulary for all RDF procurement, the pooling of drug procurements by participating districts, clear guidelines and standards for determining exemption status, periodic review and revision of drug prices to adapt to market circumstances, etc.). The impact of the project would be assessed using indicators more proximal and antecedent to changes in health outcomes in the population. The topics to be covered by clinical in-service training would also be expanded by the project to include a fuller spectrum of medical conditions encountered in the primary care setting (e.g., cardiovascular disease). The uptake and application in clinical practices of knowledge and skills acquired in the clinical in-service training would also be monitored and reinforced on an ongoing, continuous basis throughout the project by the deployment of a clinical-facilitator in each district. The clinical facilitators would continuously assess the quality of services being provided in the reformed PHC facilities and would provide "at-the-elbow" in-service training to the medical providers in the facilities. 3. Sector issues to be addressed by the project and strategic choices: The key sectoral issues to be addressed through the proposed project include: (i) the building up of capacity in the MOH to learn from the ongoing process of PHC reforms, and to design and carry out further reforms; and (ii) the extension and adjustment of the UNICEF-supported district health services approach from the existing five districts to another five districts. The reformed district-level approach incorporates the following: (i) rationalization of health facilities, particularly at the PHC level; (ii) the gradual rationalization of personnel at the PHC level; (iii) the establishment of a basis for reform of pharmaceutical usage; (iv) improvement in the access to essential PHC; 8

13 (v) the exploration of innovative ways of funding health care services while insuring equity; (vi) the continuation of improvements to the information system; (vii) improvements in the quality of PHC services through better diagnostic and treatment capabilities; (viii) improvements in the quality of "preventive" health programs; (ix) an increase in the management capacity of health personnel; (x) an increase in community participation in the provision of health services; and (xi) an increase in stakeholder commitment to these reforms. It is hoped that the experience of the proposed project would enable the MOH to develop an action plan for the strengthening of PHC in the context of the Health Reform Plan. The proposed project has been designed as a LIL, and its implementation should assist in answering some key questions. As far as the districts and the PHC investments are concerned, the following are some of the main questions: (i) can the availability of medications in or near clinics and the provision of basic laboratory and medical equipment significantly increase patient utilization of PHC services especially among children?; (ii) is a revolving drug fund sustainable under the specific circumstances set in this project?; (iii) does retraining of specialist physicians in limited topics related to PHC improve their knowledge and their use of that knowledge in clinical practice?; (iv) does ongoing, on-site in-service training and clinical facilitation improve uptake of new approaches and knowledge in clinical practice?; (v) do integrated approaches to providing clinical services at the PHC level improve the quality of care?; (vi) can financial resources be shifted from in-patient services to PHC system?; (vii) does training in rational drug use with clinical facilitation actually change physician prescribing habits?; and (viii) does the provision of integrated PHC services improve patient satisfaction with access and quality of care? The work on health financing would also allow the Government to conduct a thorough assessment of the full range of financing options that are potentially available, including existing budgetary resources, health insurance, private payments and new revenue raising. The training provided under the program for health professionals would help to address some of the systemic inefficiencies, such as long average length of stay, outdated treatment protocols and over-emphasis on curative care. Some of the training would address these issues directly, while other parts of the training would encourage improvements in efficiency by promoting management and other skills to encourage evaluation of the cost effectiveness of interventions. The project would allow the MOH and the World Bank to maintain a dialogue on health reform not only in the sectoral context, but also through contributing to the process of assisting the Government on the Poverty Reduction Strategy Paper. Focusing on the MOH, some of the key questions to be addressed include: (i) how can the World Bank best assist the Government to design and carry out health reform in a difficult environment? (ii) how can the World Bank assist in strengthening the local authorities in health reform?; (iii) how can the process of health reform also support the poverty reduction strategy and PRSP process?; (iv) is the planned cooperation with UNICEF an effective model for transferring knowledge and experience to the Government?; (v) what is the best method or combination of methods of capacity building, including local training activities, study tours and technical assistance?; and (vi) can the experience of the pilot districts be used to scale up the approach to other parts of the country? The latter issue is particularly important, as there would be an expectation that there could be further and enhanced external support to the sector if the experience of the LIL is successful. 9

14 C: Project Description Summary 1. Project components (see Annex 2for a detailedproject description and Annex 3for detailed cost estimates) Total project costs are estimated at US$5.5 million. These exclude taxes'. IDA would finance approximately US$5.0 million or 90% of the total project cost and the Government would contribute US$0.5 million or 10% of total project cost. IDA would disburse 40 percent of eligible civil works expenditures, or approximately US$0.26 million, and the Government would contribute the remaining US$0.38 million as part of the required counterpart contribution. Eligible expenditures incurred as part of the PCU incremental operating costs can be reimbursed by IDA up to 80 percent of the local eligible expenditures, but not greater than US$0.23 million. These eligible incremental operating costs include expenditures for office supplies, courier services, postage, telephone, Internet connections, PCU vehicle maintenance and fuel, and travel and per diem for project supervision. Local eligible expenditures related to incremental operating costs would be eligible for 80 percent reimbursement from IDA. The remaining incremental operating costs of the PCU such as rent and utilities would be the responsibility of the Government, and the estimated required contribution is approximately US$0.14 million. The Government would also be responsible for VAT payments on locally procured goods, as IDA would reimburse only 80 percent of local expenditures for such goods. Technical assistance expenditures (training, study visits, consultant services and studies) would be eligible for 100 percent disbursement. An amount of US$40,000, as the initial Government counterpart contribution, would need to be deposited in the project account for project effectiveness. The counterpart funds (excluding VAT payments) required to be provided by the Government in the following years are estimated to be: US$370,000 in CY02; US$80,000 in CY03; and US$30,000 in CY04. Component Sector Indicative % of IDA % of IDA Cost (US$ M) Total Financing Financing (US$ M) 1. Capacity Building for Health Policy Institutional Reform. Development (i) Analysis and Planning Development (ii) Health Financing Reform (iii) Pharnaceutical Policy Development (iv) Management Infornation System Development (Sub-Total) District Level Primary Health Care Basic Health Reform 3. Project Coordination and Evaluation Institutional Development Total Project Costs Component 1. Capacity Building for Health Policy Reform (US$0.87 million) The primary objectives of this component are to complement and support the district-level component, and to explore ways to stimulate a national dialogue on policy changes necessary for health reform in Azerbaijan; generate support in the Government for the reform process itself; introduce a common understanding of terms and objectives; perform critical assessments related to health financing reform; and strengthen capacity in the MOH to plan, implement and evaluate health reforms. I If procured locally, goods are assessed at 18 percent VAT. There is also a social tax of 32 percent of salary and wages. In the project, taxes are the responsibility of the Government, and they are excluded from the estimated project costs. 10

15 (i) Analysis and Planning Development (US$0.13 million). This sub-component would support the development of appropriate models for PHC, and would comprise a variety of national training events and observational tours for government officials primarily to other transition countries where more efficient and cost effective health care delivery models have been implemented. (ii) Health Financing Reform (US$0.34 million). This sub-component would include training, survey work and technical assistance support in three main areas: financial planning of the health system (including analysis of user fees and equity, estimation of the contents and costs of a basic health care package, and an analysis of health care financing options); the feasibility and possible development of health insurance; and an analysis of private health spending. It would also include staff training. (iii) Pharmaceutical Policy Development (US$0.09 million). This sub-component would support the development and implementation of policy reforms in the form of appropriate treatment protocols, essential drug policy, national drug formulary, promotion of rational drug use, and decentralized decision-making. Limited pharmaceutical sector studies would also be supported, focusing on lessons learned from the UNICEF-supported pilots of revolving drug funds, from the new district level activities (especially experience related to rational drug use), and from the evaluation of the effectiveness and sustainability of revolving drug funds. (iv) Management Information System Development (US$0.31 million). The health information system and communications would be strengthened to help manage the reformed health services, as well as to enhance monitoring, evaluation, supervision and staff development. Component 2: District Level Primary Health Care Reform (US$3.63 million) The principal thrust of this component would be the actual implementation and extension of districtlevel PHC reforms that have been previously piloted by UNICEF in Azerbaijan. The sub-component would support reforms in the targeted districts to enhance and implement the UNICEF-supported program already piloted elsewhere in the country; rationalize PHC services; improve the quality of and access to PHC services; and strengthen the management and clinical capabilities of the district health personnel. In this way, lessons would be learned especially by the Ministry of Health, and the experience would be utilised to strengthen the national reform efforts. Specifically, the component is designed to provide material support and staff training to five districts, Xacmaz, Samkir, Salyan, Goycay, and Sarur (inclusive of Sadarak), with five other districts (Gusar, Gazakh, Sabirabad, Kurdamir and Babek) acting as "control" districts. In the control districts, data collection would occur on key project indicators, but there would not be other investments supported by the project. The implementation of the component would be done in four stages. (i) Rationalization of health care services would be undertaken, with substantial community involvement, to plan the PHC reform and strengthening program for each district, reduce the number of hospital beds, and rationalize medical staff as part of the reforms and transition to the provision care in outpatient, primary care clinics. (ii) The implementation of the PHC models would be done with the support of field monitors and clinical facilitators. They would provide on-site technical assistance and evaluation to doctors and nurses in the primary care clinics, as well as facilitating and monitoring the uptake of new diagnostic and treatment methods and guidelines. Community involvement, through the creation of district and community steering committees, would be provided to ensure that the needs of the communities are being met. (iii) Civil works would be undertaken to refurbish approximately 16 primary health care facilities (including a Central District PHC Center) in each district to improve the access to the PHC services. This is primarily to make the health services more attractive and conducive to better quality care. A small amount of money would be provided to each district to make basic repairs in the health centers in accordance with the 11

16 rationalization plan. The provision of good quality primary health care services also requires the availability of basic medical equipment, supplies, and cold chain equipment to support primary care. Each participating district would be provided with an initial quantity of essential drugs valued at about $0.50 per capita to establish a RDF. (iv) Strengthening of the management capabilities of the district health personnel would be implemented by UNICEF to enhance the management of specific reforms. This would include the use and maintenance of RDFs; rational drug use; use and application of health services utilization information; use of computers; public health management; and financial management. (v) Clinical in-service training would use the 16 existing and modified UNICEF training modules as well as about four new modules in multiple clinical subject areas. IDA would finance the entire costs of the district component, with the exception of the civil works, where there would be a cost-sharing with the Government. The implementation of the component would be contracted to UNICEF, in view of its special position due to its successful ongoing experience with the implementation of such a program elsewhere in the country. The two objectives of this arrangement would be: (i) for UNICEF to have major responsibility (with the chief doctors, other health staff and the communities) for the success of the investments in the five pilot districts; and (ii) for the MOH staff to learn more about the design and implementation of such PHC reform programs, and so to increase the Government's capacity for later extending such reforms to other districts of the country. Component 3: Project Coordination and Evaluation (US$1.0 million) The proposed project would support the operations of a Project Coordination Unit (PCU), staffed by consultants, and also a strong monitoring and evaluation program. The MOH has already appointed a PCU Director, an accountant and a procurement specialist, and there would also be a full-time project training coordinator to help organize the extensive number of training and other public events anticipated under this project. The evaluation of the project would be the responsibility of the MOH, assisted by international technical assistance. For Component 2, there would be a series of household surveys and of observational studies (of clinic operations and physician practices) at baseline and at the end of the project in both the intervention districts and the comparison districts to assess the impact and outcomes attributable to the project. Local consultants would be used to implement the surveys/studies and to collect the data for project evaluation. The results from the household surveys could also be used to validate other sources of data by comparing to similar information collected through official reporting sources. 2. Key policy and institutional reforms supported by the project: The key interventions included for the district component are based on those included in the UNICEF supported project which began in These are based on the following principles: the health system at the district level has to be leaner, better managed and more efficient; there should be only two levels of care at the district level ("hospitals" and "health centers"); disease management should be less hospital oriented; ambulatory care should be more effective and of good quality; health programs should be aimed at groups most at risk; the health information system should be reliable and action oriented; the community should be more involved in the organization of care through health councils; official fees, with clear exemption principles and rules, should be introduced at government facilities; there should be a revolving drug fund, as part of which health service users would be required to pay for drugs; and facilities, beds and staff should all start to be rationalized. The reformed approach, therefore, incorporates the following: (i) rationalization of health facilities, particularly at the PHC level; (ii) the gradual rationalization of personnel at the PHC level; (iii) the establishment of a basis for reform of pharmaceutical usage; (iv) improvement in the access to essential 12

17 primary health care; (v) the exploration of innovative ways of funding health care services while insuring equity; (vi) the continuation of improvements to the information system; (vii) improvements in the quality of primary health care services through better diagnostic and treatment capabilities; (viii) improvements in the quality of "preventive" health programs; (ix) an increase in the management capacity of health personnel; (x) an increase in community participation in the provision of health services; and (xi) an increase in stakeholder commitment to these reforms. The basic strategy of the proposed IDA-supported project would be to deepen, extend and start to scale up the approach already being taken by UNICEF. While implementation is far from completed in the initial districts, the results are generally positive and have resulted in significant improvements in primary health care delivery and quality of care. 3. Benefits and target population: The main benefits of the project would be: (a) The building up of health reform capacity. In principle, these benefits would accrue to all users of publicly provided or publicly funded health services. The maximum benefits would accrue to the poorer groups who are particularly disadvantaged at present. (b) Improved quality of care for the populations in the target districts, with a demonstration of viable models for the rest of the country. This would include better quality of health services in the selected districts; increased cost effectiveness of services provided; and improved access for the populations there. As noted above, the targets for the project are as follows: (i) the number of patients seen at reformed PHC facilities would increase by 40 percent; (ii) the proportion of infants in the population that receive immunization (DTP3) on time would increase by 20 percent; (iii) the proportion of pregnant women in the population who have at least six prenatal visits will increase by 30 percent; (iv) the proportion of adult patients seen in the reformed PHC facilities for whom a blood pressure is recorded in the patients' medical records would increase by 50 percent; (v) the proportion of outpatients seen in the reformed PHC facilities who receive antibiotics by means of injection will decrease by 50 percent; (vi) the per capita number of hospital and polyclinic beds will decrease by 25 percent; and (vii) patient satisfaction with access and quality of care provided in the reformed PHC facilities will increase by 20 percent. The content and design of the proposed project relates directly to the main priorities of the World Bank's Health, Nutrition, and Population (HNP) Sector Strategy. In the first place, the largest component of the project will focus on improving the health, nutrition and population outcomes in Azerbaijan by improving access to PHC services. The project would establish and equip up to 16 newly developed outpatient clinics (each clinic serving approximately 8,000-10,000 population) in each of five districts outside the capital city. The clinics would address the leading causes of morbidity and mortality in the country by providing PHC services including (but not be limited to): maternity care; preventive and curative care of the newborn, infants, and children; reproductive health; prevention and management of STIs/HIV/AIDS; prevention and curative care for leading infectious diseases including TB, malaria, diarrhea, and acute respiratory diseases; prevention and management of cardiovascular diseases; and, prevention of iodine deficiency. The project design aims to improve the health of poor populations specifically by emphasizing service provision outside of the capital city and focuses on districts that are primarily rural and/or are geographically isolated (e.g., Nakhchevan). The districts were selected for the project using qualitative and objective measurable criteria that included proxy indicators for poverty (such as the infant mortality rate). The project staff would also develop guidelines and criteria by which community committees could assign exempt-from-payment status for poor families and vulnerable populations at the PHC clinics. Exempt patients would also not need to pay for drugs prescribed from the project formulary list. All patients seen in the PHC clinics with active tuberculosis would receive their drugs free-of-charge. 13

18 Second, the project would enhance the performance of the health care system in Azerbaijan b,y promoting the equitable access and use of preventive and curative HNP services that are affordable, effective, well managed, of good quality, and responsive to client needs. The project seeks to improve the management of the health care system by providing approximately 1,300 hours of training in the first two years to district health authorities (i.e., local health managers) on management and clinical topics. In addition, all physicians in the participating districts would undergo approximately 1,200 hours of clinical in-service training in the first two years related to topics in PHC and to the leading causes of morbidity and mortality in the country'. The courses would emphasize outpatient, primary care services instead of inpatient, specialty care that characterizes the current system of medical care. The uptake and use of new knowledge of skills would be continuously monitored by clinical facilitators in each district that will visit each project PHC clinic on an ongoing and routine basis to observe clinical practices and clinic services provided. The clinical facilitators would also provide on-site, "at-the elbow" in-service training to reinforce the topics and approaches presented in the group in-service training. Responsiveness to patient and community needs would be addressed directly through the development of community committees in each district that would actively participate in the ongoing process of the assessment of health care needs in their communities, in the development of the district-specific rationalization plans for health care services, and in the assignment of exempt status for poor people and vulnerable populations. Third, the project would begin to assist the Government to secure a more sustainable system of health care financing and to maintain effective control over public and private expenditures by stimulating a national dialogue on policy changes necessary for health reform in Azerbaijan; to generate support in the central government for the reform process itself; to introduce a common understanding of terms and objectives (e.g., productivity and cost-effectiveness); to perform critical assessments related to health financing reform; and to strengthen capacity in the MOH to plan, implement and evaluate health reforms. 4. Institutional and implementation arrangements: The implementation period for this project would be 36 months. The executing agency would be the MOH through a Project Coordination Unit (PCU). There would be a contract between the MOH and UNICEF for the implementation of the district health service reforn component, although the civil works would be handled outside of the UNICEF contract and by the PCU. The Task Force which has had responsibility for the design of the project would be converted into a Steering Committee for the project. The main responsibility of the Steering Committee would be to serve as the project advisory body to guide the overall implementation efforts of the Health Reform Project. It would not have line functions or responsibilities, but rather, would: (i) help to ensure the smooth and efficient implementation of the project, including the arrangements among the pilot districts for the implementation by UNICEF of the district-level component; (ii) monitor the work-plan and the progress of the project activities; (iii) advise the MOH and the PCU on strategic decisions related to project implementation; (iv) contribute to the dissemination of knowledge, information and educational materials gained from the project to MOH officials in Baku and elsewhere in the country; (v) assist in the evaluation of the impact of the project, and consider the lessons of experience from the project and their implications for further health policy reform; and (vi) enhance the understanding and raise the level of awareness throughout the health sector of the reform activities being conducted by the MOH through the project. The Steering Committee would be appointed by the Minister of Health and would report directly to him. Steering Committee members would constitute senior health officials, a representative of the World Health Organization, and other stakeholders, including non-government organizations (NGOs) working in the health sector. The PCU Director would serve in an ex-officio capacity. The Committee would be chaired by a Deputy Minister of Health. The PCU Director, in consultation with the Chairman, would be responsible for preparing the agenda and providing the necessary background materials to the Committee members. 14

19 The financial management functions will be carried out by the PCU and by the UNICEF local office in Baku. UNICEF's current financial management arrangements comply, in general, with World Bank financial policy. An action plan has been discussed and agreed with UNICEF for the establishment of separate project accounting records, the design and generation of PMR reports, and auditing arrangements. An entirely new financial management system is being created for the PCU. A second action plan for this has been agreed upon between the World Bank and the Borrower. These action plans are designed to ensure that: there are capable financial management staff in the PCU and at UNICEF; there are separate project accounting records which are maintained according to international accounting standards and which are capable of generating the Bank's reporting requirements; the financial policies and procedures and internal control mechanisms are compliant with the Bank's financial and procurement policies and guidelines; there are adequate financial, procurement and project physical progress reports; and there are annual and independent auditing arrangements for the project. To meet the Bank's financial management requirements, important steps in both action plans need to be implemented prior to Board presentation. The details are included in Annex 6. D: Project Rationale 1. Project alternatives considered and reasonsfor rejection: Before settling on the proposed LIL project, various alternative types of project were considered. The main alternative was a traditional investment project, but it was felt that a LIL is better tailored to the gradual development of capacity and to a "learning by doing" approach. A second option considered was a sectoral adjustment operation (SECAL), in view of the major sectoral and policy issues to be addressed. However, as this would be the first assistance by the World Bank to the MOH, it was felt that there should be a modest and carefully phased approach to working in the sector initially. A third option considered was a smaller project, with support only to either the district component or the national health reform component. However, it was decided that there are important links between the proposed institution building activities and the proposed district component: the former is necessary to build capacity within the MOH, while the latter is important for the population to actually feel and experience the advantages of the reformed services sooner rather than later. The strategy is also for the MOH officials to learn directly from the experience of the district-level component. Another debate concerned the selection of the project components. One option would have been to focus on health promotion and prevention as well as, or instead of, health service reform. The rationale for that design would be to focus on some of the underlying causes of ill-health, such as ignorance and inappropriate life styles which contribute to ill health. Activities addressing those issues are largely outside of the health sector. However, most diseases (including some which are now re-emerging) are well-suited to a PHC approach, which envisages well-trained health staff working in properly equipped medical facilities, able to deal with patients of all ages, diagnosing and treating a wide range of diseases with appropriate medication, and referring fewer patients to secondary services. While there would, undoubtedly, be many benefits which could be derived from improvements in health education and disease promotion, it was felt that the higher priority at this stage is to make efficiency and equity improvements and reforms in the basic health care delivery system. Another option would have been to focus on a more serious revamping of medical education, and specifically the development of "Family Medicine" as a medical specialty to replace the present system of multiple specialists providing PHC services. While it is recognized that full rationalization of PHC would require this, it was also felt that that would be beyond the scope of the proposed project. There is presently little impetus and support for such a radical change; and even if a new curriculum could be developed during the project period, no graduates from it would appear for several years after. Instead, it is proposed that the focus of education should be on specific in-service training. In this way, specific new PHC treatment protocols could be introduced to the staff presently responsible for their implementation. 15

20 2. Major related projects financed by the Bank and/or other development agencies: Sector Issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Progress (IP) Development Objective (DO) Bank-financed Education Reform Project S S Pilot Reconstruction Project S S Structural Adjustment Credit S S Other development agencies UNICEF PHC reform project Satisfactory IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: Lessons from other World Bank supported projects in Azerbaijan have been taken into account in the conceptualization of the proposed project. First, it is clear that high-level borrower commitment is critical, and there has been an official letter from the Prime Minister requesting World Bank assistance in the health sector. This request was also confirmed personally by the Minister of Health. Second, the country in general and the health sector in particular are challenged with some deep-seated problems of govemance. However, the experience of the ongoing UNICEF pilot health reform project has largely been positive, and so there is some expectation that the pilot could be expanded successfully into more districts. Third, there is also concern in the country about costly outside technical assistance (TA). In the design of the project, steps have, therefore, been taken to try to ensure that the amount of outside TA is minimized in the direct cost of the proposed IDA Credit. The management contract between the MOH and UNICEF is also considered to be very cost-effective, as the technical assistance is mostly national rather than international, and the overhead charge is considerably below the typical international level of commercially-oriented firms. Finally, despite the limited project implementation capacity in the MOH and the need for considerable staff training in Bankrelated procedures, a good start has been made in advance of project negotiations. The key PCU staff have already been appointed through a transparent process, and training activities are already underway. Lessons from the design and implementation of health projects in the region have also been considered in the design of the project. There has recently been an external review for the World Bank of the health reform experience in the ECA Region. The main implications of this analysis are that there is need for the various health service reforms planned under the proposed project to be well coordinated and integrated, and for there to be clear and strong government support for them. There is also need to acknowledge the existing level of informal user payments, and to design fee payment systems and schedules which take this into account. A good start on this has been made through the UNICEF program. There is also need to change the incentive structures within the health system for providers to give quality health care to all, for them to have continuity in the implementation of the reforms, and to maintain a strong public sector role in the system. Unfortunately, the systemic work on reforming the public sector in Azerbaijan and decompressing salaries and increasing incentives to officials has moved less quickly than originally hoped, but there has been some important progress made in the health sector through the UNICEF pilot program and there are some signs now that the broader program of reform may be accelerated slightly. 4. Indications of borrower commitment and ownership: When Mr. Wolfensohn met with the President of Azerbaijan in May 1999, the President requested World Bank support to the health sector (in parallel with the assistance being given to the education sector). The letter from the Minister of Health in December 1999 was also an important step in the confirmation of 16

21 borrower commitment, as was the follow-up letter from the Prime Minister in June In August 2000, there was a further letter from the Minister of Health with a project proposal attached. The Task Force which was established for the design of the project comprised both MOH staff and also representatives of external organizations (specifically WHO and UNICEF), and a considerable amount of work was achieved by the Task Force in a relatively short period of time. This is a demonstration of national ownership of the project concept. 5. Value added of IDA support in this project: The potential role of the World Bank in the health sector of Azerbaijan could be particularly significant. Due to the restrictions imposed by the US Foreign Assistance Act on aid to Azerbaijan, USAID (which is supporting health reforms elsewhere in the region) has been less active than usual (although there has been some indirect support channeled through other agencies). The WHO has an important program of assistance to Azerbaijan and it has helped considerably through the provision of some key technical assistance in the preparation of the proposed project for IDA support, but its budget is highly constrained. UNICEF has already implemented the pilot PHC reform program in five districts, but even its work has not been focused much on broader systemic issues such as health financing, and there has been only limited capacity building in the MOH due to budget constraints. Apart from the work done by UNICEF and the WHO, the work that has been done by donors and NGOs in supporting health programs has been mostly concentrated among the displaced population, and has had limited focus on structural issues in the health sector. The World Bank is seen by many as an institution with the expertise and financial leverage required to support a process of health reform, especially if done in strong collaboration with other external organizations such as the WHO and UNICEF. There is also a critical need to link the health reform process with poverty reduction activities, and specifically with the IPRSP/PRSP process which is now underway. In this context, there is potentially high value added from World Bank support. In addition, the World Bank's procurement and disbursement rules could inject greater transparency and discipline into the health sector, where presently the cost effectiveness of public procurement may be limited. E: Summary Project Analysis: 1. Economic: The proposed project, as a LLL, has not been subjected to a very detailed economic evaluation. However, as part of project preparation, there has been a preliminary review of some of the main economic aspects of the strategy being proposed. This includes a review of the experiences so far in the sustainability of funding at the community level, and an initial analysis of the balance between one-time development costs and operating costs in the district component. There was also a preliminary analysis of the replicability of the approach. It was concluded that the implementation of a relatively strong package of reforms in a total of about five districts seems to be appropriate, given the amount of money available and the other constraints which need to be faced. This should provide a wide and effective sample for refinement of the "model", but yet would be cost-effective and feasible to implement and monitor. This analytical work would be followed through during project implementation, and it would be extended to examine the cost-effectiveness of the facility and service rationalization activities; and to assess the fiscal impact of the specific district interventions. This further work would also contribute to the capacity building activities envisaged under the national component of the project. There are some other major economic issues facing the sector which have been identified as major issues but which have not yet been analyzed in any detail. For example, the Government's proposal to introduce health insurance financed from a payroll tax contribution could result in either a squeeze on current social transfers financed from the payroll tax (if the aggregate contribution rate is maintained), or risk negative impacts on the productivity of enterprises and their preferred factor balance of production. As it is 17

22 unlikely that the aggregate tax burden would be increased, it would be necessary to ensure that the proposed introduction of medical insurance (if it takes place) is done in a way that takes proper account of the social transfer requirements elsewhere in the consolidated budget. The TA provided under the project should assist in assessing health insurance within a wider context of the diversified financing sources for the health sector. Also, as the health sector is one of the larger public sector employees presently, proposals to rationalize staffing over time need to be developed with due consideration for the labor market implications of reforms. Work on this issue would be continued under the proposed SAC II civil service reform component, to the extent that that work proceeds. 2. Financial: Cost recovery is an important financial issue, in fiscal and social terms. Data from several sources indicate that about half the population do not seek health care from the formal health care system when they are acutely ill. There are various reasons, including the high informal costs of care, lack of essential drugs and equipment, and poor quality of service and facilities. In particular, however, survey data indicate that informal payments on health care are around four times the total budgetary expenditure. Unlike a number of FSU countries, the Constitution of Azerbaijan does give leeway for the introduction of user fees in public health facilities, and (as noted above) the MOH has already developed a preliminary user fee schedule. However, the development of the fee schedule needs further analytical work, including on the exemption schedules and modalities. The proposed project would extend the work already being piloted through the existing UNICEF PHC program. One of the main features of this would be the creation of district and community steering committees, which would be formal representatives of the communities and insure that the communities' needs are being met. Community involvement would, therefore, be a critical part of the process of considering health financing options at the local level. In particular, the committees would play a major role in the planning of services and especially in the setting of prices and exemption policies for services and drugs. The proceeds from drug sales in the RDFs would be used solely for purposes of replenishing drug supplies in the RDFs using the project formulary. Some vulnerable patients and populations would be identified in each district to be exempt from payment for the RDFs. The Government would also be strongly encouraged to make all first line TB treatment drugs free of charge to all TB patients. 3. Technical: The district-level component of the project is based on an extension of the ongoing UNICEF program for strengthening PHC, combined with the rationalization of secondary facilities. However, as part of the preparation work for the project, there was a review of the technical aspects of the set of interventions. In particular, it was decided by the Task Force that there should be an additional focus on some particular noncommunicable diseases, and especially cardio-vascular disease. The training plan has been adapted accordingly. During project implementation, there would also be further work done to assess whether additional incremental changes should be introduced to the emerging district health reform "model". In particular, consideration would be given to the possible introduction of family doctors, and to ways to strengthen the sustainability of the new system both financially and managerially. The reforms already introduced by UNICEF may, therefore, be seen as initial measures, with the proposed project testing additional steps and options in the rationalization process for the district health services. 4. Institutional: The existing institutional capacity in the central MOH and local health authorities to design and implement PHC reforms is limited, and strengthening it would be an important contribution of the project. To achieve this, a PCU has been established within the MOH to work closely with all of the agencies involved in the delivery of the project activities. The PCU will be responsible for facilitating project 18

23 implementation, in particular, to operate a sound accounting and financial management system, to produce the required financial statements to monitor eligible expenditures and meet audit requirements, and to ensure that the procurement of works, goods and services is conducted according to World Bank guidelines. The main organizational issues that the PCU will have to confront are: (i) the need for incentives for those involved in the project to make and sustain the policy and organizational changes required; (ii) the lack of policy analysis and planning capacity within the MOH; and (iii) the inadequate or inaccessible data about the sector, making policy analysis, planning, monitoring and evaluation difficult. It is not expected that the PCU would last for more than the duration of the project, and the aim is that it should build up capacity in the MOH for project-related monitoring and evaluation, the coordination of training, the strengthening of the management information system, and health financing system reforms. The capacity building work would use the UNICEF experience as the foundation, with the two components of the project being mutually reinforcing. The PCU has one Procurement Officer whose procurement experience is limited at present. To augment this, the Procurement Officer will be sent abroad for intensive procurement training. Additionally, a part-time, expatriate procurement specialist will be hired as needed, particularly during peak project implementation activities in the first year of project implementation. One of the key features of the project is the involvement of UNICEF in the implementation of the district-level component of the project. As mentioned above, the principal PHC reforms to be implemented at the district level have already been started under the ongoing UNICEF project. UNICEF staff have been instrumental in implementing and monitoring these reforms, and are intimately familiar with both their content and "lessons leamed". Furthermore, strong relationships have already been developed with the initial implementing districts, facilitating communications and clarifying expectations, etc. Appropriate monitoring indicators, training methodologies, and equipment lists have been developed. UNICEF has also demonstrated a capacity to produce health education materials; and it can facilitate the procurement of essential drugs and equipment through UNIPAC. However, one of the main aims of the district-level component of the project is to ensure that the MOH leams more about these reforms and builds up its institutional capacity to replicate such reforms elsewhere in the country in due course. The proposed contract between the MOH and UNICEF, therefore, emphasizes this strategy. S. Social: The main social aspects of the proposed project relate to the district component, where implementation would be modelled on the ongoing UNICEF experience. The first step for implementation would be a structured, self-administered analysis of the capacity and resources available in each district to implement the intended reforms. Needs assessment instruments would be designed, based on those already used by UNICEF in the existing districts where PHC reforms have been introduced, and a methodology developed for its imptementation. An orientation seminar would be held in each district to explain the nature of the anticipated reforms, and the methodology to be employed with the needs assessment. Project team staff would provide support and follow-up with assistance from local consultants with experience in the needs assessments performed in the UNICEF pilot. Upon completion of the needs assessment, another seminar would be held in each district to present the findings, and to discuss the same basic concepts of reform. Further material inputs to each district would be based on the district-specific needs assessments. As part of the health financing review work, there would also be a careful assessment of the willingness and ability of communities to pay for different health services. In addition, there would be an assessment of the poverty impact, probably through household surveys. One particularly sensitive issue would be the community and health service impact of closing health facilities as part of the district health service reform plans. If it is determined that any health facilities should be closed, there would be a full assessment carried out in conjunction with the local community. 19

24 6. Environmental assessment: Environmental Category [1 A II B [XI C The project environmental assessment rating is Category C. 7. Participatory approach: The implementation district component would follow the ongoing UNICEF experience, which involves considerable community consultation and participation, consistent with PHC principles. The local government administrations and the health service providers in the selected districts would also be heavily involved throughout the project in developing and carrying out district implementation and restructuring plans. The needs assessments and district-specific rationalization plan would be completed through a joint effort involving local health staff, community members, and othet key local stakeholders supported by project staff. Local consultants would be utilized from the former UNICEF pilot districts that have experience in the rationalization process. These plans would be a pre-requisite for further implementation of reforms in the districts, e.g., funds for refurbishment of facilities would not be available for use until rationalization plans are completed by the districts, approved by the MOH, and reviewed for "no objection" by the World Bank. Annual seminars would be held in each district to review progress to date, and reinforce the basic concepts of reform as discussed at the national level seminars. In the same way, these seminars would serve as both training to stimulate support and understanding of the reforms. There is already a Primary Health Care Advisory Committee of key stakeholders which would provide advice and guidance to the PCU and the MOH, generally in the development and implementation of these plans. The following table shows how key stakeholders would participate in the project. Beneficiaries/community groups Intermediary NGOs Preparation Implementation Operation Social assessment in target COLT COL COL districts. MSF Belgium; UMCOR; IRC; CON2 COL COL Save the Children; Relief International. Academic institutions Azerbaijan Medical University CON CON CON Local govermnent Local govermments in selected COL COL COL districts Other donors LUNICEF; UNDP; IFRC; GTZ COL COL COL 1/ COL - Collaboration 2/ CON - Consultation F: Sustainability and Risks 1. Sustainability: The long-term sustainability of the district health service reforms introduced by this project depends upon: (i) adequate fiscal resources to maintain the refurbished facilities and new equipment, and to ensure an appropriate inventory of necessary drugs and other medical supplies; and (ii) support by the community and local leaders of the changes in the revised patterns of practice and standards of care provided by physicians and other health workers. These issues, however, need to be considered within the broader context of the health care financing system. This project would not provide comprehensive solutions to the fundamental issue of sectoral sustainability; but rather, as noted earlier, it would begin simply to assist the Government to explore how to secure a more sustainable system of health care financing, with better control over public and private expenditures. This would be done by stimulating a national dialogue on policy changes necessary for health reform in Azerbaijan; generating support in the central govemment for the reform process itself; introducing a common understanding of terms and objectives; performing critical assessments related to health financing reform; and strengthening the capacity in the MOH to plan, implement and evaluate health reforms. For example, the project would support observational tours for top-level and MOH counterparts to 20

25 other CIS or Eastern bloc countries where more efficient and cost-effective health care delivery models have been implemented. Initial policy reform efforts would target the development of appropriate standard treatment guidelines and protocols for PHC; the development of policies related to essential drugs, drug formularies, and rational drug use; the development of options for acceptable means of increasing financing to the health sector; and the introduction of a process of rationalization and optimization of existing health facilities and personnel. Additional activities would include support for a series of meetings and workshops between the national MOH and district levels to promote increased decentralized decision-making capacity and to better define the appropriate level of decision-making related to health care and pharmaceuticals. Support would also be provided to initiate the development of a more effective management information system and communications to manage the reformed health services, as well as to enhance monitoring, supervision and staff development. 2. Critical Risks (reflecting assumptions in the fourth column ofannex 1) Risk Risk Rating Risk Mitigation Measure From Outputs to Objective (Goal to Bank Mission) There is need for investment in social N Review of epidemiological pattems and usage of development and poverty alleviation health services by the poor as part of poverty measures, and also increased support assessment update and PRSP. for the public sector institutional reform to achieve a reduction in poverty in the country. (Objective to Goal) The reformed primary health care M Broadening of policy development through services are needed to improve health discussions with wide range of stakeholders and outcomes and increase the productive identification of vested interests which may be capacity of the poor. opposed to the extension of the reforms. Achievements in the targeted districts N Replicability analysis as part of project design work. need to be generalized to the rest of the district network. The increase in the knowledge of Strong and front-loaded capacity building comnponent; officials in the MOH and in the targeted M close collaboration with partner institutions with strong districts need to lead to wider support for field presence; and choice of lending instruments that health sector reforms. supports gradual and sustained capacity building. (Outputs to Objective) M The health sector needs to be managed in Sustained policy dialogue and possibility of additional ways conducive to the lessons being assistance if LIL project is successful. leamed from the reform activities, and to the new knowledge being used effectively. Funding needs to be available to sustain H Design and piloting of provider payment mechanisms the health services and infrastructure which improve incentives and reform of health after project ends. financing strategy based on analytical work carried out. The public needs to see the benefits of N Close consultations with the public before and during the improved services and want to utilize the project implementation period. them. (Components to Outputs) There is need for continued interest in, H Close preparatory work with Minister and staff; and and support for, health reform activities broadening of policy development base through by the Ministry of Health and other parts discussions with other stakeholders as well as the of the Government. MOH. 21

26 Risk Risk Rating Risk Mitigation Measure There is need for adherence to the agreed M Well selected PCU and strong World Bank supervision. training plan and technical assistance schedule. There is need for the targeted districts to M Selection of districts for proposed inclusion in the participate in the reform program, and to project done in close coordination with the districts agree to strengthen and rationalize and using UNICEF expertise too. primary health care services. The health workers need to agree to N Consultation with health care workers as part of participate in the training and project preparation process. development of new services. There is need for the Ministry of Health M Well selected PCU; strong World Bank supervision; institutional capacity to be developed and close coordination with UNICEF. within the required timeframe. There is need for appropriate H Strong reliance on World Bank procedures with well accountability in use of project funds and inputs. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) selected PCU, UNICEF involvement, and close World Bank staff supervision. Building up of procurement and accounting capacities in the PCU in line with the procurement and financial management assessments. Overall, the proposed project should be viewed as being of high risk. The most important risks relate to the extent of borrower commitment to carrying out the project in a transparent manner and the wealc institutional capacity of the MOH. Many of the staff in the MOH are definitely committed to collaborating with the World Bank and there is some genuine support for a project; but this would be the first such project in the health sector in Azerbaijan and its implementation would clearly face substantial challenges. 3. Possible Controversial Aspects: Possible Controversial Aspects (Project Alert System): Risk Type of Risk Risk Minimization Measure Risk Rating Facility S S Local and national level consultation process. rationalization The revolving drug fumd S S While this could be controversial, there are already high levels in public facilities of infornal payments being paid, and some official user charges are also already in place. The main way of dealing with any possible controversy about health financing is through the analytical work on health financing, and also through building upon the largely successful experience of the UNICEF pilot I district project where RDFs are already in place. Type of Risk - S (Social), E (Ecological), P (Pollution), G (Govemance), M (Management capacity), 0 (Other) Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 22

27 G: Main Credit Conditions 1. Board Conditions: (i) Establish an adequate financial management system for the project. (ii) The MOH and UNICEF agreement in principle on the proposed Agreement, acceptable to IDA, for the implementation of the District Level Primary Health Care Reform Component. 2. Effectiveness Conditions: (i) The Government deposit of the equivalent of US$40,000 in the project account as the Government's initial counterpart cash contribution for CYO1. (ii) (iii) The MOH selection of an auditor for the project. The MOH and UNICEF execution of the Agreement for the implementation of the District Level Primary Health Care Reform Component. 3. Dated Covenants: (i) The PCU would submit, quarterly, a progress report and a work plan, including procurement, budget and financing plans, for activities to be carried out during the following quarter, for review by IDA. (ii) The PCU would ensure that the financial statements, special account and the SOEs are audited by an independent auditor acceptable to IDA, in accordance with auditing standards acceptable to IDA, and would submit an audit report within six months after the end of the audited fiscal year (not later than June 30 of each year). (iii) The MOH would produce a project formulary (essential drugs list) by March 30, (iv) (v) (vi) (vii) The MOH would provide to IDA a reform and rationalization plan for each of the five pilot districts by March 30, The PCU would prepare quarterly Project Management Reports (PMRs) which detail project financing needs and sources for the subsequent quarter of project implementation, and describe the financial situation of the project in terms of actual versus planned expenditures for each project activity by June 30, The MOH would produce a report analyzing health financing and options for the future by December 31, The PCU would draft a mid-term review report by December 31, 2002, and would carry out a mid-term review jointly with IDA by June 30, H: Readiness for Implementation The project has been prepared according to an accelerated timetable, suitable for a LIL, and the MOH is now working hard to finalize project plan details and commence implementation. The Director of the PCU has been appointed after a competitive selection process. The MOH has identified suitable office accommodation for the PCU. 23

28 I: Compliance with IDA Policies This project complies with all applicable Bank policies. d Michael Mills Armin Fidler Team Leader Sector Manager Country Director 24

29 Annex 1: Project Design Summary AZERBAIJAN: HEALTH REFORM...h, : e.. '';-icatois M r ' Cr t. ~~~-Eystivi1ow. mtlftons' Sector-elateed -e ca torindicator from Goal Itor Bank Investment in social (i) Reduction in poverty. Household, individual and Investment in social development and poverty (ii) Increase in public community income and development and poverty alleviation measures; and support for the reform opinion surveys, with alleviation measures, and increased support for the measures. particular focus on the poor increased support for the radical reform of public sector and vulnerable. public sector institutional institutions. reform would lead to a reduction in poverty in the country. FopIl.oXw,on pqevlo pon.t Objective:._.,.-- Imnproved district primary health care services throughout the country. * u ; < t I -...~Joct 0 Project Devel6piimet Outcone I/impact Pocreports (from Objective to Obj~~ctlye: l,of (..t,;t C?x...'.e.....$',6 g In~~a' 00oirs:- G6al Increased knowledge of (i) Improvements in access, (i) Assessment (through (i) The use of the reformed Ministry of Health officials in quality and utilization of surveys of patients and primary health care appropriate strategies to primary health care services health care workers) of the services would improve strengthen and reform district in the targeted districts. quality of primary health health outcomes and primary health care services. care services provided in increase the productive the targeted and control capacity of the poor. districts. (ii) Increased knowledge (ii) Review of primary (ii) Achievements in the among the staff in the MOH health care planning targeted districts can be and the targeted districts capacity in the Ministry of generalized to the rest of about strategies for Health and targeted the district network. strengthening and reforming districts. (iii) The increase in the primary health care (iii) Development of mid- knowledge of officials in services. term health reform strategy the MOH and in the and health sector note for targeted districts would the PRSP. lead to wider support for (iv) Development of annual health sector reforms. work plans by the district authorities. 25

30 Output from each n Ou ut-p lndictrs: ProjDt _O monpoet * b~tie Component 1. (i) Regular meetings of (i) Plan for the reform and (i) The sector is managed (i) Increased knowledge and Ministry of Health and inter- strengthening of primary in ways conducive to the capacity in Ministry of Health ministerial colleagues to health care services. lessons being learned from officials to design and discuss primary health care (ii) Report on health the reform activities, and implement appropriate reforms. financing issues and options to the new knowledge primary health care reforms. (ii) The development of a services. being used effectively. model and plan for primary (iii) Report about drug health care reforms for the prescribing practices with country. recommendations for (iii) Ministry of Health pharmaceutical sector officials trained to become reform; and national familiar with health essential drug policy and financing options and issues. formulary. (iv) The adoption of a national essential drug policy and formulary for use at facilities supported by the Ministry of Health. (v) Hardware for management information system installed and key Ministry of Health and targeted district staff trained to use it. Component 2. In the targeted districts: (i) (i) Assessment of utilization (i) Funding is available to (i) Provision of improved An increase of 40% in the patterns in the target sustain the health services primary health care services in number of patients seen at districts by household and infrastructure after the targeted districts by reformed PHC facilities. surveys. project ends. physicians and other health (ii) An increase of 20% in (ii) Review of the quality of (ii) The public see the workers. the proportion on infants in health services and facilities benefits of the improved (ii) Improved utilization by the population that receive in the target districts by services and want to utilize the public of primary health immunization (DTP3) on observational studies. them. care services and facilities in the targeted districts. time. (iii) An increase of 30% in the proportion of pregnant women in the population who have at least six prenatal visits. (iv) An increase of 50% in the proportion of adult patients seen in the reformed PHC facilities for whom a blood pressure is recorded in the patients' medical records. (v) A decrease in the proportion of outpatients seen in the reformed PHC facilities who receive antibiotics by means of injection. 26

31 (vi) A decrease of 25% in the per capita number of hospital and polyclinic beds. (vii) An increase of 20% in patient satisfaction with access and quality of care provided in the reformed PHC facilities. ProjeWt Componentp s J Input (dt for Poject reports: (from Components $tubcomponents: ea (co ude fr Po Mto O.utputs Component 1. IDA $0.87 million Progress and (i) Continued interest in, Capacity Building for Health implementation reports by and support for, health Policy Reform. the PCU and Ministry of reform activities Health. by the Ministry of Health and other parts of the Government. (ii) Adherence to agreed training plan and technical assistance schedule. (iii) Ministry of Health institutional capacity is developed within the required timneframe. Component 2. IDA $3.25 mnillion Progress and (i) The targeted districts District Level Primary Health Counterpart funds implementation reports by participate in the reform Care Reform. $0.38 million the PCU and UNICEF. program, and agree to strengthen and rationalize primary health care services. (ii) The health workers agree to participate in the training and development of new services. Component 3. IDA $0.88 million Progress, implementation Appropriate accountability Project Coordination and Counterpart funds and evaluation reports by in use of project funds and Evaluation. $0.13 million the PCU. inputs. 27

32 Annex 2: Detailed Project Description AZERBAIJAN: HEALTH REFORM Component 1. Capacity Building for Health Policy Reform ($0.87 million) The primary objectives of this component are to stimulate a national dialogue on policy changes necessary for health reform in Azerbaijan; generate support in the Govemment for the reform process itself; introduce a common understanding of terms and objectives (e.g., productivity and cost-effectiveness); perform critical assessments related to health financing reform; and to strengthen capacity in the MOH to plan, implement, and evaluate health reforms. (i) Analysis and Planning Development. One of the key aspects of health care reform would be the development and implementation of national policy reforms to improve the access to, and quality of, PHC. Initial efforts would target: the transition from an emphasis on specialised, inpatient/polyclinic medical services to outpatient, primary and preventive care services; the development of appropriate standard treatment guidelines and protocols for PHC; the development of policies related to essential drugs, drug formularies, and rational drug use; development of options for acceptable means of increasing financing to the health sector; and the introduction to the rationalization and optimisation of existing health facilities and personnel. The project would support observational tours for top-level and MOH officials particularly to other CIS or Eastem bloc countries where more efficient and cost-effective health care delivery models have been implemented. The tours would focus on better defining appropriate health care services and models for Azerbaijan with an emphasis on PHC. Officials would also be supported to attend key World Banlc conferences. In addition, annual national stakeholders seminars, as well as an intemational seminar at the end of the project, would be undertaken to assess progress, synthesize lessons learned, and reinforce the basic concepts of health reform. A national plan for PHC would be developed by the MOH during the course of the project. Additional activities would support a series of meetings/workshops between the national MOH and district levels to promote increased decentralised decision-making capacity and to better define the appropriate level of decision-making related to health care and pharmaceuticals, i.e., which decisions are reserved for the central level, and which fall within the domain of the districts. Topics for consideration would include (but not be limited to): local health planning based on local needs; local management of health budgets and expenditures; rationalization and optimisation of health facilities, personnel and services. A final report with recommendations for policy reforms, related to decentralised decision-making in health, would be completed by the end of the project. (ii) Health Financing Reform. The proposed sub-component would include four main activities: (a) the financial planning of the health care delivery system; (b) the development and implementation of mandatory health insurance; (c) an analysis of private health expenditure and development of health policy to overcome social disparity; and (d) the training of local specialists in health finance and economics. The first activity would include analysis of a basic health care package, and that work would comprise: (i) designing a basic package of services; (ii) exploring altemative boundaries of coverage eligibility for the poor and medically needy; and (iii) training a cadre of local experts which can update these on a regular basis. It would also include the further development of the rationalization plans for the selected 28

33 districts. This would be based on the initial plans developed under Component 2 of the project, but the work would be more comprehensive and would lay the foundation for a further round of rationalization including at the district hospital level. Finally, it would also include a study of resource allocation scheme to develop altemative models and approaches to equalizing resource allocation across geographic areas using criteria other than Soviet normatives related to inputs such as beds and staff. The second activity would be to review the situation relating to mandatory health insurance, help refine as necessary and implement the MHI law and the regulatory apparatus, and help develop institutional capacity within the country. The third activity would consist of a survey of consumer and household expenses on health, and its findings would serve as the base for developing regulations of both formal and informal markets of health services to help improve 'vulnerable social groups' access to health care. Finally, there would be support for two types of training: practical skills based tools that can be immediately applied, and methodological skills that will be used mainly by applied health service researchers and policy makers. (iii) Pharmaceutical Policy Development. Intemational technical assistance and local consultants would be used to assist in the development and piloting of new pharmaceutical policies and procedures in the intervention districts, including the implementation and evaluation of RDFs to be managed by district health authorities. A project drug formulary would be developed at the beginning of the project, based, in part, on the essential drug list utilised by UNICEF in its pilot projects. The project formulary would specify the list of drugs that would be allowed to be procured during the life of the project using IDA Credit funds or using proceeds from the RDFs. The proceeds from drug sales in the RDFs would be used solely for purposes of replenishing drug supplies in the RDFs using the project formulary. Some vulnerable patients and populations would be identified in each district that would be exempt from payment for the RDFs. The Government would be strongly encouraged to make all first line TB treatment drugs free of charge to all TB patients. The project would support a one-time replenishment of drug funds ($0.10 USD per capita) to partially offset the costs of RDF exemptions. Standard guidelines and criteria would be developed by project staff in collaboration with local officials for use in all intervention districts to assign exempt-from-payment status for RDFs. At the end of the project, all remaining drugs and fund balances in the RDFs would be the property of the district health system. In addition, limited pharmaceutical sector studies over the life of the project would be supported focusing on lessons learned from the UNICEF pilots of RDFs (e.g., prescribing patterns of physicians), lessons learned from new district projects (especially experience related to rational drug use), and an evaluation of effectiveness and sustainability of RDFs. (iv) Management Information System Development. Effective management information systems and communications are key to managing the reformed health services, as well as enhancing monitoring, supervision and staff development. Each of the districts participating in the project would be equipped with three computer workstations, intemet access, capability, physical security and air conditioning to support data collection and information reporting for the project. A new version of Oracle would be purchased to upgrade the national-level public health information system. A computer systems analyst would work with a short-term international consultant to design, test and implement the information infrastructure to permit ongoing project monitoring for purposes of day-today and month-to- month project management and reporting, as well as for project evaluation. Towards the middle of the project, the systems analyst would focus more on designing a new health information system for the country that integrates data reporting for national databases (e.g., death registration, birth registration, etc.) with project data and information collection in the intervention districts. The project would support, on a limited basis, pilot-testing of the new public health information system in some of the intervention districts for data entry, processing and analysis at the district level, and for reporting via or internet to the national office. In addition, general computer training would be given at the national and district levels to 29

34 enhance knowledge and skills. Special attention would be given at the district level for using local data fo:r local decision-making (e.g., planning, resources allocation, evaluation, etc.). Component 2: District Level Primary Health Care Reform ($3.63 million) The principal thrust of this component would be the actual implementation of a number of reforms that have been previously piloted by UNICEF in Azerbaijan. The project represents the first efforts in the newly selected districts to: enhance and implement the UNICEF pilot-tested reforms; rationalize health care services; implement outpatient, primary health care models; improve the quality of and access to primary health care services; and strengthen the management and clinical capabilities of the district health personnel. This project is designed to provide direct material support and substantive training to five districts: Goycay, Salyan, Samkir, Sarur (inclusive of Sadarak) and Xacmaz. In order to evaluate the project, five additional districts have been selected (Qusar, Qazax, Sabirabad, Kurdemir and Babek) matched by region to serve as comparisons in which data collection would occur on key project indicators but no other investments would be supported by the project. Selection of the intervention and comparison districts was based on qualitative information (key informants) as well as on objective and measurable criteria that were developed jointly by UNICEF, the MOH, and the World Bank. (i) Rationalization of Health Care Services. The first step for implementation would be a structured, self-administered analysis of the capacity and resources available in each district to implement the intended reforms. Needs assessment instruments would be designed, based on those already used by UNICEF in the existing districts where PHC reforms have been introduced, and a methodology developed for its implementation. An orientation seminar would be held in each district to explain the nature of the anticipated reforms, and the methodology to be employed with the needs assessment. Project team staff would provide support and follow-up with assistance from local consultants with experience in the needs assessments performed in the UNICEF pilot. Upon completion of the needs assessment, another seminar would be held in each district to present the findings, and to discuss the same basic concepts of reform. Further material inputs to each district would be based on the districtspecific needs assessments. A district-specific rationalization plan would be completed for each intervention district and would emphasise: re-orienting medical services and personnel from specialised, inpatient/polyclinic care toward basic primary care, general practice, and preventive medicine; decreasing the number of inpatient beds, inpatient facilities and personnel; and, increasing the number of PHC outpatient clinics. Development of these plans would include (i) workshops in each district, and (ii) short observational visits by teams of each district to other districts where reforms have already been implemented in order to discuss options and seek solutions to this difficult process. The development of these plans would be a joint effort involving local health staff, community members, and other key local stakeholders supported by project staff. Local consultants would be utilised from the former UNICEF pilot districts that have experience in the rationalization process. These plans would be a pre-requisite for further implementation of reforms in the districts e.g., funds for refurbishment of facilities would not be available for use until rationalization plans are completed by the districts, approved by the MOH, and reviewed for "no objection" by the World Bank. Annual seminars would be held in each district to review progress to date, and reinforce the basic concepts of reform as discussed at the national level seminars. In the same way, these seminars would serve as both training to stimulate support and understanding of the reforms. 30

35 (ii) Implementation of Primary Health Care Models. This activity would reorganize the PHC infrastructure, services and personnel in accordance with the district-specific rationalization plans. Most of the work would be carried out by the local teams in each district, but would be supported by a Field Monitor for the project. A vehicle would be provided to each participating district, as well as for the Field Monitor who would be based in Baku. Community involvement would be critical, and would be achieved through the creation of district and community steering committees as formal representatives of the communities to ensure that the communities' needs are being met. They would play a role in the planning of services (including development of the rationalization plans); setting of prices and exemption policies for services and drugs; generation of additional revenues to support health service activities; and provision of in-kind support (e.g., labor for refurbishing and cleaning, etc). They also serve as the primary contact with the communities in terms of educational programs. The primary project support for the development of these committees would be through the provision of a Community Development Specialist as a member of the project team. This person would work closely with both the district teams and the regional monitor to promote and stimulate community involvement in the reform process. One of the keys to improved health care status is an educated public. UNICEF would develop and disseminate a series of educational posters on appropriate topics such as reproductive health, breastfeeding, EPI, malaria, and IMCI. In addition, communities would be targeted for training in health and financial management of medical care facilities; healthy lifestyles and life skills: prevention of hereditary diseases; iodine deficiency disorders and universal salt iodization; and the appropriate prescribing and dispensing of medications. (iii) Improvement of and Access to Primary Care Services Along with the rationalization process and other improvements, civil works will be undertaken to refurbish approximately 16 primary health care facilities (including a Central District PHC Center) in each district to improve the access to the PHC services. This is primarily to make the health services more attractive and conducive to better quality care. A small amount of money would be provided to each district to make basic repairs in the health centers in accordance with the rationalization plan with priority given to patient safety, water and sanitation. Each participating district would be provided with an initial quantity of essential drugs valued at about US$0.50 per capita to establish a Revolving Drug Fund (RDF). This amount has been shown to be sufficient for approximately one year, insuring against stock-outs. A project drug formulary would be developed at the beginning of the project, based, in part, on the essential drug list utilised by UNICEF in its pilot projects. The project formulary would specify the list of drugs that would be allowable to be procured for the life of the project using IDA Credit funds or using proceeds from the RDFs. The proceeds from drug sales in the RDFs would be used solely for purposes of replenishing drug supplies in the RDFs using the project formulary. Some vulnerable patients and populations would be identified in each district that would be exempt from payment for the RDFs, thereby, possibly resulting in erosion of RDF funds. The Government also would be strongly encouraged to make all first line TB treatment drugs free of charge to all TB patients. The project would support a one-time replenishment of drugs (US$0.10 per capita) using the project drug formulary to permit re-capitalisation of funds, if necessary and deemed desirable by the communities, in order to permit a continuous supply of good-quality drugs. One of the advantages of this strategy would also be to ensure sustainability over a longer period of time, during which the communities would hopefully become more viable economically, and later be better able to sustain the funds to provide good-quality drugs on a continuous basis. Standard guidelines and criteria would be developed by project staff in collaboration 31

36 with local officials for use in all intervention districts to assign exempt-from-payment status for RDFs. At the end of the project, all remaining drugs and fund balances in the RDFs would be the property of the district health system. Administrative tracking systems for the RDFs have already been developed, although forms must be reviewed for revisions needed and provided for use in the districts. Funds for improving district drug warehousing would also be provided. Training and monitoring would be an important part of the RD]F activity. To ensure the adequate functioning of these funds, the project would also provide a Logistics/Pharmaceutical Officer directly responsible for implementation and monitoring of the revolving drug funds themselves, and support for procurement and distribution. The provision of high quality primary health care services requires the availability of basic equipment and supplies to support primary care. Funds would be made available to provide basic medical equipment, limited laboratory equipment relevant to primary health care, and supplies to the reformed and refurbished primary health care, outpatient clinic sites. Some basic equipment including an ultrasound machine would be provided to the central district hospital maternity ward in intervention districts as a diagnostic tool for maternity care. The cold chain is a critical element in the provision of PHC. Much of the system is presently nonfunctional. This activity would improve the cold chain by providing refrigerators and backup generators to the district level vaccine warehouses and cold boxes to the reformed PHC facilities. One concern is that without a strong maintenance capability, the refrigerators would rapidly deteriorate, making their provision non-sustainable and non-cost-effective. For this reason, a Cold Chain advisor would also be included for the first year of the project to help develop such a capability as well as participate in procurement and training of the Clinical Facilitators in cold chain maintenance and monitoring. In addition, a priority would be given to providing training and promoting "user-friendly" services to sensitise health delivery personnel to policies enhancing the quality of treatment of patients. These policies range from implementing the norms of "baby-friendly" hospitals, to the human relations aspects of patient care, creation of "Patients' Rights", and education of the public to those rights. (iv) Strengthening the Management and Clinical Capabilities of Health Personnel. Training is considered an important part of the reform process. Small training centers would be refurbished and equipped in each district based at the Central District Hospital. District Health Authorities (DHAs) would receive approximately 100 hours of training specifically devoted to health systems management. UNICEF would procure the services of trainers and training materials, as well as provide logistic support for training of district health authorities on topics to enhance the management of specific refonns including: the use and maintenance of revolving drug funds; rational drug use; use and application of health services utilization information; use of computers; public health management; and financial management. All physicians and nurses (and limited numbers of other health personnel) would receive approximately 1,370 hours of clinical in-service training over the first two years of the project. DHAs would also complete all clinical in-service coursework. UNICEF would procure the services of trainers and training materials, as well as provide logistic support for clinical in-service training. The UNICEF training modules would include: medical-genetic counselling; prevention of substance abuse; reproductive health; management of STIs; HIV/AIDS prevention; acute respiratory diseases; diarrhoea diseases; safe motherhood and new-born care; EPI; malaria; breast-feeding; and iodine deficiency disorders. Existing modules would be reviewed and updated as needed before implementation. International and local technical assistance would be procured to assist in the development of new modules covering: health promotion; TB diagnosis and management (DOTS); prevention and management of cardiovascular diseases; appropriate use of antibiotics; basic record- 32

37 keeping and health information reporting; and, health information systems. The International Technical Assistance would also: review the overall content of the training courses; make recommendations for future development to better address the full spectrum of topics and issues relevant to primary health care; and, assess and make recommendations related to post graduate medical and nursing education in primary health health/general practice. The purpose of this training would be to introduce improved methods of patient treatment and new treatment protocols and procedures. The significant number of hours dedicated to clinical in-service training in the project would initially decrease the availability of health personnel to provide medical services in the district facilities. However, patient volume is low and facilities refurbishment would have to be completed. It is also critical that the time and effort be invested in improving the knowledge and skills of the medical practitioners to improve quality of care. For purposes of this project, a significant addition has been made to the UNICEF pilot strategy. To facilitate and monitor the uptake of new diagnosis and treatment methods and guidelines, one Clinical Facilitator would be supported by the project in each district to: provide on-site technical assistance and evaluation to the doctors and nurses in the reformed primary care clinics in the field; to reinforce and monitor uptake of methods, protocols, and procedures taught in the clinical in-service training; to identify recurring or unmet training needs of the doctors/nurses in the reformed primary care clinics; and, to assist in project monitoring and evaluation. UNICEF would be responsible for monitoring the day-today and month-to-month progress of implementation of Component 2 with routine quarterly reports to the PCU in a format/content agreed to prior to loan effectiveness. As a Learning and Innovation Loan (LIL), the project would assess several key questions related to Component 2: (i) Can the availability of medications in or near clinics and the provision of basic lab/medical equipment significantly increase patient utilization of primary care services especially among children? (ii) Is a revolving drug fund sustainable under the specific circumstances set in this project? (iii) Does retraining of specialist physicians in limited topics related to primary health care improve their knowledge and their use of that knowledge in clinical practice? (iv) Does ongoing, on-site in-service training and clinical facilitation improve uptake of new approaches and knowledge in clinical practice? (v) Do integrated approaches to providing clinical services at the primary health care level improve the quality of care? (vi) Does training in rational drug use with clinical facilitation actually change physician prescribing habits? (vii) Does the provision of integrated primary health care services improved patient satisfaction with access and quality of care? The evaluation of Component 2 would be the responsibility of the MOH. International technical assistance would be required to design and supervise a series of household surveys and of observational studies (of clinic operations and physician practices) at baseline and at the end of the project in both the intervention districts and the comparison districts to assess impact and outcomes attributable to the project. Local consultants would be used to implement the surveys/studies and to collect the data for project evaluation. Results from the household surveys can also be used to validate other sources of data by comparing to similar information collected through official reporting sources. 33

38 Component 3: Project Coordination and Evaluation ($1.01 million) The proposed project would support the operations of a Project Coordination Unit (PCU) and also a strong monitoring and evaluation program. The MOH has already appointed a PCU Director, an accountant, a procurement specialist and an interpreter. The PCU would also have a training coordinator, who would learn by doing within the project, under the guidance of the UNICEF trainers, as well as from other donors and NGOs who are actively training in Azerbaijan. This person would essentially be the liaison between the project, the technical personnel of UNICEF, the MOH and the districts. A procurement advisor would be employed during the initial project implementation period to provide technical assistance to the procurement specialist. 34

39 Annex 3: Estimated Project Costs AZERBAIJAN: HEALTH REFORM Table 1. Components Project Cost Summary Local Foreign Total US$ US$ US$ Thousand Thousand Thousand A. Capacity Building for Health Policy Reform 1. Analysis and Planning Development Health Financing Reform Pharmaceutical Policy Development Management Information System Development Subtotal Capacity Building for Health Policy Reform B. District Level Primary Care Reform 1, , ,240.6 C. Project Coordination and Evaluation Total BASELINE COSTS 2, , ,866.1 Physical Contingencies Price Contingencies Total PROJECT COSTS 2, , ,

40 Table 2. Expenditure Accounts Project Cost Summary (US$ Thousand) Local Foreign Total I. Investment Costs A. Rehabilitation of Facilities B. Vehicles C. Office Equipment Computer Equipment Software /a Other Office Equipment Subtotal Office Equipment D. Furniture E. Pharmaceuticals F. Training Equipment G. Medical Equipment Cold Chain Equipment Basic Equipment for PHC Laboratory Equipment Subtotal Medical Equipment H. Technical Assistance Consultant Services ,384.0 Training and Study Visits Studies and Surveys Subtotal Technical Assistance 1, ,086.1 I. Public Education & Information Dissemination J. Miscellaneous Supervision and Monitoring lb Total Investment Costs 1, , ,352.7 II. Recurrent Costs A. Incremental Salary and Wages B. Incremental Operating Cost Total Recurrent Costs Total BASELINE COSTS 2, , ,866.1 Physical Contingencies Price Contingencies Total PROJECT COSTS 2, , ,

41 Annex 4: Financial Management AZERBAIJAN: HEALTH REFORM The Organizational Structure of the Project One of the key features of this project is the involvement of UNICEF in the implementation of most of one of its components. Under the overall supervision of the MOH, the project would be administered at the following two levels. * Project Coordination Unit (PCU) for all of Component I (Capacity Building for Health Policy Reform), for the civil works aspects of Component 2 (District Level Primary Health Care Reform), and all of Component 3 (Coordination and Evaluation); and * UNICEF office in Baku for Component 2 (District Level Primary Health Care Reform) apart from civil works (which would also be administered by the PCU). There would be a contract agreed between the MOH and UNICEF for the implementation of this component. A Task Force has had the responsibility of designing the project and it is now being converted into a Steering Committee for the Project (chaired by the Deputy Minister of Health). The Committee would comprise the key officials from the MOH responsible for various aspects of reform and Primary Health Care, and it would (inter alia) have a representative from the Ministry of Finance to ensure smooth coordination with the MOH. Financial Management Functions Staffing UNICEF would be responsible for monitoring the day-today progress of implementing the second component and producing routine quarterly reports to the PCU in a format/content agreed prior to Credit effectiveness. A Project Director will be appointed and will be responsible for liaison between the PCU and the UNICEF office. The existing UNICEF Accountant will report directly to the Project Director (UNICEF) and assist with the project's accounting and financial reporting. The Accountant will have an Administrative/Financial Assistant funded through the project who will have the required accounting and financial management qualifications and relevant experience along with computer slcills. This position is expected to be filled as soon as the contract between the MOH and the UNICEF is finalized. The financial functions at the PCU level will be carried out by an Accountant, who is already in place. She is in-charge of keeping appropriate accounting records, preparing quarterly reports and making replenishments requests for components under the PCU management. Compliance with OP The current general financial management framework of the UNICEF office, as described by the Head of the program in Baku, meets the Bank's financial requirement as spelled out in the OP 10.02, except for the annual audit. It provides an adequate internal mechanism with policies, regulations and procedures in place that are designed to meet the project's objectives and provide accurate and complete accounting records. In accordance with these policies and procedures, UNICEF will keep accurate and systematic records for the project component that it is managing, and will do so in line with the Contract Agreement to be signed between the Government of Azerbaijan and UNICEF. It has been agreed and noted in the Agreement that UNICEF will keep separate ledger account through which all UNICEF's receipts and disbursements for the purposes of the 37

42 project assistance will be channeled. Once the planned staffing in UNICEF is put in place and the necess;ary training conducted, the financial management system of the UNICEF office will have the potential to provide reliable financial information to all the stakeholders. An international consultant, with extensive prior experience, has already been put in place to set up a financial management system for the PCU. The financial management system will be in compliance with OP and will be able to generate the LACI required reports for reporting and replenishment purposes. The PCU Accountant is presently participating in the design of the financial management system (along with the financial management consultant), and will be fully trained on the system once completed. The PCLU's financial, administrative, and procurement systems are also presently being designed and are expected to be in place before project effectiveness. Staff Training Apart from training that is being given by the international financial management consultant, the PCU Accountant has had accounting formal training in Turin, Italy. This is assisting the Accountant in the testing of the new financial management system and is allowing her to make any necessary changes to improve the system further, as necessary. It was agreed with the Head of UNICEF that the position of Financial Assistant will be filled with a fully qualified person with minimum requirements for training. Assurances were also provided that training will be provided, if necessary, to familiarize him/her in the IDA required reporting mechanism. Reporting Mechanism In the initial phase of the project implementation, the project will not disburse funds based on PMRs, although the project will be LACI compliant. The LACI requirements have been discussed with the UNICEF representative as well as the PCU Accountant. It was agreed that UNICEF will modify/renew its reporting system that will be able to provide timely quarterly reports compatible with the LACI requirements. The reports will generate updated project, financial, procurement, and physical output indicators. For replenishment purposes, the PCU will request the Disbursement Office in Washington for all the activities under Components I and 3 (and also for civil works under Component 2). UNICEF, on the other hand will send replenishment requests directly to IDA, after the initial umbrella withdrawal application has been made and agreed to under the contract agreement. For monitoring purposes, UNICEF will report to the PCU and the Ministry of Health (with a copy to IDA) as follows: * within one week at the end of each quarter, a quarterly project management report for the component of the project under its direct management (District Level Primary Health Care Reform); and * within five months of the close of each calendar year with the annual financial statements of account for the component of the project under its direct management (same as above). It was agreed that during the initial transition period, the PCU would not be fully equipped to prepare quarterly PMRs. Disbursements during this period will, therefore, be carried out using traditional methods using full documentation, i.e., Statements of Expenditure (SOEs) reimbursements, direct payment, etc. It was further agreed that even though the PCU may initially be using traditional disbursement method it will, in parallel, produce PMRs not necessarily for replenishment purposes but for reporting and gaining experience. Once the PCU has gained experience, and the improved Financial Management System is reviewed and found satisfactory by IDA, the Project will move to PMR-based disbursements (with the agreement of the Borrower). Once converted, the PCU will be responsible for preparing quarterly PMRs, acceptable to the Bank, each of which will include: (i) financial report summarizing sources of project financing and project expenditures, 38

43 disbursement, and forecasted project expenditures; (ii) reconciliation of the Special Account; (iii) project progress report comprising output monitoring and summary of project progress; and (iv) procurement management report. UNICEF: The following reports would be produced by UNICEF for the project: * Within one week at the end of each quarter, a quarterly project management report for the component of the project under its direct management (District Level Primary Health Care Reform); * Within five (5) months at the end of each fiscal year in which funds are expended, UNICEF will provide the PCU and IDA with a statement of account showing the use of funds. UNICEF will also provide the PCU and IDA with a copy of its independently audited financial statements for such year, together with the opinion of independent auditors on such statements. * UNICEF will prepare and furnish to the PCU and IDA not later than six (6) months after the completion of the Project, a report summarizing the activities financed under the contract and assessing the results achieved against the objectives of the Project. This will become part of Implementation Completion Report (ICR). Special Account & Flow of Funds A Special Account will be opened and operated by the PCU in the Azerbaijan International Bank where IDA funds will be transferred periodically for components that are managed by the PCU. In parallel, a Project account will also be opened for the counterpart funds. UNICEF, on the other hand, will not open any Special Account but will instead receive funds on a quarterly basis directly from IDA into their Headquarters account in New York. Upon approval of the application, IDA will commit the annual authorized amount, under a blanket agreement, from the Credit for payment to UNICEF and will issue a confirmation letter to that effect. Advances to the PCU Special Account and to the UNICEF bank account in NY will be based on the forecasted cash-flow needs for each quarter. As mentioned above, it has been agreed that UNICEF will not open a separate bank account but instead maintain a separate US dollar ledger account. All documents will be made available for the independent auditors to inspect as and when necessary. Audits External independent auditors will be selected prior to project effectiveness for Component 1, Component 3 and the civil works of Component 2 of the Credit. The auditors will prepare a project audit report for these components. The audit will be conducted in accordance with the IDA's financial policies and as per ISA. The audit TORs and engagement letter will be submitted to IDA for review as specified in the following Action Plan. Project Readiness for Implementation and Risk Assessment The formation of the PCU is still at its early stages and the capacity is presently being developed. Activities under the Action Plan, if implemented properly, will result in proper financial management arrangements that is capable of providing accurate and timely information for project management purposes. The Action Plan will be monitored closely to ensure satisfactory financial management system is put in place before effectiveness. IDA will also undertake an assessment of the financial management arrangements upon full implementation of the Action Plan to decide on possible additional actions or declaring FM system adequate. 39

44 Action Plan for the Implementation of the Financial Management Arrangements For the successful implementation of the financial management arrangements, two separate Action Plans have been prepared, discussed and agreed upon between IDA and the relevant counterparts during appraisal. Plans are as follows: For PCU: Activities By Date I Appoint remaining staff including procurement specialist and support staff Done 2 Appoint fm consultant to install fin system Done 3 Ms. Leyla (PCU accountant) to attend accounting course on IAS in Turin Done 4 FM consultant to train staff on systems and procedures Ongoing 5 MOH to provide adequate office space for PCU Done 6 MOH to provide adequate office equipment & furniture for PCU Done 7 Purchase accounting software capable of producing PMR, acceptable Done to the Bank I 8 Present shortlist of auditors acceptable to IDA Done 9 Accounting software (capable of producing PMRs) installed and Done tested 10 Complete Financial Management Manual (for inclusion into the Done, May 7, 2001 Project Operational Manual) 11 Bank staff to review and confirm adequacy of financial management Done, May 9, 2001 arrangements 12 Open Special Account and Project Account Before Effectiveness 13 Appoint Auditors Before Effectiveness 14 Produce full PMRs (and quarterly thereafter) December 31, Consider a move to PMR-based disbursements June 30, 2002 For UNICEF: Activities By Date 1 UNICEF to confirm placing adequate staff, including qualified Assurances Provided accountant (at UNICEF, Baku) 2 UNICEF to provide assurance of adequate office space and office Assurances Provided equipment for proper management of component 3 UNICEF to initial Contract between UNICEF and MOH All substantive issues agreed verbally. 4 For monitoring purposes, UNICEF to generate sample PMRs Before Effectiveness reflecting IDA reporting requirements 5 IDA to review and provide feedback on sample PMRs Within two weeks after receiving PMRs 40

45 Annex 5: Financial Summary AZERBAIJAN: HEALTH REFORM (US$ M) Year 1 Year 2 Year 3 Year 4 Total Financing Required Project Costs Investment Costs Total Recurrent Costs Total Project Costs Total Financing IDA Govemment

46 Annex 6: Procurement and Disbursement Arrangements AZERBAIJAN: HEALTH REFORM Procurement The procurement of goods, works and services would be done in accordance with the World Bank's Guidelines on Procurement under IBRD Loans and IDA Credits (January 1995, Revised January and August 1996, September 1997, and January 1999) and the Guidelines on Selection and Employment of Consultants by the World Bank Borrowers (January 1997, Revised September 1997 and January 1999). The World Bank's standard bidding documents for goods, and the standard forms of contract and request for proposals will be used under the project. Procurement Management The PCU under the MOH will be responsible for overall project implementation and progress monitoring. The PCU will ensure that the procurement procedures, criteria and documentation agreed with IDA, are complied with satisfactorily. The procurement management responsibilities and procedures are described in further detail in the Project Operational Manual (OM). The PCU will oversee the procurement and award of contracts under the project. The PCU will also have responsibility for carrying out procurement intended for PCU operations (incremental operating costs), civil works and the capacity building component. To carry out its procurement responsibilities, the PCU has recruited a full-time, inhouse procurement officer (whose procurement qualifications were reviewed by the Bank during project appraisal and found to be satisfactory). The procurement capacity of the PCU will be strengthened through part-time international TA service at the beginning of the project. The PCU procurement officer will be sent to Turin, Italy or to the International Law Institute in Washington, D.C., for an intensive procurement training during the first six months of project implementation. Procurement Arrangements The procurement methods and arrangements applicable to the various expenditure categories under the project are summarized below in Table A. Model bidding documents will be prepared by the PCU for use under the project. These documents, which are based on World Bank Standard Bidding Documents (SBD) were again reviewed at appraisal and found to be suitable for use under the project. A general procurement notice will be published in the United Nations' Development Business, Number 559, May 31, The GPN will be updated annually for all outstanding procurement. Procurement under the project would be undertaken in accordance with the procurement arrangements shown in Table A and Al. The procurement schedule for the project is presented in Table B1. The main procurement methods are highlighted below. Works There will be a total of ten minor works (refurbishment) contract packages (two packages for each of the five districts) that would be procured under the National Competitive Bidding (NCB) procedures under unit rate or lump-sum, fixed price contracts. The PCU will carry out small works procurement and use ECA regional sample NCB documents. Invitation for bids would be advertised in newspapers of national circulation. The aggregate amount under NCB is estimated at US$618,000. Small Works. Works contracts that are simple in design and small in value (under US$10,000) would be procured according to Small Works procedures. There will be five of them (one for each district). Such works contracts are labor intensive, geographically scattered and spread over time, due in part to 42

47 climatic conditions, and they would be procured under lump-sum fixed price contracts awarded on the basis of quotations obtained from at least 3 (three) qualified domestic contractors in response to a written invitation and according to Bank guidelines. The PCU will use sample bidding documents developed in the ECA region. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, and relevant drawings where applicable. The award would be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract. The aggregate value under minor works contract is estimated to be US$23,000. Goods No procurement through international competitive bidding is expected because of the small value of goods packages and low overall aggregate value of these goods. All IDA-financed goods procurement will be carried out using International and National Shopping (NS) procedures, and Direct Contracting. International Shopping (IS): Goods such as office equipment, computers, training equipment and vehicles with each contract below US$100,000 will be procured following IS procedures. The aggregate value under IS procedures is estimated at US$203,000. National Shopping (NS): Goods that are small in value and readily available off-the-shelf that are low in value with each contract below US$6,000 will be procured following NS procedures through the comparison of three price quotations. The aggregate value of contract under NS is estimated at US$159,000. Direct Contracting.: The MOH is currently using a data base system that is proprietary in nature (ORACLE). Under the proposed project, it is agreed that it is convenient and efficient to expand the existing system by acquiring products and licenses from the same supplier rather than different systems. Direct Contracting procurement procedures will used for this software. The aggregate value of this package is estimated at US$57,000. Consultant Services Rationale for Selecting the UN agency, UNICEF on a single source basis. The MOH has already been collaborating with UNICEF on district health care reform. UNICEF established a pilot program in 1996 as part of an attempt to reform the financing and delivery of PHC to ensure access to effective, efficient and equitable services. The program started in Kuba District and has more recently been expanded to Masalli, Lenkeran, Celilabad and Neftcala Districts. The evolving model provides a useful basis for an expanded district-level pilot program which could be supported under the proposed IDA-financed operation. UNICEF staff have been instrumental in implementing and monitoring these reforms, and are intimately familiar with both their content and "lessons learned". Furthermore, strong relationships have already been developed with the initial implementing districts, facilitating communications and clarifying expectations, etc. UNICEF's participation in the project would provide an additional level of control and accountability, and would increase confidence that the project resources would be well and appropriately utilized. The UNICEF program has recently been evaluated by an external team. Overall, the evaluation concluded that there is enough evidence of success to justify further development, though, especially with more focus on specific objectives and targets. There are, therefore, very strong grounds for wanting to involve UNICEF in the implementation of the third component of the proposed project. UNICEF would, therefore, be hired to provide technical assistance and advise in the area of district level primary health care reform under the project. The aggregate value of this contract is estimated at about US$2,986,000. This contract amount includes the cost of medical equipment and goods procured directly from UNICEF stocks estimated at about US$1,416,000, as well as the procurement of goods not available from UNICEF's stocks which are estimated at about US$250,000 and which would be procured through national shopping procedures in accordance with Bank Guidelines. 43

48 Quality and Cost Based Selection (QCBS): For consultant service for the health financing component of the project, a consultant firm would be hired under the QCBS procedure. The estimated value of the contract under this method is US$344,000. Fixed Budget Selection (FBS). For services such as questionnaire preparation and surveys, where the consultant will be paid on the basis of a predetermined sample size, the FBS method of consultant selection will be used. The estimated aggregate value of contracts under this method is US$119,000. Least Cost Selection (LCS). For consultant assignments for auditing, where the activities are well established, standard and routine, the LCS method will be used. The estimated aggregate value of contracts under LCS is US$36,000. Individual Consultants (IC): For consultant services, such as systems analysis, information systems specialists, health facilities architects, pharmaceutical specialist, monitoring and evaluation specialist, procurement specialist, training coordinator and PCU staff, individual consultants will be hired to provide such services. The aggregate value of contracts under IC is estimated at US$688,000. Training Several training activities such as study tours, appropriate health care services modeling, orientations to policy reform, stakeholders seminars, and analysis and development planning will be financed under the project. The aggregate value of training activities under the project is estimated at US$181,000. Incremental Operating Costs The project will finance incremental operating costs of about US$153,000, consisting of expenditures for office supplies, courier services, postage, telephone, Internet connections, PCU vehicle maintenance and fuel, and travel and per diem for project supervision. Incremental operating costs will be procured on the basis of an annual agreed budget. Bank Prior Review Bank prior review would be required before final decisions on contract awards are taken on Bankfinanced items for the types of procurement action described below. Prior review for works and goods contracts would be conducted in accordance with the provisions described in Appendix 1 of the Procurement Guidelines, and those described under Appendix 1 of the Consultant Guidelines for consultant services and training- contracts. Based on the capacity assessment, the recommended prior review thresholds are as follows: Civil Works - NCB: Below US$100,000 and above US$10,000, prior review all contracts Civil works - Minor Works (MW): Below US$10,000, prior review all contracts International shopping (goods): Below US$100,000, prior review - all packages National shopping (goods): Below US$6,000, prior review 1 st 3 contracts; Consultant services - firms: US$50,000 and above, prior review - All contracts; Consultant services - individuals: US$10,000, prior review - 1st five contracts 44

49 All other contracts, which are not subject to prior review, shall be subject to ex-post review by World Bank supervision missions. The World Bank missions will review at least one out of every five contracts which are subject to post review. Table A: Project Costs by Procurement Arrangementsl (US$ million equivalent) Expenditure Category ICB NCB Other 2 N.I.F. Total Cost 1. Works (0.00) (0.25) (0.01) (000) (0.2) 2. Goods (0.00) (0.00) (0.39) (0.00) (0.39) 3. Services and Training (0.00) (0.00) (4.35) (0.00) (4.35) 4. Miscellaneous (0.00) (0.00) (0.00) (0.00) (0.00) Total l ~~~~~ ~ ~~~~(0.00) (0.25) (4.5 (.00) (.0 1/ Figres in arenthesis are the amounts to be financed b IDA. All costs include contingencies. 2/ Includes minor works, goods to be procured through international and national shopping, consulting services, services contracted with UNICEF, services of contracted staff of the project management office, training, technical assistance services, and incremental operatin costs related to managin the roect. Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant Selection Method Services Expenditure QCBS SS FBS LCS IC Other N.I.F. Total Category (UNICEF) 2 Cost 1 A. Firms < ~(0-34) (2.99) (0.12)1 (0.04) (0.00) (0-00) (0-00)1 (3-49) B. Individuals _ (0.00) (0.00) (0.00) (0.00) (0.68) (0.00) (0.00) (0.68) C. TrainIng (0.00) (0.00) (0.00) (0.00) (0.00) (0.18) (0.00) (018 Total (0.34) (2.99) (0.12) (0.04) (0.68) (0.18) (0.00) 4.35 I \ Including contingencies 2\ UNICEF contract amount includes the cost of medical equipment and goods (about US$1.4 million procured from UNICEF stocks and US$0.25 million not available from UNICEF stocks procured through national shopping). 3\ Study tours, seminars, workshops. Note: QCBS = Quality- and Cost-Based Selection SS = Single Source Selection IC = Individual Consultants FBS = Selection under a Fixed Budget LCS = Least-Cost Selection Other = Training N.l.F. = Not IDA-financed Figures in parenthesis are the amounts to be financed by the IDA. 45

50 Table B: Thresholds for Procurement Methods and Prior Review 1 Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ millions) 1. Works Small works <100,000 NCB and >I0, Minor works <I0,000 MW Goods Intemational shopping <100,000 IS 0.20 National shopping <6,000 NS Services Consultant services (firms) >50,000 QCBS, FB, LC 3.37 Consultant services (individuals) <I0,000 IC 0.68 _ 4.91 Total value of contracts subject to prior review: US$4.91 million Overall Procurement Risk Assessment: High Frequency of procurement supervision missions proposed: One every six months (includes special procurement supervision for post-review/audits) 46

51 DETAILED PROQUREMENT PLAN 2 1-Apr-01 Table B1: Summary of Procurement Activities, Methods and Schedules GOODS, SERVICES AND Estimated Cost Method of Procurement Number of Schedule WORKS US$ 000 Contracts Works Procurement Short list Issue RFP Receipt of Technical Financial Negotiations Notice prepared proposals evaluation evaluation and contract Training Centers and Warehouses 23 Minor Works 5 contracts Sep-01 Oct-01 Oct-01 Jan-01 1-Nov-01 1-Nov-01 Dec-01 District facilities 618 NCB 10 contracts Sep-01 N/A Oct-01 Jan-01 I -Nov-01 I-Nov-01 Dec-0 1 Goods Vehicle 34 Intemational Shopping I contract N/A 2-Jul-01 mid July 01 1-Aug-01 N/A 2-Aug-01 Sep-01 Basic Office Fumiture for PCU 6 National Shopping I contract N/A 2-Jul-01 mid July 01 1-Aug-01 N/A 2-Aug-01 Sep-01 Basic PCs for PCU and MIS 168 Intemational Shopping 2 contracts N/A 2-Jul41 mid July 01 1-Aug-01 N/A 2-Aug-01 Sep-01 Audio/Visual Equipment or I International Shopping I contract N/A 2-Jul-01 mid July 01 1-Aug-01 N/A 2-Aug-01 Sep-01 Training Center and PCU I Oracle License 57 Direct Contracting I contract N/A N/A mid July 01 1-Aug-01 N/A 2-Aug-01 Sep-01 CONSULTING SERVICES UNICEF 2,986 SS I contract Mar-0 1 Mar-01 mid Mar 2001 Apr-01 Apr-01 Apr-01 Jul-0 1 Health Financing 344 QCBS I contract end Nov01 Mar Mar Apr-02 May-02 May-02 Jul-02 Audit 36 LCS I contract May-01 Apr-01 Apr-01 mid May 01 N/A I-Jun-01 I-Ju1l-1 MIS Consultants 70 Individual Consultants 2 contracts To be arranged as needed throughout implementation Pharmaceutical 80 Individual Consultants 2 contracts To be arranged as needed throughout implementation Monitoring and Evaluation 178 Individual Consultants 2 contracts To be arranged as needed throughout implementation PCU Consultants 350 Individual Consultants 9 contracts To be arranged as needed throughout implementation Baseline and Impact Evaluation 119 FBS 2 contracts To be arranged as needed throughout implementation Surveys TRAINING Training 181 l Incremental Operating Costs 1 Administrative Supplies & 153 National Shopping NA To be arranged as needed throughout implementation Communications Counterpart Contribution: Not 109 IDA Finance 553 l 47

52 Section 1: Capacity of Implementing Agency in Procurement and Technical Assistance Requirements: Brief Statement The overall responsibility for project management and coordination rest with the PCU within the MOH. The PCU will be supported by Technical Assistance consisting of a full time Procurement Specialist, a short-term Procurement Specialist, and a Financial Management Specialist. The PCU Procurement Specialist is currently receiving on-the-job training working along with the procurement staff of other PCUs working on World Bank projects in Baku. Country Procurement Assessment Report or Country Procurement Strategy Paper Status. A CPAR for Are the bidding documents for the first year ready by negotiations. Azerbaijan has not been done. Yes[] No [X] MOH-UNICEF contract has been prepared. Section 2: Training, Information and Development on Procurement Estimated date of Project Launch Workshop: 9/2001 Estimated date of publication of General Procurement Notice: 05J30/2001 Indicate if there is procurement subject to mandatory SPN in Development Business: Yes. For consultant services Domestic Preference for Goods: No Retroactive financing: No Advance Procurement: No Explain briefly the Procurement Monitoring System: All procurement related documentation that requires Bank's prior review will be cleared by Procurement Accredited Staff (PAS) and relevant technical staff. Apart from the MOH-UNICEF contract, no packages above mandatory review thresholds by RPA are anticipated. The PCU will maintain complete procurement files which will be reviewed by Bank's supervision missions. The Procurement Plan will be updated annually. Procurement information will be recorded by the PCU and submitted to the Bank as part of the quarterly and annual progress reports. This information will include: revised cost estimates for the different contracts; revised timing of procurement actions, including advertising, bidding, contract award, and completion time for individual contracts, as well as compliance with aggregate limits (within 15%) on specific methods of procurement. A Management Information System (MIS), with a procurement module, will help the PCU monitor all procurement information. Co-financing: No. Section 3: Procurement Staffing Indicate the name of Procurement staff or Bank's part of the Task Team responsible for the procurement In the Project: Rame: Leonardo M. Concepci6n (ECSHD) Ext: Explain briefly the expected role of the Field Office in Procurement: There is no procurement capacity at the Bank Office in Baku. The PCU will complement its procurement capacity by hiring a part-time foreign TA procurement Specialist as needed. The Procurement Officer will receive a four-week intensive procurementraining at the Intemational Law Institute in Washington, D.C. in September

53 Disbursement The proceeds of the Credit (SDR 4.0 million) would be lent to the Azerbaijan Republic. The proceeds of the Credit would be disbursed in accordance with the guidelines in the "Disbursement Handbook". The project has been designed to be carried out over a period of three years, and the project is expected to be completed by June 30, A period of six months would be allowed to complete disbursements, with the Credit Closing Date of December 31, This would be the final date for presentation of requests for approval or authorization to disburse on project components. The percent of expenditures for goods, works and consulting services to be financed under the Credit is given in Annex 6, Table C below. Table C: Allocation of Proceeds Expenditure Category Amount in US$ million Financing Percentage (IDA) Civil Works % Goods % of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured locally Consultant Services and Training % UNICEF Agreement % Incremental Operating Costs % Unallocated 0.26 Total 5.00 To facilitate timely project implementation, the Borrower would establish, maintain and operate, under terms and conditions acceptable to IDA, a Special Account in US Dollars in a commercial bank acceptable to IDA, and managed by the PCU of the MOH. The Authorized Allocation would be equivalent to about four months' expenditures, or about US$150,000. However, the Initial Deposit would be limited to an amount equivalent to US$75,000 until the aggregate amount of withdrawals from the Credit Account, plus the total of all outstanding special commitments entered into by IDA, shall be equal to or exceeds SDR 1.0 million equivalent. The MOH would comply with the Disbursement Handbook, including: (i) Payments out of the Special Account would cover eligible expenditures under the Project, and the MOH would reimburse the Special Account for any ineligible expenditures; and (ii) Replenishments of the Special Account would be made at least on a quarterly basis, or whenever the balance reaches less than one-third of the Authorized Allocation. UNICEF would not open any Special Account but would instead receive funds directly from IDA into its HQ account in New York. Statements of Expenditure (SOEs) Disbursement would be made against Statements of Expenditure (SOEs) for expenditures under contracts less than US$100,000 equivalent for goods, US$100,000 equivalent for works, US$50,000 equivalent for the services of consulting firms, US$10,000 for the services of individual consultants, and studies, training and operating costs. Detailed documents evidencing expenditures will be reviewed and kept by the PCU and made available for the required audit as well to World Bank supervision missions. I Eligible expenditures include office supplies, courier services, postage, telephone, Internet connections, PCU vehicle maintenance and fuel, and travel and per diem for project supervision. The remaining incremental operating costs of the PCU such as rent, utilities, VAT, and others would be the responsibility of the Government. 49

54 Table D: Schedule of Disbursements Semester Ending: Disbursements Semester Amount Cumulative Disbursement Cumulative (US$ million) (US$ million) Disbursement Percentage December 31, June 30, December 31, June 30, December 31, June 30, December 31, Total The following is an estimated schedule of the counterpart funds needed for the Government's contribution to the financing of the project. Table E: Estimated Schedule of Government Counterpart Funds Semester Ending: Disbursements Semester Amount Cumulative Disbursement Cumulative (US$ million) (US$ million) Disbursement Percentage December 31, % June 30, % December 31_ % June 30,_ % December 31_ % June 30, % December 31_ % Total % 50

55 Annex 7: Project Processing Schedule AZERBAIJAN: HEALTH REFORM B. Project Schedule Time taken to prepare the project (months) First Bank mission (identification) 10/06/00 10/06/00 Appraisal/Negotiations mission departure 04/23/01 04/23/01 Planned Date of Effectiveness 07/31/01 Prepared by: Ministry of Health Preparation assistance: World Health Organization, UNICEF Bank staff who worked on the project included: Name Michael Mills Daniel Miller Rasul Bagirov Dominic Haazen Antonio Lim Leonardo Concepcion Carmen Laurente Dilek Barlas Jonathan Pavluk Hannah Koilpillai Armin Fidler Annette Dixon Specialty Program Team Leader, ECSHD Health Specialist, HDNHE Human Development Officer, ECSHD Financial Management Specialist, ECSHD Operations Officer, ECSHD Senior Implementation Specialist, ECSHD Program Assistant, ECSHD Sr. Counsel, LEGOP Sr. Counsel, LEGOP Disbursement Officer, LOAEL Sector Leader, ECSHD Sector Director, ECSHD 51

56 Annex 8: Documents in the Project File AZERBAIJAN: HEALTH REFORM 1. Project Concept Document* 2. Reports:* J. Holley Consultancy Report on Development of the Proposed Health Project I. Sheyman Consultancy Report on Development of Health Financing Component F. Stobbelaar Consultancy Report on Pharmaceuticals in Azerbaijan PCU Operational Manual *Including electronic files. 52

57 Annex 9: Statement of Loans and Credits AZERBAIJAN: HEALTH REFORM Status of Bank Group Operations in Azerbaijan (Operations Portfolio) Closed Projects 3 As ot Date 03/13/2001 IBRDIDA * Total Osbursed (Acbve) a which has been repaid 0.00 Total Dsbursed (Closed) of which has been repaid 0.00 Total Dsbursed (Active + Closed) of wnich has been repaid 0.00 Total Undisbursed (Active) Total Undisbursed (CAosed) 7.06 Total Undisbursed (Active + Cosed) Active Proiects Last PSR Supervision Rating Oribinal Amount In USS Millions Project ID ProJec Name Development Implementation Fiscal Year IBRD IDA GRANT Cancel. Oblectives Proaress P AGRIC DEVT & CREDIT S S P BAKU WS S S P CULT HERITAGE PRSV S S P EDUC REF S S P FARM PRIV S S P GAS REHAB S S P IBTA S S P IRRIG/DRAINAGE REHAB S S P PILOT RECON S S P URG ENV INVST S S Overall result Result

58 Azerbaijan Statement of IFC's Held and Disbursed Portfolio As of 11/30/2000 (In US Dollars Millions) Held Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1999 Amnoco Caspian Azerb. JV Bank /98 Baku Coca Cola Baku Hotel Early Oil Fin Lukoil Overseas SEF Azdemiryol SEF Azerigaz SEF Rabitabank Turkish Petrol Unocal Chirag Total Portfolio: Approvals Pending Commitment Loan Equity Quasi Partic 2001 AzerJV Increase Total Pending Commnitment:

59 Annex 10: Country at a Glance AZERBAIJAN: HEALTH REFORM Azerbaijan at a glance 9/1V2000 Europ S& POVERTY and SOCIAL Contral Low- Azerbaian Asia incme Development diamond' 1S999 Population. mid-yet (mffias) ife expectancy GNP pew Catta AlAs meo#o US$) 460 2t GNP (ANias" mehd. USSS buas) 3.7 1, Averoe annual owth, Populaton(%) Labor fote WM % GNP Gross per F _ primary Most reeat netirate (blast yer mlihle ) capita enrolment Poty % ofpptdaton boebw natfonal povety llnej) es Urban popultion (ofotal Stpulstn) l1 ife expectancy at birth (YeAs) InIant mcrtalty(per 1O e/a. blths) Ctn maiutfion N of children under 5) Access to safe water Access to IMroed water source (% of populaton) Illiteracy % ntpopufbbn age 15+) Grosspriary enrolment otocl9age popuaon) 106 0% Azerbalan iaie Low-income group Femaie KEY ECONOMIC RATIOS and LONG-TERM TRENDS Economic ratios '3O1P SSbii ti) Gross domestic InvemenGOP ,6 Trade E*rt1 of goods and servicegdp, Gross domesic savingsgop Gross nation savingdp Cnuent account baancegdp Domes Total deb(gdp 12.8, 14.7 Savings Toal debt tv spot e Present value of debtgdp,,, 13.0 Present value of debtexwport Indebtedness (average nnualromwh) GOP t0.0 74,AzetBjan GFP per capita Low-income group Exoftsofgoodsandesvkes STRUCTURE of the ECONOMY s Growth of Investment and GDP (%) (% of GDP) 75 Agriculture Industry Manufactudng Services o Pdvate consumption *. 94 6m General govemment consumption GDI S GDP ImportS of goods and servies Growth of exports and Imports (#) (aveage annual growfhj Agriculture o Industry Manufactudng Services Prdvate consumption General govemment consumpton Gross domestc investment Imports of goods and servies A.17.3 Expofls ciriports Gross naftonal product Note: 1999 data are preliminary estmates. The diamonds show four key Indicators in the country (in bold) compared with ts Income-group average. If data are missing, the diamond will be Incomplete. 55

60 Azerbaijan PRICES and GOVERNMENT FINANCE Inflabon (%) Domestic prices (% change) Consumer pnces Implicit GDP deflator D00. _ Government rinance 0v (% of GDP, includes current grants) o Q4 rr " 7 O Current revenue Current budget balance GDP deflator CPI Overall surplus/deficit TRADE (USS millions) Export and Import levels (USS mill.) Total exports (fob) 678 1,025 2,000 Crude oil from new fields Petroleum products ,5D0 Manufactures Total imports (cif) 1,793 1, *0 Food SW Fuel and energy Capital goods o go 99 Export price index (1995=100) Importprceindex(1995=100) aexports *tiworts Termns of trade (1995=100) BALANCE of PAYMENTS Current account balance to GDP (%) (US$ millions) Exports of goods and services 1,010 1,282 o Imports of goods and services 2,425 1, Resource balance -1, Net income Net current transfers Current account balance -1, Financing iems (net) 1,505 1,246 Changes in net reserves Memo: Reserves including gold (USS millions) Conversion rate (DEC, local/uss).. 3, ,118.0 EXTERNAL DEBT and RESOURCE FLOWS (USS millions) Compositton of 1999 debt (USS mill.) Total debt outstanding and disbursed IBRD IDA Total debt service ' IBRD a9 IDA I I Composition of net resource flows Official grants 29 Official creditors Private creditors 5-4 Foreign direct investment 1, Portfolio equity World Bank program Commitments A - IBRD E - Bilateral Disbursements ' ' B - IDA D - Other mulliateral F - Private Principal repayments 0 0 C - IMF G - Short-tern, Net flows Interest payments 1 1 Net transfers Development Economics 56

61 Annex 11: District Selection AZERBAIJAN: HEALTH REFORM There are 67 districts in Azerbaijan. Twenty are occupied by Armenian forces and, therefore, are not accessible to the World Bank project. Four districts have undergone some level of PHC reform under the UNICEF pilot projects (Massali, Celilibad, Lenkeran, Kuba) and were deemed ineligible for the World Bank supported project. In discussions with the MOH, it was decided that there were sufficient resources to implement a PHC reform project (modified from the UNICEF pilot model/approach) in five new districts. A high priority for MOH was that all regions of the country have representation in the project. Therefore, the country was divided into five zones (northeast, northwest, central, southeast and southwest), and it was decided that one district would be selected from each zone with selection of one comparison, nonintervention district from each zone as well. UNICEF identified that a key predictor of success in its pilot projects was the readiness and willingness of key health leaders in the districts to undergo reform. In discussions with MOH, fifteen potential districts were identified from throughout the country that subjectively appeared open to primary health care reform and, therefore, were considered to be good candidates for the project. The fifteen candidate districts were assessed by the Task Force on fifteen health or health services variables: Infant Mortality Rate (IMR); Cardiovascular Disease Mortality Rate; Total Population; Number of Intemally Displaced Persons (IDPs); Poverty Level; Distance from Baku by car; Matemal Mortality Rate; hifectious Disease Mortality Rate; Number of Vaccine-Preventable Disease cases in 1999; Number of Doctors per 10,000 Population; Number of Mid-level Health personnel per 10,000 population; Proposed Govemment Health Budget per capita for 1999; and Actual Government Health Budget per capita for After some discussion, the Poverty Level was abandoned as an assessment variable because it was discovered that district-specific data on poverty levels did not exist. The data assessment was synthesized and discussed by the Task Force and consensus was reached on the districts to be selected for interventions and for comparisons. Justification for Districts Selected The two candidate districts in the northwest zone were similar on most variables. However, Samkir was selected because it has twice the population of the other district, twice as many IDPs, higher numbers and rates of TB, twice higher rates of CVD incidence, and had an outbreak of measles (vaccine preventable) in The comparison district would be Qazax. The three candidate districts in the northeast zone were similar on most variables. However, Xacmaz was selected because it has twice the population of the other districts and had higher numbers of TB cases. The comparison district would be Qusar. The four candidate districts in the southeast zone were similar on most variables. However, Salyan was selected because it has much higher rates of infectious disease death rates and CVD incidence rates, as well as was in greater need of rationalization of services with higher ratios of doctors and mid-level personnel per 10,000 population. The comparison district would be Sabirabad. The two candidate districts in the central zone were similar on most variables. However, Goycay was selected because it has much higher infectious disease mortality rates compared to the other candidate districts in the zone, much higher CVD incidence rates, much higher rates of TB, and higher ratios of doctors to 10,000 population. The comparison district would be Kurdemir. There was very little data for the variables to compare candidate districts in the southwest zone. Therefore, Sarur was selected because it had a larger population. The comparison district would be Babek. 57

62 Azeri Indicators by District = Xacmaz* Qusar Devici Quba Qazax* Samkir* Sabirabad Celilibad IMR (1999, per 1,000 live births) CVD Mort (1999, per 100,000 popn) Total Pop ( non census year) 144,700 81,500 46, ,500 81, , , ,000 # IDPs (1999) 3, ,413 2,911 7,124 13,029 23,035 1,445 Poverty Level Distance from Baku including: car road (km) by air (kin) Matemal Mort (1999, abs n) I Matemal Mort (1999, per 100,000 live births) Inf Dis Mort rate (1999, per 100,000 popn) (includes inf dis, parasitic) Inf Dis Incid rate (1999, per 100,000 popn) (includes inf dis, parasitic) 2, , , , , ,095.3 Dis of the circ syst morb rate 3, , , , , , , ,899.4 Vaccine prev cases ( ) Tuberculosis Pertussis Diphtheria Tetanus Poliomyelitis Measles Doctors per 10,000 popn (1999) Nurses midwives per 10,000 popn (1999) Zone I I I Proposed budget 1999 per cap Actual Budget 1999 per cap (local) ($USD)

63 . Masalli Salyan* Goycay* Samaxi Kurdemir Sarur* Babek National IMR (1999, per 1,000 live births) CVD Mort (1999, per 100,000 popn) Total Pop ( non census year) 174, , ,900 80,800 92, ,614 72,055 7,896,200 # IDPs (1999) 526 2,090 2,382 5,946 3, ,909 Poverty Level Distance from Baku including: car road (kmn) by air (km) 1418 (Ihour) 418 (Ihour) Maternal Mort (1999, abs n) 0 0 l Maternal Mort (1999, per 100,000 live births) Inf Dis Mort rate (1999, per 100,000 popn) (includes infdis, parasitic) Inf Dis Incid rate (1999, per 100,000 popn) (includes inf dis, parasitic) , , , , ,065.3 Dis of the circ syst morb rate 2, , , , , ,582.1 Vaccine prev cases ( ) Tuberculosis ,323+4,627 Pertussis Diphtheria Tetanus Poliomyelitis Measles ,890+1,075 Doctors per 10,000 popn (1999) Nurses midwives per 10,000 popn (1999) Zone Proposed budget 1999 per cap Actual Budget 1999 per cap (local) ($USD)

64 Annex 12: Monitoring Evaluation Plan AZERBAIJAN: HEALTH REFORM Monitoring and evaluation would be of supreme importance to this project for several reasons: (i) this project is funded as a Learning and Innovation Loan (LIL), and specific questions and issues are to be tested and answered by the design of the project; (ii) it is the first World Bank funded health project in Azerbaijan, and it is critical to properly measure the progress and success of the project in order to assess the degree to which client capacity has been strengthened; (iii) the project represents initial efforts on the part of the Government in health care reform, and it is important to measure the impact of the initial reforms to know whether the strategies are successful or not, to refine the reform strategies, and to build support and momentum for expanded health reform in the country; and (iv) project resources should always be properly and cost-effectively utilised. The Justification for the Selected Targets for the Evaluation Indicators (i) The number of patients seen at reformed PHC facilities would increase by 40 percent. The baseline status was assessed by direct observation and interviews during field visits to unreformed districts. Consistently, medical providers reported seeing approximately 100 patient-visits per month per doctor in the facilities. However, an interview- and observational-based survey of PHC clinics performed by IMC/Curatio International in 2000 in districts in southern Azerbaijan documented very low utilization of services in clinics ranging on average from 32 to 52 patient-visits per doctor per month. Similarly, a household survey performed by IMC/Curatio revealed that the utilization of outpatient services in public facilities was very low among those members of the household who were the last ones to become ill during the previous three months (0.045 visits per person per month) despite the fact that 67 percent of the illnesses were considered by the patient to be moderate or severe. The target of a 40 percent increase in patient utilization was considered to be a realistic and achievable objective. (ii) The proportion of infants in the population that receive immunization (DTP3) on time would increase 20 percent. The baseline status was assessed from the Government of Azerbaijan's application for GAVI funds which reported a national weighted estimate of DTP3 on time coverage to be 67.8 to 77.0 percent. The target of a 20 percent increase in DPT3 coverage by one year of age is consistent with the Government's plan and the objectives set by GAVI in approving the Government's application. (iii) The proportion of pregnant women in the population who have at least six prenatal visits would increase by 30 percent. A household survey performed by IMC/Curatio in southern Azerbaijan revealed that only 41.1 percent of pregnant women received any antenatal care. WHO guidelines for safe motherhood suggest -a minimum of four prenatal visits during pregnancy with entry into care -as early as possible in the gestation. The target of a 30 percent increase in the proportion of pregnant women in the population who receive at least six prenatal visits was considered to be a realistic and achievable objective. The target of six prenatal visits rather than four visits was selected based on the fact that stillbirth rates are high (13 percent in rural areas, 9 percent average all areas combined) indicating lack of access to and/or low quality antenatal services. (iv) The proportion of adult patients seen in the reformed PHC facilities for whom a blood pressure is recorded in the patients' medical records would increase by 50 percent. The baseline status was assessed by direct observation and interviews during field visits to unreformed districts. Review of medical records during field visits consistently revealed large deficits in record-keeping and medical documentation. Rarely was a blood pressure recorded in the medical records. The target of increasing by 50 percent the proportion of adult patients seen in the reformed PHC facilities for who a blood pressure is recorded in the patients' medical records was selected as an aggressive attempt to introduce the opportunity to screen for and detect hypertension. 60

65 (v) The proportion of outpatients seen in the reformed PHC facilities who receive antibiotics by means of injection would decrease 50 percent. The baseline assessment was performed by an international pharmaceutical consultant who performed interviews and observational field visits. His assessment was that there was a " high number of prescribed products per visit, overuse and irrational prescribing of antibiotics, and the completely outdated overuse of injections." The target of decreasing administration of antibiotics by injection by 50 percent was selected as an aggressive objective reflecting a strong emphasis on training and monitoring in the project related to rational drug use and consistent with global public health concerns about injection safety and about emergence of drug resistant microbes. (vi) The per capita number of hospital and polyclinic beds would decrease by 25 percent. In 1998, there were 8.4 hospital beds per 1,000 population in Azerbaijan and is higher than other countries that have greater resources to spend on care (e.g., 7.8/1000 or lower in Westem Europe). The target of decreasing by 25 percent the per capita number of hospital and polyclinic beds was considered to be a realistic and achievable objective. (vii) Patient satisfaction with access and quality of care provided in the reformed PHC facilities would increase by 20 percent. A household survey performed by IMC/Curatio in southern Azerbaijan revealed that 69 percent of the survey respondents were satisfied with the treatment they had received in outpatient public facilities. However, somewhat paradoxically, 86 percent of respondents cited factors such as "convenient and unimpeded availability of medications, improved quality of health services, convenient and unimpeded access to health services, upgraded professionalism of providers, and upgraded equipment at the facilities" would determine their willingness to participate in health insurance. Therefore, it is not clear what actually is the level of patient satisfaction with access and quality of care. Patient satisfaction will be assessed among users as well as non-users of health clinics at baseline by clinic user surveys and by population-based household surveys. A target of increasing patient satisfaction by 20 percent was considered to be a realistic and achievable objective. Proiect Monitoring UNICEF would be responsible for monitoring the day-to-day and month-to-month progress of the implementation of the component, with routine quarterly reports to the PCU in an agreed format. Monitoring indicators would be finalized before loan negotiations and would include (but not be limited to): RDF accounting, drug supply monitoring, number of prescriptions per clinic visit, number of drugs administered by injection, height/weight recorded for children <5 years for all visits, number of prenatal visits per pregnancy, proportion of deliveries at home, pregnancy month of entry into prenatal care, number of children breastfeeding at discharge from hospital, number of children exclusively breast feeding at age four months, proportion of active pulmonary TB cases confirmed by sputum smear, proportion of active pulmonary TB cases that complete treatment or were cured, proportion of children <1 year that receive DTP3, proportion of children that receive measles vaccination at age 1 year, proportion of malaria cases microscopically confirmed, birth-weight recorded in newborns, number of abortions performed, total number of births, proportion of reproductive age women using contraception, number of maternal post-partum infections, prevalence of ARI and diarrheal illness in children <5 years, mortality rate in children <5 years, cold chain status, etc. Project Evaluation This project is designed to provide direct material support and substantive training to five districts (Goycay, Salyan, Samkir, Sarur, and Xacmaz). In order to better evaluate the project, five additional districts have been selected (Qusar, Qazax, Sabirabad, Kurdemir, and Babek), matched by region, to serve as comparisons. In the control districts, there would be data collection on key project indicators, but there would be no other investments supported by the project. Selection of the intervention and comparison 61

66 districts was based on qualitative information from key informants, as well as on objective and measurable criteria that were developed jointly by UNICEF, the MOH, and the World Bank. As a LIL, the project would assess several key questions related to Component 2: (i) Can the availability of medications in or near clinics and the provision of basic lab/medical equipment significantly increase patient utilization of primary care services especially among children?; (ii) Is a revolving drug fund sustainable under the specific circumstances set in this project?; (iii) Does retraining of specialist physicians in limited topics related to primary health care improve their knowledge and their use of that knowledge in clinical practice?; (iv) Does ongoing, on-site in-service training and clinical facilitation improve uptake of new approaches and knowledge in clinical practice?; (v) Do integrated approaches to providing clinical services at the primary health care level improve the quality of care?; (vi) Does training in rational drug use with clinical facilitation actually change physician prescribing habits?; and (vii) Does provision of integratecl primary health care services improved patient satisfaction with access and quality of care? The indicators for evaluating and project objectives for Component 2 were developed by the Task Force and include: (i)the number of patients seen at reformed PHC facilities would increase by 40%; (ii) the proportion of infants in the population that receive immunization (DTP3) on time would increase by 20%; (iii) the proportion of pregnant women in the population who have at least six prenatal visits would increase by 30%; (iv) the proportion of adult patients seen in the reformed PHC facilities for who a blood pressure is recorded in the patients' medical records would increase by 50%; (v) the proportion of outpatients seen in the reformed PHC facilities who receive antibiotics by means of injection would decrease 50%; (vi) the per capita number of hospital and polyclinic beds would decrease by 25%; and (vii) patient satisfaction with access and quality of care provided in the reformed PHC facilities would increase by 20%. Baseline and end-of-project data would be collected for the key project indicators using four methods: routine project monitoring, household surveys, clinic user surveys, and observational studies. _ T Evaluation M ethod Indicator Project Household Clinic User Observational Monitoring Survey Survey Study # patients seen DTP3 on time # prenatal visits + + BP recorded + + Injected antibiotics Per capita hospital or polyclinic beds + Patient satisfaction + + The evaluation of Component 2 would be the responsibility of the MOH. Intemational technical assistance would be required to design and supervise a series of household surveys, clinic user surveys, and observational studies (of clinic operations and physician practices) at baseline and at the end of the project in both the intervention districts and the comparison districts to assess impact and outcomes attributable to the project. Local consultants would be used to implement the surveys and studies, and to collect the data for project evaluation. Results from the household surveys can also be used to validate other sources of data by comparing to similar information collected through official reporting sources. Household surveys and clinic user surveys would be based on statistically valid, random samples (probably multi-stage cluster design) using a pooled sample from the intervention districts to compare to a pooled sample from the comparison districts. Clinical practice observation studies would consist of on-site interviews of facility staff and observations of clinical services and practices in intervention and comparison districts. Factors to be assessed include (but are not limited to): medical equipment available, status of cold 62

67 chain, clinical in-service training obtained, review of sample of medical/immunization/child growth records for completeness and quality, availability of patient education materials, selected practice behaviors (e.g., injection safety), etc. A Summary Schema for the Evaluation of Component 2 Intervention Districts Comparison Districts Baseline _ Household survey Household survey --multistage cluster design -multistage cluster design Clinical practice observation study --in specific PHC facilities targeted to receive refurbishment, equipment, and training Clinical practice observation study --in random sample of polyclinics Clinical practice observation study --in random sample of polyclinics that staff would receive training but no refurbishment, equipment, or clinical facilitators Clinic User Survey --in specific PHC facilities targeted to receive refurbishment, equipment, and training Clinic User Survey --in random sample of polyclinics that staff would receive training but no refurbishment, equipment, or clinical facilitators End of Project Household survey --multistage cluster design Clinic User Survey --in random sample of polyclinics Household survey --multistage cluster design Clinical practice observation study Clinical practice observation study -- in specific PHC facilities that received refurbishment, --in random sample of polyclinics equipment, and training Clinical practice observation study --in random sample of polyclinics that staff received training but no refurbishment, equipment, or clinical facilitators Clinic User Survey --in specific PHC facilities that received refurbishment, equipment, and training Clinic User Survey -in random sample of polyclinics Clinic User Survey --in random sample of polyclinics that staff received training but no refurbishment, equipment, or clinical facilitators 63

68 Considerable in-service training in critical clinical areas of primary care would be provided through the project. Evaluation of this training would include initial pre-testing of participants to ascertain the depth and appropriateness of their knowledge of clinical procedures, particularly those to be reviewed and upgraded during the life of the project. As a standard training intervention, a post-test would also be given. Perhaps more important would be the direct monitoring and on-the-job training to be provided by the Clinical Facilitators to insure that this training is adopted into practice by all clinical staff. One of the important functions of the Clinical Facilitators would be to evaluate the results of this effort. In addition, baseline and end-of-project assessments would be made of clinical practice through direct observation studies and patient satisfaction surveys. Both the PCU and the UNICEF teams include administrative personnel trained in World Bankapproved procurement methods and financial reporting. At the same time, both teams would be monitored and supported by World Bank procurement and financial experts provided specifically for this purpose. To ensure the proper use of resources, and fortify the technical capabilities of the project, the UNICEF team would also be staffed by a Field Monitor who would spend most of his/her time in the pilot districts, specifically monitoring and adjusting the implementation of the reform interventions. He/she would report to an Assistant Project Officer who would also actively participate in field monitoring, as well as be responsible for much of the actual report writing and evaluation of project activities. Finally all the standard reports would be provided. These include quarterly reports to the World Bank from both UNICEF and the PCU, and also end-of-project reports. These standard reports would be supplemented by reports by individual consultants, including the UNICEF health reform advisor; and the reports of World Bank supervision missions. Finally, the project would also be subject to periodic financial audits. 64

69 Annex 13: Proposed Organization Structure AZERBAIJAN: HEALTH REFORM Ministry of Health Vice Minister Steering Committee MOH, WHO, NGOs. etc.. Technical advise Project Coordination Unit Director, Finance, Procurement Project Coordination and Evaluation UNI 1UNICEF CHIEF DOCTORS Contractor * Coordinates with Pilot (5 Pilot District) District 65

70

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