Public Disclosure Authorized

The World Bank

Document o f

FOR OFFICIAL USE ONLY

Report No: 38149-AM

Public Disclosure Authorized

PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT

Public Disclosure Authorized

IN THE AMOUNT OF SDR 14.8 MILLION (US$22 MILLION EQUIVALENT)

TO THE REPUBLIC OF ARMENIA FOR A HEALTH SYSTEM MODERNIZATIONPROJECT (APL2) IN SUPPORT OF THE SECOND PHASE OF THE HEALTH SECTOR REFORM PROGRAM

Public Disclosure Authorized

February 7,2007

Human Development Sector Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS (Exchange Rate Effective February 7,2007) Currency Unit = Dram (AMD) 359.6AMD = US$1 US$1 = SDR0.67 FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

AAA ACG APL BBP BEEP
BMC CAS CDC CFAA COC CPAR CIS DHS DPL ECA EMP EU FM FMD FMR GDP Analytical and Advisory Activities Anti-Cormption Guidelines Adaptable Program Lending Basic Benefit Package Business Environment and Enterprise Performance Survey Basic Medical College Country Assistance Strategy Center for Disease Control Country Financial Accountability Assessment Constitution o f the Chamber o f Control Country Procurement Assessment Review Commonwealth o f Independent States Demographic Health Survey Development Policy Lending Europe and Central Asia Environmental Management Plan European U n i o n Financial Management Family Medicine Development Financial Monitoring Report Gross Domestic Product Global Fund against AIDS, Tuberculosis and Malaria Government o f Armenia Health System Modernization Project Health Care Waste Management Health Information and Analytical Center Health Information System Health Project Implementation Unit Health Sector Performance Assessment Health Sector Reform Program

IDA IFA IFR IMF IMR

Marz

International Development Association International Federation o f Accountants Interim Un-audited Financial Reports International Monetary Fund Infant Mortality Rate Administrative unit in Armenia Millennium Development Goal Maternal Mortality Ratio Monitoring and Evaluation Ministry o f Culture Ministry o f Finance and Economy Ministry o f Health Ministry o f Territorial Affairs Medium-Term Expenditure Framework National Health Accounts National Institute o f Health N e w l y Independent State Out o f pocket payment Public Expenditure Tracking Survey Primary Health Care Japan Policy and Human Resources Development Fund Programmatic Public Expenditure Review Poverty Reduction Support Credit Poverty Reduction Strategy Paper Structural Adjustment Credit Standardized Death Rate State Health Agency State Medical University Technical Assistance Under-five Mortality Rate

MDG MMR M&E MOC MOFE MOH MOTA MTEF NHA NIH NIS OOP PETS PHC PHRD
PPER PRSC PRSP SAC SDR SHA SMU TA USMR

GFATM

GOA HSMP HCWM HIAC HIS HPIU HSPA

HSRP

Vice President: Country Director: Sector Director Sector Manager: Task Team Leader:
11

Shigeo Katsu Donna M. Dowsett-Coirolo Tamar Manuelyan-Atinc Armin H. Fidler Enis Bar19

..

ARMENIA

FOR OFFICIAL USE ONLY

Health System Modernization Project (APL2) CONTENTS A Page

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STRATEGIC CONTEXT AND RATIONALE

2.

.......................................................................................... 3 . Higher level objectives to which the project contributes ....................................................

Rationale for IDA involvement
PROJECT DESCRIPTION

1.

Country and sector issues....................................................................................................

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. . 2. Program objective and phases ............................................................................................. 3 . Project development objective and key indicators ............................................................ 4 . Project components ........................................................................................................... 5 . Lessons learned and reflected in the project design.......................................................... 6 . Alternatives considered and reasons for rejection ............................................................
IMPLEMENTATION

1.

Lending instrument .............................................................................................................

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8 8
13 13 14 16
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1.

Partnership arrangements .................................................................................................. Institutional and implementation arrangements ................................................................ Monitoring and evaluation o f outcomes/results ................................................................ Critical risks and possible controversial aspects ............................................................... Credit conditions and covenants ....................................................................................... Sustainability.....................................................................................................................

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16 17 18 18 19 21

2. 3. 4.

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5.
D

6.

APPRAISAL SUMMARY

1.

Economic and financial analyses ...................................................................................... Fiduciary ........................................................................................................................... Environment ...................................................................................................................... Technical ........................................................................................................................... Social................................................................................................................................. Safeguard policies .............................................................................................................

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23 24 24 26 27 28 28

2. 3. 4. 6.

5.

7.

Policy exceptions and readiness ........................................................................................

distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without World Bank authorization .

Annex 1: Country and Program Background

.......................................................................... Appendix I: Letter of Development Policy ............................................................................... Annex 2: Major Related Projects Financed by I D A and/or other Agencies ............. Annex 3: Results Framework and Monitoring ........................................................................ Annex 4: Detailed Project Description...................................................................................... Annex 5: Project Costs ............................................................................................................... Annex 6: ImplementationArrangements .................................................................................
Annex 7: FinancialManagement and Disbursement Arrangements Annex 8: Procurement Arrangements

29 40 46

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59 63 64 67 76 81
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...................................................................................... Annex 9: Economic and FinancialAnalysis ............................................................................. Annex 10: Safeguard Policy Issues: EnvironmentalManagement ........................................ Annex 11: Project Preparation and Supervision ..................................................................... Annex 12: Corruption Prevention Strategy and Measures..................................................... Annex 13: Documents in the Project File ............................................................................... Annex 14: Statement of Loans and Credits............................................................................ Annex 15: Country at a Glance ............................................................................................... Annex 16: Maps.........................................................................................................................
MAP IBRD 33364

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98 99 101 102 104 106

ARMENIA
HEALTH SYSTEM MODERNIZATION PROJECT (APL2) IN SUPPORT OF THE SECOND PHASE OF THE H E A L T H SECTOR REFORM PROGRAM PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSHD Date: February 7,2007 Country Director: D-MDowsett-Coirolo Sector ManagerDirector: Armin H. Fidler Team Leader: Enis Bang Sectors: Health (90%); Tertiary education (10%) Themes: Health system performance (P); Education for the knowledge economy (S); Administrative and civil service reform (S) Environmental screening category: Partial Assessment

Project ID: P104467 Lending Instrument: Adaptable Program Lending

[ ] Loan [XI Credit [ ] Grant [ ] Guarantee For Loans/Credits/Others: Total IDA financing (US$m.): 22.00

[ ] Other:

Borrower: Ministry o f Finance and Economy 1 Melik-Adamyan Yerevan Armenia Tel: 59-53-04 press@mfe.am http://w.mfe.,gov.am/ Responsible Agency: Ministry o f Health Government House N3, Second Building Yerevan, Armenia. Tel: 374 1 582413; Fax: 374 1 56 27 83
V

Expected effectiveness date: June 30,2007 Expected closing date: December 3 1,2012 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ P A D A.3 Does the project require any exceptions from IDA policies? Re$ P A D D. 7 [ ]Yes [XINO Have these been approved by IDA management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated substantial or high? [XIYes [ ] N o Ref: P A D C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] N o Ref: . , P A D D. 7 Project development objective Re$ P A D B.2, TechnicalAnnex 3 The objective o f the Health Sector Reform Program remains unchanged: to improve the organization o f the health care system in order to provide more accessible, quality and sustainable health care services to the population, in particular to the most vulnerable groups, and to better manage public health threats. The objective o f the Project i s to strengthen the MOHs capacity for more effective system governance, scaling up family medicine-based primary health care and upgrading selected healthcare service delivery networks in marzes to provide more accessible, quality and sustainable health care services to the population. Project description Re$ P A D B.3.a, Technical Annex 4
. I

Component A: Family Medicine Development (estimated total cost US$4.70 million). This component will continue supporting the strengthening o f institutional capacity to train wellqualified family physicians and nurses as first-line PHC providers and improve their physical and material working environment. Component B: Hospital Network Optimization (estimated total cost US$20.77 million). This component will support the implementation o f the optimization plans in the remaining eight marzes by upgrading the facilities and rehrbishing them with modern medical, I T and healthcare waste management equipment. Component C: Institutional Strengthening (estimated total cost US$2.58 million). This component will help to strengthen MOHs capacity for policy making, planning, regulation, human resources development and monitoring and evaluation for more effective system governance and control o f NCDs. In addition, under this component, the State Medical University will benefit from consultancy services to upgrade i t s medical curriculum, improve its teaching and training facilities and introduce new technologies for continuous medical education.

vi

Component D: Project Management (estimated total cost US$1.57 million). This component will help to provide institutional support to the MOH through Health Project Implementation Unit (HPIU) which will be in charge o f implementing day-to-day project activities and monitoring and evaluation. Please note that the amount o f APL2 has increased from $1 1 million initially envisaged to $22 million in order to expand the activities o n a larger scope. Which safeguard policies are triggered, if any? Re$ P A D 0.6, Technical Annex 10 The immediate impact o f the project activities on the environment i s limited. The main physical investments for the proposed project are rehabilitation and new construction o f family medicine practices in the rural communities as well as rehabilitation and refurbishment o f selected space in selected hospital networks in 8 marzes. Therefore, the environmental category rating remains "BI', the safeguard screening category rating remains "S3" as i t was under the APL1. As such, the existing Environmental Management Plan (EMP) remains valid, albeit subject to amendment to new sites. T o date, compliance with the E M P has been satisfactory. Therefore, site-specific environmental screening for all project-supported rehabilitation o f PHC centers and hospitals will be carried out as per the EMP. An environmental management framework has been prepared and publicly disclosed in Armenia in December 2006. Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: NIA Condition o f Credit Effectiveness:

Dated Covenant: 0 By August 1, 2007, the R e c i p m t shall establish the Hospital Optimization and Modernization Coordinating Committee to provide the framework for and to monitor the implementation o f Component B o f the Project.

vii

A.

STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Country Issues

1. Economic growth and macroeconomic management are strong. GDP growth has averaged over 10 percent per annum over the past five years, reaching 14 percent in 2005, and an estimated 13.4 percent in 2006. Prudent macroeconomic policies have maintained sustainable external and internal balances, kept inflation l o w and reduced Armenias debt burden. The fiscal deficit has also remained low, and has been financed by non-inflationary sources. Armenia is fully on track with i t s IMF Poverty Reduction and Growth Facility (PRGF) Program.
2. With sustained high and broad-based economic growth, poverty in Armenia has continued to decline. Armenia saw a significant reduction in overall poverty, with the proportion o f poor declining from 51 percent in 2001 to 30 percent in 2005. Growth reduced extreme poverty even faster, from 16 percent in 2001 to below 5 percent in 2005. A recent household survey also revealed strong declines in urban and rural poverty, and in income inequality. 3. Armenia continues to make progress on the reform agenda, though challenges remain. Armenia has made strong progress towards an open economy, as evidenced by the improvement in i t s IDA Performance-Based Allocation (PBA) score. Nevertheless, challenges remain. Though wages have been increasing, unemployment remains high at one-third o f the labor force. Improvements are also needed, inter alia, in eliminating distortions associated with corruption and building the human capital necessary for a competitive knowledge economy.
Armenia has a strong and comprehensive poverty reduction strategy in place, and has 4. achieved or exceeded most targets that it had set for itselJ: The recent CAS progress report refers to Armenia having had a successful Poverty Reduction and Strategy Paper (PRSP) implementation, in which most o f the targets have been met or exceeded. Key achievements included: (i)stronger than anticipated economic growth and poverty reduction; (ii) improvements in fiscal resources and policy, though tax and customs administrations continue to require improvement; (iii) increased spending in the social sectors and good progress in initiating systemic social sector reforms - social spending in real terms i s higher than anticipated, though it did not achieve PRSP targets as a percent o f GDP; and (iv) good progress in infrastructure and rural development, although further increasing private sector involvement and reducing rural poverty remain challenges. The government is preparing a full PRSP update in mid-2007 with refine policy actions and revised targets. Armenia also remains on target to achieve most ifnot all o f its Millennium Development Goals (MDGs) by 2015. In 2005, Armenia published the first progress report on meeting the MDGs. Achievement o f all of these goals is assessed as either possible or likely. Rates o f poverty, infant mortality and maternal mortality have fallen rapidly over the past few years. There i s virtually full enrollment in primary schools, and the country is in the midst o f education reforms. At the same time, challenges continue to exist in promoting gender equality, combating

5.

communicable diseases, ensuring environmental sustainability and implementing Government's a n t i - c o m p t i o n agenda. Sector Issues
Health outcomes

maternal mortality has been observed; between 2000 and 2004, the Infant M o r t a l i t y Rate (IMR) and the Under-five M o r t a l i t y Rate (USMR) f e l l from 15.6 and 19.8 to 12.3 and'13.6 p e r 1,000 l i v e births, respectively.' During the same t i m e span, the Maternal M o r t a l i t y Ratio (MMR) f e l l f r o m 52.5 to 16 per 100,000 l i v e births. As a result, l i f e expectancy at birth in 2004 was 70.3 years f o r m e n (higher than in most o f the ECA countries) and 76.4 years for w o m e n (Table 1). Table 1: Armenia: H e a l t h status indic tors in the international context (2003)
Armenia Europe NMS CIS CSEC

6. Armenia compares favorably with countries o f similar level o f socio-economic development in terms o f health outcomes. A steady downward trend in infant, under-five and

66.9 68.9 74.3 73.1 74.1 L i f e expectancy at birth, in years (LEO) 19.8 6.6 14.5 11.5 9.0 Infant deaths per 1,000 live births (IMR) 31.8 51.5 6.0 19.7 15.6 Maternal deaths per 100,000 live births (MMR) 821.4 741.5 452.7 714.9 479.4 SDR, diseases o f circulatory system, all ages per 100,000 433.8 362.3 222.7 176.1 387.3 SDR, ischemic heart disease, all ages per 100,000 1311.2 931.3 1431.2 1083.3 962.6 SDR all causes, a l l ages, per 100,000 63.1 42.7 70.1 55.5 SDR, diseases o f the respiratory system, all ages 63.4 per 100,000 653.2 243.7 370.7 716.4 577.0 SDR, selected smoking related causes, all ages per 100,000 69.0 26.3 87.3 47.9 42.4 Tuberculosis incidence per 100,000 0.6 0.4 0.7 0.3 1.1 Clinically diagnosed A I D S incidence per 100,000 1.4 1.6 4.9 n.a. 1.o Diabetes prevalence, in % Source: World Health Organization (WHO): Health r All (HFA) database, 2005. Note: Europe: 52 countries in the WHO European Region. NMS: N e w Member States-10 new member states o f the European U n i o n f r o m M a y 1, 2004. CIS 12 countries o f the Commonwealth o f Independent States; CSEC: 25 countries in the WHO European Region with higher levels o f mortality (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Republic o f Moldova, Romania, Russian Federation, Serbia and Montenegro, Slovakia, Tajikistan, FYR Macedonia, Turkey, Turkmenistan, and Ukraine).

7. At the same time Armenia is also in the midst o f an epidemiological transition characterized with a decline in communicable diseases and an increase in the prevalence o f chronic diseases. T h e leading causes o f premature adult death under the age o f 65 are, in order of magnitude, diseases o f the circulatory system - heart disease, stroke and related conditions,

cancer, external injuries and poisoning - including suicide and traffic accidents, and diseases o f the respiratory and o f the digestive system.2 T h e HIV prevalence rate i s lower than in most o f the
According to the 2005 Demographic and Health Survey (DHS), these rates are higher, 26 and 30 per 1,000 live births, down f r o m 36.1 and 39 in 2000, respectively. W o r l d Health Organization Regional Office for Europe 2005.

'

Commonwealth o f Independent States (CIS), but a potential threat exists due to large number o f migrant workers in higher HIV prevalence countries such as Russia and Ukraine. Tuberculosis prevalence rate at 98 per 100,000 population remains higher than the European average. In 2004, DOTS case detection and treatment success rates were 63 percent and 77 percent respectively, a slight improvement over the previous years. Overall, disease surveillance, prevention and control system i s slowly improving i t s capacity to better detect and manage the resurgence o f communicable diseases as hnding levels increase.
Health services utilization

8. Despite recent improvements, access to and use o f health services remain low, favoring polyclinics and hospitals over Primary Health Care (PHC) facilities. After a worrisome downward trend in admission rates and outpatient visits during the 1990s, health services utilization i s again on the rise, although s t i l l l o w by EU standards and CIS average^.^ In view o f the increasing prevalence in the adult population, there i s a concern that the sick may postpone seeking care and use o f services as a result o f lack o f resources, high out-of-pocket payments and l o w perceived quality o f care, especially in rural areas.4 In 2003, for instance, the percentage o f l l or injured was on average 70.5 percent, varying individuals who did not seek care when i between 62 percent for the top quintile and 78 percent for the lowest quintile. As for the out-ofpocket (OOP) informal payments, they are mostly paid in hospitals; in 2001, about 72 percent o f those who sought healthcare in a hospital and about 60 percent o f those who sought care in a polyclinic reported to have made informal payments averaging 20,000ADM (approx. US$40) and 6,700ADM (approx. US$13), quite high figures with significant impoverishing effects on the household. In rural areas a higher proportion o f the sick make informal payments for outpatient services whereas the reverse occurs in urban areas for inpatient services. In both rural and urban areas, the proportion o f those who make OOP informal payments is lower amongst the poorest quintile, mainly because o f refraining from seeking care. On the other hand, however, the recent increase in the public health spending is having a positive effect o n the use o f both inpatient and outpatient services, especially for the poor. Between 2002 and 2004, there has been a 28 percent increase in inpatient admissions, but much higher, 44 percent, amongst the poor and vulnerable. Similarly, there has been a notable increase in the use o f specialty services in polyclinics.
Health system governance and organization

9. Health system governance in Armenia is increasingly becoming pluralistic and decentralized, albeit with still a limited role for direct involvement by the population. Armenia has a revamped Semashko healthcare system, characterized now with the redefinition o f the roles and responsibilities o f the Ministry o f Health (MOH) and increased involvement o f local and municipal authorities. Previously the MOH was responsible for planning, regulation, financing
Between 1991 and 2001, the inpatient admission rate dropped from 12.1 admissions t o 4.9 per 100. Similarly, the number o f outpatient contacts per person per year dropped from 9 in 1985 down t o 1.8 in 2001. The EU and CIS averages are 18.4 and 19.8 for inpatient admission rate and 8.4 and 8.7 for the number o f contacts per year, respectively. According to the 2005 DHS, 65 percent o f women who reported having problems in accessing healthcare said getting money for treatment was a problem, compared, for example, to distance to the health facility (20.3 percent), concern for poor service (58.2 percent), concern provider unfriendly (43.7%), concern provider not available (36.4%) o r concern n o drugs available (34.8%).

and delivery o f healthcare services. More recently, it has increasingly been involved in policy making5, defining broad strategies, planning and regulation while leaving service delivery to local authorities and municipalities which now owns a large share of, and operates, most hospitals and polyclinics.6 Moreover, payments to health care providers are now managed by the State Health Agency (SHA), a semi autonomous agency within the MOH working in close cooperation with the Ministry o f Finance and Economy (MOFE) on matters related to the definition o f and budget allocation for the state-funded programs and payment rates for providers. Once the budgets are allocated to state programs and payments are made on the basis o f contracts with the SHA, health facilities have the autonomy to manage their o w n financial and human resources. In addition, they are free to sign contracts with private health insurance agencies or charge patients directly for services not covered by the state-funded Basic Benefit Package (BBP). O n the other hand, the SHA is bound to contract all licensing health facilities, neither o f them having a real negotiating power.
Health carefinancing and expenditures

10. Despite recent budgetary increases in nominal terms, the healthcare system remains under-funded and its resources are poorly pooled and inequitably used. Taxes and mandatory social insurance contributions constitute the main source o f tax revenues for the Government through which budgetary obligations to the health sector i s financed. This, however, constitutes only a small share o f total health expenditures (THE) in Armenia.7 In 2003, THE accounted for 6.1 percent o f the GDP, and at present total public expenditures o n health represents about 1.64 percent o f the GDP, or 9.9 percent o f the total public expenditures.* About 80 percent o f the public exp,enditures on health are allocated through the SHA which acts as a single purchaser o f healthcare services while the rest is spent by the MOH, mostly on procurement o f drugs, vaccines and sanitary and epidemiologic services. Since 2006, the S H A budget i s being allocated almost equally between inpatient care and primary health care services. The budget i s now being executed fully while all arrears have been reduced significantly.

11. All health facilities are reimbursed on the basis o f a reimbursement rate for the services included in the BBP, set jointly by the MOFE, M O H and SHA, although they are free to charge patients for those services that are not covered by the state funded programs. Primary health care physicians are paid capitation-based salaries, calculated o n the basis o f patients enrolled with the family practitioner. As for specialists in polyclinics, they are paid a certain guaranteed, albeit grossly inadequate (approx US$25 per month) wage. Hospital-based specialists receive a salary
See for instance, National Health Policy o f the Republic o f Armenia, issued by the MOH in 2004, although not yet officially endorsed by the Government, nor ratified by the Parliament. All health facilities in Armenia are n o w Joint Stock Companies (JSC), with marz authorities and municipalities holding a large share o f the stocks o f hospitals and polyclinics, respectively, except in Yerevan where the municipality i s the major share holder o f public hospitals. Only a few tertiary hospitals and the sanitary epidemiological services remain under the authority o f the national government. 7 In 2003, Government expenditures constituted 20.4% o f the THE, while out o f pocket payments accounted for 62.4% (93% o f which are informal payments). External grants accounted for the remaining balance (15.5% for those administered privately and 1.7% through the government). According t o WHO, in 2005, public expenditure o n health accounted for 26.7% o f THE, and private spending for 73.3%, albeit without further details o n external or internal grants. THE accounted for 1.4% o f G D P and 7.5% o f total public expenditure. * 2007 state budgetary allocations as per the 2006-2008 M e d i u m Term Expenditure Framework (MTEF).

based on a contractual agreement with the hospital administration o n an individual basis, thus varying from one specialist to another.
Physical resources

12. Recent efforts to reduce excess capacity have been successful, but they need to be scaled up. Compared with many other countries o f the Former Soviet U n i o n (FSU), Armenia has been very successful in reducing its hospital capacity and non medical staffing, mainly through closure o f small rural hospitals, reduction o f beds and attrition.' Under the first phase o f the APL, more elaborate optimization and modernization o f hospitals in Yerevan has begun, resulting in consolidation o f services, elimination o f duplicative departments and reduction o f surface areas in selected inpatient care facilities and, subsequently, significant productivity and efficiency gains.'' A similar initiative i s now underway, approved by the Government, for the remaining ten marzes.
Health woryorce

13. While Armenia is relatively well endowed in terms o f health professionals, the gradual decrease in the number o f nurses, the relatively higher number o f specialists, and geographic distribution o f healthcare workers are o f concern." Not only is the physicidnurse ratio suboptimal for adequate provision o f services, but also because o f the oversupply o f specialists and the fact that a relatively high percentage o f physicians (44 percent) work in hospital settings, PHC services remain inadequately covered, especially in rural areas. The large-scale training o f family physicians which began under the first phase o f the Health Sector Modernization Project (HSMP) and will continue under the second phase i s aimed at addressing this issue by training a total o f 1,650 family physicians and 1,650 family nurses to provide PHC services, mainly in rural areas. 14. Formal medical education i s provided by the Yerevan State Medical University (SMU) which graduates about 400 physicians a year, down from 500 to 800 in early 1990s. There also are four private medical schools in Armenia that are not recognized by the State, catering mostly to foreigners. The Ministry o f Education (MOE) and the S M U intend to establish a formal registration, licensing and accreditation system applicable to all training facilities, regardless o f their stature, and reform the training curricula and state medical exams to bring their training programs up to par with the European Union (EU) standards, with a request for IDA'Sfinancial and technical support through the proposed project.

First efforts resulted in a reduction o f 30% i n hospital capacity and 15% in non-medical staffing with an estimated cost savings o f 12%. In 2004, Armenia had 388 acute care beds per 100,000 population compared with 822 in the Russian Federation, or the CIS average o f 742 (HIT profile in brief: Armenia, 2006). 10 The hospital master plan for the city o f Yerevan, approved in 2003, consolidated 24 hospitals and 13 polyclinics into 10 hospital networks. As a result, admission rates and bed occupancy ratio increased and average length o f stay (ALOS) decreased in the merged hospitals (please see mid-term review report o f the HSMP (APLl), issued in December 2006). II In 2004, the average number o f physicians per 1000 population in Armenia was 3.3 compared with the EU (3.5) and CIS (3.7). However, there has been a gradual decline in the number o f nurses, f r o m 6.15 per 1,000 population in 1985 to 4.06 in 2004 which i s n o w lower than the EU (7.2) and the CIS (7.9) averages.

Government Strategy
In the Poverty Reduction Strategy Paper (Report No. 27133-AR), the Government aims 15. at, inter alia, enhancing human development, and improving social safety nets and core public sector functions, including health. Increasing accessibility to essential health services i s a major focus o f the PRSP, recognizing the need for additional public outlays12, increased efficiency in the use o f public resources and improved maternal and child healthcare to achieve the MDGs. In addition to increased public spending and more optimal intra-sectoral allocation o f funds according to the healthcare needs o f the population by better definition and prioritization o f the state programs, the Government i s intent on pushing through the following reform agenda, focusing on: (i) further strengthening primary health care on the basis o f the principles o f family medicine; (ii) separating the purchasing function from service provision by strengthening the institutional capacity o f the SHA to become an active purchaser o f services with the accompanying reforms in provider payment methods and hospital governance aimed at enhancing efficiency and ensuring access to essential health services particularly for vulnerable groups; and (iii) scaling up and completing optimization o f the extensive health facilities network in marzes.

2. Rationale for IDA involvement

16. This project has been prepared under the framework o f the current Country Assistance Strategy (CAS) (FY05-8), or more specifically, in accordance with the broad objectives o f Pillar 3 Reducing non-income poverty advocating for increased spending in the social sectors and progress in implementing systemic social sector reforms. The CAS progress report concludes that the overall framework remains valid and that n o major shifts are needed in view o f the impressive results, including those in the health sector, citing the observed sharp rise in the proportion o f sick in the lowest income quintile who obtain treatment, from 22 percent in 2003 to 46 percent in 2005. While a second phase operation was not envisaged during the same CAS period, there are two complementary reasons why IDA should scale up i t s involvement in the reform o f the health sector in Armenia at this time, without having all triggers f i l l y met.
First, the Government o f Armenia (GOA) has been successful in implementing the health 17. sector reform agenda described in the letter o f development policy (LDP) that was submitted when the first phase o f the Health Sector Reform Program (HSRP) was being prepared (HSMP APL1). Second, after only two years o f implementation o f the first phase o f the Program, the GOA has effectively consolidated the large number o f hospitals in the city o f Yerevan into networks resulting in considerable reduction in the number o f health facilities without any compromise in access to and quality o f care. Indeed, both have improved in the hospital mergers supported under the first phase. The Government now intends to pursue HSRP in the ten other marzes, and has already prepared an optimization plan for each, recently approved by the Government. This has been a politically sensitive and technically challenging process, requiring therefore a timely follow-through with major investment in the facilities in order not to lose momentum and proceed with the second and final phase o f the HSRP implementation.

up from 1.4% in 2003.

l2The

PRSP foresees an increase in the level o f the consolidated budget for health care in 2015 to 2.5% o f the GDP,

18. The reform o f the PHC is progressing equally well with the introduction o f family medicine as both an organizational model and a mode o f practice. Its implementation i s right o n track in terms o f training o f family physicians, reform o f the training curriculum, issuance o f the regulatory decrees for independent and group practices, enrollment o f patients and upgrading o f facilities and medical equipment. The advanced second phase will result in a major gain in terms o f time required to complete the transformation o f the PHC network to family medicine based practice. 19. Finally, the M O H and the SHA are gradually moving their attention to the appropriateness and quality o f care, now that access to care in terms o f availability o f resources has become less o f a concern. The programs in the State Order, the basis for the allocation o f public resources, i s being constantly fine-tuned to ensure that the funds go where the needs are, and the SHA is in the process o f updating its information base and introducing a performancebased reimbursement and bonus system to make sure that money follows the patient. On the other hand, substantial technical work has been carried out on voluntary insurance and on the definitiodrefinement o f the basic package o f services in view o f Governments concern with the high proportion o f out-of-pocket expenditures. The long term vision remains unchanged: a health care system where the State will have the primary responsibility to cover essential services for the population and provide additional support to the poor, indigent and vulnerable populations while it would allow a growing market for for-profit and not-for-profit voluntary health insurance schemes. IDAS support to strengthen the institutional base for effective system governance i s thus deemed crucial to assist the government to make its vision a reality in such a way that the reformed healthcare system would be equitable, efficient and fiscally sustainable.

3. Higher level objectives to which the project contributes

20. Pillar 3 objective o f the current CAS Reducing non-income poverty aims at helping the government to implement health sector reform and increase i t spending in health, as well as in other social sectors. The Health Sector Support Program was designed and financed with a view to support rationalization o f health facilities and the introduction o f family medicine as an organizational model for the provision o f PHC services (please see the LDP appended to Annex 1). As a result the G O A has been able to significantly reduce overhead costs and thus allocate i t s scarce resources for the provision o f the essential services to the whole population and o f a more generous benefit package to the poor. 21. These reforms are also underpinned by the Poverty Reduction Support Credit (PRSC) series, the policy matrix o f which, under the goal o f controlling health risks, includes three complementary triggers, namely: (i) adhering to the rationalization program in the hospital sector as measured by target bed and physician ratios; (ii) adopting policies to define the scope o f publicly-funded healthcare services and a regulatory framework for voluntary health insurance; and ( i i i ) implementing the program on the prevention and control o f Non-Communicable Diseases (NCDs). The proposed PRSC 3 operation under preparation has the following healthrelated triggers: (i) that governments commitment to sustained increase o f public financing o f the health sector remains in line of 2007-2009 MTEF projections; (ii) that the marz optimization plans are adopted by the Government and local authorities and that its implementation in pilot that the priority measures to prevent and control NCDs are developed regions has began; and (iii)

and adequately budgeted in 2008. The second phase operation will provide the much needed technical and financial backup towards the achievement o f these objectives. 22. Finally, the ongoing policy dialogue and analytical work through the Programmatic Public Expenditure Review (PPER) led the G O A to eliminate user fees for basic health services as o f 2006, with the subsequent rise in their utilization among the poor. The two health modules prepared as part o f the PPER and the background field surveys on PHC also led to the identification o f infrastructure, equipment and training needs, reinforcing therefore the family medicine based PHC reform supported by the Project. B.

PROJECT DESCRIPTION

1. Lending instrument

23. This project i s the second phase o f a two-phase Adaptable Lending Program (APL) to support Governments health sector reform program described in the updated LDP (Annex 1). The L D P makes explicit reference to accomplishments to date under the first phase and how the second phase operation will expand the reach o f the PHC and o f hospital networks on the basis o f the lessons learned under o f the APL1. The PAD o f the first phase indicated that the second phase o f the program could start before the end o f the first phase subject to Armenias meeting the trigger conditions. Hence, the preparation o f the second phase has been advanced in view o f the progress made in meeting, either partially or fully, all o f the triggers, but perhaps equally importantly because o f Governments now proven track record o f implementing hospital mergers and networks effectively and i t s commitment to optimize health facilities in the marzes outside Yerevan on a much larger scope. The amount o f APL2 has therefore been increased from the $11 million initially envisaged to $22 million. Once h l l y implemented at the end o f two phases, the Health Sector Reform Program will have met i t s objective o f streamlining, consolidating and upgrading all the needed facilities, h l l y restructuring i t s PHC network, expanding its financial and human resource base, adopting sound payment mechanisms and improving free access to essential healthcare services for the majority o f the population.
2. Program objective and phases
24. The development objective o f the HSRP remains unchanged: to improve the organization o f the health care system in order to provide more accessible, quality and sustainable health care services to the population, in particular to the most vulnerable groups, and to better manage public health threats. The key performance indicators for the whole program also remain unchanged:
0

e
0

Increased utilization o f essential health services closer to international benchmarks for countries with similar demographic and epidemiologic profiles; Reduction in differences in utilization o f essential health care services between the poorest and richest income groups o f population; Improvement o f the perceived quality and accessibility o f health care services by the population;

Improvement in the efficiency o f the allocation and use o f public expenditures o n health through rationalization o f inputs on the supply side, that is fewer hospitals and better quality o f care as a result o f better trained PHC work force; Improvement in health-related MDGs, mainly in infant mortality, maternal mortality and prevention and control o f public health threats such as H I V / A I D S and Tuberculosis which are amenable to health sector interventions; and Increased transparency and performance in public hospitals as a result o f the introduction o f better management and fiduciary practices and performance-based payment mechanism (please see Annex 3 for more detailed information).

25. The program will continue supporting the GOA to: (i) complete the family medicine based PHC reform that was launched in 1996 so to ensure that every Armenian citizen and legal resident will have access to a qualified and well motivated family doctor and nurse o f hisher choice; (ii) consolidate the hospital sector to minimize waste o f scarce resources and improve quality o f care; and ( i i i ) strengthen GOAS competencies for effective stewardship in policy making, regulation, oversight and public accountability ensure effective and targeted use o f public resources in accordance with the health and healthcare needs o f the population, especially the poor.
Below i s a recapitulation and assessment o f the degree o f achievement o f the triggers for the second phase:

26.

E *

* m a

0 0 0 0 0 0 N N N

> .Y

n
W

8 a

3. Project development objective and key indicators

27. The development objective o f the Phase Ioperation was "to expand access to quality primary health care; improve the quality and efficiency o f selected hospital networks: and lay ground workfor effective health sector policy making and monitoring."
28. The development objective o f the Phase I1 Project i s to strengthen the MOH's capacity for more effective system governance, scaling up family medicine-based primary health care and upgrading selected healthcare service delivery networks in marzes to provide more accessible, quality and sustainable health care services to the population.

29.

The following key performance indicators will measure achievement o f the project objective (please see Annex 3 for more detailed information): Population is fully covered by qualified family medicine practices. Key health sector quality and efficiency indicators improve in rural areas. A culture o f evidence-based impact assessment i s established through the institutionalization o f key health policy monitoring documents - HSRP and NHA. Public hospitals complete the transformation o f their governance structure and make routine use o f Supervisory Committees and independent auditing practices, for improved management, transparency, performance and efficiency. A gradual increase in funding for, and utilization of, preventive services for the control o f NCDs (e.g., tobacco control, mammography, high blood pressure, diabetes, pap smear, etc.

0 0

4. Project components
30. Component A: Family Medicine Development (estimated total cost US$4.70 million). This component will continue supporting the strengthening o f institutional capacity to train well-qualified family physicians and nurses as first-line PHC providers and improve their working environment. Under this component, the project will complete the planned (re)training o f 1650 physicians and an equal number o f nurses to ensure 100 ercent population coverage based on the ratio o f about one team per 1700 to 2000 population.' In addition, about 50 rural ambulatories will be upgraded and outreach activities will be conducted to ensure community participation.

3 1. Component B: Hospital Network Optimization (estimated total cost US$20.77 million). This component will support the implementation o f the optimization plans in the remaining eight marzes by upgrading selected hospitals and refurbishing them with modem medical, I T and health care waste management (HCWM) equipment. In addition, under this component, the project will finance technical work for architectural design, and training in
hospital management, quality assurance, accountability and fiduciary management arrangements and H C W M .

l3Under the first IDA-financed Health Financing and Primary Health Care Development project, 221 family physicians and 178 family nurses were trained. Under the on-going A P L l the training o f 548 physicians and 390 nurses has been completed.

13

Component C: Institutional Strengthening (estimated total cost US$2.58 million). This component will help to strengthen MOHs capacity for policy making, planning, regulation, human resources development and monitoring and evaluation for more effective system governance and control o f NCDs. I t will also support strengthening the governance and management structures o f health care facilities and the oversight h n c t i o n o f marz administrative structures. Support will also be made available to strengthen SHA operations, improve costing o f publicly financed services and reimbursement mechanisms. In addition, under this component, the S M U will benefit from consultancy services to upgrade i t s medical curriculum, improve its teaching and training facilities and introduce new technologies for continuous medical education (CME).
32. 33. Component D: Project Management (estimated total cost US$1.57 million). This component will help to provide institutional support to the M O H through Health Project Implementation Unit (HPIU) which will be in charge o f implementing day-to-day project activities and monitoring and evaluation (M&E). The project will finance annual financial audits as well as training and operating costs o f the HPIU, including the costs o f core and short-term staff salaries, office related expenses and monitoring and evaluation o f project implementation and performance. Please see Annex 4 for detailed project description.

5. Lessons learned and reflected in the project design

34. A review o f Banks experience with support to health sector development in the E C A region during the past 10 years revealed that investment in infrastructure should be based o n rationalization plans developed in a consensual manner with involvement o f all stakeholders and explicit political support from the Government.

The project design also reflects key lessons learned from the review o f health care 35. reforms in the transitional CIS countries: (i) the need to enhance allocative efficiency by reorganizing access to primary health care and introducing gate-keeper function to streamline direct access and referral to hospitals; (ii) the need to invest in human resources in a strategic manner with a view to reaching a balance in the mix and distribution o f health workforce; (iii) rehabilitation o f health facilities i s an essential ingredient in raising the quality o f healthcare services; and (iv) the need to strengthen providers managerial capabilities and o f the Government by improving public budget management practices and its supervisory and regulatory role.
36. In addition, the following lessons have been learned in designing and implementing similar reform-oriented projects in the Region and from the first Primary Health Development project in Armenia:
0

Political commitment and ownership is a sine qua non for effective implementation and sustainability;

14

A concurrent development policy lending (DPL) operation (e.g., PRSC) significantly improves policy dialogue and plays a catalytic role in increased attention to monitoring
and evaluation o f project results and impact;

High quality analytical and advisory activities provide the necessary evidential base for more effective policy dialogue and project implementation;
Involvement o f local authorities, MOH and hospital management in both the technical and political processes o f the preparation o f rationalization plans facilitates consensus building and thus significantly increases ownership and cooperation; Coercive and punitive measures to prevent or eliminate informal payments are much less effective than those who aim at increased transparency in financial reporting; pluralistic governance o f health facilities with the involvement o f payers and consumers, in addition to service providers; laws and regulations for consumer protection and patient rights; unequivocal and simplified fee schedules and eligibility criteria fblly accessible to patients; and, above all, a gradual increase in providers income and payments through increased budgetary outlays, commensurate with their education and training, workload and performance; Importance o f supply side interventions to reduce excess resource capacity, in conjunction with financing, payment, in-service training and regulatory reform to improve the practice environment; and

validity helps generate evidence for objective assessment o f project accomplishments.

A built-in and rigorous M&E scheme relying on indicators o f high content and predictive
The design o f the proposed APL2 incorporates the lessons learned above in the following
Project preparation has been camed out with full cooperation by the MOH, MOFE, MOTA and local authorities, and with their substantial political commitment and ownership, as evident in the approval o f the hospital optimization plans by the Government. Project design hinges o n the synergy with the policy conditionality and joint partnership with MOH and M O F E in assessing the performance o f both D P L and APL operations; The team has worked in close cooperation with M O H and M O F E in the design, implementation and reporting o f related Advisory and Analytical Activities (AAA) (e.g., PPER);

37. way:

Technical and financial support to the design and implementation o f marz optimization plans, a supply side macro management strategy, i s augmented with extensive training, open enrollment and autonomous practices to enhance freedom o f choice for patients and providers and heavy investment in facilities to improve practice environment;

15

Emphasis o n fiduciary transparency and pluralistic governance structures for hospitals and policy and economic research for realistic fee setting based o n real costs to mitigate corruption and reduce informal payments, and Arrangements for results monitoring have been carefully designed to reflect the intended key project objectives and outcomes.

6. Alternatives considered and reasons for rejection

agreement at marz level on significantly reducing the excess capacity, thus setting back the modernization process and jeopardizing the much needed improvement in allocative efficiency o f scarce resources. Indeed, encouraged by the results in Yerevan, the GOA has approved o n November 2, 2006 the master plan for the optimization o f health facilities in the remaining t e n marzes. W h i l e the proceeds o f the on-going HSMP (APL1) will provide financial support for two o f the marzes, it i s crucial that additional financing be secured to begin the implementation o f the optimization plans in all manes at the same time so as to seize the momentum built in all and respond to high expectations for investment in upgrading health facilities and training staff while decommissioning obsolete and surplus facilities and equipment. On the other hand, the risk o f moving on to the second phase without f i l l y meeting some triggers i s minimal given the impressive achievements towards their fulfillment in just two years and the fact that there are no legal or regulatory prerequisites left to be enacted for full-scale investment.
Additional financing. This alternative was first considered as preferable because o f the repeater nature o f the project without any change in the development objective, but was dropped

38. Maintain the original timetable, This alternative may appear to carry less risk from IDASperspective, but was rejected because o f the substantial risk for the Borrower o f delaying investment until the end o f Phase I in terms o f losing the momentum gained in reaching

39.

the subsequently as a result o f Operations Policy and Country Services (OPCS) advice that: (i) programmatic (APL) nature o f the support to GOAS health sector reform does not lend i t s e l f to an additional financing operation because o f the need for a thorough assessment o f the progress to date in meeting the triggers; and ( i i ) the size o f the planned investment for the proposed second phase (US$ 22 million) i s significantly higher than the total amount o f financing originally envisioned for APL2 (US$ 11 million).

C.

IMPLEMENTATION

1. Partnership arrangements

40. During the second phase o f the HSMP, collaboration will continue with the USAID - a key partner in helping the Government to scale-up the PHC reform in Armenia. The USAIDfinded Primary Health Care Project (PHCP) helps the Government to improve the management o f family doctor practices, introduction o f list-based enrollment o f population, organization o f a public information and education campaign, training o f trainers and piloting o f performancebased contracting mechanisms. These activities constitute an important testing ground for nation-wide implementation o f PHC reforms supported by IDA. The U S A I D also finances the DHS, a major source o f household-based data for assessment o f the health sector performance.

16

41. The WHO will also continue i t s support to the process o f issuance o f a national health policy, the institutionalization o f the NHA, as well as technical assistance to the preparation o f survey instruments on major risk factors for NCDs. The DFID will support the restructuring the organizational set-up o f the Ministry o f Health and programmatic health budgeting. Both agencies partner with the World Bank in assisting the government to complement project activities under Component C. UNICEF will continue supporting the vaccination program in Armenia. The G T Z and KfW support Governments national tuberculosis program by providing medical equipment and Tuberculosis drugs. Finally, the UNDP i s involved in integrated community-based development. The activities o f the last three agencies complement PHC related work and technical assistance under Component A.

2. Institutional and implementation arrangements 42. The project will be implemented over a period o f five years. The implementation arrangements under APL2 would be the same as for the ongoing A P L l for continuity in implementation. They are also designed to ensure transparency in implementation and to encourage participatory approach to the implementation o f the politically sensitive hospital modernization process. The Government has designated the MOH as the responsible agency for the project. The HPIU, the unit within the M O H which oversees the implementation o f APL1, will continue do so for APL2. During seven years o f i t s operation, including the first IDAfinanced PHC Development Project, the H P I U has gained considerable experience and acquired capacity in project management. The Unit i s highly effective in overseeing day-to-day project activities and in being fully compliant with IDA fiduciary requirements. The HPIU will be responsible for the fiduciary aspects o f the Project and will provide project administration and coordination support to the M O H departments and agencies that are responsible for project activities (Please see Annex 6 for a description o f specific implementation arrangements for individual project components).
An already functioning Steering Committee composed o f representatives from key 43. stakeholders within and external to the M O H will provide overall oversight and supervision for the project. The Steering Committee comprises: (i) Minister o f Health; (ii) First Deputy Minister o f Health; (iii) First Deputy Minister o f Finance and Economy; (iv) First Deputy Minister o f Justice; (v) Deputy Minister o f the Temtorial Affairs; (vi) Deputy Minister o f Health responsible o f economic and financial Issues; (vii) Head o f the Credit and Humanitarian Assistance Programs Department o f the Staff o f the Armenian Government; (viii) Head o f the Health Economics and Accounting Department o f the Staff o f the Ministry o f Health; (ix) Head o f the Medical Care Provision Department o f the Ministry o f Health; (x) Head o f the State Hygienic and Anti-Epidemic Inspectorate o f the Ministry o f Health; and (xi) Head o f the HPIU. The Committee will also provide advice on the terms o f reference for various assignments, participate in technical evaluations and work directly with consultants during the implementation o f their assignments.
44. There will also be two coordination committees to oversee the activities under Components A and C and Component B. The PHC Coordinating Committee i s already hnctional, and i s composed o f the First Deputy Minister o f Health and relevant M O H 17

Department and Unit Heads, representatives o f Family Medicine Departments, Head o f the S H A and Head o f the HPIU. I t s composition will be modified to include a representative from the Ministry o f Education and Science while issues related to higher medical education (Component C) will be discussed. The Hospital Optimization and Modernization Coordinating Committee, will be established by August 1, 2007. I t s composition will reflect the focus on marz optimization and therefore representatives from MOH, SHA, Ministry o f Territorial Affairs (MOTA) and local municipalities will be the members o f this Committee. 45. The H P I U has been responsible for the implementation o f the earlier IDA-financed health projects in Armenia and has already established a successful track record in effective and fiducially sound project management practices. However one action has been agreed with H P I U to further strengthen i t s financial management capacity. Actions for capacity building (not a credit condition) Update the Financial Management Manual to include new activities o f HSMP (APL2) as well as clearly defining conflict o f interest and related party transactions (real and apparent) and providing safeguards for risk mitigation. Responsible Person Financial Manager o f the HPIU
I

Completion Date Prior to project implementation

3. Monitoring and evaluation o f outcomes/results

46. The MOH, in close coordination with the Health Information and Analytical Center (HIAC) o f the National Institute o f Health (NIH), will monitor and evaluate the progress and outcomes o f the reforms, including the development impact o f the project. APLl has supported H I A C in designing and carrying out an evaluation framework for the reform, and preparing HSPA reports. Project indicators (presented in Annex 3: Results Framework and Monitoring) will be monitored through a comprehensive set o f methods: analysis o f health status and health care utilization indicators constructed from routine administrative data; analysis o f data from existing surveys performed on an ongoing basis by the National Statistical Service (e.g., Integrated Survey o f Living Standards) or customized modules attached to such surveys; design, implementation and analysis o f additional surveys o f health care users and providers. Special attention will be given to the assessment o f equity issues related to health and health care; trends in out-of pocket informal payments and evaluation o f impact o f health programs and policies on the poor.

4. Sustainability
47. The sustainability o f the proposed project hinges on GOAS continued political commitment and ability to stay the course with respect to implementation o f optimization plans in all marzes. The proposed operation would further build on accomplishments already achieved under APLl which has laid the foundation for a reformed healthcare system. The results o f the APLl Mid-Term Review, the analytical work carried out under the PPER and for the CAS progress report all indicate that the health reforms initiated are fully supported by the 18

Government and are not likely to be reversed. There are a number o f key actions which still need to be completed under APLl and under the proposed operation, including the upgrading o f the facilities as outlined in the optimization plans, the training o f the family practice teams, and the implementation o f the performance-based payment o f providers. Once these elements are put in place, the achievements o f the Program would very likely remain sustainable in the long run. 48. The sustainability o f the project also depends o n sustained levels o f additional recurrent costs and the implied budgetary outlays as a result o f the investments made to upgrade health facilities and to train more health professionals. The sustainability o f the PHC network is already assured in terms o f sustained and ever increasing budgetary allocations and improved staffing. Thus far, the G O A has also been able to gradually increase its overall health budget in line with the M T E F projections and proved willing to provide additional funds where there was a demonstrated need. The on-going policy dialogue as part o f the PRSC process will monitor Governments budgeting and budget execution practices to ensure sustainable financing o f the health sector.

5. Critical risks and possible controversial aspects Risk 1 Risk Rating I Risk Mitigation Measure Health Sector Reform rogram Political will to M The GOA has already proven i t s commitment to the implement the reform program by first enacting a decree in optimization plans November 2003 regarding the consolidation o f 24 wanes. public hospitals in Yerevan into 10 hospital and polyclinic networks. Encouraged by the results in Yerevan, the G O A has now also approved in November 2006 the master plan for the optimization o f health facilities in the remaining t e n marzes. Given Armenias strong track record o f high level o f policy and implementation performance, timely processing and approval o f the proposed project can help the central and marz authorities to lock in the optimization plans through continuous flow o f funds to upgrade rural health facilities. Inter-minist e na1 M M O H and MOFE, the two ministries involved in coordination becomes health financing in particular, have so far been able to ineffective. operate in close collaboration with the S H A in relation to making decisions on public investment in the health sector and annual budgetary allocations in line with the mutually agreed upon MTEF. A s the project expands to rural areas, M O T A S involvement will be crucial. A s in Phase I , a Coordinating Committee will be established to facilitate coordination among the Ministries and the local governments. In addition, the mapping exercise will make sure that they are fully involved in the final decision making process.

19

The government will lot able to meet the \.ITEF targets for sustainable increased k a n c i n g o f the health sector.

Compliance with the applicable safeguard policies will be low.

From Outputs to Objective Government and local S authorities and staff show reluctance to reviselamend optimization plans.

h e r the last five years, Armenias economy has grown :onsiderably with ever increasing government revenues md public outlays for social programs including health. DAs on-going financial support through the PRSC )perations and the policy dialogue through the on-going md planned PRSPs, PPER, the Public Expenditures hacking Survey and the HSPA will help G O A to :ontinuously assess financing targets, budgeting and udget execution and provide evidence o n whether the unds are used in accordance to healthcare needs and he shortcomings in financing for priority health Irograms. There will not be any change in the environmental category, rated B, or in the safeguard screening category, rated 3 3 . As such, the existing Environmental Management Plan (EMP) in Annex 10 remains valid, albeit subject to amendment to include new sites. To date, compliance with the EMP has been satisfactory. Therefore, site-specific environmental screening for all project-supported rehabilitation o f PHC centers and hospitals will be carried out as per the EMP. In addition, project hnds are made available to finance architectural and waste material management. Finally, an environmental management framework was prepared and disclosed in December 2006.u~ There i s a very high degree o f commitment by local marz authorities and health workers as evidenced in the finalization o f the mar2 optimization plans which have been ratified by the GOA in November 2006. However, these plans need further refinement. A mapping exercise will be carried out to support this work. G O A provided firm assurances that amendments will be made, when needed, o n the basis o f the mapping exercise. W h i l e the second phase will have the same project components, there will be an additional subcomponent on formal medical education involving the S M U as an additional implementation agency. However, the implementation arrangements would be the same as for the ongoing project. The HPIU is highly effective in overseeing project activities and h l l y compliant with projects fiduciary requirements.

Project too complex to implement.

20

Weak strategic planning o f the reforms, no attention to need for links between PHC and hospital restructuring. Selected contractors fail to provide quality services in time. Selection o f hospital sites and the scope o f the facility upgrading become controversial.

Appropriate technical support during project preparation, continuous policy engagement by the IDA team.

HPIU employs its experience in procurement and contract management obtained during the
implementation o f the first health project. Selection o f sites has already been completed by the Government-approved optimization plans. M i n o r changes may occur in the scope and extent o f facility upgrading, but not to the extent to compromise plans internal coherence and integrity. Implementation will be monitored under PRCS 3.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or L o w Risk)

Overall Risk Rating

49. According to the recent Business Environment and Enterprise Performance Survey (BEEPS) report, about 30 percent o f businesses indicate that corruption can be an impediment to doing business. Adequate mitigation measures are incorporated in the project, and IDA staff will closely monitor performance during implementation. These measures can be summarized as follows: (i) Governments move towards e-procurement and use o f public websites to the project will establish a formal internal control disseminate tenders and announce results; (ii) framework described in the Finance Management Manual; (iii) the mechanism o f flow o f funds agreed upon with the G O A will be enforced; (iv) the project financial statements will be audited by independent auditors and o n terms acceptable to IDA; (v) regular financial management supervision and procurement prior and post reviews will be conducted to monitor and assess the corruption risk; and (vi) the HPIU will develop new procedures to improve the quality o f c i v i l works (for rehabilitation and construction o f new family medicine centers), and increase
contractor accountability.

6. Credit conditions and covenants

50.
0

Conditions o f Credit Effectiveness: The Recipient has opened a Project Account with an initial deposit o f $200,000 equivalent; and The Project Operational Manual, acceptable to IDA, has been approved by the Project Steering Committee.

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5 1.
0

Dated Covenant:

By August 1, 2007, the Recipient shall establish the Hospital Optimization and Modernization Coordinating Committee to guide and monitor the implementation o f Component B o f the Project.
Other Covenants:
Institutional arrangements

52.

The Recipient shall maintain the Project Steering Committee, consisting o f the representatives o f the M O H and other key stakeholders in the Government, with the responsibility for guiding and coordinating the implementation o f the Program, defining terms o f references, participating in technical evaluations and working directly with consultants on arrangements o f strategic technical assistance.
For the implementation o f Component B o f the Project, the Recipient shall cause each o f the Selected marzes to:
o enter into an implementation agreement amonghetween hospital management, marz governor (marzpet) and MOH, satisfactory to IDA, for the implementation o f the regional optimization programs; and

exercise i t s rights under such agreements in such manners as to protect the interests o f the Association and to accomplish the purposes o f the Project, and shall not assign, amend, abrogate or waive any o f such agreements, or any provisions thereof without the Associations prior approval.

The Recipient shall maintain a financial management system acceptable to IDA. The project financial statements, Statement o f Expenses (SOE) and Designated Account Statements will be audited by independent auditors and on terms o f reference acceptable to IDA and on terms o f reference acceptable to IDA. The annual audited statements and audit report will be provided to IDA within six months o f the end o f each fiscal year.
Anti-Corruption

The Recipient shall ensure that the Project i s carried out in accordance with the provisions o f the Anti-Corruption Guidelines.
Safeguards

The Recipient shall take, or cause to be taken, all measures necessary for the carrying out o f the Environmental Management Plan in a timely manner.

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D.

APPRAISAL SUMMARY

1. Economic and financial analyses 53. Economic rationale. The government reform program as outlined in the APL2 aims at strengthening the provision o f PHC services, rationalizing the marz hospital network and introducing necessary adjustments o n health care financing mechanisms. In 2005, the government spent approximately AMD$14 billion on hospital services and AMD$12 billion o n PHC services. These resources financed 156,500 hospitalizations in hospitals under the M O H and 7.7 million PHC visits. Government reform efforts aim to increase utilization, cover the full cost o f services provided under the BBP and spend increased resources in a more efficient way, i.e. buy more and better quality services than the ones currently been purchased. To achieve these goals the government continues to: (i) increase the reimbursement rates for BBP services, mainly towards higher salaries for health personnel; (ii) reduce the number o f beds and buildings used in the hospital network, so as to reduce recurrent expenditure, and increase occupancy rates; and (iii) invest in PHC centers and family medicine training. These actions are expected to increase utilization o f PHC visits and hospitalizations publicly financed, as individuals realize that more and better quality services are provided in health care facilities. In the short run, the same amount and same quality services will be provided with less resources (due to savings o n building maintenance, heating, utilities and other recurrent costs); in the long run more and better services will be provided with the same share o f public resources in GDP, as shown in the fiscal impact analysis below. In addition, out-of-pocket payments, formal and informal ones, are expected to decrease as public funding will be covering the real provision cost. 54. Fiscal Impact Analvsis. The fiscal impact analysis aims at estimating the level o f government health expenditure under assumptions of increased health care utilization and per capita public spending by 2015. I t also compares increased levels o f government spending on health to the government budget under the M T E F and PRSP. Under the assumption that the unit cost o f BBP is US$lOO in 2006 (US$132 in 2015), the BBP cost in 2015 will be equal to US$441 million (3 percent o f GDP). The BBP cost will represent approximately 14 percent o f total government spending and will be only slightly higher than the PRSP projections o f public expenditure on health equal to US$395 million (2.7 percent o f GDP). This suggests that the provision o f a comprehensive benefit package is a plausible and affordable scenario for Armenia. Total expenditure on health in 2015 is estimated to be approximately the same share o f GDP as in 2015 (4.9 percent in 2015 and 5.3 percent in 2005); however, the ratio o f public to private spending changes from 30/70 in 2005 to 60/40 in 2015. The latter ratio is one commonly found in countries that offer substantial risk protection against out-of-pocket health expenditures; consequently the burden o f out-of-pocket expenditures will be reduced considerably.

55. Financial Analysis. The financial analysis shows that recurrent costs (including operation and maintenance costs o f project financed activities and replacement costs) are between 0.9 percent and 1.23 percent o f government health spending. Provided that the government lives up to i t s commitment under PRSP to increase health spending, the recurrent cost impact is not considered excessive.

23

2. Technical
The rationale behind this project i s to optimize the inputs o f the healthcare delivery system in a resource-constrained environment to maximize productivity and performance. Hence, the organizational and institutional changes envisaged entail the following: Upgrading the primary healthcare network and reorganizing its service delivery model on the basis o f the tenets o f family medicine whereby each citizen will enroll with a family physician and use h i s h e r services for all healthcare needs, be they preventive or curative, allowing in turn the physician to provide comprehensive and continuous care. As a result o f intensive in-service or formal residency training, but also continuous interaction, the physician would be able to resolve most o f the healthcare needs o f the patient and provide a more personalized care with a higher degree o f technical and psycho-social quality. This in turn would result in a reduction in referrals to specialists, better case management and higher compliance, and consequently less hospitalization, leading to increased efficiency and cost-containment.
0

56.

Armenia where there i s a documented glut o f inpatient care facilities, leading to significant rationalization o f the number o f establishments, beds and eventually personnel. Such a rationalization would result in better coordination o f care between the two levels and significant savings which can then be channeled towards more services, better m i x o f services and higher quality o f care, mainly through increased salaries to providers.

A well-functioning PHC network would reduce the need for hospitals, especially in

Strengthening the institutional capacity to pool and allocate resources in such a way that funds are distributed equitably. More specifically, the S H A would need to be able to build i t s capacity to engage in contractual agreements with providers and assess their productivity and performance and monitor and evaluate quality and appropriateness o f care to ensure that its payments follow the patient and are made to produce health rather than simply consuming healthcare.

57. W h i l e the reform agenda i s ambitious and multi-faceted, the G O A has demonstrated i t s willingness to act o n each o f the reform areas above by passing the required legislation or regulations and its capability to implement them in a coordinated and well-sequenced manner. The second phase will build on what has been accomplished to date, but complete the investment in human and physical resources while further strengthening MOH and SHAs capacity to make policies, manage i t s funds and evaluate i t s performance.
3. Fiduciary 58. HPIU will be responsible for financial management (FM) o f the project, including the flow o f funds, budgeting, accounting, reporting, and auditing. H P I U i s currently implementing the ongoing HSMP (APLl), as well as the Human Health Component o f the Avian Influenza Preparedness Project, with adequate FM and procurement arrangements in place.

24

59. Financial Management Risk at the Project Level. The financial management arrangements o f the H P I U have been reviewed periodically as part o f previous project supervisions and have been found satisfactory. An assessment o f the financial management arrangements for the project was undertaken in early January 2007. Based on the FM assessment, i t was established that HPIU has acceptable FM arrangements in place: particularly, (i) accounting and reporting i s performed in 1C accounting software, which i s reliable and flexible system to record and report in the required details and formats; (ii) filing system allows to keep in a well systematized manner all supporting financial documentation relating to the project; (iii) the HPIUs accounting staff has extensive experience in applying IDA procedures for disbursement and financial management, including Financial Management Report (FMR) preparation; (iv) internal control system is adequate; and (v) satisfactory FM supervisions and annual audits o f APLl. 60. The overall FM risk for the project before mitigation measures is moderate and after mitigation measures, the risk i s low. 61. A s the Project will be implemented in an environment where corruption (see below) i s perceived as an important issue, adequate mitigation measures have been put in place to ensure that the residual project risk is acceptable. Mitigation measures are incorporated in the project design and IDA staff will closely monitor performance during implementation. These mitigation actions can be summarized as follows: (i); the project will establish a formal internal control framework described in the Financial Management Manual; (ii) the flow o f funds mechanism that has been agreed with the Recipient will be enforced; (iii) the project financial statements will be audited by independent auditors and o n terms acceptable to IDA; and (iv) regular financial management supervision and procurement prior and post reviews will be conducted to monitor and assess the corruption risk; and (v) the HPIU will monitor new procedures to improve the quality o f c i v i l works (for rehabilitation and construction o f new family medicine centers), and increase contractor accountability. 62. Financial Management Risk at the Country Level. According to the latest Doing Business Survey in 2007, Armenia was the top-rated CIS country and scored well vis-&vis many other developed and developing countries (34th out o f 175). At the same time, in the latest BEEPS report, about 30 percent o f businesses have indicated that corruption i s a problem in doing business. A Country Procurement Assessment Review (CPAR) done in 2004 also concluded that based on the analysis o f the legislative framework, procurement practices, institutional capacity and the opportunity for corruption, the environment for conducting public procurement in Armenia was one o f high risk at that time. The 2005 Country Financial Accountability Assessment (CFAA) report concluded that the overall fiduciary riskI4in Armenia i s significant. The key reasons are: (i) inadequate capacity o f core control and supervisory agencies performing audits within the public sector; (ii) although most o f the basic laws are in place with respect to various entities (private sector and public enterprises, including state noncommercial organizations) financial reporting, the compliance remains a problem and authorities need to improve the quality o f auditing, monitoring and supervision. Since the C F A A and the CPAR reports were delivered, there was some progress recorded on the development o f the Public Financial Management (PFM). Specifically, following the amendment to the Constitution
Risk o f illegal, irregular or unjustified transactions not being detected, measured o n a four point scale according t o the CFAA Guidelines (low, moderate, significant or high).
14

25

o f the Chamber o f Control (COC) (Armenian Supreme Audit Institution), i t gained more independence from the Parliament, and i s now in the process o f development o f the new L a w on COC. IDA i s assisting the COC with the development o f its audit manuals and methodologies according to internationally accepted practices. The internal audit reform i s under implementation, with the Government strategy in place supported by PRSC 1 to 3 programs acceptable to IDA. The M O F E also adopted an action plan for implementation o f the IPSAS in the Government sector and now i s designing a detailed timeline for the transfer to cash basis IPSAS and then to accrual. The only bank acceptable to IDA for opening designatedspecial accounts in Armenia i s HSBC Bank. As the banking arrangements with this local commercial bank have been found satisfactory under APL1, they will remain in place during APL2 project implementation, unless other banks become acceptable for opening designatedspecial accounts in Armenia.

63. The procurement functions o f the project will be handled by the HPIU. Procurement expost review o f the on-going HSMP is conducted periodically as part o f regular project supervision missions and i t s findings have always been satisfactory. An assessment o f the procurement arrangements for the second phase operation was undertaken in December 2006 and was found to be satisfactory. The project will benefit from some o f the major achievements the passage that have been made in the area o f public procurement, including the following: (i) o f the amended Public Procurement L a w with the provision o f e-Government Procurement (ea workshop on e-GP where some o f the good practices on e-GP from selected countries GP); (ii) were presented; and (iii) preparation o f the e-Government Procurement Strategy. The Government has established a procurement website (www.procurement.am) where the L a w and the legislative documents, official procurement advertisements and other state procurement information are posted. An e-catalogue comprising o f a l i s t o f technical specification for 13,000 items (goods, works and services) has been created. 64. Mitigation measures for procurement risks are incorporated into project design and are as follows: (i) Prior review: intensive and close supervision by IDA procurement accredited staff. In addition, all contract amendments will be subject to prior approval by the Bank; (ii) Post review: at least one in five contracts will be post reviewed each six month, including physical verification and site visits; (iii) Public procurement official web site (www.procurement.am) will be used to disseminate upcoming tenders and announce results o f contract awards under the Project; (iv) C i v i l Works contracts will be supervised by technically qualified supervisors employed by the H P I U to ensure that quality specified in the contract i s delivered in a timely manner. Photos o f works in progress and completed works will be part o f the documentation that supports payment requests; (v) E-catalog will be used as a referencebook to specify technical parameters o f the goods (furniture, vehicles, I T equipment etc.) to be procured under the project.

65.

Detailed procurement arrangements for the project are described in Annex 8

4. Social 66. Two o f the four components o f APL2 will have social implications. The Family Medicine component engages communities directly, and thus requires a well-defined process o f consultation with the communities, a lesson learned during the first health project and APL1. While previous projects have resulted in inducing demand for health care and higher utilization

26

rates15, there is a need to explain to communities the basic tenets o f family medicine as a mode o f practice (i.e., the benefits o f having a family doctor as a first point o f service and o f having continuity for better patient-provider relationship and psycho-social quality o f care) and an organizational model for PHC (e.g., being enlisted by a family doctor, gate-keeping and referral to specialists, the eligibility to BBP and entitled services, etc.). The U S A I D funded PHC project will complement Bank-financed activities under the Family Medicine Development (FMD) component with a public Information Education and Communication (IEC) campaign. In addition, a formal impact evaluation is on-going using a quasi-experimental design with a control group and baseline and ex-post household and facility surveys and measurements o f key PHC indicators (e.g., contact with care providers, utilization, perceived quality, OOP expenditures, satisfaction, etc.). Under A P L l community meetings and promotion activities were organized in twenty beneficiary communities of Aragatsotn, Armavir, Ararat, Kotayk, Tavush and Gegharkunik marzes. Marz health authorities participated in all community meetings. Contracts for renovatiodconstruction o f family medicine ambulatories were signed with 20 communities which made 5 percent contribution to the total costs. APL2 will continue to rely on the participation o f patient groups and other stakeholders in the PHC development program.

67. Unlike under APL1, the hospital optimization component i s unlikely to have any implications in terms o f staff reduction and i t s social consequences due to an already l o w staffing levels and mal distribution in marzes. Nonetheless every effort will be made to explain to both healthcare workers and local population the rationale behind optimization and how it will improve quality o f care without hindering access to services at the local level. Indeed, public hearings will be held under the auspices o f the Standing Committee on Social Affairs, Health Care and Environmental Protection o f the National Assembly o f the Republic o f Armenia. 5. Environment 68. The expected impact o f the project activities on the environment i s limited. There will be few new construction, and when it occurs, i t will be on the existing facility site. A s for hospitals, there will not be any new construction, but renovation and rehabilitation o f existing facilities in eight marzes. Therefore, the environmental category rating remains "B" and the safeguard screening category rating remains "S3" as in APL1. As such, the existing EMP remains valid, albeit subject to amendment to include assessment o f new project sites. To date, compliance with the E M P has been satisfactory. Therefore, site-specific environmental screening for all projectsupported rehabilitation o f PHC centers and hospitals will be carried out as per the EMP. Finally, an environmental management framework has been prepared and publicly disclosed in Armenia in December 2006. 69. The on-going A P L l financed technical assistance to improve the handling o f medical waste. Recommendations resulting from this consultancy will be taken into account during the implementation o f the proposed APL2. Substantial work has been done to review the existing legal framework o n waste management and to develop a draft legal package and draft national guidelines o n health care waste management. In addition, the Training-Of-Trainers course on
l5Between 2003 and 2005, the percentage o f individuals in the lowest two quintiles using PHC services increased from 3.5 to 6.5 percent.

27

H C W M was conducted in 2006 for epidemiologists responsible for waste management in merger hospitals as well as for specialists from the State Hygienic and Anti-Epidemic Inspectorate. Following the development o f guidelines, H C W M plans will be developed for each pilot hospital and will include a l i s t o f H C W M equipment. In addition, all hospital staff will attend short term training on H C W M .

6. Safeguard policies
Safeguard Policies Triggered b y the Project Environmental Assessment (OPBP 4.01) Natural Habitats (OPBP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OPBP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OPBP 4.37) Projects in Disputed Areas (OPBP 7.60)* Projects on International Waterways (OPBP 7.50) Yes [XI [I [I [I [I [I [I [I
No

[I [I

[XI [XI [XI [XI [XI [XI [XI [XI [XI

[I

7. Policy exceptions and readiness

70. There are no policy exceptions in the proposed credit.

71. Fiduciary arrangements are in place. These arrangements were put in place during the implementation o f the Health Financing and Primary Health Care Development Project (closed o n December 31, 2003) and were hrther strengthened during the preparation and the implementation o f the Health System Modernization Project APLl (effective since December 14,2004). Financial management and procurement assessments confirmed the adequacy o f these arrangements, as described above.

The 2007 state budget will include a provision for the required counterpart funds for 72. project activities proposed for the 2007 calendar year before project effectiveness.

* By supporting the proposed project, the Bank does not intend to prejudice the final determinationo f the parties' claims on the disputed areas.

28

Annex 1: Country and Program Background

ARMENIA: Health System Modernization Project (APL2)

Macroeconomic context

1. Economic growth and management are strong. GDP growth has averaged over 10 percent per annum over the past five years, reaching 14 percent in 2005, and an estimated 13.4 percent in 2006. Prudent macroeconomic policies have maintained sustainable external and internal balances, kept inflation low, and reduced Armenias debt burden. The fiscal deficit has also remained l o w and has been financed by non-inflationary sources. Armenia i s filly o n track with its IMF PRGF Program (Table 1.1).

I Real G D P growth,

percent

2001 9.6 2.9 23.6 700 14.3

2002 13.2 2.0 22.0 800 14.6

2003
14.0 8.6 22.4 950 14.0

2004

10.5 2.0 20.8 1140 14.1

2005

14.0 -0.2 21.9 1470 14.3

2006 13.4 5.2 21.1 1750 14.4

End o f period inflation, CPI, % change

Total public expenditure (consolidated), percent o f G D P

GNI per capita (atlas based)

Tax Revenues to GDP **

2. With sustained high and broad-based economic growth, poverty in Armenia has continued to decline. Armenia saw a significant reduction in overall poverty, with the proportion of poor declining from 51 percent in 2001 to 30 percent in 2005. Growth reduced extreme poverty even faster from 17 percent in 2002 to below five percent in 2005.16 The household survey also reveals equally strong declines in urban and rural poverty, and in income inequality. 3. Armenia continues to make progress on the reform agenda, though challenges remain. Armenia has made strong progress towards an open economy, as evidenced by the improvement in i t s IDA Performance Based Allocation (PBA) score, now among the highest o f all IDA countries. Nevertheless, challenges remain. Though wages have been increasing, unemployment remains high at one-third o f the labor force. Improvements are also needed, inter alia, in eliminating distortions associated with corruption and building the human capital necessary for a competitive knowledge economy. 4. Armenia has a strong and comprehensive poverty reduction strategy in place, and has achieved or exceeded most targets that it set for itselJ: The recent CAS progress report refers to Armenia having had a successful PRSP implementation, in which most o f the targets have been met or exceeded and which was marked by a high level o f participation. Key achievements included: (i)stronger than anticipated economic growth and poverty reduction; (ii)
l6 The poverty methodology was revised in 2004, but the strongly downward trend i s evidenced even after adjusting for this.

29

improvements in fiscal resources and policy, though tax and customs administrations continue to require improvement; (iii) increased spending in the social sectors and good progress in initiating systemic social sector reforms - social spending in real terms is higher than anticipated, though i t did not achieve PRSP targets as a percent o f GDP; and (iv) good progress in infrastructure and rural development, although further increasing private sector involvement and reducing rural poverty remain challenges. Armenia i s preparing a full PRSP update in mid-2007 with refined policy actions and revised targets.

5.

poverty, infant mortality and maternal mortality have fallen rapidly over the past few years. There is virtually full enrollment in schools, and the country i s in the midst o f education reforms. At the same time, challenges continue to exist in promoting gender equality, combating communicable diseases, ensuring environmental sustainability, and implementing the Government's anti-corruption agenda.
Health outcomes
Armenia compares favorably with countries o f similar level o f socio-economic development in terms o f health outcomes. A steady downward trend in infant, under-five and

Armenia also remains on target to achieve most ifnot a l l o f its Millennium Development Goals (MDGs) by 2015. In 2005, Armenia published a first progress report o n meeting the MDGs. Achievement o f all o f these goals i s assessed as either possible or likely. Rates o f

6.

maternal mortality has been observed; between 2000 and 2004, IMR and U5MR fell from 15.6 and 19.8 to 12.3 and 13.6 per 1,000 live births, respe~tively.'~ During the same time span, MMR fell from 52.5 to 16 per 100,000 live births. As a result, l i f e expectancy at birth in 2004 was 70.3 years for men (higher than in most o f the ECA countries) and 76.4 years for women (Table 1.2).
At the same time, Armenia is also in the midst o f epidemiological transition characterized with a decline in communicable diseases and an increase in the prevalence o f chronic diseases. The leading causes o f premature adult death under the age o f 65 are, in order o f magnitude, diseases o f the circulatory system - heart disease, stroke and related conditions, cancer, external injuries and poisoning - including suicide and traffic accidents, and diseases o f the respiratory and o f the digestive system.18 HIV prevalence rate i s lower than most CIS, but a potential threat

7.

exists due to large numbers o f migrant workers population higher HIV prevalence countries such as Russia and Ukraine. Tuberculosis prevalence remains higher than the European average. In 2004, DOTS case detection and treatment success rates were 63 percent and 77 percent respectively, a slight improvement over the previous years. Overall, disease surveillance, prevention and control system i s slowly improving i t s capacity to better detect and manage the resurgence o f communicable diseases as funding levels increase.

According to the 2005 Demographic and Health Survey, the IMR and U 5 M R are higher, 26 and 30 per live births, respectively. W o r l d Health Organization Regional Office for Europe 2005

17

30

Armenia Europe NMS CIS CSEC 74.1 68.9 Life expectancy at birth, in years 73.1 74.3 66.9 Life expectancy at birth, in years, male 70.1 64.4 70.0 70.1 61.6 Life expectancy at birth, in years, female 78.1 73.6 75.9 78.4 72.6 Estimated l i f e expectancy, (World Health Report) 67.9 68.0 74.4 73.7 65.3 Infant deaths per 1,000 live births 19.8 11.5 6.6 14.5 9.0 Maternal deaths per 100,000 live births 19.7 6.0 15.6 51.5 31.8 SDR, diseases o f circulatory system, all ages per 100,000 452.7 479.4 741.5 714.9 821.4 SDR, ischemic heart disease, all ages per 100,000 176.1 222.7 362.3 387.3 433.8 SDR all causes, all ages, per 100,000 1311.2 931.3 962.6 1083.3 1431.2 SDR, diseases of the respiratory system, all ages per 42.7 55.5 63.1 63.4 70.1 100,000 243.7 577.0 653.2 370.7 716.4 SDR, selected smoking related causes, all ages per 100,000 42.4 26.3 69.0 47.9 87.3 Tuberculosis incidence per 100,000 0.6 0.3 0.7 1.1 0.4 Clinically diagnosed AIDS incidence per 100,000 n.a. 1.6 1.4 4.9 1.o Diabetes prevalence, in percent ;,Jrce: World Health Organization (WHO): Health for All (HFA) data base. Note: Europe: 52 countries in the WHO European Region. NMS New Member States-10 new member states of the European Union from May 1, 2004. CIS: 12 countries o f the Commonwealth o f Independent States; CSEC: 25 countries in the WHO European Region with higher levels of mortality (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Republic o f Moldova, Romania, Russian Federation, Serbia and Montenegro, Slovakia, Tajikistan, FYR Macedonia, Turkey, Turkmenistan, and Ukraine).

Table 1.2: Armenia: Health status indi ators in the international context (2003)

Healthcare svstem
Health services utilization Despite recent improvements, access to and use o f health services remain low, favoring polyclinics and hospitals instead o f Primary Health Care and inequitable at the expense o f the poor and the rural. After an impressive downward trend in admission rates and outpatient visits during the 1990s, health services utilization i s again o n the rise, although still l o w by EU standards and CIS averages, particularly in rural areas and among the p00r.l~ L o w overall public spending on health and affordability constraints-health services in Armenia are mainly paid out-of pocket-are the main reasons why the poor either do not seek health care or use informal health services.

8.

9. In view o f the increasing NCD prevalence in the adult population, there i s a concern that the sick may postpone seeking care and use o f services as result o f lack o f resources, high out-ofpocket payments and l o w perceived quality o f care, especially in rural areas. In 2003, for l lor injured was o n average instance, the percentage o f individuals who did not seek care when i 70.5 percent, varying between 62 percent for the top quintile and 78 percent for the lowest quintile. As for the out-of-pocket informal payments (OOPS), they are mostly paid in hospitals; in 2001, about 72 percent o f those who sought healthcare in a hospital and about 60 percent o f those who sought care in a polyclinic reported to have made informal payments averaging 20,000 ADM (approx. US$40) and 6,700ADM (approx. US$13), quite high figures with
Between 1991 and 2001, the inpatient admission rate dropped from 12.1 admissions to 4.9 per 100. Similarly, the number o f outpatient contacts per person per year dropped from 9 in 1985 down to 1.8 in 2001. The EU and CIS averages are 18.4 and 19.8 for inpatient admission rate and 8.4 and 8.7 for the number o f contacts per year,
19

respectively.

significant impoverishing effects on the household. In rural areas a higher proportion o f the sick make informal payments for outpatient services whereas the reverse occurs in urban areas for inpatient services. In both rural and urban areas, the proportion o f those who make OOP informal payments i s lower amongst the poorest quintile, mainly because o f refraining from seeking care. O n the other hand, however, the recent increase in the public health spending has a positive effect on the use o f both inpatient and outpatient services, especially for the poor. Between 2002 and 2004, there has been a 28 percent increase in inpatient admissions, but much higher, 44 percent amongst the poor and vulnerable. Similarly, there has been a notable increase in the use o f specialty services in polyclinics.

10. As o f January 2006, free access to primary health care services was introduced for all Armenians. The proportion o f individuals visiting PHC facilities in the bottom two quintiles has increased from 3.5 percent in 2003 to 6.5 percent in 2005 based on data from annual household surveys. However, inequalities remain in terms o f other dimensions o f accessibility, namely geographic, with significant u r b d r u r a l variations and the type o f services (specialist vs. PHC practitioners, etc.), because o f uneven geographical distribution o f health professionals. According to the Armenia ILSC 2004 based estimates, there are great inequalities in health services utilization rates across socio-economic groups (Table 1.3). The treatment rates vary much between different socio-economic groups. Only 45 percent o f the sick in the poorest quintile were treated, as opposed to 95 percent in the top quintile. Less than five percent o f all individuals (mainly from the richest quintiles) use any type o f preventive health services.
Table 1.3: Armenia: Health services utilization in 2004 (percent)
All individuals
Ifsick Ifsick
i ?

treated

Preventive care

Sick

Treated

Formal treatment (doctor/polyclinic)

Source: Armenia ILCS 2004.

Economic region Yerevan Urban Rural Socio economic group Poorest quintile Quintile 2 Quintile 3 Quintile 4 %chest quintile

Informal treatment (healedat home treatment)

3.1 3.2 5.4 2.0 3.4 4.1 5.1 6.5

20.4 17.6 19.2 18.7 18.8 18.1 19.2 20.8

67.3 68.6 74.0 45.5 64.0 71.0 83.1 94.2

56.0 54.4 43.6 51.6 45.6 46.3 49.6 56.6

44.0 45.6 56.4 48.4 54.4 53.7 50.4 43.4

Health system governance and organization

11. Health system governance in Armenia is increasingly becoming pluralistic and decentralized, albeit with still limited role for direct involvement by the population. Armenia has a revamped Semashko healthcare system, characterized now with the redefinition o f the roles and responsibilities o f the M O H and increased involvement o f local and municipal authorities. Previously the M O H was responsible for planning, regulation, financing, delivery o f healthcare

32

services. More recently it has increasingly been involved in policy making2', defining broad strategies, planning and regulation while leaving service delivery to local authorities and municipalities which now owns a large share of, and operates most hospitals and polyclinics.21 Moreover, payments to health care providers are now managed by the S H A a semi autonomous agency within the M O H working in close cooperation with the MOFE on matters related to the definition o f and budget allocation for the state-funded programs and payment rates for providers. Once the budgets are allocated to state programs and payments are made on the basis o f contracts with the SHA, health facilities have the autonomy to manage their o w n financial and human resources. In addition, they are free to s i g n contracts with private health insurance agencies or charge patients directly for services not covered by the state-funded BBP. On the other hand, the SHA i s bound to contract all licensing health facilities, neither o f them having a real negotiating power.
Health careJinancing and expenditures

12. Despite recent budgetary increases in nominal terms, the healthcare system remains under-funded and its resources are poorly pooled and inequitably used. Taxes and mandatory social insurance contributions constitute the main source o f tax revenues for the Government through which budgetary obligations to the health sector i s financed. This, however, constitutes only a small share o f total health expenditures (THE) in Armenia.** In 2003, THE accounted for 6.1 percent o f the GDP, and at present total public expenditures on health represents about 1.64 percent o f the GDP or 9.9 percent o f the total public expenditure^.^^ About 80 percent o f the public expenditures on health are allocated through the SHA which acts as a singly purchaser o f health, the rest i s spent by the M O H , mostly on procurement o f drugs, vaccines and sanitary and epidemiologic services. Since 2006, the SHA budget i s being allocated equally between inpatient care and primary health care services. The budget i s now being executed fully, with expenditures while all arrears have been reduced significantly. 13. More recently, the Government has been increasing public spending o n health in accordance with the MTEF and PRSP targets (Table 1.4) in order to improve free access to essential health services and provide protection against catastrophic cost o f illness. However, at about 1.4 percent o f GDP in 2005, public spending o n health i s still l o w and consequently the population bears a substantial burden o f health financing. At the same time, public spending o n hospitals, especially on tertiary care, favors the better o f f as health care services utilization rates among the poor are generally low, particularly in rural areas. Both l o w public spending and
See for instance, National Health Policy o f the Republic o f Armenia, issued by the M O H in 2004, although not yet officially endorsed by the Government, nor ratified by the Parliament. 21 All health facilities in Armenia are n o w Joint Stock Companies, with marz authorities and municipalities holding a large share o f the stocks o f hospitals and polyclinics, respectively, except in Yerevan where the municipality i s the major share holder o f public hospitals. Only a few tertiary hospitals and the sanitary epidemiological services remain under the authority o f the national government. 22 In 2003, Government expenditures constituted 20.4% o f the THE, while out o f pocket payments accounted for 62.4% (93% o f which are informal payments). External grants accounted for the remaining balance (15.5%for those administered privately and 1.7% through the government). According to WHO, in 2005, public expenditure o n health accounted for 26.7% o f THE, and private spending for 73.3% albeit without further details o n external o r internal grants. THE accounted for 1.4% o f G D P and 7.5% o f total public expenditure. 23 2007 state budgetary allocations as per the 2006-2008 Medium T e r m Expenditure Framework (MTEF).
'O

33

affordability constraints are the main reasons why the poor either do not seek health care or use informal health service.

2004

2005

2006

2007

2008

2009

MTEF 2004-6 MTEF 2005-7 MTEF 2006-8 MTEF 2007-9

Budget

24,927

30,785 31,251

35,528 36,406 37,339 47,431 48,398 45,048 56,434 47,320 53,609

24,691 24,900

31,079 30,800

39,355 35,500

47,574

PRSP projections

w7nn

Note: a. Actual, b. Approved Source: MTEF 2004-2006,2005-2007,2006-2008,2007-2009 and MOFE.

14. All health facilities are reimbursed o n the basis o f a reimbursement rate for the services included in the BBP, set jointly by the MOFE, M O H and SHA, although they are free to charge patients for those services that are not covered by the state funded programs. Primary health care physicians are paid capitation-based salaries, calculated on the basis o f patients enrolled with the family practitioner. As for specialists in polyclinics, they are paid a certain guaranteed albeit grossly inadequate (approx US$25 per month) wage. N o t surprisingly, informal payments are significant, especially for inpatient care, among the poor and in Yerevan (Table 1S).
Informal payment as a percent o f total medical treatment Informal payment as a percent o f total hospital bill

Socio-economic group Poorest quintile Quintile 2 Quintile 4 Richest quintile Socio-economic region Yerevan Urban Rural Total

6.3 7.3 12.2 10.7 15.5 6.5 7.7 9.3

39.7 23.4 25.5 26.2 38.2 18.6 13.9 22.5

34

15. Government is taking steps to increase public spending on health, reduce informal payments, improve management o f health facilities to make them more transparent, increase access to quality health services though strengthening primary health care and optimizing hospital sector capacity. The Government Primary Health Care program is designed to improve the quality o f the basic health services, including monitoring nutritional status o f children and immunization coverage. The Government has adopted time-bound action plans to improve governance and accountability o f public health care providers and i s implementing a program to strengthen stewardship functions o f the Ministry o f Health, State Health Agency and other key agencies. Still, informal payments persist in the sector impeding access to health services and transparent management o f public health care facilities.
Organization and Service Delivery

16. Recent efforts in reducing excess capacity have been successful, but they need to be scaled up. Armenia like many other countries in the Europe and Central Asia region inherited from the former Soviet Union an oversized and overstaffed health care system. However, compared with other countries o f the FSU, Armenia has been very successful in reducing its hospital capacity and non medical staffing, mainly through closure o f small rural hospitals and reduction o f beds.24 Under the first phase o f the APL, more elaborate optimization and modernization o f hospitals in Yerevan has begun, resulting in consolidation o f services, elimination o f duplicative departments and reduction o f surface areas in inpatient care facilities and, subsequently, significant productivity and efficiency gains. A similar initiative is now underway, approved by the Government, for the remaining ten marzes. 17. In 2001, Armenia s t i l l had 142 hospitals, including 44 in Yerevan for the population o f 1.2 million population, with the average occupancy rate o f 30-40 percent and an average length o f stay o f 11.7 days. The hospital master plan for the city o f Yerevan, approved in 2003, consolidated 24 hospitals and 13 polyclinics into 10 hospital networks. As a result, admission rates and bed occupancy ratio increased and average length o f stay (ALOS) decreased in the merged hospitals (please see mid-tern review report o f the H S M P (APLl), issued in December 2006). However, hospitals in the rnarzes s t i l l continue to be a wasteful in draining scarce public resources whereby most go to pay for meager staff salaries and utilities and patients being forced to pay for drugs and make informal payments to medical staff. 18. Encouraged by the results in Yerevan, the G O A has approved on November 2, 2006 the master plan for the optimization o f health facilities in the remaining ten marzes. Consolidation o f infrastructure and services, modernization o f management structures and improving the management capacity at the marz hospitals will improve access o f population outside Yerevan to better quality inpatient care services. At present, as a result o f dilapidated infrastructure, lack o f modem equipment and poor management, patients from the marzes bypass regional hospitals and directly go, or are referred to, Yerevan for diagnosis and treatment.

24 First efforts resulted in a reduction o f 30% in hospital capacity and 15% in non-medical staffing with an estimated cost savings o f 12%. In 2004, Armenia had 388 acute care beds per 100,000 population compared with 822 in the Russian Federation, o r the CIS average o f 742 (HiT profile in brief: Armenia, 2006).

35

19. In the past, primary health care services were provided by a network o f rural ambulatories and urban polyclinics, staffed by a mix o f therapists and pediatricians. In 1997, the Government approved the introduction o f Family Medicine as a PHC strategy to improve the quality o f and access to first-line care. In 2003, the Government revised i t s strategy to scale up and complete the PHC reforms. Health worvorce 20. While Armenia is relatively well endowed in terms o f health professionals the gradual decrease in the number o f nurses, the relatively higher number o f specialists and their geographic distribution are o f concern.25 N o t only does the physiciadnurse ratio i s suboptimal for adequate provision o f services but also because o f the oversupply o f specialists26and the fact that a relatively high percentage o f physicians (44 percent) work in hospital settings, primary health care services remain inadequately covered, especially in rural areas. The large-scale training o f family physicians which began under the first phase o f the HSMP and will continue under the second phase i s aimed at addressing this issue by training a total o f 1,650 family physicians and 1650 family nurses to provide PHC services, mainly in rural areas. 21. Formal medical education i s provided by the S M U which graduates about 400 physicians a year, down from 500 to 800 in early 1990s, with less than 50 percent subsidized by the State. There are also four private medical schools in Armenia that are not recognized by the State, catering mostly to foreigners. The M O E and the S M U intend to establish a formal registration, licensing and accreditation system applicable to all training facilities, regardless o f their stature and reform the training curricula and state medical exams to bring their training programs up to par with the EU standards and have requested IDASfinancial and technical support through the proposed project. The State Medical University has introduced initial changes in the curriculum using experience and knowledge gained from a TACIS-TEMPUS program in early 1990s. Armenia has also modernized post-graduate training by introducing residency programs. Armenia was the first country in the CIS to establish chairs in family medicine to provide specialty qualification for primary health care providers. In the context o f primary health care reform Armenia has also discontinued undergraduate separate specialty program to produce primary health care pediatricians. Pediatrics i s n o w a post-graduate specialty. The state also runs seven colleges for nursing training where reduction o f student intake has been less dramatic. There are also ten private nursing colleges.
In line with the overall decentralization to municipalities and local governments, and 22. granting more autonomy to health institutions, the M O H has withdrawn from direct planning o f human resources and relies on self-regulation mechanisms and decisions by management boards o f health care institutions to determine the staffing levels and remuneration. Accordingly, the main policy levers to manage the supply and quality o f health care professionals are the State Order for educating health professionals in medical university and nursing colleges and the licensing process. In 1996, a system o f personnel licensing was introduced with understanding
25 In 2004, the average number o f physicians per 1000 population in Armenia was 3.3 compared with the EU (3.5) and CIS (3.7). However, the has been a gradual decline in the number o f nurses, from 6.15 per 1,000 population in 1985 to 4.06 in 2004 which i s now lower than the EU (7.2) and the CIS (7.9). 26 There are 89 different specialties recognized by the state, compared with 33 in the EU.

36

that all practicing health professionals would have to submit to re-licensing process every five years. The system o f licensing has been suspended in recent years due to concerns about the integrity o f the system. The M O H plans to review the l i s t o f medical specialties and introduce a more objective system o f registration o f health professionals. Government Strategy 23. In the Poverty Reduction Strategy Paper (Report No. 27133-AR), the Government aims at, inter alia, enhancing human development and improving social safety nets and core public sector functions, including health. Increasing accessibility to essential health services i s a major focus o f the PRSP, recognizing the need for additional public outlays27, increased efficiency in the use o f public resources and improved maternal and child healthcare to achieve MDGs. In addition to increased public spending and more optimal intra-sectoral allocation o f h d s according to the healthcare needs o f the population by better definition and prioritization o f the state programs, the Government is intent o n pushing through the following reform agenda, as described in detail in the LDP (Annex l), focusing on: (i) further strengthening primary health care on the basis o f the principles o f family medicine; (ii) separating the purchasing function from service provision by strengthening the institutional capacity o f the S H A to become an active purchaser o f services with the accompanying reforms in provider payment methods and hospital governance aimed at enhancing efficiency and ensuring access to essential health services particularly for vulnerable groups; and (iii) scaling up and completing optimization o f the extensive health facilities network in marzes. 24. Enhancing accessibility i s expected to be achieved through ensuring sustainable public financing at a level affordable for the economy; redistribution o f intra-sectoral allocations to more cost-effective care modalities; and optimization and efficiency improvement o f health care provision (see Figure 1.1). Figure 1.1: PRSP targets for public expenditures in health sector.

+Public

public

health expenditures (% of GOA budget) health expenditures (% of GDP)

25. Reforming PHC i s the cornerstone o f Governments health sector strategy. I t s general objective i s to secure access to quality basic health services, in particular for the poor and in rural areas. The strategy contains: (i) integrating separate streams o f primary health care functions

Increasing the level o f consolidated budget spending o n health care in 2015 t o 2.5% o f the GDP, up from 1.4% in
2003.

37

(children, adults, and women consultancies) within an institution o f family doctor; (ii) strengthening the qualifications and skills o f the PHC providers through retraining and training family physicians and nurses and developing practice guidelines; (iii) improving infrastructure for essential health services in rural areas; (iv) putting in place appropriate financing mechanisms; (v) increasing community ownership and responsibility o f PHC services; and, (vi) increasing share o f public expenditures going for PHC; (vii) achieving favorable results in populations health status by focusing o n preventive care. The PRSP pledges to increase the share o f PHC in public spending o n health from 40 percent in 2006 to 45 percent in 2008 and 50 percent in 2015 to finance the implementation o f the strategy. The PRSP and MTEF also call for improved governance o f the healthcare system. The 26. key strategic directions for improving fiduciary diligence and transparency are outlined in the 2003 Government decree on improvement o f the financial management, accounting and financial reporting in hospitals. A new Health Law that will update the legal environment for the key Government health reform strategies i s currently under preparation. 27. A s for health financing reform, in 1998, the Government established the S H A as a semiautonomous agency to administer public funds allocated to the health sector. In 2002 the SHA became subordinated to the MOH although without really a departure from the principle o f separating purchasing from service provision. The main function o f the S H A i s to reimburse health care providers for those health services which are part o f the BBP, and/or were provided to vulnerable population. Establishment o f the S H A was also a step to develop institutional capacity for possible introduction o f mandatory social health insurance if i t were to become feasible depending on the macro-economic conditions. Since its inception, the S H A has developed case-based reimbursement instruments for hospital care (within a capped budget) and capitation-based financing o f PHC as well as i t s capacity to develop and monitor contracts. The SHA, along with the economic department in the MOH, has played a key role in estimating the volume and costing out the health services included in the BBP. More recently, S H A has strengthened i t s institutional capacity and improved i t s ability to contract provider and monitor their performance.

The Government strategy with increasing public outlays for health i s to not expand the 28. basic benefit package but to increase the reimbursement rates to better align them with the real costs o f producing services. Given that reimbursement for health services i s based on outputs, case-based in hospitals and patient lists in primary care, there i s a need to improve costing o f services for setting fair reimbursement rate, properly accounting for the use o f public funds, equitable distribution o f funds in accordance with health care needs, making realistic budget proposals, and, consequently, reducing out o f pocket informal payments.
29. Armenia has also taken steps to strengthen its public health monitoring and surveillance system through a long-standing cooperation with the U S Centers for Disease Control and Prevention. The health information i s collected and managed by a vertical system o f 37 Sanitary and Epidemiology Centers reporting to the Chief Sanitary Doctor. At the national level, the information i s aggregated and analyzed by the Health Information and Analysis Center. Further steps are being considered by the MOH to improve surveillance capacity for non-communicable diseases and related behavioral health determinants. The Government i s also preparing the

38

Health Care System Performance Monitoring Report as a basis for periodic health impact assessment o f i t s initiatives. Finally, considerable progress has been made to better utilize information for decision making by the expansion o f the Health Information and Analysis Center and integrating information management from three vertical information systems - health financing system, public health surveillance system and health information system. APLl helps the Government to develop i t s capacity for evaluation o f health care performance by developing core monitoring instruments that are needed to inform the decision makers (National Health Accounts report and Health Care Sector Performance Report) Future improvements entail fully hnctioning SHAs health financing infomation system (MIDAS 1 1 ) and regular reporting o n system performance.

39

Appendix I: Letter o f Development Policy

40

41

42

43

44

. . .... ...

._. "...

."

...

. .

.. .

. ,. . .

"_

, .,,

..,,..

. ,..,

,,

. ..

_.,

....

45

Annex 2: M a j o r Related Projects Financed by I D A and/or other Agencies ARMENIA: Health System Modernization Project (APL2)

1. Several lending and non-lending projects and activities are geared to address health issues, either directly through sectoral investment, such as the closed Health Financing and Primary Health Care Development Project and the on-going Health System Modernization Project (HSMP), or indirectly through the Social Investment Funds (SIF) or Poverty Reduction Support Credits (PRSC). The focuses o n improving access, quality and sustainability o f essential health services through expansion o f the PHC reform, optimization o f the health service providers in Yerevan and enhancement o f the governance fimction by strengthening MOHs policy and planning capacity. The project invested in the development o f capacity in the State Medical University, the National Institute o f Health and the Basic Medical College to train family physicians and family practice nurses, developed evidence-based practice guidelines, and improved infrastructure covering about 47 percent o f rural population. The HSMP also supports capacity building in State Health Agency that introduced performance related payments to hospitals and PHC providers as incentives for efficient service provision. The project also finances improvement o f the hospital governance, operations and physical infrastructure in three hospital mergers o f Yerevan.
2. Two water supply and waste water treatment projects in Yerevan and rnarzes also aim at increasing access to clean water and mitigate environmental health hazards to exposure to untreated waste water, thus contributing to the overall goal o f improved health. Finally, the recently approved Avian Influenza Preparedness Project aims at minimizing the threat posed to humans by Highly Pathogenic Avian Influenza infection and other zoonoses in domestic poultry and preparing for the control and response to an influenza pandemic and other infectious disease emergencies in humans.

3.
0

The PRSC 2 & 3 supported reforms were directed at:

enhancing accessibility and quality o f health services, especially for the poor, by increasing spending in real terms on a sustainable basis (with significant part o f the increased resources being devoted to increased reimbursement rates for service providers, thereby reducing the need for informal out-of-pocket spending by the patient), intrasectoral reallocation o f resources towards more cost-effective care modalities (such as primary health care), and through optimization and efficiency improvements in the hospital sector. The reforms also strengthened governance o f the health system and supporting legislation; successhl consolidation o f hospitals into networks in Yerevan (PRSC 2) and subsequently in the rest o f Armenia (PRSC 3) to reach the productivity benchmarks set for the hospital sub-sector by 2009; strengthening primary health care system as an effective and affordable alternative to hospital-based care by completion o f the training o f family physicians and nurses to ensure coverage for the entire population with family medicine teams; further

46

improvements in provider payment mechanisms to increase incentives for provision of quality care by PHC; and integration o f outpatient specialist services with hospital services and with social care providers. PRSC 3 also supports the government to define the scope o f publicly-funded healthcare services;
0

development of a framework for voluntary health insurance; and preparation o f a national Non-Communicable Diseases (NCD) prevention and control strategy. PRSC 3 advocates for the proper state financing and implementation o f specific priority programs o n NCDs.

4. Several pieces o f economic and sector work have generated evidence and increased the knowledge base, especially on the determinants o f access to and use o f health services among the poor. The health module o f the Programmatic Public Expenditure Review (PPER) discusses public funding management issues with particular emphasis on unequal distribution o f public resources across the country as an hindrance to access and service use.
5. In addition, several activities related to other sectors have also benefited the policy dialogue and project implementation in the health sector. For instance, better targeting for eligibility to basic health services i s linked to the implementation o f proxy means tested targeted family benefits system under the Ministry o f Social Protection. Policies to improve financial management and accountability o f public health institutions as well as service optimization issues are being developed in parallel to similar issues in the education sector, as well as through the Country Financial and Procurement Assessment instruments. The proposed Public Sector Modernization project will also address cross cutting issues in improving transparency, accountability, effectiveness and efficiency o f the public sector.

6. There is also an agreement among international development agencies on the main development issues in the health sector and the reform agenda. After early years' focus o n humanitarian aid, most o f the development projects have since focused on strengthening primary health care, often through pilot projects to develop and test working models that could be replicated across Armenia. The international community has also mobilized support to tackle emerging HIV/AIDS and T B threats.

47

Sector Issue

Project

Latest Supervision
(PSR) Ratings Implementation Development Objective Progress (IP) (DO)

IDA-financed
Improve access, quality and sustainability o f essential health services Strengthen governance and accountability in health sector Optimize health services capacity to a level that i s affordable and sustainable for Armenia Improve financial access o f the population t o the essential health services Improve quality and sustainable provision o f essential services for communities (incl. PCH) Improve transparency, accountability, effectiveness and efficiency o f the public sector Improve access to and quality o f drinking water for population in regions and Yerevan Health System Modernization Project Health System Modernization Project Poverty Reduction Support Credit (PRSC 2& 3) Poverty Reduction Support Credit (PRSC 2& 3) Armenia Social Investment Fund Project I11 Bank Public Sector Modernization Project

S
S S

S S
S

Municipal Water and Waste Water Project; Yerevan Water and Waste Water Project A v i a n Influenza Preparedness Minimize the threat posed t o humans by HPAI infection and prepare for the control Project o f and response to an influenza pandemic and other infectious disease emergencies in humans

Other development agencies

Improve access, quality and sustainability o f essential health services U S A I D Armenia Social Transition Project support to Primary Health Care reform UNICEF supports essential immunization programs

48

Strengthen governance, policy making, monitoring and evaluation, regulatory and supervision functions o f Government in health sector

Strengthen capacity to manage public health threats

U S A I D Armenia Social Transition Project - support to strengthen licensing and accreditation systems for health care providers DFID - c i v i l service reform program WHO- provides support t o national health care system policy and strategy formulation Global Fund for HIVIAIDS, TB and Malaria supports implementation of H I V / A I D S strategy; a proposal for support for TB programs is being sought UNICEF program for salt iodization KFW-supports national antituberculosis program

IPDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

49

Annex 3: Results Framework and Monitoring

ARMENIA: Health System Modernization Project (APL2)

Results Framework

Outcome Indicators 1. Utilization o f essential health services increases, differences in utilization between the poorest and richest income groups o f population diminish; 2. Perceived quality and accessibility o f health care services by the population improves; 3. Public health expenditures concentrate in fewer, better quality hospitals; 4. Key health sector quality and efficiency indicators improve in the areas o f project intervention; 5. Selected MDGs, amenable t o health sector interventions, improve; 6. Financial and health services performance o f public hospitals i s transparent and in public domain; 7. Government i s able to demonstrate dynamics o f improvement o f k e y indicators o f H I V / A I D S and other public health threats. Outcome Indicators PDO Phase I 1 (Project) or Phase I1 1. Population i s fully covered by qualified o strengthen the MOHs family medicine practices; itpacity for more effective system 2. K e y health sector quality and efficiency indicators improve in rural overnance, scaling up family iedicine-based primary health areas. %reand upgrading selected 3. A culture o f evidence based impact ealthcare service delivery assessment i s established through the etworks in marzes to provide institutionalization o f key health policy lore accessible, quality and monitoring documents - Health System istainable health care services to Performance Reports and National Health le population. Account Reports. 4. Public hospitals complete the transformation o f their governance structure and make routine use o f Supervisory Committees and independent auditing practices, for improved management, transparency, performance and efficiency. 5. A gradual increase in funding for and utilization o f preventive services for the control o f N C D s (e.g., tobacco control, mammography, high blood pressure, diabetes, pap smear, etc.)
Program rmenian health care system i s :tter organized in order t o -ovide more accessible, quality id sustainable health care :rvices to the population, ipecially the most vulnerable eoups; and, t o manage public :alth threats.
3r

PDO APL

Demonstrate the impact o f government policies and make adjustments if needed.

Use o f Outcome Information

Lessons learned will be applied t o gradually improve allocative efficiency o f health expenditures and quality o f healthcare services.

Use of Outcome Information

50

Intermediate Results One per Component Component A: Family medicine based primary health care strategy implementation completed nationwide. Component B: Hospital network optimization and modernization plans in a l l marzes implemented.

Component C: Government capacity to develop human resources and monitor effective health sector policies strengthened.

Component D: Project implementation i s executed in a timely and efficient manner.

Results Indicators for Each Component Component A: 1. Proportion o f Armenian population covered by qualified family medicine practices increases from 47 percent t o 100 percent; 2. Referrals t o specialist care decline. Component B: 1. Hospital networks in a l l marzes improve efficiency and quality o f services; 2. Hospital waste management regulations are developed and appropriate procedures are implemented in selected hospitals; 3. Accountability and management o f a l l public hospitals improve. Component C: 1. Health System Performance and National Health Accounts reports are regularly updated and used for adjustment o f reform strategy and budget design; 2. Institutional capacity o f state institutions responsible for control o f public health facilities increases; 3. Proportion o f physicians licensed according to new procedures; 4. Proportiodnumber o f public hospitals with trained key management staff; 5. Contracts between S H A and health care providers are timely, based o n sound planning and enforceable; 6. Curriculum o f Medical State University i s aligned with modem western medical education; 6. Government has reliable information o n the causes and consequences o f noncommunicable diseases and can thus evaluate effectiveness o f i t s programs. 7. Monitoring and evaluation system for the prevention and control o f noncommunicable diseases i s in place. Component D: 1. Effective strategic and project management structures are in place; 2. Project Monitoring and Evaluation system i s in place; 3. Stakeholder communication and consultation systems are in place; 4. Project coordination, procurement and financial management are implemented satisfactorily.

Use o f Results Monitoring

Component A: To ensure that supply issues for ensuring adequate access t o quality primary health care are addressed. Component B: To increase efficiency o f public spending and improve quality o f health care services.

Component C: For demonstration o f government policy impact and making necessary adjustments to policies.

Component D: Adjustments to project design and management arrangements if needed.

~~

51

Arrangements for Results Monitoring

APL Outcome Indicators APLl Baseline (2004) 5.0 APL2

YR1

Tal et value YR2 YR3 (09)

YR5 (11)

End Program

1.1 Utilization of hospital services (admissions per 100 per year) 1.2 Utilization of outpatient services (per person per year) 1.3 Differences in utilization o f essential health services (poorest quintileirichest auintile of population) 1.4OOPSfor BBP health services for poorest quintile per care episode (usrs2001
2. Percent o f population rating quality and access to PHC health services satisfactorv or higher 3. Number of SHA hospital contracts 4.1 Referral rate to specialist care (percent of PHC visits
value)

10

14

Data Colle Frequency and Reports Annual

on and Repor m g Data Responsibility Collection for Data Instruments Collection MOH data Health Information and Analytical Centre

2.0

Annual

MOH data

Health Information and Analytical Centre Health Information and Analytical Centre

15 percent (2003)

10 percent

9 percent

Annual

Household survey

I
1

3.7 (2001)

Annual

Household survey

Health Information and Analytical Centre

I-

90 percent

95 percent

Three times during project life

Omnibus survey

HPIU

125 25 percent 20 percent

Annual Three times during project l i f e Annual Annual

SHA database Special studies

HPIU MOH Health Dpt. PHC unit/HPIU MurzeslHPIU NSSiMOH

I-

percent

(2005)

rate in project

percent

60 percent

75 percent

Hospital data DHSiOfficial statistics

1000 live

lodo

An updated value will be available in Summer 2007 with the completion o f the Health Sector Performance Report. 29 Occupancy rate for a l l hospitals in Armenia.

52

population declines
5.2 Ratio between U5M ruraliurban declines 6.1. Proportion o f public hospitals who have unqualified independent audits 6.2 Public hospitals that issue public performance reports 7. Government has reliable information on HIV/AIDS and other public health threats

DHSiOfficial Statistics Verification o f public information

NS SIMOH

HPIU

IDA assessment

MOH Chief Public Health Officer MOH Chief Public Health Officer

IDA assessment

The 2005 D H S report will be published beginning o f January 2007. Overall, in 2005, the U 5 M rate i s 30 per 1000 live births. There are no preliminary data by urbadrural areas. 31 The HSMP HPIU i s developing a M&E system for disease surveillance o f communicable and non-communicable diseases (within the Avian Influenza Preparedness Project). Information on H I V / A I D S i s collected by the central SANEPID and National Statistical Service.
30

53

m
4

4
a

T -

a
4

*^I
5s

r -po o cb a

I =

c
a 4

v)

0 *

a
E

0 I

- O

5 5

3 N

b n

Results Indicators for Each Component Outcome Indicators Component A: Family medicine based primary health care strategy implementation completed nationwide Proportion o f health budget allocated to PHC (percent) Abortion rate declines (per 100 births) Number o f certified FDs trained (cumulative) Number o f certified FNs trained (cumulative) Number of new guidelines developed and disseminated Component B: Hospital network optimization and modernization plans implemented in all marzes Reduction o f sq. meters o f hospital space (percent o f original) in all
manes

Target Value

Data collection and reporting

2004

Baseline (2006)

YRl (07)

End Program

Frequency and Reports

Data Collection Instruments

Responsibility for Data Collection

29 percent 29 22 1

36.4 per~ent~ 28.9

63336

40 percent

45 percent

Annual

State budget

HPIU

Annual 1650 Annual

DHSIOfficial
statistics

NSS/HIAC MOH Health Dpt. PHC unit/HPIU MOH Health Dpt. PHC unit/HPIU HPIU

Training institutions data Training institutions data

HPIU data

178

568

1650

Annual

NIA

18

Annual

NIA

0 percent

Annual

Hospital data

MarzeslHPIU

All project hospitals apply updated environmental management guidelines (yedno)

35

No

No

No

Yes

Annual

Hospital annual reports

MunesIHPIU

According to the n e w budget classification. At present 136 physicians are under family medicine retraining and will complete their training in September, 2007.
36

56

All public hospitals in constitute part of a health care network with established gate keeping and referral rules Component C: Government capacity to develop and monitor effective health sector policies strengthened Percent of SHA contracts wf health services providers are concluded not later than 30 days after budget approval in the Parliament Management of SHA contracts i s satisfactory or better to health care providers (percent o f respondents) Proportion o f physicians licensed according to new procedures Proportion of public hospitals with trained key management staff State Medical University has a revised curriculum in line with EU countries. Monitoring and evaluation system for NCDs i s in place
marzes

No

No

No

- Yes Yes

Yes

Annual

annual reports

0 percent

100 percent

percent

100

Annual

Baseline to be established

Bi-annual

Special survey of health facilities

MOH

percent

0 percent

100 percent

Annual

MOHdata

MOH

0 percent

87 staff trained 46 under training

100 percent

Annual

HPIU reports

HPIU

Medical University revised curriculum System did not exist System does not exist System exists Annual Public Health Officer

57

1 Component

+
adequately staffed and

D: Project implementation i s executed in a timely and efficient manner.

i monitoring
Project audits

t T

lYes
I

I Annual

Annual Annual

IDA

HPIU

assessment
r e orts

Project audit

HPIU

58

Annex 4: Detailed Project Description ARMENIA: Health System Modernization Project (APL2)
Component A Family Medicine Development (estimated total cost US$4.70 million)

1. This component will build on the capacity being established during the APLl and will further support the expansion o f training and retraining o f the currently practicing PHC providers in family medicine in order to complete the transition phase o f moving the PHC system from current ambulatory-polyclinic system to family medicine practice. The goal o f the FMD component remains unchanged and i s to complete Sransitional phase by providing family medicine to whole population o f Armenia. The component will finance: (i) retraining family physicians and family nurses; and (ii) improvement o f the work environment for family medicine practices through provision o f basic equipment for re(trained) family medicine physicians and nurses and urgent repairs in selected family premises; I t has two sub-components:
A.l. Retraining and Residency Training of Family Doctors and Family Nurses (estimated total cost US$1.30 million).

2. This sub-component would help the Government to significantly scale-up the upgrading o f the PHC work force. Within the frame o f the first health project and first two years o f HSMP APLl about 769 (64 percent) physicians and 568 (47 percent) nurses were retrained with unified modular curricula at established Faculties o f Family medicine o f National Institute o f Health (NIH), State Medical University (SMU) and Basic Medical College (BMU). All clinical trainings are closely correlated with practical clinical service delivery, either in their working facility or in the clinical training sites established in Yerevan and regions.
3. Given the pace o f re-training and expanded training capacity, the sub-component will support to further advance training activities and meet remaining training needs in the PHC sector by 2012. This sub-component, the project will complete the planned re-training o f 1650 family physicians and an equal number o f family nurses to ensure 100 percent coverage o f the population under the family medicine scheme. More specifically, it will finance: (i) training o f physician trainers; (ii) tuition fees, stipends and for 600 family physicians and 720 family nurses, while the logging will be provided by the GOA in-kind; (iii) technical assistance for the improvement o f pedagogic skills in communication and counselling; and (iv) technical assistance for the sub-component management and evaluation o f quality o f the training A.2. Strengthening PHC Infrastructure (estimated total cost US$3.40 million).

4. This subcomponent will improve the PHC infrastructure that is important for both the health care professionals and respective populations receiving care. By end o f 2012 about 75 percent o f PHC infrastructure will be upgraded and all facilities will be equipped with the standard set o f equipment purchased under the first PHC project and the current HSMP. The sub-component will finance the rehabilitation o f 30 rural ambulatories and construction o f 20 new five rural centers in need o f urgent physical improvement. The beneficiary communities will undergo a standardized micro-project implementation cycle that includes information activities about PHC reform in communities, development o f community proposal and meeting the requirement o f 5 percent co-financing. The micro-project cycle and appraisal criteria are 59

defined in the project implementation plan available in project files. Finally, the sub-component will also finance technical assistance for: (i) architectural design o f c i v i l works; (ii) seismic supervision o f the c i v i l works; and (iv) sub-component management. stability; (iii)
Component B - Hospital Network Optimization (estimated total cost US$20.77 million).

5. The government embarked o n hospital sector reform in 2003 when the decree regarding the consolidation o f 24 public hospitals in Yerevan into 10 hospital and polyclinic networks has been enacted. The three hospital mergers financed by the A P L l resulted in the consequent increase in the admission rates and occupancy ratio and reduction in average length o f stay. Encouraged by the results in Yerevan, the G O A has approved o n November 2, 2006 the master plan for the optimization o f health facilities in the remaining ten marzes. W h i l e the proceeds of HSMP A P L l provides financial support for only two marzes, the second phase o f the APL aims at securing funding in support o f implementation o f the optimization plans in all remaining
marzes.

6. This component intends to support: (i) upgrading physical infrastructure o f one network per marz; (ii) b) provision o f basic modem medical, waste management and I T equipment; and (iii) training and technical assistance to improve hospital management capacity, strengthen quality assurance and medical waste management systems, architectural design and supervision o f the civil works, and sub-component management. Training will also be provided to the specialists in use o f new equipment.
The hospitals supported by the APL2 will be subject to improved governance and management arrangements including: (i) supervision by committees set up by the appropriate level o f Government (MOH, municipalities or marz administration); modem management structures; (ii)introduction o f new financial management systems and accounting development of, and compliance with consolidated budgets (private and methodologies; (iii) public revenues); (iv) strategic development plans and performance plans for top executive management; publication o f annual reports; and (v) independent audits. Prior to making funds available for the optimization programs, implementation agreements acceptable to IDA will be signed between the MOH, hospital management and marz authorities confirming the commitment to the optimization program, implementation o f management and governance arrangements.
Component C - Institutional Strengthening (estimated total cost US$2.58 million).

7.

Health Policy Development and Performance Assessment (estimated total cost US$ C.l 0.35 million).
This sub-component would focus on providing core instruments that are needed to inform decision makers in the process o f health policy development and monitoring and evaluation. I t will finance technical assistance to support the Government in (i) development and adoption o f the National Health Policy; (ii) design, implementation and analysis o f additionavstand alone surveys to complement reports o n the Armenian Health Sector Performance Assessment; (iii) further perfection o f National Health Accounts (NHA); and (iv) development o f the Health sector human resource (HR) policy and HR planning methodology. This would be a means to foster greater accountability o n h o w the health care system is serving society, providing to the

8.

60

Government, politicians, media and the general public an objective diagnosis o f the effectiveness, efficiency, equity and satisfaction dimensions o f health system performance.
I t is expected to produce over the l i f e o f the project at least two reports o n the performance o f the Armenian health sector and strengthen capacity for annual production o f NHA. At the end o f the project, the institutions supported by the project will be able to continue the periodic issue o f performance reports and NHA.

9.

C.2 Strengthening o f health sector governance and management (estimated total cost US$ 0.08 million).

10. Under this sub-component, there will be additional technical support for revising and improving health legislation. Namely, the sub-component will finance technical assistance for the development and or amendment o f the regulations o n legal status o f health providers, licensing o f health facilities and medical personnel, medical waste management etc.
C.3 Improvement o f Public expenditure Management (estimated total cost US$ 0.24 million).

11. This sub-component will provide support to the State Health Agency for improving its capacity to use efficiently public funds for purchasing o f health care services. I t will finance support development o f the quality monitoring system for publicly local and foreign TA to: (i) funding services; (ii)develop methodology for costing services; and ( i i i )provide recommendations for structural, managerial and functional improvement o f the SHA. In addition credit proceeds will be used for the purchase o f I T equipment and software for SHA.
C.4. Non-communicable Disease Prevention and Control (estimated total cost US$ 0.20 million).

This sub-component will finance technical assistance to: (i) further enhance the National N C D strategy and implementation plan; and (ii) build capacity o f the N M for the implementation o f the program to adequately assess underling risks o f at least two selected

12.

diseases.

C.5. Improvement of the Medical Education System (estimated total cost US$1.71 million).

13. The objective o f this sub-component i s support the GOA to strengthen the human resource regulation function and ensure the delivery o f high quality graduate and postgraduate education. More specifically the sub-component will mainly finance technical assistance for: (i) the revision o f the basic medical education curriculum; (ii) revision o f the l i s t o f medical specialties and development o f professional qualification standards; (iii) development o f the an evaluation system for acquisition o f knowledge and skills by students; (iv) revision o f the Continuous Medical Education (CME) system; and (v) evaluation o f the S M U and NIH functional, technical and structural needs. In addition funding will be made available for organization o f study tours, procurement o f skills lab equipment and rehabilitation o f the S M U premises.
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Component D Project Management (estimated total cost US$l. 5 7 million).

14. The objective o f this component i s to provide institutional support to the M O H and HPW related to the operations, audits, project monitoring and evaluation. The project will finance annual financial audits as well as training and operating costs o f HPIU, including the costs o f core and short-term staff salaries, communication, editing, printing and publication, translation, purchase, operation and maintenance o f vehicles, bank charges, local travel costs and field trip expenses, utilities, equipment and supplies.

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Annex 5: Project Costs

ARMENIA: Health System Modernization Project (APL2)

Project Cost by Component Local US$ million Foreign US$ million Total US$ million

A. Family Medicine Development B. Implementing Hospital Optimization

C. Institutional Development D. Project Management Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs

4.00 1.oo 1.55 0.98 7.53 1.oo 0.63 9.16

0.00 18.57 0.62 0.02 19.21 0.25 1.oo 20.46

4.00 19.57 2.17 1.oo 26.74 1.25 1.63 29.62

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Annex 6: Implementation Arrangements ARMENIA: Health System Modernization Project (APL2)

1. The project will be implemented over a period o f five years. The implementation arrangements under the proposed APL2 would be the same as for the ongoing project. The overall responsibility for project implementation rests with the Ministry o f Health (MOH). The Health Project Implementation Unit (HPIU), the coordination unit for the first Bank supported health project and APL1, will continue to support the MOH with the implementation o f APL2. The H P I U is integrated in the Ministry o f Health. The HPIU was established pursuant to the decree o f the Minister o f Health # 764 as o f October 22, 1999. During seven years o f i t s operation, the HPIU gained substantial capacity in project management and i s highly effective in overseeing day-to-day project activities as well as in being fully compliant with IDA fiduciary requirements.

2. The HPIU has a group o f core staff including: Project Director, Procurement Officer, Financial Manager, three Project Component Coordinators, Accountant, Civil Engineer/Environmental Specialist, Office Manager, Legal Specialist, Monitoring and Evaluation Coordinator, Secretary/Translator, and two drivers. In addition, short-term consultants will be hired to support the implementation o f particular components. A s i s the case o f other departments in the MOH, the HPIU agrees with the MOH o n i t s annual plans, annual budgets, work plans for the Project; and regularly submits quarterly and annual reports and various other documents for the review and approval o f the M O H .
3. The H P I U i s in charge o f overall coordination, planning, management and fiduciary aspects o f project implementation. The H P I U component coordinators work and will continue to work closely w i t h the relevant Ministerial Departments and other partners to prepare yearly and quarterly implementation plans, coordinate implementation o f all activities, assure regular implementation monitoring and preparation o f progress reports. The H P I U i s also responsible for timely preparation and submission to the M O F E and the Bank the Financial Management Reports and audit reports.
4. A Project Steering Committee will oversee and supervise overall project implementation. This Steering Committee is already functioning and comprises the following representatives from key stakeholders within and external to the M O H : The Steering Committee comprises: (i) Minister o f Health; (ii) First Deputy Minister o f Health; (iii) First Deputy Minister o f Finance and Economy; (iv) First Deputy Minister o f Justice; (v) Deputy Minister o f the Territorial Affairs; (vi) Deputy Minister o f Health responsible o f Economic and Financial Issues; (vii) Head o f Credit and Humanitarian Assistance Programs Department o f the Staff o f the Armenian Government; (viii) Head o f Health Economics and Accounting Department o f the Staff o f the Ministry o f Health; (ix) Head o f the Medical Care Provision Department o f the Ministry o f Health; (x) Head o f the State Hygienic and Anti-Epidemic Inspectorate o f the Ministry o f Health; (xi) Head o f the HPIU.

5. The TOR for the Steering Committee i s the following: (i) review and approve the reallocations o f more than US$lOO,OOO o f the projects budgets and submit these amendments to the Government for approval with the prior agreement o f the M O H and the World Bank team; (ii) supervise the operation o f the HPIU; (iii) supervise the expenditures made under the credits
64

(APL1 and APL2) during implementation; (iv) review and approve the project annual time schedules and the budgets after approval o f CrediUGrant Agreements; (v) review and approve progress and financial reports o f the project; (vi) review and approve the final results o f tenders for procurement o f works, services and goods costing more than o f US$50,000; (vii) approve contract amendments, when the amount in the total cost o f the contact is changed by more than US$50,000; (viii) provide recommendations to the Government on the use o f any savings during the implementation o f the projects finds, as well as their reallocation; (ix) decide on actions to eliminating breaches and deficiencies revealed during implementation o f the project and supervise the implementation o f those decisions; and (x) meet with the IDAS team during regular supervision missions and discuss the progress made on the project implementation and present a report to the Government on the outcomes o f the Bank missions.
Component Specific ImplementationArrangements

6. Family Medicine Development Component: This component will be implementedunder the overall supervision and guidance o f the PHC Coordinating Committee which i s headed by the First Deputy Minister and includes relevant MOH Department and Unit heads, representatives o f the Family Medicine Departments, Head o f the SHA and Head o f the HPIU. The PHC component coordinator will be in charge o f overall implementation planning and coordination, in close coordination with the Ministrys Units for PHC and for Education and Staff Management. The component coordinator will also work with marz health offices and the Family Medicine Department Chairs o f the training institutions for the family medicine training
sub-component.

7. The upgrading o f training centers and PHC facilities will be managed by the HPIU. Facilities will be selected from a l i s t o f potential facilities approved by the MOH. The M O H Unit o f Education and Staff Management will ensure overall coordination o f the family medicine training program in collaboration with the H P I U PHC Component Coordinator. M a r z health offices will be involved in the selection o f doctors and nurses to participate in each round o f family medicine retraining, based on selection criteria established by the MOH PHC Unit. Actual organization and implementation o f the training courses will be the task o f the Family Medicine Chairs at Yerevan State Medical University, the National Institute o f Health and the Basic Medical College.
8. Hospital Optimization Component: This component will be monitored by the Optimization and Modernization Coordinating Committee, (to be established by August 1, 2007) and will comprise representatives from MOH, MOFE, M O T A , Yerevan municipality, Ministry o f Justice, marz authorities. The TORS for the Committee would be the following: (i) review and approve each marz optimization plan; (ii) review and approve the implementation time-schedule; (iii) oversee the implementation o f the hospital optimization process both in Yerevan and marzes; (iv) present suggestions to the Government on any changes which may occur in implementation with the prior agreement with the Bank; (v) decide on actions to facilitate the implementation o f hospital optimization and supervise implementation o f these decisions; and (vi) make recommendations to Government on respective changedamendments to the existing legal framework regulating the hospital governance and management aspects. 9. Institutional Development Component: This component will continue the institutional strengthening o f SHAs financial management and governance (implementation responsibility

65

will remain with the SHA) and add o n a sub-component to improve formal medical education in Armenia. For supervising implementation o f this particular sub-component, the PHC Coordinating Committee will be amended to involve the representatives from the Ministry o f Education, when discusses issues specifically related to medical education.

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Annex 7: Financial Management and Disbursement Arrangements ARMENIA: Health System Modernization Project (APL2)
Country Issues

1. According to the latest Doing Business Survey 2007, Armenia was the top-rated CIS country and scored well vis-&vis many other developed and developing countries (34th out o f 175). At the same time, in the latest Business Environment and Enterprise Performance Survey (BEEPS) report, about 30 percent o f businesses have indicated that corruption is a problem in doing business. A Country Procurement Assessment Review (CPAR) done in 2004 also concluded that based on the analysis o f the legislative framework, procurement practices, institutional capacity and the opportunity for corruption, the environment for conducting public procurement in Armenia was one o f high r i s k at that time.
2. The C F A A report, which was finalized in 2005, concluded that the overall fiduciary risk3 in Armenia is significant. The key reasons are: (i) inadequate capacity o f core control and supervisory agencies performing the audits within the public sector; (ii) although most o f the basic laws are in place with respect to various entities (private sector and public enterprises, including state non-commercial organizations) financial reporting, but compliance remains a problem and authorities need to improve the quality o f auditing, monitoring and supervision. Since the C F A A report there was some progress recorded o n the development o f PFM. Particularly, following the amendment to the Constitution the Chamber o f Control (COC) (Armenian Supreme Audit Institution) gained more independence from the Parliament and now i s in the process o f development o f the new L a w o n COC. The Bank is assisting the COC in development o f i t s audit manuals and methodologies according to internationally accepted practices. The internal audit reform is under implementation, with the Government strategy in place supported by PRSC 1 to 3 programs and acceptable to IDA also adopted an action plan for implementation o f the IPSAS in the Government sector and now i s designing the detailed timeline for the transfer to cash basis IPSAS and then to accrual.

3. However, the fiduciary risk o f the stand-alone financial management arrangements for IDA-financed investment projects in Armenia i s considered low. The government counterpart hnding used to be a major concern but actions have been taken by the Government and the Bank to monitor the status o f this problem.

4. Specific procedures are developed by the project to secure proper financial accountability o f this project and to minimize project financial management risks. Additional financial management arrangements in the project will include the audit o f project financial statements by independent auditor acceptable to the Bank, in accordance with t e r m o f reference acceptable to the Bank.
5. The banking sector in Armenia i s relatively weak and all the WB-financed projects which opened their projects DesignatedSpecial Accounts in Armenia were opened in a single commercial bank (HSBC Bank Armenia) acceptable to the Bank. As these arrangements have been satisfactory, they will remain in place during APL2 project implementation, unless other banks become acceptable for opening designatedspecial accounts in Armenia.

6.

The country risk i s assessed to be moderate.

37 Risk o f illegal, irregular o r unjustified transactions not being detected, measured o n a four point scale according to the CFAA Guidelines (low, moderate, significant or high).

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Risk Assessment and Mitigation

7. T h e overall financial management r i s k for the project before mitigation measures i s moderate and after m i t i g a t i o n measures, the r i s k i s low. Although the project will b e implemented in a n environment o f high perceived corruption, adequate m i t i g a t i o n measures are in place to ensure that the residual r i s k i s acceptable. Table b e l o w summarizes the financial management assessment and r i s k ratings o f this project:
FM Risk
INHERENT R I S K S Country level Weak P F M institutions (additional information are included in country issues in the previous section) Entity level Risk o f political interference in entitys management Project level Project i s small sized, with local commercial banks used by the Treasury for flow o f funds from Government with r i s k o f inefficiency o f the operations on the Treasury resulting slow funds disbursement OVERALL INHERENT RISK CONTROL R I S K S Budgeting Good Budgeting system. Budget i s prepared in much detail which i s necessary for monitoring the project. Accounting. The accounting staff has extensive experience in the Bank procedures for disbursement and financial management, including FMR preparation. The HPIU utilizes adeauate accounting software. Internal Controls Internal Controls System in the HPIU i s strong. Funds flow Government and IDA funds will flow through commercial bank designated accounts. S
H P I U i s to maintain independent financial management system, use o f private auditors and use o f commercial banks for designated accounts. Board composition and structure o f HPlU will provide for independence o f the entity. Implementation arrangements that allow close monitoring o f activities under the project (including f l o w o f funds) by the Bank.

Risk Mitigating Measures

Residual Risk

M M

L
No additional mitigation measure required

No additional mitigation measure required

A formal internal control framework described in the Financial Management Manual will be established. FMM will be updated for inclusion o f new activities o f this project. No additional mitigation measure required

58

Financial Reporting All FMRs were always received on time and found to be acceptable to IDA. Auditors issued unqualified audit reports on those annual FMRs and positive management letters. Auditing The audit will be carried out by independent auditors acceptable to the Bank.

FM Risk L

OVERALL CONTROL RISK

w
No additional mitigation measure required
nmn
D:-&

Risk Mitigating Measures

I Residual
L

No additional mitigation measure required.

H - High
Strengths

S - Substantial

M - Modest

L-L o w

8. The significant strengths that provide a basis for reliance on the project financial management system include: (i) significant experience o f H P I U Financial Management staff in implementing Bank-financed projects for past seven years; (ii) adequate accounting software utilized by the HPIU; ( i i i ) FM arrangements similar to the first HSMP which has been implemented by the HPIU and found to be adequate; (iv) the unqualified audit reports and positive management letters issued by the HPIUs managed projects auditors; and (v) timely received FMRs always found to be acceptable to IDA.
Weaknesses and Action Plan

9. There were no significant weaknesses identified at the HPIU. However, the H P I U needs to update its Financial Management Manual (FMM) in order to fbrther strengthen i t s financial management capacity, as follows: Action for capacity building (not a credit condition)
Update the Financial Management Manual t o include new activities o f H S M P (APL2) as well as policies and procedures clearly defming conflict o f interest and related party transactions (real and apparent) and providing safeguards for risk mitigation. Select a commercial bank(s) and arrange opening personal bank accounts for payment o f trainees stipends and trainers salaries under H S M P (APL2). Conduct all those payments via bank transfers t o the personal accounts o f the trainees and trainers.

Financial Manager o f the HPIU

Responsible Person

Completion Date
implementation

S M U , NIH and BMC, to be followed up by HPIU

stipend payments under the project

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Accounting Staffing 10. The financial management staff i s comprised o f an experienced financial manager and two accountants (responsible for accounting, banking transactions, statutory reporting, bookkeeping, etc.). The two procurement officers and an office manager also report to the financial manager. The financial manager works at the HPIU since 2000, first in the capacity o f Office Manager and since 2002 as a financial manager. One o f the accountants has been working at the H P I U since 2002 and involved in the WB financed projects since 2000 working as an accountant at Transportation HPIU. The other accountant who was recruited recently had previously worked as a financial analyst at Irrigation System HPIU.

11.

The risk associated with staffing is assessed as low.

Budgeting and Planning

12. The H P I U i s capable o f preparing relevant budgets. The annual budget o f the project i s based on the procurement plan, which i s submitted to the World Banks for approval. The staff members involved in the preparation o f the annual budget are the director, the financial manager and procurement officers. The draft budget i s also discussed with the Ministry o f Health, then it is approved by the Project Management Board, and then the draft budget i s submitted to the Ministry o f Finance and Economy. 13. The procurement plan, the schedule o f activities o f the project i s prepared by the procurement officers, who collect the necessary information from the correspondent component coordinators. Then the final procurement plan i s discussed and agreed with the director, financial manager and component coordinators, after the procurement plan i s submitted to the World Bank for approval. Afterwards, the Financial Manager prepares the annual budget which is based o n the procurement plan o f the project and submits i t to the director. 14. The prepared budget i s detailed and i s classified by categories, components and subcomponents, sources o f funds, by contracts and by quarters.
In case o f variations from the approved budget, the financial manager discusses and 15. agrees the proposed changes and/or reallocations with the director, procurement officer and the component coordinators, and then the revised budget is submitted to the Project Management Board for i t s approval. After the Boards approval the revised budget i s submitted to the Ministry o f Finance and Economy.

16.

The risk associated with planning and budgeting i s assessed as low.

I nformation Systems

17. The accountingheporting system i s computerized. The upgraded version o f the 1C accounting software implemented at the H P I U has a k n c t i o n o f automatic generation o f reporting packages for the M O F E and preparation o f FMRs. The accounting software incorporates also Fixed Asset register which i s considered to be satisfactory. The software has multi-currency and multi-user knctionality. In addition, the budget data i s entered into the 1C accounting software and automatically exported in the appropriate reports.

18.

The risk associated with information systems i s assessed as low.

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Accounting Policies and Procedures

19. The accounting i s conducted in accordance with the national standards (ASRA). The FMRs were prepared and submitted on an accrual bases and are presented in U S dollars, which i s acceptable by the Bank. I t is agreed to follow with application o f the accrual basis accounting for the new project. The HPIU applies Financial Management Manual, Contract Management Guidelines, and WB Disbursement Handbook, FMR Guidelines, and is acting in accordance with the provisions and regulations stipulated by the Armenian legislation, as well as HPIUs Charter. 20. The FMM will be updated for the inclusion o f the activities o f APL2 as well as policies and procedures clearly defining conflict o f interest and related party transactions (real and apparent) and providing safeguards to protect the organization from them. The current chart o f account i s adequate for HSMP I and will be slightly modified for APL2. The risk associated with accounting policies and procedures i s considered as low.
Internal Controls and Internal Audit

21. The HPIU has a strong system o f internal controls in place. The internal control fkamework under the HSMP (APL2) was assessed to be adequate. The detailed FMM for the first HSMP operation provides adequate description o f the process o f controls over contract management, authorization o f the operating expenditures including verification o f goods and services prior to the payments. According to the current FMM, all invoices are reviewed and checked by the Procurement Officer who prepares the payment requests, which are then passed to the Financial Manager for verification and the director for the approval and authorization o f the payment. All the payments are made via bank transfers and no petty cash is maintained at the HPIU. 22. The reconciliation o f the project accounting records with the World Bank disbursement data is performed regularly via the WB Client Connection. The bank reconciliations are prepared by the accountants and are reviewed and approved by the Financial Manager. All fixed assets o f the HPIU are allocated to the personnel who are formally responsible for their condition and existence. By the end o f December each year, annual stock-taking o f fixed assets i s conducted at the HPIU. 23. Reconciliation o f SOEs with the project accounting records i s not required since those are generated automatically by the accounting software. The procedure for back up o f the accounting data is adequate. 24. As in the case o f many others Project Implementing Units in the Republic o f Armenia, considering the small size o f the units and their financial management staff, the internal audit function i s not considered to be required. 25.
The risk associated with internal controls and internal audit is considered as low.
F i n ancia1 Reporting

26. Project management-oriented Interim Un-audited Financial Reports (IFRs) - previously known as Financial Monitoring Reports (FMRs) - will be prepared under the project. H P I U will produce a full set o f IFRs every three months throughout the l i f e o f the project. The format o f IFRs have been agreed during assessment which includes: (i) Project Sources and Uses o f Funds; (ii) Uses o f Funds by Project Activity; (iii) Designated Account/Treasury Account Statements; (iv) Physical progress report; and (v) Procurement report. These financial reports w i l l be
71

submitted to IDA within 45 days o f the end o f each quarter. The first quarterly IFRs will be submitted after the end o f the first full quarter following the initial disbursement. Those requirements and IFRs formats will be incorporated in the FMM.

27.

The risk associated with reporting and monitoring i s assessed as low.

External Audit

28. N o significant issues have arisen in the audits o f previous Bank-financed project implementedby HPIU. 29. The audit o f the APL2 will be conducted (i) by independent private auditors acceptable to the Bank, on terms o f reference acceptable to the Bank, and procured by the HPIU; and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board o f the International Federation o f Accountants (IFAC). 30. The HPIUs previous and current auditing arrangements and findings are satisfactory to the Bank and i t has thus been agreed that similar audit arrangements will be adopted for the APL2, to include the APL2 project financial statements, SOEs and Designated Account. The terms o f reference for the audit o f CY2006 will likewise be used for the audit o f the project to be implemented by HPIU starting in CY2007. The annual audited project financial statements will be provided to the Bank within six months o f the end o f each fiscal year and also at the closing o f the project. The contract for the audit awarded during the first year o f project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost o f the audit will be financed from the proceeds o f the credit. 31. The following chart identifies the audit reports that will be required to be submitted by the project implementation agency together with the due date for submission.
Audit Report Due Date Continuing Entity financial statements NIA Project financial statements (PFS). Within six months o f the end o f each fiscal The PFSs include balance sheet, sources year and also at the closing o f the project and uses o f funds by category, by components and by financing source; SOE statements, Statement o f designated account, notes to financial statements, and reconciliation statement.

Funds Flow and Disbursement Arrangements

34. The Financial Manager and one o f the accountants have previously worked with the Bank disbursement procedures and have been successfully implementing HSMP A P L l . 35. HPIU will open and manage a Designated Account (DA) specifically for this project, in a bank acceptable to the Bank. The ceiling for the Designated Account i s set $2,500,000. The Treasury currently uses commercial banks for transfer o f Government Counterpart Funding. Proceeds o f the credit will flow from the Bank, either via a single Designated Account which 72

will be replenished on the basis o f SOEs or by direct payment on the basis o f direct payment withdrawal applications or by Special Commitments. Counterpart funds for the project will flow from the Government, via the Treasury at the MOFE o n the basis o f payment requests to a project account. Both Bank and Government funds will be managed solely by the HPIU. Withdrawal applications for the replenishments o f the DA will be sent to the Bank on a regular basis, or when the balance o f the DA i s equal to about h a l f o f the initial deposit or the authorized allocation, whichever comes first.

36. I nthe case o f civil works contracts in family medicine ambulatories (sub-component A2), the communities will have their funding contributions.
37. The proceeds o f the Credit will be disbursed in accordance with the procedures provided in the IDA Disbursement Guidelines and the additional instructions provided in the Disbursement Letter. The disbursement arrangements are based on IDAS appraisal o f the financial management capability o f the implementing agencies, as well as the experience and lessons learned from the on-going APLl and other projects in the Armenian portfolio. All project expenditure will be reported to the IDA in a Statement o f Expenditure (SOE). I n addition, the SOE will be accompanied by reconciled bank statements and receipts and invoices for payments against contracts valued at more than: US$300,000 equivalent for works, U S $ l 00,000 equivalent o f goods and non-consulting services, US$ 100,000 equivalent for the services o f consulting firms, US$50,000 equivalent for the services for individual consultants. 38. The Project completion date would be June 30, 2012, with a Credit Closing date o f December 3 1, 2012. The allocation o f credit proceeds is presented in the table as follows: Table 7.1 : Allocation of Credit Proceeds Expenditure Category Amount in US$ million Percentage o f Expenditures to be Financed 75%

Goods, Works, Consultants Services, Incremental Operating Costs, and Training

22.0

TOTAL

22.0

39. Regarding the arrangements to ensure adequate and timely counterpart funding in place, the Association team constantly monitors the GOA counterpart funding timeliness and adequacy with all the Project Implementing Units and MOFE on monthly basis. There were no issues observed regarding G O A counterpart funding during last 3-4 years. Based on the past experience and further positive developments in the country as well as counterpart funding monitoring arrangements, this has not been considered to be a significant risk. The Minister o f Finance ensured the team that the counterpart funding in full will be envisaged in the state budget o f Republic o f Armenia right after the Board approval o f the Project.
40.

The risk associated with funds flow and disbursement i s considered as low.

41. The three institutions involved in the training provision under the project Yerevan State Medical University (SMU), National Institute o f Health (NIH) and Yerevan State Basic Medical 73

College (BMC) have acceptable payment, record keeping and accounting systems, w h i c h overall assessed t o be adequate for the payment o f the trainees stipends and trainers salaries, and for reporting o n the actual payments made to trainers and students b a c k to the HPIU in a way satisfactory t o the Association. All three institutions have significant experience in stipends disbursement, and have supporting accounting software and internal controls in place. However, a l l three institutions make the payments under APLl in cash. In order to i m p r o v e the controls and reporting o n the stipends and trainers salaries payment, the action i s proposed and agreed t o b e implemented by all three institutions described in the Weaknesses and A c t i o n Plan paragraph above.

42.

The salaries and stipends payments flow procedure agreed i s presented below.

Step 1

2
3

Description At the beginning o f each training course, the Training Institutions prepare a l i s t o f all trainees in the course. The l i s t will be signed by the Chair o f the institution and verified and co-signed by an authorized representative o f the Government, independent o f the Training Institution. The latter will make visits to the training institution to verify authenticity o f trainee list. . Independent official should inform the HPIU (if s/he i s outside o f the HPIU) about the verification done in a reasonable period after commencement o f the training. At the end o f the month the Chair responsible to conductkoordinate trainings submits to the Accounting Department the l i s t o f trainees participated in the relevant training. Based on the actual participation l i s t received form the responsible Chair with the relevant participants signatures the Accounting Department prepares and EXTERNAL OFFICIAL submits the invoice to the HPIU to transfer the required amount to their account. The invoice should be supported with the detailed list o f the relevant trainees. HPIU makes payment to the bank account o f the training institution (TI) reconciling on a sample bases the invoice amount with the supporting participants list. The Accounting department makes payment to the relevant trainees via transfer t o their plastic card bank accounts. Formerly it used to be via cash payments on hands from petty cash o f the training institution, which i s considered to have high inherent risk and i s not recommended for this project.

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7
8

I Bank statement received verifiing

-

the transfer o f the stbend amounts to relevant trainees. Formerly trainees used to sign the form for receipt o f stipends. Accounting department o f Training Institution submits t o the HPIU the Bank
I

the annual audit. Duringthe annual audit o f the project accounts, the external auditor will also audit the accounts o f the training institutions pertaining to stipend payments.

Supervision Plan

43. As part o f i t s project supervision missions, IDA will conduct risk-based financial management supervisions, at appropriate intervals. During project implementation, the IDA will supervise projects financial management arrangements as follows: (i) review projects quarterly IFRs as well as i t s annual audited financial statements and auditors management letter and the remedial actions recommended in the auditors Management Letters; and (ii) during Banks onsite supervision missions, review the following key areas:
0

project accounting and internal control systems;

budgeting and financial planning arrangements;

0

disbursement management and financial applicable; and

flows, including counterpart funds, as

any incidence o f corrupt practices involving project resources.

44.

As required, a Bank-accredited Financial Management Specialist will participate in the supervision process.

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Annex 8: ProcurementArrangements ARMENIA: Health System Modernization Project (APL2)

A. General 1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004 and revised in October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated M a y 2004 and revised in October 2006, and the provisions stipulated in the Project Operational Manual. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. A General Procurement Notice (GPN) will be published in March 2007 in the United Nations Development Business (UNDB). The G P N will give a description o f the goods, works and consulting services contracts to be procured under the project and will invite all potential suppliers, contractors and consultants to express interest and request additional information from the implementing agency. Specific Procurement Notices (SPN) for International Competitive Bidding (ICB) procurement packages and Expression o f Interest (EOI) for consulting assignments estimated to cost US$200,000 equivalent per contract will be published in UNDB (on-line), dgMarket and a national newspaper o f broad circulation as the corresponding bid documents become available.
Procurement o f Works

3. Works procured under this project would include: construction o f new (in 20 communities) and rehabilitation (in 30 communities) o f F M P centers; and renovation o f central hospital in eight marzes.
The procurement will be done using the Bank's Standard Bidding Documents (SBD) for all ICB. National SBD can be used for procurement below I C B threshold subject the documents are agreed with to the Bank prior to start up o f procurement. Agreed standard bidding documents for procurement below N C B level will be included in the Project Operational Manual. Bill o f Quantity (unit price) based contract form will be used for all c i v i l works contracts estimated to cost above U S $ l 00,000 equivalent. Taking into account unpredictable price fluctuation (both for labor and materials) observed on the local construction market, civil works contracts with construction period more than 12 months will include price adjustment provision Such cases would be prior agreed with the Bank irrespective o f whether the identified contract is subject to prior or post review.

4.

Procurement o f Goods

5. Goods procured under this project would include: medical and diagnostic equipment for central hospitals in marzes: I T equipment, office furniture, waste management equipment,
76

vehicles for H P I U and s k i l l labs. Procurement o f goods will be done using the Banks SBD for all I C B cases. Similarly to the civil works contracts, all goods contracts below I C B threshold would use national standard bidding documents prior agreed by the Bank and included in the Project Operational Manual. For procurement o f standard off-the-shelf I T and computer equipment o f small value (US$50,000), the HPIU will use the Banks I T shopping web site. Medical Supplies for ambulatories may be procured from specialized UN agencies such as UNICEF.

6. Goods contracts below US$300,000 equivalent and works contracts below US$2 million equivalent will be procured under N C B procedures. Goods and Works contracts below US$lOO,OOO equivalent will be procured following Shopping procedures. Cases o f direct contracting will be reviewed and assessed on a case by case basis to determine whether proceeding with the direct contract i s justified.
Selection o f Consultants

7. Consulting Services under this project are required for: subcomponent management; improvement o f management structures; improvement o f pedagogical skills o n communication and counseling introduction o f hospital QA systems; H C W M training and plan development; improving health care legislation; monitoring o f main BBP services; development o f costing methodology; structural and management improvement o f SHA; review o f higher medical education system; revision o f professional educational standards; preparation o f architectural design, seismic stability expertise and constructionhehabilitation works supervision on FMP buildings; development o f HR strategy; Public Awareness Program; financial audit; project final evaluation etc. 8. Armenian Research Institute o f Earthquake Engineering and Protection o f Constructions JSC will be contracted on sole source basis for assessment o f the seismic stability o f FMPs buildings to be renovated: as the only one institution in Armenia authorized by the state to carry out such expertise.
9. Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

The following selection methods may be used depending on the nature o f the assignment: 10. Quality and Cost Based selection (QCBS), Least Cost Selection (LCS), Fixed Budget (FB). Consultants Qualifications (CQ) method can be used for contracts below US$200,000 equivalent. Justification for possible cases o f Single Source contracts with f i r m s (besides o f the contracts with the three identified training institutions - see para below) and sole source contracts with individual consultants will be reviewed on a case by case basis to determine the merits o f such approach.
Training

11. Training o f physicians, nurses, physicians trainers and MOH officials will be provided through training courses, study tours, workshops and conferences. The only training institutions in Armenia which have capacity and expertise to provide adequate quality training to physicians,
77

nurses, and physicians trainers are: (i) State Medical University (SMU), (ii) National Institute for Health (NM), and (iii) Basic Medical College (BMC). 12. These training institutions are dependent from the state and do not filly meet eligibility requirement to provide consulting services under Bank-financed contracts. However, taking into consideration the fact that these institutions provide a highly specialized training in the field where the national private sector providers do not exist and international providers are very unlikely to be interested due to small value contracts and requirements to conduct training in the local language, i t i s more practical to contract these institutions o n a single source basis. A waiver has been obtained from the Regional Procurement Manager and policy unit to precede with the single source contracts. The quality o f these training programs has been assessed in the past (under previous two projects) by international experts and found highly adequate. The contracts with these three institutions will total $1.27 million for five years (the estimated budget also includes stipends to the trainees which may be deducted from the contracts with the institutions and paid directly to the trainees). Time-based contract form o f Banks standard RFP will be used for contracting the above mentioned training institutions. The Project will also finance cost o f travel, accommodation and subsistence for the 13. participants. These expenses will be reported on the basis o f the SOEs. 14. The H P I U will administer all overseas training and study tours. If organization o f any o f training events require hiring a consultant ( f i r m s or individuals) to conduct and/or facilitate training activities, selection would follow the methods prescribed in the financing agreement and Project Operating Manual.
Operating Costs:

15. Operating costs o f H P I U includes the costs o f communication, supplies, printing and publications, vehicle operation and maintenance, office refurbishment, office maintenance and utilities, office property insurance costs, project audit expenses, local travel costs and field trip expenses, international training and business trip costs, bank charges and costs for other goods and services, state taxes, duties and fees associated with such costs, remuneration for staff, including qualified social charges but excluding salaries o f c i v i l servants, and such other expenditures as may be agreed upon by the Association. The above mentioned activities will be procured using the HPIUs administrative procedures introduced in the Operational Manual.

B. Assessment o f the agencys capacity to implement procurement

16. An assessment o f the Implementing agency capacity (HPIU) to carry out procurement actions was conducted by the Bank team in December 2006. The assessment reviewed the organizational structure for implementing the project and the interaction between the projects staff responsible for procurement and the Project Steering Committee headed by the Minister o f Health.
large number o f civil work 17. The key issues and risks have been identified and include: (i) contracts for constructiodrehabilitation o f F M P centers in rural areas to be procured in the corrupt environment o f the local construction market; (ii) price fluctuation, both for labor and political risks. materials, on the local construction market; (iii) 78

18. The corrective measures which have been agreed upon are: (i) Prior review: intensive and close supervision by Bank procurement accredited staff including physical verification and site visits. In addition, all contract amendments will be subject to prior approval by the Bank; (ii) Post review: at least one in five contracts will be post reviewed each six months, including physical verification and site visits; (iii) hiring o f a construction engineer to monitor implementation o f c i v i l works contracts to ensure adequate quality o f rehabilitatiodconstruction works. Photos o f works in progress and completed works will be part o f the documentation that supports payment requests; (iv) provision to the HPIUs procurement specialist an opportunity to attend specialized training courses Procurement o f C i v i l Works in WB funded Projects; (v) introduction o f the price adjustment provision in the contracts for c i v i l works with construction completion period over 12 months; (vi) Publication on the public procurement official web site (www.procurement.am) all upcoming bidding opportunities and contract awards in accordance with the Guidelines requirements. 19. The overall risk for procurement is high.

C. Procurement Plan
20. A procurement plan which provides the basis for the procurement methods has been prepared and discussed with the Bank team in February 2007. I t has been finalized and attached to the Minutes o f Negotiation. I t will be available in the projects database and in the Banks external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The TORS (guidelines) for update o f procurement plan are included in the Project Operational Manual and attached to the Minute o f Negotiation.

D. Frequency o f ProcurementSupervision
21. Procurement supervision will be carried out from Armenia country office and will be done o n an on-going basis taking an advantage o f the Bank procurement staff based in the country. Recommendations and findings o f procurement supervision will be periodically included in project supervision reports/Aide Memoire. Post review will be conducted annually and will cover one out o f five contracts signed in the year o f the review. Post reviews will be conducted jointly with the Bank financial management specialist.

E. Details o f the Procurement Arrangements Involving InternationalCompetition

Goods, Works, and Non Consulting Services
(a) L i s t o f contract packages to be procured following I C B and direct contracting:
1
Ref. No.

2
Contract (Description)

3
Estimated cost (US$OOO)

4 Procure ment Method

5
P-Q

7
Review by Bank (Prior I Post) Expected BidOpening

Domestic Preference (yesho)

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(b) All I C B and all direct contracts will be subject to prior review by the Bank.
2. Consulting Services
(a) L i s t o f consulting assignments with short-list o f international firms.

Ref. No.

Description of Assignment

Estimated cost ($USOOO)

Selection Method

c38
c4
c48

c53

N C D prevention and control (data collection, analysis) Revision o f professional educational standards Assessment o f S M U and NIH chairs needs Project final evaluation (data collection, analysis)

Review b y Bank (Prior / Post)

Prior Prior Prior Prior

Expected Proposals Submission Date

May-09 Aug-08 Nov-08 Nov- 11

200.00 125.00 125.00 100.00

QCBS QCBS QCBS QCBS

contracts with consulting f i r m s and sole source contracts with individual consultants will be subject to prior review by the Bank irrespective o f contract amount. (c) Short lists composed entirely o f national consultants: Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

(b) Consultancy services estimated to cost above US$lOO,OOO equivalent per contract with firms, above US$50,000 equivalent per contract with Individual Consultants and all single source

F. Debarment

22.

The Borrower will respect debarment decisions by the Bank and will exclude debarred f i r m s and individuals from the participation in the competition for Bank-financed contracts. Current listing o f such f i r m s and individuals is found at: http://www.worldbank.orddebarr.

80

Annex 9: Economic and Financial Analysis ARMENIA: Health System Modernization Project (APLZ) Introduction
Macroeconomic and sector context

1. Armenia's national income has been growing at an average rate o f 12.6 percent during the last five years, debt has fallen to just 22 percent o f GDP and inflation has remained l o w (Table 9.1). This growth has been broad-based and private sector driven. As a result, poverty has declined from over 50 percent in 2001 to 30 percent in 2005. Household survey data also reveal equally strong declines in urban and rural poverty, and in income inequality. Along with double digit private sector-driven economic growth, the reduction in poverty and income inequality can be attributed to an increase in real wages, continued growth in remittances from Armenians working abroad, and an increase in social transfers.
Table 9.1: Summary of Key Indicators (billion AMD)
Indicator

GDP Total public expenditure (TPE) Public expenditure on health (PEH) External public debt,/eop (%of GDP) CPI index (2000=100) Real GDP growth Real TPE growth Real PEH growth PHE (% o f GDP) PHE (% o f TPE) Note: 1. Budget. Source: Ministry o f Finance.

2002 1,363 263 16 44.0 104.2 13.2 6.6 -7.1 1.17 6.07

2003 1,625 313 20 38.3 109.1

2004 1,908 334 25 30.4 116.8

2005 2,244 418 31 22.1 117.5

2006'

2,667 509 39 19.0 121.0 13.4 18.4 23.2 1.48 7.74

2007(e) 2,995 558 48 125.8 9.0 5.4 16.0 1.59 8.53

14.0 13.6 17.3 1.21 6.27

10.5 -0.2 17.7 1.29 7.39

14.0 24.3 25.1 1.39 7.44

2. In health, public spending has increased at an average rate o f 15 percent and good progress has been made in implementing systemic sector reforms. In 2006, public expenditure o n health represented 1.5 percent o f GDP and while, this fell short o f the 1.7 percent PRSC target, largely due to the higher than projected GDP growth rate, absolute expenditure increased significantly and in line with Medium Term Expenditure Framework (MTEF) projections. There have been considerable improvements in MDG indicators with declining trends for infant and under-five mortality rates and maternal mortality ratios, and an increase in utilization rates. I n particular, there has been a sharp rise in the proportion o f individuals in the two lowest income quintiles who obtain medical treatment, from 3.5 percent in 2003 to 6.5 percent in 2005. Nevertheless, there is s t i l l space for improvement regarding utilization rates and informal payments. The positive developments have been the result not only o f increased economic resources, but also the consistent and continuous government efforts to rationalize the hospital sector, develop family medicine and introduce improved health care financing mechanisms. These efforts have been supported by APLl and will continue to be supported by APL2. The government is currently preparing an update o f the 2003 Poverty Reduction Support Paper
81

(PRSP). According to preliminary estimates, public expenditure o n health i s expected to reach 2.7 percent o f GDP in 2015. Economic rationale

3. The government reform program as outlined in the APL2 aims at strengthening the provision o f PHC services, rationalizing the marz hospital network and introducing necessary adjustments on health care financing mechanisms. In 2005, the government spent approximately AMD$14 billion on hospital services and AMD12$ billion on PHC services. These resources financed 156,500 hospitalizations in hospitals under the M O H and 7.7 million PHC visits. Government reform efforts aim to increase utilization, cover the full cost o f services provided under the basic benefit package (BBP) and spend increased resources in a more efficient way, i.e. buy more and better quality services than the ones currently been purchased. T o achieve these goals the government continues (i) to increase the reimbursement rates for BBP services, mainly towards higher salaries for health personnel; ( i i ) reduce the number o f beds and buildings used in the hospital network, so as to reduce recurrent expenditure, and increase occupancy rates; and (iii) invest in PHC centers and family medicine training (Table 9.2). These actions are expected to increase utilization o f PHC visits and hospitalizations publicly financed, as individuals realize that more and better quality services can be provided in health care facilities. In the short run, the same amount and same quality services will be provided with less resources (due to savings on building maintenance, heating, utilities and other recurrent costs); in the long run more and better services will be provided with the same share o f public resources in GDP, as shown in the fiscal impact analysis below. In addition, out-of-pocket payments, formal and informal ones, are expected to decrease as public funding will be covering the real provision cost.

Notes: 1.2004 data from rationalization plans 2. Preliminary assessment o f number o f facilities that need urgent renovation; final selection still needs to be made. 3. Two hospitals, one in Ararat marz and one in Gegharkunik m a n , are planned to be rehrbished under A P L l .

Fiscal impact analysis

4. This section aims at estimating the level o f government health expenditure under assumptions o f increased health care utilization and per capita public spending by 2015. I t also compares increased levels o f government spending on health to the government budget under the MTEF and PRSP. The analysis shows that Armenia can afford providing a comprehensive
82

benefit package for i t s population without exceeding considerably the PRSP projections. The public/private ratio changes from 30/70 in 2005 to 60/40 in 2015; consequently the burden o f out-of-pocket expenditures reduces considerably.

5. In Armenia, public expenditures o n health will increase as a result o f increased utilization. Individuals are expected to change their utilization patterns due to revisions o f the Basic Benefit Package which will cover more individuals and/or more types o f services. Expenditures will also increase because o f increases in the wages o f medical personnel. Higher wages are expected to affect negatively out-of-pocket payments for health, mainly informal ones. Finally, public spending on health will increase because o f changes in existing technologies and their effect o n the cost o f service provision.
6. In 2005, public spending on health was US$67.9 million38(1.4 percent o f GDP and 7.4 percent o f government budget) (Table 9.3). According to preliminary results o f the 2005 National Health Accounts and WHO estimates, private spending for the same year was equal to 3.9 percent o f GDP. Consequently, in 2005 total spending on health was 5.3 percent o f GDP. In per capita terms, in 2005 public spending was around US$21 while private spending was US$60.
Y o o f GDP 1.4 3.9 5.3
Per capita US$ 21.3 59.4 80.8

Public spending Private spending Total

Population: 3.3 million; Number o f physicians: 35 per 10,000; total 11,03 1;40 Number o f nurses and midwives: 71 per 10,000; total 23,733; Support to medical staff ratio 1:1: 34,764; Average monthly wage: US$414; Total number o f formal sector employees: 587,000; Inflation rate: 4 percent for 2006 and 2007, 3 percent thereafter; Gross to net wage ratio 1.4: 1.O; Physicians average net monthly salary (2 times the average salary): US$828; Nurses average net monthly salary (50 percent o f physicians salary): US$414; Support staff salary i s estimated at US$200; and Nominal GDP: US$ million 14,797.

Exchange rate for 2005: lUS$=457.7 AMD. A l l figures are for 2015 and expenditure figures are nominal. 40 In 2004, Armenia had 33 physicians per 10,000 population (as compared to 35 physicians per 10,000 in the European Region) and 45 nurses and midwifes per 10,000 population (as compared to 71 nurses and midwifes per 10,000 in the European Region), WHOMealth for a l l database, 2005.
39

38

83

84

Wage increases for medical personnel are considerable. In 2006 the average monthly 8. wage was around US$152. The monthly wage for doctors was approximately US$134 (88 percent o f average monthly wage) and for nurses US$67 (44 percent o f average monthly wage). By 2015, i t i s assumed that the average monthly wage will be around US$414, while the wage o f a medical doctor will be double this level and the wage o f a nurse equal to this level. 9. Based on the above assumptions, in 2015 the gross labor cost for the health sector will be equal to US$435.3 million and the total cost for health care services US$725.5 million (4.9 percent o f GDP) (Table 9.4).

10. From total health expenditure o f US$725.5 million, the government is expected to finance the BBP.41 Under the assumption that the unit cost o f BBP is US$lOO in 2006 (US$132 in 2015), the BBP cost in 2015 will be equal to US$441 million (3 percent o f GDP). The BBP cost will represent approximately 14 percent o f total government spending and will be only slightly higher than the PRSP projections o f public expenditure on health equal to US$395 million (2.7 percent o f GDP). This suggests that the provision o f a comprehensive benefit package i s a plausible and affordable scenario for Armenia. Total expenditure o n health in 2015 is estimated to be approximately the same share o f GDP as in 2015 (4.9 percent in 2015 and 5.3 percent in 2005); however, the ratio o f public to private spending changes from 30/70 in 2005 to 60/40 in 2015. The latter ratio i s one commonly found in countries that offer substantial risk protection against out-of-pocket health expenditures (Table 9.5 and Figure 9.1).
AS Y o of GDP Public spending Private spending
Total

2005 1.41 3.88 5.29

2015 2.98 1.92 4.90

Figure 9.1: Ratio o f Public/Private Spending, 2006 and 2015

2006 2015

0 F'ubhc spcndlng

mvate spendlng

Source: W o r l d Bank calculations.

11. Various combinations are possible for financing the estimated 2015 total expenditure on health. First, BBP expenditure could be covered by direct budget transfers equal to US$441, while the rest US$284 will be financed by out-of-pocket payments. Second, B B P expenditure could be financed by a combination o f direct budget transfers and health insurance contributions. Taking into account an estimated net wage bill equal to US$2.9 billion, mandatory health insurance contributions equal to 5 percent o f the wage bill and with 100 percent compliance
For simplicity reasons we assume that no other health items will be financed from the government given that the BBP i s expected to be the main expenditure item.
4'

85

would provide US$146 million. The government budget would then have to provide US$295 million (9.3 percent o f government budget) and the population share would cover the rest US$284 million (Table 9.6).
Scenario A (14.1% of Gov. Budget) Scenario B (5 % mandatory contributions + 9.4 % of Gov. Budget)

Health insurance contributions

Government budget Private spending Total

44 1 284 725

146 295 284 725

12. A sensitivity analysis i s carried out assuming a higher inflation rate for the basic benefit package; 6 percent for the period 2007-2015 as compared to three percent in the previous analysis. Under this assumption, the unit cost o f the BBP i s US$166 in 2015 and the total BBP cost will be equal to US$555 million (3.75 percent o f GDP). The B B P cost will represent approximately 17.5 percent o f total government spending. The B B P expenditure can be financed either through the state budget or through a combination o f insurance contributions and state budget. Mandatory health insurance contributions o f 5 percent o f the wage bill would provide US$146 million. The government budget would then have to cover US$409 million (13 percent o f government budget).
Financial analvsis

This section presents the financial analysis o f the project. Project disbursements, 13. counterpart financing and recurrent expenditures are expressed as percentages o f public expenditures on health. Recurrent costs include replacements costs for buildings, medical equipment, computers, and furniture.42 I t i s assumed that the share o f government health expenditure in GDP will increase from 1.6 percent in 2007 to 2.7 percent in 2015. This i s a preliminary scenario o f the currently revised PRSP.43
14. Table 9.7 shows that counterpart fund requirements range from 2.9 percent during the third project year to 0.03 percent during the last project year. The relatively high share of counterpart funds for the third project year i s caused by c i v i l work activities. W h i l e counterpart fund requirements during the third project year are not negligible, the Ministry o f Finance has confirmed that this amount can be accommodated. 15. Recurrent costs are between 0.9 percent and 1.23 percent o f government health spending. Provided that the government lives up to its commitment under PRSP to increase health spending, the recurrent cost impact is not considered excessive.

42

The expected life span for buildings i s 30 years, for medical equipment, furniture and vehicles 10 years and for computers 3 years. 43 According to the 2003 PRSP, public expenditures o n health were expected to increase from 1.5 percent in 2005 t o 2.5 percent in 2015. The government i s currently revising the PRSP and this preliminary scenario was provided to the Bank team by the local consultancy assisting the government in the revision o f the health chapter.

86

Notes:

1. PEH denotes public expenditure on health. 2. For 2007, the PEH figures are the ones reported in the budget

87

Annex 10: Safeguard Policy Issues: Environmental Management ARMENIA: Health System Modernization Project (APL2) Environmental Category

1. The objectives o f Second Health System Modernization Project are to support completion o f transition phase for providing family medicine services to whole population o f Armenia, modernization o f eight selected hospital networks in the marzes and improvement o f the medical education system. The above objectives will be achieved through: (i) retraining additional number o f family physicians and family nurses; (ii) strengthening PHC infrastructure; (iii) rehabilitation o f the marz hospital buildings, provision with essential medical equipment, strengthening o f hospital management structures, improvement o f the health care waste management practices and provision o f WM supplies, (iv) improvement o f the systems o f undergraduate and postgraduate medical education. The immediate impact o f the activities supported by the scaled-up project o n the environment would be limited. The main physical investments will be directed to:
Rehabilitation and refurbishment o f 8 selected marz hospitals networks o f Armenia, included in the optimization plans adopted by the Government o f RA in the beginning o f November 2006 (criteria o f selection are similar to those applied in Yerevan and will be further detailed by the time o f Project appraisal). Rehabilitation o f 30 selected Family Medicine Practice Centers in marzes; Construction o f 20 new Family Medicine Practice Centers in selected marzes;

2.

Potential adverse environmental impacts are summarized below and are restricted in scope and severity:

0 0 0

Dust and noise due to demolition and construction; Encroachment into private property; Risk o f damage to unknown historical and archaeological sites; Dumping o f demolition and construction wastes and accidental spillage o f machine oil, lubricants, etc; and Risk for inadequate handling o f hazardous wastewater, waste gases and spillages o f hazardous material during operation o f the hospitals; and Risk from inadequate handling o f medical waste.

These risks were reviewed during project preparation and measures o f their mitigation are envisioned in the design, planning and construction supervision process as well as during the operation o f the facilities. The project i s classified under the Environmental Category B (as well as on-going Health System Modernization Project) in accordance with World Bank operational policies and an Environmental Management Plan (EMP) was prepared.

3.

Institutional and Implementation Arrangements

4.

The proposed project will be implemented over a period o f approximately five years, estimated to begin in July 2007 and end June 2012. The Ministry o f Health is designated by the Government as the responsible agency for the Project. The Ministry i s supported by the Health

88

Project Implementation Unit (HPIU)- the coordination unit for the on-going Armenia Health System Modernization Project. The HPIU will be responsible for the fiduciary aspects o f the project and provide project administration and coordination support to the M O H line departments and agencies that are responsible for the implementation o f project components.

5. Besides the M O H and the HPIU, the Ministry o f Finance and Economy, the State Health Agency, The National Institute o f Health, and regional (Marz) Health Departments, and the management teams o f the affected health facilities are the k e y participants in project implementation.
6. To coordinate and supervise the project, the M O H established a Project Steering Committee consisting o f representatives from key stakeholders within and external to the Ministry for the purposes o f guiding and coordinating the policy o f optimizing the health sector. Besides general discussion o f policy, the Board (or by decision o f the Board, certain members) will be involved in such issues as defining terms o f references, participating in technical evaluations, and working directly with consultants for the strategic technical assistance assignments. InstitutionalStructure in Protection of Environment and Cultural Heritage 7. The main organization addressing and working on the environmental issues is the Ministry o f Nature Protection, which prepares national reports o n environmental management once every 2-3 years. The only organization which takes the responsibility o f the management o f the cultural resources and monuments is the National Cultural Monuments Protection State Agency attached to the Ministry o f Culture. National architectural planning and construction i s being implementedunder the supervision o f Permanent Intersectoral Committee o n Architecture an Construction, which adopts general architectural plans. The activities related to the above mentioned spheres i s being implemented under two relevant laws (the Law on Municipal Construction # 0217 and the Law on Protection and Usage o f Historical and Cultural Monuments and Historical Environment # 0261 adopted by the National Assembly o f Armenia on M a y 5, 1998 and on November 11, 1998 respectively) ENVIRONMENTAL MANAGEMENT PLAN
Introduction

8. All measures outlined in the Environmental Management Plan are being applied to the ongoing Armenia Health Systems Modernization Project and will be carried on with due diligence under the new plan. 9. During preparation o f the ongoing project an environmental specialist held consultations with the main stakeholders, i.e. Ministry o f Health, municipality o f Yerevan, hospital managers, Ministry o f Nature Protection, State Hygiene and Anti-Epidemic Inspection (former San-Epid) and ECOTECHARD, a private waste management company. The Environmental Management Plan (EMP) was prepared in order to integrate environmental concerns into the design and implementation o f the project. 89

The following activities have been performed during the course o f the Armenia Health 10. System Modernization Project as proposed by the EMP.

Establishment of environmental expertise within the HPIU

11. One staff member in the HPIU combines c i v i l works and environmental specialist responsibilities. H e has been trained on short-term basis by international experts (Conseil S a n t P and Euro Health Group) during the initial preparation in 2003-2004 and implementation o f project in September 2005. H e i s responsible for coordination and supervision o f the environmental work undertaken in the project. He: (i) coordinates environmental training for staff, designers and local contractors; (ii) coordinates environmental reviews o f microprojects; and (iii) conducts periodic site visits to review progress.

Environmental capacity building and training program

12. The H P I U staff and local contractors received short-term environmental training jointly by the c i v i l works and environmental management specialist and international expert from Euro Health Group as an integrated part o f the capacity building and training included in the project. The training was organized through two-day seminars o n environmental awareness, specific environmental aspects related to design and implementation o f small-scale projects for the upgrading o f health infrastructure, case studies o f environmental issues experienced in similar projects, use o f environmental guidelines, implementation o f mitigation measures and the use of specific procedures in the event unrecorded archaeological sites are uncovered during the construction activities.

Site Specific Environmental Screening, Review for the Rehabilitation of PHC Centers and Hospitals
13. The rehabilitation o f F M P centers and hospitals under the project i s subjected to a sitespecific environmental screening and review process. The screening and review program has been elaborated by the HPIU team, with technical assistance o f international expertise. The screening and review process includes the following aspects:
0 0

0 0

current environmental problems (soil erosion, water supply contamination, etc) at the sites; potential environmental impacts o f the project (disposal waste from demolition and construction, medical waste, construction noise and dust, etc); potential impacts on archaeological and historical sites; and potential requirements, i f any, for involuntary resettlement or temporary relocation o f a limited number o f project affected persons during the construction activities.

Guidelines for Ecological Planning

14. Environmental guidelines were developed by Euro Health Group consultant covering the site evaluation, handling o f demolition and construction debris generated, selection o f construction materials and construction methods with limited impact on the environment, energy saving methods as well as the handling o f medical and non-medical wastes under project supported activities. The guidelines are a base for training, programming, research, discussions and workshops, as well as for the practice o f ecological design and architecture. However, in

90

selecting suitable construction methods and materials for the clinics, great attention should be paid to locally available local traditions, skills and resources in the clinic sites. The Site

15. The best use o f the site i s t o orient the clinic for the best solar and climatic advantages (such as effective cross-ventilation during the summer period), to gain the best use of indoor and outdoor space, and to use the land forming and the vegetation to create comers of privacy and to protect the site and architecture from climatic extremes. The following are areas where fundamental information would be needed as a basis for ecologically sound design:
a

Site-specific daily and seasonal microclimatic projections (temperature, humidity, precipitation); a Site-specific angles o f daily and seasonal solar access and solar flux; a Site-specific wind patterns and velocities for wind rose development; a Site-specific influence o f neighboring structures and properties; a Site-specific topographic land survey, covenants, and zoning and building code regulations; a Site-specific road access, automotive emissions, and projected effect upon outdoor and indoor space; a Plan and volumetric consideration that addresses all the above and the concordant influence upon the local atmosphere; a Most efficient, energy-conserving, non-polluting earth handling, earth placement, land forming, and embankments; a Value o f topsoil, prevailing trees and other vegetation to be saved; a Data pertinent to the optimization of, sun ,earth, air and water energies; a Field testing information from power line and other adverse electromagnetic sources; a In site local availability and suitability o f materials and methods for construction (the greater the distance from source to use, the greater the trail o f pollution); a Appropriate manner in which to handle wastes and recycling; a Short-term versus long-term flexibility and suitability for future building expansion if needed a Initial and life-cycle cost-benefit evaluations; and a Long-term ecological effects.

Orientation relative to solar radiation and prevailing refreshing summer winds and cold 16. winter winds i s one o f the factors most frequently not regarded in site planning and architecture. All openings within the architecture bear a thermal and experiential relationship to the sky, the sun, external views, the earth, and seasonal change.

17.
a

The site-specific screening and review should carefully assess the following issues: Dust and noise due to demolition and construction; Encroachment into private property; Risk o f damage to unknown historical and archaeological sites; Dumping o f demolition and construction wastes and accidental spillage o f machine oil, lubricants, etc;

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0 0

Risk from inadequate handling o f medical waste; and Potential requirements, if any, for involuntary resettlement or temporary relocation o f a limited number o f project-affected persons during the construction activities.

18. These risks can be effectively screened, reviewed and assessed in advance o f Project implementation and addressed by direct mitigation activities in the design, planning and construction supervision process. Architecture 19. Orientation and location are critical to optimize the benefit o f solar radiation, daylight, and controlled air movement and thermal efficiency. Architectural climate-responsive forms, surfaces, and openings require site-specific analysis to most effectively accord with microclimatic sun, earth, air and water energies. A construction-efficient planning module can conserve the use o f materials, minimize waste and conserve labor. Maximizing the interior volume to exterior surface ratio conserves energy and materials. Natural cooling is most effectively achieved by providing cross-ventilation o f all interior rooms and spaces. Orientation to the east-to-west axis can effectively favor solar exposure during the cold winter period. Avoidance o f energy-intensive materials benefits Natures ecosystem sustainability. Providing cross-ventilation o f all interior rooms and spaces is most effective for ventilation and natural cooling. Gaining the Solar Advantage 20. The clinics can thermally benefit by passive and hybrid solar design as well as by active solar design for domestic hot water heating and space heating. Solar collection systems can effectively use air, water and other fluids to store heat for space heating, air tempering and heating o f water, concrete and other forms o f thermal mass. Passive and hybrid solar subsystems can be most beneficially suited to space function, economy and efficiency. Maximum glass to south, moderate amount to east, and minimum to west and north correspond best for the south solar advantage during the cold winter season. Shading should not be neglected for spring, summer and particularly fall (when passive solar i s prone to excess heat). Fixed versus movable forms o f shading and solar attenuation are factors for consideration.

Earth Coupling
21. The earth provides year-round more stabilized temperatures than outdoor air, and basements/ foundations surrounded by earth are an example o f effective earth coupling (they tend to remain at a more uniform temperature than above-grade portions o f a building). Ventilation and Openings 22. Screened ventilation intakes sized, detailed with insulated closure panels, and located to maximize cross ventilation can be more effective than operable window ventilation. Window locations relate to view, light and privacy control and interior space functions. Windows best serve for lighting, thermal gain and view. I t is best to cross-ventilate interior spaces from l o w outdoor air intake to high exhaust. Interior doors properly located can aid and control cross ventilation o f rooms and all interior spaces. 92

Insulation and Vapor Barriers 23. Cooling i s a greater thermal need than heating in acute care facilities, therefore isolating a building from the exterior climate with adequate insulation saves energy. The insulation o f roofs and external walls needs to be determined including thermal break sheeting to reduce energy loss through framing members (or an insulate thermal break o f rigid insulation under interior

drywall).The insulation should be tailored to the seasonal impacts o f climate, internal thermal load, and characteristics o f exposure. Vapor barriers should prevent moisture intrusion in the roof insulation and outer wall cavities. Cross-laminated polyfilms are less permeable than conventional types. Mechanical Systems - Mechanical ventilation High-efficiency systems for heating domestic water (including solar systems) and for hydronic interior space heating provide comfort and economy. Radiant (wall mounted) radiator zoned hydronic heat is good option for zoned comfort, space-by-space energy control and conservation. Plumbing stacks favor economy and function when coordinated to minimize plumbing and also water service to toilets, kitchen and utility rooms. Water-saving faucets and other devices will also save energy to heat the water. All plumbing lines should be copper (insulated hot water lines), with waste lines in cast iron to avoid P V C out gassing. Exposed plumbing and pipe insulation should be o f nontoxic material. Lead-free solder should be used for soldering copper water line pipes. Filtration

24.

Using electrostatic, activated charcoal, and high-efficiency filters can greatly improve the 25. indoor air quality. Filters that remove particulates down to 0.3 microns are advisable. Molecular absorbing filters can be used to remove toxic gases originating from internal and external sources. Electrical electrostatic filters are possible to clean but these are particularly subject to short-term reduction in efficiency. Self-actuating electrostatic filters are possible to clean, less expensive, and use no electricity. Electrical electrostatic filters should have an activated charcoal filter in order to subsequently remove ozone that can be generated by the particles on the filter. When sequential filtering for primary particles, HEPA (high efficiency particulate air filtration) i s used, then the use o f charcoal, potassium permanganate, or other molecular absorbers plus negative ionization at the delivery point o f distribution are desirable. Smoking areas or rooms, if any, should be isolated by partitions and equipped with outside exhaust that creates a negative pressure in the space. Certain medical equipment, copy machines, as well as other reproduction equipment, should be separately ventilated to remove their particulates and gases. Maintenance, including duct cleaning, filter cleaning and changes, and cleaning positive plate receivers and ionizing tips should be routine.
Electrical Systems 26. Incoming cables should be located underground. M a i n entrance feed and panel located away from places o f work and waiting i s prudent in avoidance o f electromagnetic fields. Ground fault wiring near any plumbing fixture i s a precaution. Selecting the most energy-efficient light fixtures, lamps, appliances and equipment will reduce energy demand but can introduce

93

undesirable electromagnetic fields. B e aware that close proximity to table, floor and desk halogen, fluorescent and other high-efficiency fixtures and lamps can cause an exposure to harmful electromagnetic fields. Cabinetry and Wood Finishes Nontoxic finishes are available but expensive. Selecting the least toxic finishes is advised. Water-based interior nontoxic, non-allergenic paint for drywall or plaster surfaces i s preferable to latex or oil-based paints from a respiratory standpoint. Any enamel coating for doors or other surfaces that require a more durable finish is advised to be applied away from interior spaces and be fully aired for over a month before installation. Indoor space should not be occupied until odor and toxins o f the paint or finish has been adequately aired. Flooring Traditional tile, marble, stone and terrazzo floors can be hard to stand and walk upon but 28. have legendary durability. Nontoxic grouts and methods o f installation should be used. Window Treatments

27.

29. Vertical blinds provide light control, are easy to maintain, and require minimal stacking room. Horizontal blind can in combination with a white or light ceiling reflect daylight more deeply into a room. Exterior roller blinds, operable from the interior, are particularly effective in controlling solar thermal gain and interior heat loss, and give the benefit o f security. Direct solar radiation can be attenuated by fabric mesh.
Exterior and Interior Colors

30. In climates like in Armenia with hot summers, reflective roofs provide a cooling advantage. When cold season occur, darker-colored exterior walls will benefit by low-angle winter solar gains but be less heated by the high angle o f the summer sun. White or very lightcolored ceilings and interior side walls allow for deeper reflective penetration o f natural light. Doors between interior room spaces can act as reflectors. Gloss white lacquer or enamel doors in the path o f incoming daylight can lighten adjoining spaces. Interior paints and finishes can affect patients and staff directly. Outdoor finishes with odorous and toxic emissions can also have an effect upon persons indoors through windows, doors and other openings.
Demolition Work Existing building elements (walls, foundations, ground cement slabs etc.) should be carefully demolished and the debris should be sorted and removed as directed by the Environmental Management Plan Used concrete blocks could be crushed and reused as gravel substitute in road and construction projects. All valuable materials (doors, windows sanitary fixtures etc.) should be carefully dismantled and transported to the storage area assigned for the purpose. Valuable materials should be recycled within the project or sold.

3 1.

94

Selection o f Construction Materials and Construction Methods

32. Environmentally sound goods and services should be selected. Priority should be given to products meeting standards for recognized international or national symbols. Traditionally welltried materials and methods should be chosen before new and unknown techniques. Construction sites should be fenced o f f in order to prevent entry o f public, and general safety measures would be imposed. Temporary inconveniences due to construction works should be minimized through planning and coordination with contractors, neighbors and authorities. In densely populated areas, noisy or vibration generating activities should be strictly confined to the daytime. Local authorities should carry out environmental monitoring in order to ensure that measures are enforced to minimize construction impacts.

through the sites screening process.

33. As a precaution o f encroachment o f private property, none o f the proposed construction o f 8 PHC clinics will be allowed to involve private property. This requirement will be assured
Handling o f Medical and Non-medicalWastes

34. In the absence of explicit environmental standards and procedures there i s a risk that nondisinfected medical wastes from the clinics are collected and co-disposed with household wastes at uncontrolled dumping sites, creating conditions that may lead to proliferation o f diseases and groundwater contamination. Some of medical wastes are burnt on site and some are collected and incinerated at the central hospitals. Inadequate handling and disposal o f medical wastes may lead to transmission o f HIV, hepatitis, meningitis and other infectious diseases through injuries caused by syringe needles contaminated by human blood. The goups most at risk are medical care workers, waste management operators and scavengers. The management o f medical wastes requires diligence and care from a chain o f people, starting w i t h medical care staff, continuing through collection workers, and finishing with disposal operators. If any o f these are lacking o f knowledge and careless in their work, or allow scavengers or children access to the waste, the chain i s broken and danger o f infection follows. 35. The activities planned under the project aim at improvement o f hospital waste management Waste management regulations, guidelines and training o f trainers courses have been developed and implemented by a group o f local and international experts (Saadat International) in the course o f the Armenia Health System Modernization Project in Oct-Dec 2005. The following below activities will be performed in the project hospitals:
Clear responsibility for medical waste management will be assigned to a member o f the executive management team. Training courses shall be provided for all staff involved in the management o f medical wastes to make them aware of hazards from the waste, especially from infected sharps, and to educate the patients and visitors to clinics hygiene and cleanliness with reference to waste. Specific training module will be inserted in the re-training program of health personnel and i t will not solely explain routine procedures, but would also cover emergency procedures, such as what action should be taken as a result o f a spillage o f particular types o f waste, or an injury involving a needle.

95

Public awareness campaigns should be held to raise awareness o f the risks posed by medical waste, so that people keep away from risks themselves and warn authorities if they see unacceptable practices. A plan o f segregation o f waste and organizational policies o f waste management shall be introduced in all upgraded clinics, and monitoring procedures should be developed. Project hospitals shall be supplied by means and equipment for proper management o f medical waste. The waste generated in clinics i s to be categorized as follows for management purposes: Clinical waste - this includes sanitary dressings, human tissue, specimens, infectious materials (includes items in contact with infectious patients, infected linen etc); Sharps - this includes hypodermic needles and syringes, scalpel blades, razor blades etc; Organic domestic waste - this includes food wastage, garden wastage etc; Non-organic domestic waste - this includes plastics, non aluminum cans, cardboard packaging etc; Domestic recyclable waste - this includes bottles, newspapers, aluminum cans etc; and Cytotoxic and hazardous chemical waste (if any).

36.
0

0 0 0

0 0

Specialist contractors for disposal should remove all waste generated in clinics as appropriate and to be agreed. I t is necessary to provide a fully equipped lockable waste disposal store in the clinics for full control o f the medical waste waiting for o f f site transportation. A universal biological hazard symbol should be posted o n the door o f the store. In order to be compliant with emerging guidelines and promote an environmentally conscious approach to waste management, operational policies should also be based on the segregation o f domestic waste into organic, non-organic and recyclable. Waste generated in the clinics should be segregated as follows:
0 0 0

37.

Clinical waste - Yellow bags; Sharps - Special puncture-resistant containers; and Domestic waste (non-organic) - Black bags; and stored in the waste disposal store awaiting collection by waste collection staff.

38. The only organic waste generated in the clinics will be food waste and garden refbse which should be composted in the demonstration garden for health nutrition education. The medical waste should be collected by specialist contractors for treatment at central plants in each district (preferably at the central hospitals). Since landfill operations may cause loss o f containment integrity and dispersal o f infectious waste i t i s recommended that all infectious waste be treated prior to disposal. Medical waste management standards recommend:
0

0 0

Establishing standard operating procedures for each process used for treating infectious waste; Monitoring o f all treatment processes to assure efficient and effective treatment; and Use o f biological indicators to monitor treatment (other indicators may be used provided that their effectiveness has been successively demonstrated).

96

39. Recommended techniques for treatment o f infectious waste are steam sterilization, incineration, microwave or ultraviolet heating systems, ionizing radiation or chemical treatment. The choice o f technique depends o n which category o f infectious waste to be treated. Infectious waste that has been treated i s no longer hazardous and may be mixed with and disposed o f as ordinary solid waste, provided the waste does not pose other hazards that are subject to national regulations.
EMP Cost Estimate and Time Schedule 40. The cost o f the E M P implementation i s covered in the project components as an integrated part o f the capacity building and training, project preparation, design and construction supervision. The cost o f respective staff is included in the Project Management Component. The site-specific screening and review activities would follow the project cycles o f the micro-projects and pilot hospital restructuring programs. Application of EMP to Civil Works Contract Management 41. Present E M P will be included in tender documentation to be prepared for procuring civil works for rehabilitatiodconstruction o f FMP centers and hospitals under the Project. Bidders will be required to include in their bids the site-specific EMPs, indicating h o w they would ensure compliance with the present Project EMP and what specific environmental mitigation measures they would apply at the particular Project sites. This information provided in bids will be considered along with other data in the process o f bid evaluation. Monitoring and Evaluation o f Mitigation Measures Identified in the Site-Specific Reviews 42. Reports would be prepared on each o f the environmental reviews, specifying mitigation measures and assigning responsibilities for implementation. The findings and recommendations o f the reports would be discussed with representatives o f the cooperating marzes and, as appropriate, with other organizations and neighbors concerned. Any proposal for permanent involuntary resettlement or temporary relocation o f residents would be reviewed by the World Bank to assure compliance with the provisions o f Operational Directive 4.30, Involuntary Resettlement (the present planning o f the project will not entail any involuntary resettlement). The H P I U would prepare semi-annually reports outlining progress in EMP implementation as part o f the regular progress reports. The EMP reports would highlight environmental issues arising from proj ect-supported activities, the status o f mitigation measures taken, and next steps, if any. The reports would be submitted by HPIU to the Ministry o f Health, Ministry o f Nature Protection and the World Bank. 43. The use o f a site-specific environmental screening process will allow potential environmental concerns to be addressed on a case-by-case basis in consultation with local government authorities and respective local departments o f environment, culture, architecture and construction o f marzes concerned, as well as with the Ministry o f Nature Protection. Supervision 44. Progress in implementation o f mitigation measures will be included in regular Bank supervision reports including the Mid-Term Review and the Implementation Completion Report.

97

Annex 11: Project Preparation and Supervision ARMENIA: Health System Modernization Project (APL2)
Planned Actual 01/08/2007 12/21/2006 12/21/2006 01/24/2007 02/05/2007

P C N review Initial PID to PIC Initial ISDS to PIC Appraisal Negotiations Board/RVP approval Planned date o f effectiveness Planned date o f mid-term review Planned closinp; date

0 1/22/2007 02/05/2007 03/08/2007 06/30/2007 09/15/2009 06/30/2012

K e y institutions responsible for preparation o f the project: Ministry o f Finance and Economy Ministry o f Health Health Project Implementation Unit Bank staff and consultants who worked on the project included: Name Alexander Astvatsatryan Andrina Ambrose Arman Vatyan Enis Baris Junk0 Funahashi Nicole L a Borde Panagiota Panopoulou Satik S. Nairian Susanna Hayrapetyan Tamar Gotsadze Maris Jesse Toomas Palu Yelena Fadeyeva Title Procurement Officer Sr. Finance Officer Sr. Financial Management Specialist Task Team Leader/Sr. Public Health Specialist Sr. Counsel Program Assistant Economist Program Assistant Co-task Team Leader/Sr. Health Specialist Health Specialist Sr. Health Specialistpeer Reviewer Sr. Health Specialisfleer Reviewer Operations Officer
Unit ECSPS LOAGl ECSPS MNSHD

LEGEC ECSHD ECSHD ECCAR ECSHD ECSHD ECSHD EASHD ECSHD

Bank funds expended to date on project preparation: 1. Bank resources: US$lOO,OOO 2. Total: US$lOO,OOO
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$90,600 2. Estimated annual supervision cost: US$82,400

98

Annex 12: Corruption Prevention Strategy and Measures ARMENIA: Health System Modernization Project (APL2)

1. The authorities o f Armenia have undertaken a number o f measures aimed to address corruption. As a result o f reforms accomplished in a number o f areas (public administration, the tax system, and the banking sector), significant advances have been made. In particular, dozens o f legal acts with an anti-corruption focus have been adopted, new infrastructures carrying anticorruption elements have been implemented, such as c i v i l service, public procurement, inspections and audits, disclosure o f assets and income o f public officials, licensing, state registration o f legal entities, and the new scheme o f notaries. Moreover, regulations have been enacted on special types o f public service (such as police, military, customs, tax, and diplomatic services).
2. On November 6,2003, the Government o f Armenia adopted a decree On Approving the Anti-corruption Strategy o f the Republic o f Armenia and the Implementation Action Plan. The goal o f the Anti-Corruption Strategy aims to eliminate corruption and its root causes and the conditions conducive to i t s proliferation, and to build a sound moral and psychological environment in the Republic, which, in turn, will power the attainment o f sustainable democratic institutions, a c i v i l society, and a state based on the r u l e o f law. I t also intends to enhance economic competition, economic development, and poverty reduction. 3. The strategy strongly emphasizes participation o f the public at large in the fight against corruption, the role o f all the stakeholders, including governmental and non-governmental actors, and all the political forces in monitoring this process, bearing in mind that corruption is a common challenge faced by not only the authorities, but the public at large.

4.

Following the Government strategy and taking into account Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants approved by the Bank on October 15, 2006 (hereinafter Anti-Corruption Guidelines), the anti-corruption measures for the Second HSMP (APL2) have been defined.

5. The Anti-Corruption Guidelines and IDA General Conditions for Credits and Grants (as amended on October 15, 2006) were shared with the counterparts from the Ministry o f Finance and Ministry o f Health o f Armenia.
6. According to the recent BEEPSreport, the corruption in Armenia i s significant with about 30 percent o f businesses indicating that corruption i s a problem o f doing business. Adequate mitigation measures are incorporated in the project, and Bank staff will closely monitor performance during implementation. As the Project will be implemented in an environment where corruption i s perceived as an important matter adequate mitigation measures have been put in place to ensure that the residual project risk is acceptable. Mitigation measures are incorporated in the project design and Bank staff will closely monitor performance during implementation. These mitigation actions can be summarized as follows: (a) the Government will move towards e-procurement and use o f publicly accessible web-sites to disseminate tenders and announce results; (b) the project will establish a formal internal control framework described in the Financial Management Manual; (c) the flow o f funds mechanism that has been agreed with the Recipient will be enforced; (d) the project financial statements will be audited by

99

independent auditors and on terms acceptable to IDA; and (e) regular financial management reviews will be conducted to monitor and assess the corruption r i s k

7. The Operational Manual (OM) o f the Project will play an important role in project implementation. The Operational Manual has been created under A P L l and will be updated by as a condition o f effectiveness o f APL2. I t will provide a description o f the systems and procedures to be followed by the HPIU staff who will manage project activities to ensure that sound procurement and financial management practices are implemented. The OM will describe the organizational structure and functions o f H P I U staff, as well as the guidelines for procurement, record keeping and reporting using the Financial Monitoring Report (FMR). The O M will also cover the preparation and recording o f financial statements, internal control, monitoring and evaluation mechanism for the project, auditing arrangements, and disclosure requirements for the project.
8. Some o f the APL2 activities will be implemented at the regional (Component B) and community (Component A) level. The Family Medicine Development component (Component A) manual created under A P L l describes among other component activities principles o f delivery o f basic equipment to rural ambulatories where the retraining o f staff i s carried out as well as procedures for c i v i l works.

9. The Component B intends to: a) support the optimization o f physical infrastructure and human resources o f marz hospitals; b) upgrade merged facilities through financing rehabilitation o f selected hospitals and provision o f basic modem equipment, as well as c) financing training and technical assistance for introduction o f the hospital quality assurance and medical waste management systems. Criteria for the selection of marz hospitals include those in the existing optimization plans approved by the Government which will be augmented by the planned master plan that will be carried out during project implementation The hospitals supported by the APL2 will be subject to improved governance and management arrangements as described in the Government action plan and including: supervision by Oversight Committees set up by the appropriate level o f Government (MOH, regional (marz) administration, Ministry o f Temtorial Affairs); modernizing management structures; introducing new financial management systems and accounting methodologies; developing and abiding to consolidated budgets (private and public revenues); strategic development plans and performance plans for top executive management; publication o f annual reports; and, independent audits. Prior to making funds available for the optimization programs, implementation agreements acceptable to the Bank will be signed between the MOH, owner o f the hospital (if other than MOH) and the chief executive o f the hospital confirming the commitment to the optimization program, implementation o f management and governance arrangements.

100

Annex 13: Documents in the Project File ARMENIA: Health System Modernization Project (APL2)

1. Bank StaffAssessments:
Armenia Health Systems Modernization Project M i d - t e r n Review Report, November 2006 Armenia Country Assistance Strategy, M a y 2004 Armenia Health Financing and Primary Health Care Development Project Implementation Completion Report, June 2004 Armenia Country Assistance Strategy, M a y 2004 Armenia Poverty Reduction Strategy Paper, October 2003 2. Others: Review o f Health Financing and Provider Payment Systems in Armenia, Health Research For Action (HERA) Final Draft Report, 2004 D o subsidized health programs in Armenia increase utilization among the poor? Diego F. AngelUrdinola and Shweta Jain, World Bank, March 2006 Armenia Programmatic Public Expenditure Review (PPER) Technical Assistance on Primary Health Sector Analysis in Armenia, AVAG Solutions, October 2006 Review o f Regional Master Plans o f the Armenian Health Care Delivery System, June 2006 Concept Paper on Development o f Voluntary Health Insurance in the Republic o f Armenia Basic Benefit Package Costing Study, Briefing Note, Business Consult, M a y 2006 National Health Accounts o f the Republic o f Armenia-2004, World Health Organization, Ministry o f Health o f the Republic o f Armenia, Armenian Office o f the World Bank, U S A Agency o f International Development, Yerevan 2006 Project Implementation Plan for the Extension o f Armenia health System Modernization Project, Health Project Implementation Unit, November 2006 The Effects o f a Fee Waiver Program on Health Care Utilization Among the Poor, Policy Research Working Paper, The World Bank Development Research Public Services and Europe and Central Asia Region, Human Development Sector Unit, January 2003 Strengtheningo f health Legislation and Licensing in Armenia, J. Both, September 2005 Health Financing and Primary Health Care Development Project Evaluation Report, Yerevan 2003 National Health Policy o f the Republic o f Armenia, Republic o f Armenia Ministry o f Health, Yerevan 2004 Proposed Framework for Health System Performance Assessment in Armenia, Emmanuel Gakidou, Ph.D, Harvard Initiative for Global health, and Institute for Quantitative Social Sciences, Harvard University, October 2005 Armenia Medium-Term Expenditure Framework for 2006-2008, Ministry o f Finance and Economy o f Armenia Health Systems in Transition Vol. 8 No. 6 2006, Armenia Health System Review, European Observatory on Health Systems and Policies Poverty Reduction Strategy Paper, Republic o f Armenia, 2003.

101

Annex 14: Statement o f Loans and Credits ARMENIA: Health System Modernization Project (APL2)
Difference between expected and actual disbursements Cancel.
0.00

Original Amount in US$ Millions Project ID PO94225 PO99832 PO90058 PO57880 PO87011 PO83352 PO87641 PO88499 PO87620 PO74503 PO73974 PO63398 PO60786 PO69917 PO57847 PO55022 PO64879 PO08276 FY 2007 2006 2006 2006 2006 2006 2005 2004 2004 2004 2004 2004 2004 2002 2002 2002 1999 1999
Purpose

IBRD 0.00 0.00 0.00 0.00 0.00

IDA 25.00 6.25 0.00 15.00 20.00

5.00

SF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

GEF 0.00 0.00 3.00 0.00 0.00

Undisb. 22.99 5.72 2.70 10.54 17.84 4.73 16.47 5.51 4.52 12.48 9.22 10.71 8.52 2.52 5.07 2.60 6.40 0.65 149.19

Orig.

Frm. Revd 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

SIF 3 AVIAN FLU - A M RENEW ENERGY (GEF) URBAN HEAT RUR ENT & AGRIC DEVT RENEW ENERGY YEREVAN WATERIWW SERVS IRRIG DAM SAFETY 2 SOC PROT ADMIN EDUC QUAL & RELEVANCE (APL #1) HEALTH SYS MOD (APL #1)
MUN WATER & WW
PUB SECT MOD

-2.29 0.17 0.33 0.49 2.23 0.40 10.25 1.46 2.86 7.08 5.21 3.36 4.64 0.62 0.31 -0.77 5.77 -0.07 42.05

0.00 0.00 0.00 0.00

0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00

0.00
0.00 0.00

0.00
0.00 0.00

20.00 6.75 5.15 19.00 19.00 23.00 10.15 0.00 8.30 24.86 26.60 21.00 255.06

0.00
0.00 0.00 0.00 0.00 5.12
0.00 0.00

0.00
0.00 0.00 0.00 0.00
0.00 0.00

1.23 4.28 -1 2 6 0.00

0.00

NAT RES MGMT (GEF) NAT RES MGMT IRRIG DEVT IRRIG DAM SAFETY ELEC TRANSM & DISTR Total:

0.00 0.00 0.00 2.89 -0.15 6.99

0.00
0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 8.12

102

ARMENIA STATEMENT OF IFCs Held and DisbursedPortfolio In Millions o f U S Dollars

Committed IFC
FY Approval 2002 2004 2000 2004 2006 2006
Company ACBA Leasing Armeconombank Hotel Armenia Hotel Armenia Inecobank NAREK Total portfolio: Loan Equity Quasi Partic. Loan

Disbursed IFC
Equity Quasi Partic.

2.00 2.00 0.00 0.00

3.00

0.27 0.00 0.00 0.00 1.30 0.00 1.57

0.00

0.00 0.00 0.00 0.00 0.00

0.00

2.00 2.00
0.00

0.27 0.00 0.00 0.00 0.00 0.00 0.27

0.00
0.00 3.57 1.25 0.00 0.00 4.82

0.00 0.00
0.00

0.00 3.51 1.25 0.00 0.00 4.82

0.00 3.00
0.00

0.00 0.00
0.00

5.20 12.20

0.00

7.00

0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment:

0.00

0.00

0.00

0.00

103

Annex 15: Country at a Glance ARMENIA: Health System ModernizationProject (APL2)

1/05/07 Europe & Central Asia 473 3 300 1 557 Lowermiddle. Income 2,442 1,690 4,116

POVERTY and SOCIAL 2006 Population. mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas mefhod, US$ billions) Average annual growth, 1999-05 Population (%) Labor force (%) Most recent estimate (latest year available, 1999-05) Poverty (X of populationbelow nationalpoverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Literacy (% ofpopulation age 1%) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1985 GDP (US$ billions) Gross capital formationlGDP Exports O f goods and ServiC8SlGDP Gross domestic savings/GDP Gross national savings/GDP Current account balancelGDP Interest paymentslGDP Total debtlGDP Total debt servicelexports Present value of debtlGDP Present value of debtlexports (average annual growth) GDP GDP per capita Exports of goods and services STRUCTURE of the ECONOMY (%of GDP, at factorcost) Agriculture Industry (ind construction) Manufactunng Services Householdfinal consumption expenditure General gov't final consumptionexpenditure 1985-95 -134 -12 1 -348 1995-05
85 89 151

Armenia 30 1750 53

Development diamond'

Life expectancy -

-04 -3 3 30 64 73 12 3 89 99 97

00 05

09 14

GNI capita

Gross primary enrollment

64 69 29 91 97 102 103 101

50 71 32 11 81 89 112 113 111

Access to improved water source -Armenia

__ Lower-middle-incomegroup

1995 15 18 4 23 9 -19 8 -59 -22 7 06 25 2 37

2005 49 29 7 27 2 16 5 25 7 -3 9 07 37 9 10 3

2006 63 30 4 22 3 16 3 25 5 -5 5 06 32 7 10 7 16 0 47 3 2007-09, 7 7 15

Economic ratios' Trade

T
Domestic savings
I

Capital formation

2005 14 0 13 9 35 7

2006 13 4 13 3 31

Indebtedness

Armenia Lower-middle-incomegroup

Igg5 2005

2o06
455 122 352 750 120

Growth of capital and GDP (X)

42 3 320 25 2 25 8 108 7 11 2

440 132 350 77 5 112

I
M

-10-

00

01

02

03

05

GCF

*GDP

(average annual growth) Agriculture Industry (ind construction) Manufacturing Services Householdfinal consumption expenditure General gov t final consumption expenditure Gross capital formation Imports of goods and services

1985-95
-26 -260 -154 79 -82 -22 -245 -265

1995-05

of exports and Imports (56)

50 97 58 103
55 32 129 71

97 40
100 200 222 240

138 120 190 300 220

0 -10-

'

Exports

0 - Imports

Note 2006 data are preliminaryestimates Group data are to 2004 *The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing the diamond will be incomplete

104

Armenia
PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplusldefcit TRADE
(US$ millions) Total exports (fob) Gold, jewelry, and other precious stones Machinery and mechanical equipment Manufactures Total imports (ci9 Food Fuel and energy Capital goods
1985 1985 1995 176.0 161.2

2005
0.6 3.2

2006
2.9 4.8

19.9 -1.7 -9.0 1995 271 119 674 225 224 56

15.7 1.5 -2.6

16.0 2.3 -1.6

2.000-

GDP deflator -0- CPI

2005
974 336

2006
1000

Export and import levels (US$ mill.)

172 1,802 146 297 414

33 . .

1 500-

2,200

Export price inde$2000= 100) Import price inde$2000=100) Terms of trad~2000=100) BALANCE of PAYMENTS
(US$ millions) Exports of goods and services Imports of goods and services Resource balance
1985 1995 305 796 -49 1 -10 168 -333 362 -30 110 355.7 1985 1995 371 5 91 11 0 0 91 100 0 25 0 117 92 0 92 0 92

128 125 102.5

116 118 98

'

00

00

01

02

03

04

05

=Exports

Imports

2005
1,323 1,962 -639 45 409 -193 -188 -163 667 4545

2006
1,400 2,400 -1,000 138 460 -340
-150 -120

I Current account balance to GDP (K)

Net income Net current transfers Current account balance Financing items (net) Changes in net reserves Memo: Reserves including golg/S$ millions) Official exchange rat$Jocal/US$J EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions) Total debt outstanding and disbursed IBRD IDA

800 412

2004
1,860 7 776 147 1 6 61 45 -1 217

2005
1,860 7 744 124 1 9 67 36 3 248

1 Composition of ZOOS debt (US$ mill.)

A: 7

Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment (net inflows) Portfolio equity (net inflows) World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers Development Economics

0 78 1 77 6 71

19 34 4 30 6 24

l A IBRD

1 C - IMF

8 IDA

E Bilateral D - Other multilateral F Private G .Short-term

1/05/07

105

43E

GEOR GI A
To Borjomi

44E

To Tbilisi

To Tbilisi

46E

G E OR G IA

47E

41N

Tashir L e s s Tashir er C Alaverdi auc asu s M Stepanavan ou nt LORRI ai SHIRAK n

To Gnc To Gnc

Ku

ra

Mingechevir Reservoir

41N

Ijevan

To Kars

Gyumri

V anadzor Vanadzor
Dilijan

T AV AV U S H
Artsvashen Artsvashen
To Gnc

Artik Artik

Karmir Karmir

Ar

pa

Aragats (4090 m)

Sevan

Hrazdan
Hraz d a n

ARMENIA

A R A G AT S O T N

KO

T UR KEY
Aras

Ashtarak

Gavar

Lake Sevan
Vardenis Vardenis

YEREVAN YEREVAN

TA YK

GEGHARKUNIK
Martuni Martuni

A R M AV AV I R
Armavir Armavir

YEREVAN YEREVAN
r Va

40N

Artashat Artashat
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

ni de

nge s Ra

40N

A R A R AT
Ararat

VAY V AY O T S
Y egegnadzor Yegegnadzor

Ar as

DZOR

Jermuk Jermuk

43E

44E

Arpa
Vaik Vaik
To Naxivan

AZ E RB AIJ AN
Angekhakot Goris
To Qubadli

ARM E NI A
SELECTED CITIES AND TOWNS PROVINCE (MARZ) CAPITALS NATIONAL CAPITAL RIVERS MAIN ROADS RAILROADS
SEPTEMBER 2004

Vo

To Naxivan

o tan
To Qubadli

ra

ng

I SLA MIC REPUBLIC O F IRA N

0 10 20 30 40

A ZERBA IJA N

SYUNIK
Kapan

ez

ur
Ra

ng

50 Kilometers

Ara

39N

IBRD 33364

PROVINCE (MARZ) BOUNDARIES INTERNATIONAL BOUNDARIES

10

20

30 Miles Megri 45E

To Ordubad

To Fzili

47E