Document of The World Bank Public Disclosure Authorized Report No. 16475 AM

STAFF APPRAISAL REPORT Public Disclosure Authorized

REPUBLIC OF ARMENIA

HEALTH FINANCING AND PRIMARY HEALTH CARE DEVELOPMENT PROJECT Public Disclosure Authorized

June 30, 1997

Public Disclosure Authorized Municipal and Social Services Country Department IV Europe and Central Asia Region CUR-RENCY EQUIVALENTS (as of May, 1997)

Dram I = US$0.0021 US$1 Dram 470

ABBREVIATIONS AND ACRONYMS

ASIF A:rmenia Social Investment Fund BBP Basic Benefits Package BoD lBurdenof Disease CAS Country Assistance Strategy CEE Central and Eastern Europe EU/TACIS Iluropean Union Technical Assistance to CIS countries ECA Europe and Central Asia FSU lFormerSoviet Union FY l'iscal Year FM/GP l'amily Medicine/General Practice GDP (iross Domestic Product GoA (iovernment of Armnenia HCE hlealth Care Expenditures IDA International Development Association IMF International Monetary Fund MCH Maternal and Child Care MoH Ministry of Health MoFE Ministry of Finance and Economy NGO Non-Governmental Organization NIH National Institute of Health OM Operational Manual PER Public Expenditure Review PHRD P'olicy and Human Resources Development Fund IJapanese Grant Facility) PHC PlrimaryHealth Care PHCDP Plrimary Health Care Development Program PIP P'roject Implementation Plan PMU PlrojectManagement Unit SAC Structural Adiustment Credit SATAC Structural Adjustment Technical Assistance Credit SHA State Health Agency SMU State Medical University TA rechnical Assistance UNDP iJnited Nations Development Program UNICEF United Nations Children Fund USAID UJSAgency for International Development WHO/EURO World Health Organization Europe Office

FISCAL YEAR: January I - December 31 Vice President, Europe and Central Asia Region: Johannes Linn (ECA) Director, Europe and Central Asia Country Department IV: Basil Kavalsky (EC4DR) Chief, Municipal and Social Services Division: ThomnasA. Blinkhorn (EC4MS) Team Leader: Alexandre Marc (EC4MS) TABLE OF CONTENTS

I. ECONOMIC AND SECTOR BACKGROUND...... 1 A. Recent EconomicDevelopments ...... I B. Health Sector...... 2 C. HealthCare ReformStrategy ...... 6 D. Rationalefor Bank Involvement...... 8

II. PROJECT DESCRIPTION...... 9 A. Objectives...... 9 B. ProjectDescription ...... 10 C. ProjectComponent 1: StrengtheningPrimary Healtlh Care ...... 10 D. Project Component2: StrengtheningHealth Financing System ...... 13 E. ProjectComponent 3: ProjectManagement ...... 15

III. PROJECT COSTS AND FINANCING, PROCUREMENT, DISBURSEMENTS ...... 15 A. Cost Estimates...... 15 B. Project Financing...... 16 C. Procurement...... 16 D. Disbursement...... 20 E. Accountsand Audits...... 21

IV. PROJECT IMPLEMENTATION...... 21 A. Organizationand Management...... 21 B. Monitoring,Evaluation and Supervision...... 23

V. SOCIO-ECONOMIC ANALYSIS...... 24 A. Analysisof ProjectAlternatives ...... 24 B. Fiscal Impactand Project Sustainability...... 26 C. InstitutionalCapacity Analysis and LessonsLeamed from PreviousBank Operations in Armenia...... 28 D. Social Assessmentand StakeholderParticipation ...... 29 E. Benefitsand Risks...... 30 H. PovertyImpact ...... 31 I. EnvironmentalImpact ...... 31

VI. AGREEMENTS AND RECOMMENDATIONS...... 31 A. AgreementsReached During Negotiations ...... 31 B. Conditionsof Effectiveness...... 32 TABLES Table 1.1: The top three causes of DALYs lost in Armenia in 1995 3 Table 3.1: Summary of project cost estimates by component 15 Table 3.2: Project Financing Plan 16 Table 3.3: Project Costs by Expenditure Category 19 Table 3.4: Allocation of Credit Proceeds by Disbursement Category 20 Table 3.5: Estimated Disbursements 20 Table 5.1: Projections of public sector health care expenditures 26 Table 5.2: Project risks 30

ANNEXES

Annex 1: Health Sector Indicators Annex 2: Primary Health Care Strategy Annex 3: Health Financing Strategy Annex 4: Executive Summary of Social Assessment in Health and Education Sectors Annex 5: Outlines of Project Implementation Plan and Primary Health Care Development Program Annex 6: Detailed Cost Tables Annex 7: Summary of Procurement Arrangements Annex 8: Project Monitoring Indicators Annex 9: Documents in Project Files

MAP IBRD No. 28874

This report is based on the findingsof preparationmissions and a pre-appraisalmission which visitedArmenia since July 1995. The core team,Alexandre Marc (Task Manager)and ToomasPalu (Co-TaskManager and HealthSpecialist) were assistedby WorldBank staffwith expertisein areasrelated to the project components, including:Margaret Grosh (PRDPH),Laura Rose (EC4MS),Mary Schmidt(ENVSP), Seema Manghee (EC4MS),Wolfgang Munar (Consultant),Tamara Kanterman(EC4MS). The preparationof the projectwas carriedout by two working groupsat the Ministryof Healthcomposed of representativesfrom various stakeholders,including the Ministriesof Financeand Economy. The projectconcept was discussedin a workshopcomprising representatives from the central,regional and local levels of Government,health care providers,and NGOsactive in the sector. The localpreparation team was assistedby a project preparationunit based in the Ministryof Healthand externalconsultants financed through a PHRDgrant and other Trust Funds. The DepartmentDirector is Basil Kavalsky,the DivisionChief is ThomasBlinkhorn. Peer Reviewersare Chris Lovelace(ECI/2HR); AlexandreAbrantes (LASHD); Logan Brenzel (HDD). REPUBLIC OF ARMENIA

HEALTH FINANCING AND PRIMARY HEALTH CARE

DEVELOPMENT PROJECT

CREDIT AND PROJECT SUMMARY

Borrower Republic of Armenia

Implementing Agency Ministry of Health

Beneficiaries Ministry of Health, communities receiving grants to upgradePHC facilities, primary health care providers, population in the PHC Development Program intervention areas through improved quality of health care. Population at large through improved access to essential health care services

IDA Credit Amount SDR 7.2 million (US$10 million equivalent)

Credit Terms Payable in 35 years with 10 years grace period at standard IDA terms.

Commitment Fee 0.50% on undisbursed credit balances less waiver, beginning 60 days after the date of signing the Credit Agreement.

Environmental Aspects The project has been rated as environmental category C.

Poverty Aspects Limited impact on the poor through improved access to basic health care services and the Basic Benefits Package focus on diseases and health problems affecting the poor.

Staff Appraisal Report 16475 AM

Map IBRD No. 28874

Project ID AM-PA-50 140

REPUBLIC OF ARMENIA

HEALTH FINANCING AND PRIMARY HEALTH CARE DEVELOPMENT PROJECT

STAFF APPRAISAL REPORT

I. ECONOMIC AND SECTOR BACKGROUND

A. RECENr ECONOMICDEVELOPMENTS

1.1 A landlockedcountry covering29,800 squarekilometers and with a populationof 3.75 million, Armeniahas few natural resources. Its people have survivedthrough strong traditionsof education and entrepreneurship.Following the break up of the Soviet Union and independencein 1991,Armenia inheriteda distorted,inefficient economy whichwas badly affectedby the collapse of the central planning system and disruptionof traditionaltrading patterns. Economicand social problems were compoundedby the devastationof the 1988 earthquake,and by the economicsiege resulting from politicalconflicts in Georgiaand the dispute with Azerbaijanover Nagorno-Karabakh. A catastrophicdecline in economicoutput followed,accompanied by hyper-inflationwhich acceleratedto 900% in the last two months of 1993 and continuedthrough the first half of 1994, averagingslightly over 1,500%a year.

1.2 Since 1994 Armeniahas made huge strides in economicreform and establishinga suitable policy framework. The stabilizationprogram, sustainedsince spring 1994, broughtthe budget deficit down to 7 percent of GDP in 1996,less than a sixth of the 1993figure. Annualinflation has fallento less than 10 percent. After a year's collapse,GDP grew by 5.4% in 1994,almost 7 percent in 1995 and 5.8 percent in 1996. At the heart of the Government'sreform programhas been the stimulation of the private sector. Almostall agriculturalland and 60% of enterpriseshave been privatized. Prices have been liberalizedand subsidiesremoved. Clearingtrade arrangementshave been eliminated,and foreign exchangeand trade regimes liberalized. The administrativestructure of the country has changed from the former complexstructure of 37 districts,27 townships,31 settlementsand 479 village councils into a two tier administrationof 11 provinces(marz, with the governorappointed by central government)and 930 communities(hamaink, elected council).1

1.3 Living standardshave fallen sharplydue to the collapsein real wages, compoundedby the removalof subsidieson essentialgoods and drastic cuts in spendingon social services. Despite positivegrowth since 1994 which has alloweda slight recovery,real wages are still about a fifth of what they were in 1992. Althoughcomparable data are not availablefor earlier periods,the 1994- 1995 householdexpenditure survey indicatesthat the fall in living standardsfor many has been accompaniedby increasinginequality in the distributionof income.

1.4 Health expendituredeclined in 1992-94by 35% and educationspending by 39% in real terms. Under the structuraladjustment program, the Governmentis now attemptingto increasesocial sector spending as a percentageof total expenditures. It is clear that only a major restructuringof social sector spendingand in-depthreforms of health, educationand social protectionsystems will result in improved social servicesin the mediumand long term.

I "Republicof Armenia:Municipal Sector Note." Draft sector report, World Bank, EC4MS. - 2 -

B. HEALTHSECTOR

1.5 Before health care reformnbegan in 1995, the system was based on the Soviet Union model. Organization, management and finance were centrally coordinated through the Ministry of Health. Services were delivered through a territorially structured hierarchical network of 182 hospitals (general and specialized) and 1,500 outpatient facilities (health-posts, ambulatories and polyclinics). The Sanitary Epidemiology Stations network concentrated on infectious diseases prevention and surveillance.

1.6 The Armenian health sector is now being reorganized to adjust to the new socio-economic environment and respond to the people's needs. The key challenges facing the health sector are the deteriorating health status of the population and the inability of the hospital oriented and resource constrained system to meet the health needs of the population.

Deteriorating Health

1.7 This is the most critical long term public health issue in Armenia. It is due to: (i) worsening adult health status, reflected in declining adult life expectancy and increasing burden of disease among adult population; (ii) continuing poor maternal and child health (MCH); and, (iii) re- emergence of communicable diseases and diseases related to poor socio-economic conditions.

1.8 Worsening adult health. In the 1950s and 1960s, health status improved steadily. This was supported by the Soviet health system which effectively addressed mortality and morbidity related to infectious diseases. In the 1960s and 1970s, the health status of Armenians compared favorably with other industrialized countries. In the late 1970s and 1980s, it began to deteriorate, particularly compared with continuous improvements in OECD countries. In 1993, life expectancy at age 30 was 41.0 years for men and 46.4 years for women, compared to 43.3 and 49.2 respectively in 1980. Increased cardio-vascular mortality (57% in 1980-93) contributed to the steady rise in overall mortality and lower adult life expectancy.

1.9 In 1995, according to the Burden of Disease study, Armenia lost roughly 400,000 Disability 2 Adjusted Life years (DALYs) due to premature death and disability (Table I .1). Poor health status of adult males is the main finding of the study. Males accounted for 59% of total DALYs lost, 54% of which occurred between the age of 15 and 59 - the productive years of life. The gender gap in health status in Armenia is higher than the average for countries in the former Soviet Union (male/female DALY loss ratios 1.42 and 1.32 respectively).

1.10 Data on behavioral risk factors are scarce. A study conducted by National Institute of Health (1995) revealed that 56.4% of boys and 20.7% of girls from 14-16 years of age smoke.3 The study reported family, peer pressure and schools as factors prompting children to start smoking. No laws currently exist in Armenia to regulate the sale or advertising of tobacco products. Individuals do not appear to take responsibility for their health. This is partly due to lack of information and health education, but also because of long term adverse incentives. Although health care services incur out-

2 DALY (DisabilityAdjusted Life Year) aggregatesyears of life lost due to prematuredeath and years of life lived with disabilityinto a single health statusindicator. The approachwas first used for the World DevelopmentReport in 1993 and is being used to assessburden of ill health on a societyand for cost-benefitand cost-effectivenessanalysis in the health sector. 3 ArmeniaMonthly PublicHealth Report. Vol. 3, No. 5; May, 1995. of-pocket costs to patients, attitudes have not yet changed. Health promotion and disease prevention programs that should be free or impose minimal costs do not exist.

Table 1.1: The top three causes of DALYs lost in Armenia in 19954

Males Females DALYs lost % DALYs lost % Death DALYs CVD 61,868 36% 48,378 43% Cancer 25,434 15% 20,791 18% Accidents 33,125 19% 8003 7% Subtotal 120,427 70% 77,172 68% Disability DALYs Trauma 11,586 21% 6,680 14% Ischaemic heart disease 8,615 16% 7,767 17% Nervous system 6,951 13% 6,724 15% Subtotal 27,152 50% 21,171 46%

1.11 Chronic non-communicable diseases need to be given high priority. The risk factors for cardio-vascular disease, cancer and injury are well known. The prevalence of risk factors needs to be assessed and cost effective health promotion and disease prevention measures introduced to bring about long term improvements in health status.

1.12 Maternal and Child Health. Despite improvements in reducing infant mortality (official indicator was 14.2 per 1,000 births in 1995), Armenia continues to lose DALYs in the early years of life (9% of DALYs are lost in the age group 0-4 compared to 6% in established market economies5). Since the early 1990s, there is evidence of increased premature births and anemia in pregnancy indicating a decline in MCH. Primary health care measures such as family planning, nutritional support and breast-feeding programs are likely to improve the health status of children and mothers. The perinatal period is sensitive to the quality of medical care, and improved clinical practices are likely to lead to reduction of perinatal and maternal mortality. Appropriate equipment and standardization of professional expertise and facilities are required for lasting improvement.

1.13 In relative terns, however, the official MCH indicators compare favorably with other FSU countries. Extensive humanitarian support from international agencies (UNICEF, EU), intemational NGOs and diaspora has helped to prevent major decline in MCH. These programs need to be re- integrated into the national health care system.

1.14 Re-emergence of poverty related diseases. Tuberculosis, water-born infectious diseases, respiratory diseases, vaccine preventable diseases and other poverty related diseases have re-emerged. Economic breakdown, war, the influx of refugees, earthquake and the trade blockade have resulted in a decline of living conditions. Central heating has not been operational for years, water-supply has been intermittent, at best, and electricity has been available for only a few hours a day until last year. Cold weather, poor hygiene and continuous stress contribute to the ill health of society.

"Armenia:Burden of Diseaseand Cost-EffectivenessAnalysis of Basic BenefitsPackage" (consultant report, project files, 1997). S The Global Burdenof Disease;ed. Murray,Lopez; WHO, 1996 - 4 -

1.15 There were 36 cases of epidemic diphtheria reported in 1994 and 29 in 1995. In 1993, there were 338 measles cases reported and 187 cases in 1995. The gap in vaccine coverage is a transitional problem and has been solved through effective cooperation between GoA and UNICEF, USAID, CDC6 and Diaspora organizations.

Inability of Health System to Deal with Health Needs

1.16 The Armenia health care system is inefficient, chronically under funded and provides no equitable access. Structural reform is sorely needed. The GoA needs to improve efficiency of the health care system by focusing scarce public resources on cost-effective public health and medical interventions, improving the balance between the hospital and the primary health care sector and protect access to essential health care for the most vulnerable population.

1.17 Chronic under funding. The health sector became increasingly under funded towards the end of the Soviet era because of declining productivity and a slow down of economic growth. Public sector health care spending represented between 2-3% of GDP during the late 1980s. After the collapse of the Soviet Union, public sector health care expenditures (HCE) fell sharply as a proportion of GDP and as a share of public expenditures. The decline in real expenditures was aggravated by high inflation. In 1997, public spending on health care was estimated at 2% of GDP, 6% of total Govemment expenditure and US$6.75 per capita. This is less than the 1993 WDR7 recommended minimum of US$12 and US$20 for basic health care programs in low and lower-middle income countries. Humanitarian aid from international organizations and diaspora has been vital in the first years of economic collapse. Medicines and supplies provided through humanitarian assistance in 1995 were estimated at about US$4 per capita. This aid, however, is rapidly falling as the country moves from an emergency to a development stage. Low public funding and informal out-of-pocket payments are widespread, raising serious equity issues. The Ministry of Health working group estimates that in 1995 private health spending were in the magnitude of US$60 million, whereas extrapolations using the data collected from the Social Assessment put private spending at about US$40 million (US$16 and US$10.8 per capita respectively). See Table 1.2.

Table 1.2: Health Sector Expenditures in Armenia in 1995 in mil US$8 Sourcesand Uses of health Labor Drugs and Capitaland Othercosts* Total care expenditures cost tests equipmentcosts Government allocation 10.5 9.1 3.1 5.5 28.2 Formalprivate fees 1.0 0.9 -- -- 1.9 Informalprivate fees 37.3 12.8 -- 4.8 54.9 Humanitarianassistance -- 15.0 -- -- 15.0 Total 48.8 37.8 3.1 10.3 100.0 * Other costs includefood, bedding,linen, utilitiesand miscellaneousexpenses.

1.18 Low efficiency of health services. The Armenian system has a hospital and specialist bias, excess facilities and hospital beds, and imbalanced human resources. By design, the Soviet health care system was based on: a territorial principle; strong primary health care system comprising

6 CDC - Centers for DiseaseControl 7 WDR - WorldDevelopment Report 8 Reservationsto all financialdata includesinconsistency and fragmentationof availableinformation, and uncertainbaseline data, such as populationnumber. general physician, pediatrician, and nurse/midwife; and the vertical Sanitary Epidemiology Stations system. Beginning in the 1960s, the principle was distorted because of political motives to pass the West in health sector input indicators. Advances in technology led the system to move rapidly towards a hospital and specialist bias. By 1990, Armenia had created an impressive capacity of 4 physicians, 10 nurses and 9.9 hospital beds per 1,000 population (compare with respective indicators of 2.5, 5 and 8 per 1,000 population in established market economies).9 Their use, however, was not efficient (for example, in 1994, ALOS 10in hospitals was 16 days and the bed occupancy rate only 44%) and health outcomes did not compare favorably with other European countries. Moreover, such a capacity is increasingly difficult to sustain for the Government.

1.19 The capacity of the Primary Health Care (PHC) network to support the delivery of ambulatory health services is weak due to lack of infrastructure, inadequate equipment and shortage of trained staff. In the 1970s, district health officers functions were discontinued and responsibilities for the management of the district health care system was passed to directors of district hospitals. This shift also influenced the allocation of funds: 89% of public funds were spent on hospital care and only 2% on outpatient services in 1993. Outpatient facilities have been starved of funds for maintenance, salaries, equipment and drug supplies, particularly during the recent economic crisis. Agricultural cooperatives that usually supported local health care facilities were dissolved when land was privatized. Currently, communities are not involved in decisions related to health care delivery and quality.

1.20 Primary health care providers have low professional status and only 24% of rural ambulatories are staffed with a physician. Most cases are being referred to specialists or hospitals because of lack of skills, inadequate equipment, supplies and physical environment. Moreover, patients often by-pass this first level of health care: according to the Social Assessment, 36% of patients by-pass the first level and refer themselves to specialist care. During 1980s, dramatic growth of ambulance services occurred to compensate for the lack of effective primary health care services.

1.21 Public health capacity to deal with primary and secondary prevention of chronic non- communicable disease is limited. Sanitary-Epidemiology Stations system has capacity to deal with infectious diseases and sanitary surveillance but has no experience and capacity to implement cost- effective primary and secondary prevention measures for non-communicable diseases. In the difficult first years of transition, some primary health care programs (immunization, maternal and child health programs) were funded and managed by international donors and now need to be re- integrated into the national public health system to ensure their sustainability.

1.22 The GoA needs to take steps to improve the balance between the hospital sector, primary health care and public health services. This requires proactive restructuring policies for the hospital sector, strengthening PHC sector inputs and management, developing institutional capacity for modem public health practice and implementing inter-sectoral public health policies.

1.23 The FSU health financing system provided poor incentives for efficient use of resources and contributed to the build-up of excess capacity. Health care facilities were financed by line-item budgets based on existing capacity of beds and health personnel. With chronic public under-funding

9 Source:"Sector StrategyPaper for Healthand Nutritionand PopulationSector" (a WorldBank report, draft, 1997). 10 ALOS -average lengthof stay. - 6 -

and widespread informal payments, health care facilities have diversified their sources of revenues. The system is not transparent, however. Private payments do not contribute to maintenance, and there is no accountability in the use of private funds.

1.24 Low quality and inequitable access to health services. Despite seemingly good coverage, access to health services is worsening. Since 1985, statistics show considerable decline in health services use. The Social Assessment revealed that the main factors for declining access are high out-of-pocket costs (fees to health personnel, pharmaceuticals and other disposables) and a perceived decline in quality (lack of heating and electricity, poor sanitary conditions of facilities). In 1995-96, the median out-of-pocket cost was US$8 and US$77 for outpatient visit and hospital stay respectively. The Social Assessment also showed lower access to health services for the rural population, as shown by higher rates of non-diagnosed health problems and fewer visits to qualified health care providers. The rural population also had less access to medicines and higher overall access costs because of transportation difficulties.

1.25 The burden of private spending falls on the sick who are more likely to be in the low income category. The main source of private funding (43.5%) has been sale of assets, such as property, livestock and jewelry. Due to difficult economic conditions, social solidarity has eroded. Both the Qualitative Poverty Assessment and the Social Assessment have revealed that transfers and support tends to be limited to the extended family. There are no private risk-pooling arrangements and no formal insurance schemes. The consequences of a catastrophic acute or chronic illness can be devastating for a household.

1.26 The Poverty Assessment shows high levels of poverty (28% of the population in 1995). Targeting, however, has proved to be difficult because of the importance of informal revenues in the economy and lack of correlation between poverty and traditional socio-economic categories. The Social Assessment also showed that in the health sector, there appears to be some discretion among doctors as to how much to charge informally for health services. Rural physicians would accept payment in kind; however, in towns, cash payments prevail and constitute a serious barrier to patients' access to health care. Costs related to medical supplies and pharmaceuticals are less flexible than health personnel charges because most pharmacies have been privatized. These factors will make protecting access of the poor to health services difficult.

C. HEALTH CARE REFORM STRATEGY

Concept of reform

1.27 The Government's health care reform strategy is laid out in the 1995 Minister of Health's "Program on Development and Reforms of the Health Care System of the Republic of Armenia, 1996-2000." The 1996 "Law on Medical Aid and Services to the Population" provides the legal framework for implementation of the strategy. The reform plan includes health financing restructuring; reorientation of the health system towards primary health care; improving and updating medical education; introduction of licensing of professionals; giving management of health care facilities to autonomous state enterprises and decentralizing responsibilities for health care system administration to regions and local authorities; privatizing some health care institutions; and improving health care management information systems. - 7 -

1.28 The Armenia Primary Health Care (PHC) strategy" establishes PHC as outpatient health care services, integrating "traditional" primary health care (e.g. immunization), primary and secondary prevention of non-communicable diseases (health education and screening), and personal curative health care services aimed at responding to common health problems and providing alternatives to hospital care. PHC services will be provided by a PHC team that will include a family doctor, pediatrician, general practice nurse and midwife. In the longer term, a social worker and dentist may be added. Patients and families can choose their provider. The team will act as a gatekeeper to specialized health care services. The PHC facilities will be transferred to local authority ownership but PHC could also be provided on a private basis. The state mandate to provide basic health care services will be funded through risk-adjusted capitation payments by the State Health Agency. Vertical PHC programs will be integrated into a Basic Benefits Package (BBP)12 but some sanitary-epidemiology programs will remain vertical. The strategy foresees a gradual implementation of reform. This will include developing the appropriate regulatory framework, training and re-training of PHC providers, practice guidelines development and investment into rehabilitation of PHC facilities and equipment. In fact, the reform builds on the original Soviet health system principles, but does correct the distortions, integrates it with modem financing incentives and management techniques, and introduces choice of provider.

1.29 The core elements of the health financing reform strategy13 are the separation of health care provision and financing. These provide autonomous "state enterprise" status to health facilities, introducing appropriate financing incentives for efficiency, limiting state responsibility for financing the Basic Benefits Package and protecting access to all services for vulnerable groups and improving the financial or management information system. The State Health Agency will be created to purchase services included in the BBP. In the short and medium tern, the Government will continue to finance public health services from the general budget. During implementation of reformns,the GoA intends to develop institutional capacity, change health care providers' financial reporting standards, improve the sustainability and cost-effectiveness of the BBP and regulate and make transparent private infornal payments for health care services.

Status of reforms

1.30 Since December 1996, most state and regional hospitals have obtained state enterprise status. By the end of 1997, all health care providers, except for a few public health institutions, should have the same status. The Government is introducing a program based financing system which is based on volume of services for hospitals and per capita financing of primary health care services. The GoA is increasing the relative share of public sector health care expenditure for public health care programs and outpatient health care services: an increase from 24% of public sector health care spending in 1996 to 29% in 1997. The GoA has privatized most pharmaceutical retailers and wholesalers, dentistry offices and a sophisticated outpatient Diagnostic Center. The Diagnostic Center has a positive, transparent management and financing system. In 1997, the GoA will privatize six tertiary care hospitals in the capital city (1,520 beds in total) with no loss in public sector provision of essential services. It has also passed a law regulating the licensing of health providers and has set up a computerized licensing center at the MoH. l'I "Primary HealthCare ReformStrategy," GoA document (Annex2). 12 BBP - BasicBenefits Package - publiclyfunded public healthand medicalinterventions universally accessibleto all. 13 "Statementof HealthCare FinancingReform Strategy," GoA document(Annex 3). - 8 -

1.31 The health sector is complex and many issues are intertwined. The GoA recognizes the need to develop and consolidate health related legislation, modernize functions and management of the Ministry of Health, modernize public health services to address the increasing burden of non- communicable diseases (such as cardio-vascular diseases, cancer and injury), review Government policy on training medical professionals, rationalize excess hospital capacity, improve health sector managerial capacity and develop a national drug policy. Interventions need to be prioritized and backed with resources and technical expertise due to limited capacity. In the short and medium term, the GoA will implement primary health care and health financing reform with the support of the proposed World Bank credit; develop a national drug policy with support from WHO/EURO; improve health policy planning capacity at the MoH and regional level, provide training for health care managers with the assistance of EU/TACIS; and continue to support MCH programs with the support of UNICEF. In addition, many national and international NGOs active in the health sector are reorienting their activities from emergency towards developmental assistance.

D. RATIONALE FOR BANK INVOLVEMENT

1.32 Stabilization of Armenia's economy and political environment has reduced the need for international emergency assistance and increased the need for developmental support. The World Bank has been engaged in a policy dialogue with the GoA since 1995 and has supported policy development with technical assistance from both PHRD and Dutch Government grants. The current project is consistent with the World Bank strategies in Arnenia and the health sector.

1.33 Linkage with economic and sector work. Relevant economic and sector work (ESW) for the social sectors have been completed, including a Poverty Assessment, Public Expenditure Review (PER) and the Social Assessment Report on Health and Education.14 Much health sector work was done in the project preparation phase. 15 In addition, Bankwide sector work was used for project rationale.'6 The findings and conclusions of the ESW have been used in the policy dialogue with Government on health care reform strategy and on the design of the proposed project. Relevant documents are included in the project file (see Annex 9).

1.34 The Poverty Assessment stresses the importance of improving health and education as a way to reduce poverty. Ensuring access to basic education and health services for poor households is essential to an equitable distribution of the benefits of growth. Such access will also play a crucial role in preventing transitional poverty from becoming structural. At the same time, Armenia's highly inefficient health and education systems need to be reformed to reverse the trend of declining school enrollments and deteriorating quality and standards in both health and education sector.

14 "Armenia:Confronting Poverty Issues" (World Bank, 15693-AM,1996); "Public Expendituresin Armenia:Strategic Spending for Creditworthinessand Growth(World Bank report,draft, 1997);"Social Assessment Report on Health and Education Sectors in Armenia" (consultant report, project files, 1996). "Health Financing Reform in Armenia: final report of technical assistance provided to the Ministry of Health" (consultant report, project files, 1996); "Armnenia:Primary Health Care reform" (consultant report, project files, 1996); "Armenia: Burden of Disease and Cost-Effectiveness Analysis of Basic Benefits Package" (consultant report, project files, 1997). 16 "Health Sector Assistance Strategy for ECA Region" (a World Bank ECA regional report, draft, 1997) and "Sector Strategy Paper for Health and Nutrition and Population Sector" (a World Bank report, draft, 1997). 1.35 The PER states that investingin basic educationand health should be the Armenian Government's highest priority. Armenia has relatively littleagricultural or mineral resourcesto boost its growth and its greatestasset remains the people. Armeniansare highly educated, hard working and entrepreneurial. Preservingand enhancingthis human capital is a highly efficient way to ensure sustainedeconomic growth along with expandingjob opportunitiesand poverty alleviation.

1.36 The Health Sector AssistanceStrategy for ECA countries establishesthe following prioritiesfor World Bank assistance:to develop institutions,functions and structuresthat promote medium-termgoals of improvinggovernance and performancein the health sector; support country efforts to improve the allocationof resourcesin health sector; improveappropriateness of clinical interventionand increasetheir cost-effectivenessand technicalproficiency; assist ECA countriesto design health financingand health deliverysystem reforms;and respondto special health needs and health crises.

1.37 Linkageto CountryAssistance Strategy. The World Bank strategy in Armenia is described in the limitedcountry assistance strategy(CAS), as discussedby the Board of Directors during the presentationof the RehabilitationCredit on February28, 1995,and the revised CAS, that will be presentedto the Boardof Directors in summer 1997. The Armenia CAS focuses on private sector developmentand on supportingsocial sustainabilityand alleviationof poverty. The latter should be accomplished through the strengthening of the social safety net and through improvements in the quality of, and access to, basic health and education. In the health sector this translates into ensuring minimum public spending on health and diversification/legitimization of other sources of funding; improving efficiency of the health system; and improving access for the poor.

1.38 International Co-ordination. The CAS stresses the important role the World Bank can play in coordinating interventions of other donors and act as a catalyst in attracting other sources. This project has been prepared in close cooperation with the UNICEF, EU/TACIS and WHO/EURO. UNICEF has a significant field presence, and EU/TACIS has a ECU I million TA project in the pipeline. UNICEF and TACIS representatives have joined World Bank missions on five occasions to coordinate developmental assistance. UNICEF will participate in development and implementation of this proposed IDA supported project which is expected to integrate UNICEF programs in the long term. WHO/EURO will be supporting the development of the National Drug Policy. The MoH has established a staff position to coordinate both humanitarian and developmental support. The incumbent will be an ex officio member of the project coordination committee.

II. PROJECT DESCRIPTION

A. OBJECTIVES

2.1 The project will support the implementation of the Government of Armenia health financing and primary health care reform. The project objectives are to: (i) improve quality and efficiency of primary health care through training and retraining of primary health care staff, introduction of practice guidelines and improving the infrastructure and equipment in selected PHC facilities; (ii) improve efficiency, transparency and targeting of public health spending by introducing basic benefits package, performance based provider payment methods and modern financial management; and, (iii) mobilize communities to take an active role in defining local health care priorities and sustaining basic health care services. - 10-

B. PROJECT DESCRIPTION

2.2 The project will be implemented over four years by the Ministry of Health, the State Health Agency, the National Institute of Health, the State Medical University, Medical College as well as elected regional health authorities and communities. The Ministry of Health will supervise and a Project Management Unit will be created to manage the project. Total project costs are approximately US$12.1 million and an IDA credit in the amount of US$10 million is proposed.

2.3 The project comprises: I. Strengthening Primary Health Care System through a. Primary Health Care Providers Training Program b. Primary Health Care Development Program c. Development of Primary Health Care Guidelines.

2. Strengthening the Armenia Health Financing System through a. Establishment of the State Health Agency b. Improvement of Basic Benefits Package c. Improvement of Provider Payment Methodology d. Improvement of Management Information Systems.

3. Project Management.

C. PROJECT COMPONENT 1: STRENGTHENINGPRIMARY HEALTH CARE (US$6.1 MILLION BASE COST) 2.4 This component supports the implementation of the PHC strategy. PHC implies outpatient health care services and integrates "traditional" primary health care (e.g. immunization), primary and secondary prevention of non-communicable diseases (health education and screening) and personal curative health care services aimed at responding to common health problems and providing alternatives to hospital care. The aim is to develop an enabling environment for the improvement of the quality of and accessibility to PHC services in Armenia The component will support the GoA to develop training and re-training capacity of PHC providers, selected communities to rehabilitate and equip PHC facilities and train their staff, and the development of PHC practice guidelines.

Sub-component 1.1 Primary Health Care Providers Training Program (US$2.2 million base cost)

2.5 Under the PHC strategy, primary health care level providers will be converted into general or family medicine practitioners able to offer comprehensive preventive and curative services in outpatient setting. They will be supported by qualified middle level personnel and have more independence in decision making. The strategy calls for substantial investment in training and retraining of primary health care personnel and standardization of responsibilities. This sub- component of the project will support training and retraining of primary health care providers at the National Institute of Health, State Medical University and Medical College. A PHC Training Coordination Committee, comprising representatives of the training institutions, the Ministry of Health and medical profession, has been established to co-ordinate training activities. Assu es were obtained during negotiations that the Government shall maintain a PHC Training Coordination Committee. [para. 6. 1g. - I1 -

2.6 The National Institute of Health will organize re-training of all four categories of existing primary health care providers: district therapists, district pediatricians, nurses and midwives. The project builds on the NIH experience in post-graduate and continuous education of health professionals in Armenia. The NIH will provide academic training in the Chair of Family Medicine/General Practice, as well as practical training in affiliated FM/GP practices. It is expected that the first trainees will be admitted in the Fall of 1998. According to Government strategy, all PHC providers will be re-qualified over 10 years. During the life of the project, the NIH will re-train 700 providers or about 15% of the planned supply of PHC providers. The NIH will also prepare a program of continuous education in family medicine for those retrained or those who have undergone formal post-graduate training in family medicine and have been certified as PHC providers. The continuous training programs will begin in the year 2000.

2.7 The State Medical University has a long tradition and high reputation in undergraduate and residency training of physicians. It will now establish a Department of Family Medicine/General Practice, which will design a curriculum in family medicine for undergraduate and postgraduate medical students and will run residency programs in Family Medicine/General Practice. The long- term goal is for the SMU to become the main supplier of family practitioners in the country. The teaching of family medicine in under- and post-graduate programs is planned to begin in the fall of 1998 and will train 60 new family practitioners by the end of the project.

2.8 The Medical College is the leading undergraduate training institution of nurses and midwives in Armenia. It will introduce changes in the training curricula for nurses and midwives according to the reform requirements of PHC system.

2.9 The project will finance renovation and equipment for training, technical assistance for curriculum development, fellowships, short-term external training and workshops for training trainers. Assurances were obtained during negotiations that the Government shall ensure that the training facilities (including hostels) to be rehabilitated under the Prroject.shall at all times. be available to accommodate students enrolled in the PHC training and pro grams at the NIH SMU and Medical College. [para. 6. .c]

Sub-component 1.2 Primary Health Care Development Program (US$3.5 million base cost)

2.10 This proposed sub-component builds on the successful experience of the Armenia Social Investment Fund (ASIF) in engaging communities and local governments in addressing local priorities and implementing small-scale infrastructure rehabilitation projects. The main objective is to improve the quality of PHC services in localities by involving communities in the management and financing, providing incentives to staff to improve services, rehabilitating infrastructure and providing equipment and training. The selection of teams and facilities will be based on eligibility criteria laid out in the Operational Manual of the Primary Health Care Development Program (PHCDP). The Operational Manual also defines the eligible expenditure categories for PHCDP grants, and describes procedures for promotion, identification, formulation, pre-appraisal, appraisal, implementation, and monitoring. It is estimated that this pilot project will cover 70 facilities, which is about 5% of all facilities in Armenia. It will help with the implementation of the health care reformn by showing improvement of quality and access to health care services at the local level in the communities. - 12 -

2.11 The program will be managed by a PHCDP unit under the PMU and work in close collaboration with regional health departments and local governments. The program will be demand- driven. The unit staff will promote Facility Management Boards and invite and support them to submit proposals for grants, according to pre-set guidelines. Local governments and beneficiaries are required to contribute an average of 10% of project costs. After pre-appraisal, the program will provide technical assistance to selected facilities for a business plan. The plan will describe changes the management board will implement and state its strategies for collection of user fees, improvements in quality of services, and the creation of health development plan. The plan will also include indicators and benchmarks to monitor improvements in services. The appraisal will review the quality of the PHC team, commitment of both local government and communities to support the facility and feasibility of the plan. Micro-project plans that meet appraisal criteria will be approved by the program committee.

2.12 PHCDP and the Facility Management Board will sign a performance contract which will specify certain performance benchmarks. Facilities that meet the proposed benchmarks will be eligible for a second-tranche financing to support some recurrent cost (up to 5% of the total cost of the civil works).

2.13 Civil works will be evaluated and supervised by ASIF engineers. They will work under a cooperative agreement with the Health PMU. Program activities will be supervised by a committee which will include Ministry of Health representatives and NGOs active in health care. PHCDP unit staff, with support from regional health departments, will supervise the micro-projects.

2.14 The project will finance civil works, medical equipment and furniture, pharmaceutical supplies, training for health providers, information campaign, transportation of equipment and supplies to facilities.

Sub-component1.3 PrimaryHealth Care GuidelinesDevelopment (US$0.4 millionbase cost) 2.15 Practice guidelines are important to ensure quality and efficiency of medical practice and to estimate the cost of services to ensure adequate reimbursement. Armenia has been using protocols and reference books for inpatient care. None have been used for outpatient care except some initiatives for maternal and child health care supported by UNICEF. The objective of this component is to prepare guidelines for PHC.

2.16 The project will help establish of a working group on PHC guidelines at the National Institute of Health. It will develop guidelines for preventive health care, including: (i) screening and diagnostic procedures; (ii) medical case management; (iii) practice management including financial and patient administration and responsibilities within the PHC team; and, (iv) reporting to national and sub-national health authorities. In the short and medium term, PHC guidelines will be established by: district therapist, pediatricians, and medical specialists. They will take account of other country experiences through specialized literature, technical assistance and study tours. The long-term goal is for newly trained family practitioners to gradually take over the preparation and adoption of guidelines. The project will also support dissemination of guidelines among health professionals through publications and workshops for health professionals.

2.17 The project will finance refurbishment of office space for the working group, office equipment, study tours, foreign/local TA, and costs of printing and dissemination of guidelines. - 13 -

D. PROJECTCOMPONENT 2: STRENGTHENINGHEALTH FINANCINGSYSTEM (US$3.6 MILLIONBASE COST) 2.18 Armenia health financing reform aims to shift from input based financing toward targeted and performance-based payment to health care providers. This would include: (i) separation of health care provision from health care financing, resulting in transparency in the purchaser-provider relationship for publicly funded services; (ii) clarification of the Government's responsibilities for funding health care provision by designing a cost effective basic benefits package (BBP) and introducing a way to continuously improve the BBP; (iii) improving the methodology for paying health care providers and introducing incentives for efficient provision of services and monitoring of providers performance; and, (iv) streamlining the ways to allocate, implement, control and monitor the health financial system by establishing a Health Management Information System.

2.19 The health financing component will support the design and establishment of a State Health Agency and Health Management Information System, and development of the basic health benefits package and provider payment methodology.

Sub-component 2.1 Establishing a State Health Agency (US$2.1 million base cost) 2.20 The State Health Agency's main function will be management of public funds to pay Armenia health care providers for services provided under the BBP. The functions of the SHA include allocating resources among regions, developing pricing and provider payment methodology, implementing a performance based contracting system between the health care purchasers and providers, auditing health care providers and analysis of financial data. New financing methods are expected to increase the cost-effectiveness of public health spending through financial incentives and control of the volume and quality of care provided. The agency will also relieve the MoH of routine management of the health care system. The MoH can then focus on strategic health policy issues, regulate the system, prepare legislation, monitor and carry out quality assurance, licensing and accreditation. The EU/TACIS health project is expected to provide technical assistance to the Government in policy planning and management.

2.21 The SHA will be a quasi-autonomous public body, with a 12 member Board, central office and regional branch offices. There will be two permanent representatives from: the Ministries of Health, Finance, Economy, Social Affairs and Yerevan Municipality. Two representatives from the regions will rotate annually. It will employ 135 people, 50% of whom will be transferred from central health agencies and others from various institutions and hospitals. The size of the civil service will not increase. A working group will be created on July 1, 1997 to prepare the by-laws for the agency, which will be established by a Government decree by January 1998. The agency will renovate office space, establish the Health Management Information System (HMIS), develop administrative procedures, train staff and implement pilots to test new payment methodologies and procedures during 1998. As of January 1, 1999, the SHA will carry out all functions defined in its charter.

2.22 The project will finance renovation of the agency's building and branch offices; office equipment and furniture; computer hard and software for the Health Management Information System, vehicles, foreign and local technical assistance; fellowships in health economics, financing, organization and management; and short term study tours for agency staff to exchange experiences with institutions in other countries. Workshops will be held in regions with representatives from health care facilities on the agency's operational principles, health economics, financing, computer skills and financial reporting. - 14 -

Assurances were obtained during negotiations that the Government will establish. not later than January 1. 1998, a State Health Agenec (SHA) in accordance with the institutional plan and terms Qf reference acceptable to the IDA,.[para. 6.1. d

Allocation of suitable office space for the State Health Agency will be a condition of effectiveness.

Sub-component 2.2 hnprovement of Basic Benefits Package Methodology (US$0.4 million base cost) 2.23 The objective is to develop and introduce technically and financially sound criteria for the BBP. It will include cost-effective interventions to address pressing health care problems. The package will reflect state-of-the -art international knowledge as well as specific Armenian conditions. A working group, set-up in the MoH will define priorities for public funding based on burden of disease, cost-effectiveness of interventions, social significance of certain health problems and private affordability. The working group will identify components of the package and its cost. This sub- component complements PHC Guidelines Development sub-component which has professional and clinical practice focus. The activities will be institutionalized and continued beyond the end of the project as core activities of the MoH.

2.24 The project will finance minor refurbishment of an office for the Working Group, office equipment, computer hard and software, foreign and local technical assistance, a long-term fellowship in epidemiology and short-term study tours to study comparable experience in developed countries. Annual workshops will be held for health care providers for information dissemination and feedback. During the negotiations. assurances were obtained from the Government for submission on November I each year during the life of the proiect for the IDA 's review Qf the BBP to be included into the state budget for the next fiscal year. and-for incorporation and implementation in a timely manner the IDA 's comments. [para. 6.l ii

Sub-component 2.3 Improvement of Provider Payment Methodology (US$0.4 million base cost)

2.25 Here, the aim is to develop, test and introduce ways to continuously improve providers' payment for different levels of health care. A working group will develop and implement methodology for cost-accounting and pricing; design a standard format for contracts between agency and providers, develop performance monitoring capacity; and a strategy and implementation plan for legalizing and regulating private payments to health care providers. The methodology will be tested in individual health care institutions and regions before full scale implementation in 1999.

2.26 The project will finance foreign and local technical assistance, fellowships in health economics, two agency staff, short-term overseas training, local training in health financing and cost formulation for medical services and contracts. The working group will be based in the SHA and use its facilities and computers. During the negotiations. assurances were obtained from the Government for establishing and maintaining a working group which will be responsible for designing and implementing methodology for cost-accounting. price calculation. contracts between SHA and health services groviders. strategy for legalizing under-the-table payments to health care providers. The working group will be set-up first in the Ministr of Health and transfer to the State Health Agency once the Agency is officially created fpara, 6.1./i - 15 -

Sub-component 2.4 Financial Information Systems (US$0.7 million base cost) 2.27 This is closely related to the State Health Agency sub-component. The aim is to improve efficiency of health financing management. This includes the design of new medical and financial reporting forms, automation of data collection and analysis, and automation of agency payments to providers and accounting.

2.28 The project will finance computer software and hardware, software development, foreign and local technical assistance in information systems design, management and health financing, a fellowship to study health care information systems, short term study tours to other countries and local training in computer operation skills.

E. PROJECT COMPONENT 3: PROJECT MANAGEMENT (US$1.0 MILLION BASE COST) 2.29 This will support management and implementation of the project, in particular the Project Management Unit in the Ministry of Health (see Section IV).

2.30 The project will finance salaries of the PMU staff, consultant services, technical assistance and training in project management and procurement, office equipment and public information and consultation.

III. PROJECT COSTS AND FINANCING, PROCUREMENT, DISBURSEMENTS

A. COST ESTIMATES

3.1 Total costs, including contingencies are estimated at US$12.14 million (Table 3.1).

Table 3.1: Summary of project cost estimates by component

Drahms US$ % % (Billion) (Million) For. Base Components Local Foreign Total Local Foreign Total Exc. Costs 1. Strengthening Primary Health Care System 1.80 1.01 2.81 3.83 2.25 6.10 37% 57% 2. Strengthening Health Financing System 0.58 1.10 1.68 1.23 2.33 3.57 65% 33% 3. Project Management 0.34 0.14 0.49 0.73 0.31 1.03 30% 10% Total Baseline Costs 2.72 2.30 5.02 5.79 4.89 10.70 46% 100% Physical Contingencies 0.10 - 0.10 0.23 - 0.23 - 2% Price Contingencies 0.61 0.17 0.78 1.04 0.20 1.24 16% 12% Total Project Costs 3.44 2.47 5.91 7.05 5.09 12.14 42% 114%

3.2 Estimates are based on 1997 prices, with contingencies of 10% applied to base costs of civil works. Price contingencies for local costs are based on estimated inflation of: 7.9% for 1997, 8.5% for 1998, 7.0% for 1999, and 6.2% for 2000 and 2001. Estimated total foreign cost is US$5.1 million or 45% of baseline costs. Recurrent costs amount to US$2.2 million over five years. - 16-

B. PROJECTFINANCING

3.3 The proposed credit of US$ 10 million would finance approximately 83% of the estimated total project cost - 99% of foreign and 79% of local costs. Counterpart financing is US$1.9 million or 16% of total costs consisting of US$1.5 million from the government and of US$0.4 million of community contributions under the PHC Development Program. Taxes and duties are estimated at US$0.7 million and will be covered entirely by the Government and community contributions. The UNDP will provide grant financing for information and communication with US$0.15 million or 1.4% of project cost. The financing plan is presented in Table 3.2.

3.4 The Government counterpart financing will be met in both cash and kind by the Ministry of Health, Ministry of Finance and Economy and communities participating in the PHC Development Program. In kind contribution will be staff time and facilities for the State Health Agency allocated by the MoH. Cash estimated at US$ 80,000 per semester will be disbursed by the MoFE every six months to the Project Account administered by the Project Management Unit. Community contributions of US$0.4 million will be in cash and in kind, estimated at about 10- 15% of PHC Development Program micro-project cost. The cash contributions will be deposited in the community contribution account. Opening the Project Account and an initial deposit of equivalent to US$80.000 to this account by the Government are conditions for efectiveness. [para. 6.2.bh

Table 3.2: Project Financing Plan (US$ Million) Local Foreign Total IDA 5.0 5.0 10.0 Government of Armenia 1.5 - 1.5 Community contribution 0.4 - 0.4 Other Donors 0.1 0.1 0.2 Total 7.0 5.1 12.1

C. PROCUREMENT

Procurement Arrangements

3.5 All procurement will follow World Bank procurement guidelines. Procurement of goods financed with the proposed IDA credit would be carried out in accordance with the World Bank guidelines "Procurement under IBRD Loans and IDA Credits, " dated January 1995, revised in January 1996 and August 1996. Consulting services would be procured in accordance with the World Bank guidelines "Selection and Employment of Consultants by World Bank-Borrowers, " dated January 1997. Standard Bank Documents will be used for international competitive bidding (ICB) and consultant selection. For national competitive bidding (NCB), bidding documents based on the Bank's standard bidding documents, amended as necessary to local conditions and approved by IDA, will be used. The Country Procurement Assessment Review for Armenia is under preparation and is likely to be finalized in summer 1997. Procurement under World Bank and IDA projects in Armenia has generally been satisfactory. A General Procurement notice will be published in Development Business in August 1997. - 17-

Civil Works

3.6 The project will finance civil works estimated at US$2.9 million with an IDA contribution of US$2.3 million. Office rehabilitation for the State Health Agency, NIH, SMU, Medical College and PMU is estimated at US$565,000. The amount of civil works under the PHC Development Program is assessed at US$2.3 million and will cover the rehabilitation of about 70 facilities for an average cost estimated at US$25,000. The maximum contract amount will be US$250,000. All civil works will be procured locally. Contracts below US$250,000 will be procured through a process of National Competitive Bidding. Sample tender and contract documents in accordance with IDA policies have been developed based on the "Bidding Documents for Procurement of Works (National Competitive Bidding) " developed by the Europe and Central Asia Region and dated August 1995. Contracts below US$30,000 and with a maximum total amount of US$300,000 could be awarded on the basis of three written quotations from contractors according to National Shopping procedures.

3.7 The responsibility for overseeing the procurement and monitoring of civil works for facilities rehabilitated under the PHCDP will be with the Armenia Social Investment Fund (ASIF) for at least the first year of the project. ASIF has experience and expertise to manage small scale rehabilitation projects with community participation. ASIF will act as a procurement agent for the PMU for civil works procurement. A cooperative agreement between the PMU and the ASIF will define the responsibilities of each agency for the management of civil works. The signing of an agreement between Ministr of Health and ASIF for overseeing procurement of civil works under the Primarv Health Care DeveloDment Program is a condition of ffectiveness. [ara 6.2.c

Goods

3.8 The project will finance goods and services for an estimated US$2.8 million. The project will procure office equipment and furniture, computer systems, training equipment, medical equipment and furniture for primary health care providers and vehicles.

3.9 Computers and office equipment will be bundled into procurement packages of estimated cost of US$0.2 million or more and will be procured according to International Competitive Bidding guidelines. Office and training equipment for contracts less than US$200,000 will be procured using International Shopping (IS) procedures. The number of vehicles procured under the project is small and they will be bundled into a procurement package with an estimated cost of equivalent or less of US$200,000 and also procured using International Shopping procedures. The maximum aggregate amount of goods procured under IS procedures will be US$550,000.

3.10 Office and training facilities' furniture, for a maximum aggregate amount of US$300,000 and a contract value less than US$ 100,000 will be procured locally using National Competitive Bidding (NCB) procedures. Small furniture and small supplies, for a maximum aggregate amount of US$250,000 and a contract value of less than US$25,000 per contract will be procured locally using National Shopping (NS) procedures. The project will finance printing and dissemination of practice guidelines. Printing of guidelines, estimated at US$150,000 base cost and less than US$50,000 per contract, will be procured using NCB procedures. - 18 -

3.11 Medical equipment kits for the PHC Development program estimated at US$600,000 total and initial stock of drugs for the PHC Development program estimated at US$75,000 will be procured from UNICEF.

3.12 Contracts for using TV and radio time for the public information program, estimated to cost $50,000 in the aggregate, will be procured using the Direct Contracting procedures, because the services are obtainable from only one source.

Technical Assistance. Training, Workshops

3.13 The project will finance technical assistance for an estimated US$2.3 million which will be procured according to the World Bank guidelines. Technical assistance will be procured in the areas of health financing, public health and health economics, information systems, primary health care curriculum and guidelines development. Consultant services for an estimated amount of US$1.7 million shall be procured under contracts awarded under Quality and Cost Based Selection methods (QCBS) in accordance with Section II of the World Bank Consultant Guidelines. Consultants' services for a total amount of US$700,000 shall be procured under contracts awarded to individual consultants in accordance with Section V of the World Bank Consultant Guidelines from January 1997. The contracts awarded to the individual consultants are justified by the very specialized nature of the consulting services required for the project in areas such as definition of protocols, BBP methodology and health care management information systems and which require very specific technical expertise. Most of these contracts will be short term. The Ministry of Health will establish a consultant selection committee and contracts will be awarded based on the review of at least three candidates. The committee meetings will have detailed minutes justifying the selection of consultants. The quarterly report will have a section providing information about procurement of consultants and a consultant procurement plan for the next three months. Capacity will be built in the PMU in order to handle individual contracts for foreign and local consultants. The supervision of civil works under the PHCDP, for maximum amount of US$90,000 will be sole-sourced to ASIF as the only organization in Armenia with experience in managing minor civil works with community participation.

3.14 Fellowships and organization of study tours estimated at US$ 1.0 million will be financed for students satisfying selection criteria and commitment in returning to certain positions in Armnenia. The consultant selection committee will review the candidates for fellowships and study tours and ensure that the candidates' choice is relevant to the project objectives and activities. Fellowships and study tours will be procured from firms, universities and other training institutions based on Quality Based Selection (QBS) procedures as described in paragraphs 3.1 and 3.7 of the Consultant Guidelines. Other expenditures related to students' travel and organization of workshops will be procured on the basis of administrative procedures based on schedule and budget acceptable to the IDA.

Miscellaneous Expenditures

3.15 The project would also finance incremental costs incurred by the PMU and project staff. These expenditures will cover: (a) maintenance and operation of equipment procured under the project; (b) salaries of PMU staff, per diems paid to Project staff for field trips and transportation allowances to working groups when working overtime; (c) consumable office supplies; and (d) office maintenance, utilities and telecommunications pertaining to the project. PMU staff will be recruited on fixed term contract through a competitive mechanism acceptable to IDA. Items under recurrent - 19 -

expenditures will be procured on the basis of administrative procedures based on schedule and budget acceptable to the IDA.

Table 3.3: Project Costs by Expenditure Category

Expenditure Category Procurement Method Total Cost (US$ million equivalent) [CB NCB Other a/ N.B.F. (incl. contingencies) b/

1. Civil Works 1.1 Office Rehabilitation and PHC 2.6 0.3 2.9 Infrastructure Rehabilitation (2.1) (0.2) (2.3) 2. Goods 2.1 Computer systems, office 0.8 0.3 1.1 equipment (0.8) (0.3) (1.1) 2.2 Furniture 0.3 0.1 0.4 (0.2) (0.1) (0.3) 2.3 Vehicles 0.2 0.2 (0.2) (0.2) 2.4 Medical equipment 0.6 0.6 (0.6) (0.6) 2.5 Pharmaceuticals and supplies 0.1 0.1 (0.1) (0.1) 2.6 Printing of PHC Guidelines 0.1 0.1 (0.1) (0.1) 2.7 Small supplies 0.2 0.2 (0.2) (0.2) 2.8 Information and consultation 0.1 0.2 0.3 activities (0.1) (0. 1) 3. Technical Assistance and Training 3.1 Technical Assistance 2.5 2.5 (2.5) (2.5) 3.2 Fellowships and Study Tours 1.0 1.0 (1.0) (1.0) 4. Miscellaneous 4.1 Operating costs 2.7 2.7 (1.5) (1.5) Total 0.8 3.0 8.1 0.2 12.1 (0.8) (2.4) (6.8) (10.0) a/"other" means: Civil Works refersto NationalShopping; Computer, Equipment and Vehiclesrefers to IntemationalShopping; Fumitureand Smallsupplies refer to NationalShopping; Medical Equipment and Pharmaceuticalsrefers to procurementfrom UNICEF; TechnicalAssistance refers to QCBS 1.7(1.7), to individualconsultants for 0.7 (0.7),and sole sourcing 0.1(0.1); Trainingrefers to fellowshipsand study tours for candidatesselected through proceduresand conditionsacceptable to IDA and procuredunder QBS proceduresfor 1.0(1.0); Informationand consultationactivities refers to DirectContracting; Operatingcosts financedfrom the IDA credit refer to PMUoperating costs, travel expensesand subsistencefor studytour participants,per diemsfor studentsunder local trainingand recurrentexpenditures for workshopsfor 0.8 (0.8);b/ "N.B.F.refers to the UNDPfinancing.

Prior Review

3.16 All procurement packages and contracts under ICB and the first contracts under NCB for goods and works respectively will be subject to prior review by the IDA. For consulting services, prior review is required for all contracts with individuals exceeding $50,000, all contracts with consulting firms exceeding US$100,000, and terms of reference for all contracts irrespective of the contract value. All fellowships and study tours procured outside consulting services will be subject to prior review. Other procurement will be subject to the IDA ex-post review during supervision of the project in accordance with the procurement guidelines. - 20 -

Financing by Other Donors 3.17 UNDP funding of US$150,000 will support an information campaign to solicit public support and feedback during the implementation phase.

D. DISBURSEMENT 3.18 All disbursements would be against standard documentation as described in the Bank's Disbursement Handbook.

Table 3.4: Allocation of Credit Proceeds by Disbursement Category

Expenditure Category Amount in US$ million Financing Percentage I. Civil Works 1.8 80% of total expenditures 2. Goods 2.5 100% of foreign expenditures 100% of local expenditure (ex factory) 80% of other items procured locally 3. Technical assistance, 3.5 100% of total expenditures fellowships and study tours 4. Operating costs of the PMU 1.2 100% of total expenditures 5. Unallocated 1.0 Total 10.0

Table 3.5: Estimated Disbursements (UJS$million) FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Total IDA 1.4 3.6 2.0 2.0 1.0 10.0

3.19 Statements of Expenditure. Disbursements will be made on the basis of Statements of Expenditure for goods and works below US$200,000. Consulting firms contracts under US$ 100,000 and individual contracts under US$50,000 will be disbursed on the basis of such statements. Operating costs of the PMU will also be disbursed under Statements of Expenditure procedures.

3.20 Special Account. To facilitate project implementation, the Borrower will maintain a Special Account in US dollars in a commercial bank on terms and conditions satisfactory to the Bank. The Special Account would be managed by the PMU. The maximum authorized allocation of the account would be US$500,000, with an initial allocation to the SA would be limited to US$300,000. When aggregate disbursements under the Credit have reached US$ 1,000,000, the initial allocation may be increased up to the authorized US$500,000 by submitting the relevant Application for Withdrawal. Applications for replenishment of the Special Account will be submitted monthly or when a third of the amount has been withdrawn, whichever comes first. Documentation requirements for replenishments would follow the standard Bank procedures laid down in the Disbursement Handbook. Monthly bank statements of the account, reconciled by the Borrower, will accompany all replenishment requests. - 21 -

During negotiations. assurances were obtained from the Government that the Government will maintain a Project Account in a commercial bank on terms and conditions acceptable to IDA and replenish the said account at the beginning of each semester to ensure that adequate funds. as deemed necessary by IDA. are available to meet expected local expenditures for the next eight months. [para. 6.1.ki

E. ACCOUNTS AND AUDITS

3.21 The Borrower will be responsible for appropriate accounting and auditing of the project, reporting use of project funds, and ensuring that audits of project accounts are submitted to the Bank. The PMU, on behalf of the Borrower, will establish accounting systems to provide information on sources and uses of funds in accordance with the Credit Agreement. The PMU will: (a) ensure accountability for project funds; (b) maintain records of receipts and disbursements of all funds used for the project; (c) maintain internal controls to ensure that receipts and payments are accurately recorded in a timely manner, and that assets and liabilities are adequately controlled; (d) report on the use of funds; (e) have these reports verified by independent auditors; and (f) provide information, as required, to IDA. The PMU will maintain accounts for project funds separately from any other existing accounts. Project accounts would be maintained according to International Accounting Standards.

3.22 The PMU will also be responsible, on behalf of the 13orrower,for submitting to the Bank annual audits of project accounts no later than six months after the end of each financial year (Armenia's financial year is January I - December 31) of project accounts kept at PMU. Records and accounts of the project for each fiscal year, including the Special Account, will be audited by independent auditors acceptable to IDA, according to standards and terms of reference satisfactory to IDA. Audits will be carried out in accordance with international standards and be undertaken by qualified auditors. Audit reports to the Bank will contain separate opinions on: (a) compliance by the implementing agencies with relevant covenants of the Credit Agreement with IDA; (b) the Statements of Expenditures; and (c) the Special Account. The IDA-required audits would not cover possible donor funded activities, even if supervised by the Bank. Accounting and reporting arrangements were confirmed during negotiations. [para. 6.1. b I

IV. PROJECT IMPLEMENTATION

A. ORGANIZATION AND MANAGEMENT

4.1 The Ministry of Health will be responsible for project implementation. A Project Management Unit (PMU) will be set-up in the Ministry of Health. The Minister (or designated Deputy Minister) will provide Government oversight. The main task of the unit will be to provide logistical support for implementation. At present, it is in charge of project preparation. New staff will be added and trained. Two working groups responsible for preparation of sectoral strategies in health financing and primary health care and design of project components will be integrated in the project. A Project Steering Committee will be set-up with representatives from key ministerial departments directly involved in implementation, as well as representatives of the Ministries of Economy, and Finance and the Parliamentary Committee on Health. The PMU will also establish a - 22 - donor consultation committee to improve coordination with other international donors and foreign and local NGOs active in the health sector.

Project Management Unit

4.2 The PMU will comprise director, an administrative and finance officer, two accountants (for the unit and the PHCDP), two project officers to oversee implementation, a procurement specialist and an interpreter/secretary. Component and sub-component coordinators will be staff belonging to implementing organizations and they will work in cooperation with the unit. The director will also serve as the Secretary of the Project Steering Committee and will ensure effective linkage between policy development and implementation. The PMU will report to the Steering Committee and be responsible for the timely implementation, monitoring and evaluation of the project. Specifically, it will: (a) coordinate implementation and ensure that resources are used in accordance with the project plan and objectives; (b) monitor implementation and project impact and report to the steering committee and IDA; (c) manage procurement, contracting and disbursement; (d) prepare quarterly and yearly reports on implementation status; (e) maintain project accounts and ensure timely preparation and submission of annual audits; (f) keep coordination between donors and NGOs active in the health sector; (g) ensure close coordination with all project stakeholders, in particular the Ministry of Finance and Economy; and (h) support component coordinators by hiring local and international consultants when needed and provide logistical support for project management. Unit staff will be recruited through a competitive process. The Head of the PMU was appointed by the Minister of Health from a shortlist of candidates acceptable to IDA. During the negotiations, assurances were obtained-from the Government for maintaining PMU within the MoH with st{of and other resources and terms of reference. acceptable to the IDA. [para. 6. 1.el

Management of the Primary Health Care Development Program

4.3 The pilot Primary Health Care Development Program will be managed by a separate small unit attached to the PMU. It will be staffed by a program officer, a logistic officer, a promotion officer, two appraisal and monitoring officers and an administrative assistant. It will: (a) explain and promote the program among health care providers, regional health authorities and communities; (b) provide support to communities and health care providers to prepare proposals; (c) appraise proposals against selection criteria; (d) coordinate with the Social Investment Fund for the physical rehabilitation of the primary health care facilities; (e) present the projects that have been successfully appraised to the PHCDP Committee; (f) prepare and sign the framework agreements with the communities and health care facilities; (f) procure standard equipment and consumables for selected primary health care facilities; (g) monitor micro-project implementation; (h) coordinate with the departments in the Ministries and the staff of the regions which will participate in the program; and (i) maintain the program accounts and monitor physical progress.

4.4 A PHCDP committee will supervise and ensure accountability of the program. The committee will be chaired by a representative of the Minister of Health and include the head of department responsible for adult and maternal and child health, a representative from the regional health authorities, two representatives of NGOs active in health care, the head of the PHCDP and the Director of the PMU. The Committee will approve the micro project presented by the PHC facilities based on the appraisal reports prepared by the PHCDP Unit and review the progress of the program. An Operational Manual will guide the program and describe in detail the functions of the Program Unit and the Committee. - 23 -

Approval of a Final Operational Manual acceptable to IDA will be a condition Qf effectiveness. Epara6.2.al

During negotiations. assurances were obtained from the Government for maintaining the PHCDP nit within the PMU and PHCDP Committee within the MoH which shall follow procedures and criteria set forth in the Operational Manual and shall not amend. abrogate or waive any arovision in the Operational Manual without a prior consent Qf the IDA.[para. 6.1 2

Project Steering Committee

4.5 The Project Steering Committee, to be chaired by the Minister of Health (or his representative), will comprise of the Deputy Minister of Health Reform, Heads of the Departments of Health Care and Maternal and Child Health, Head of the Department of Economy, a representative from the Ministry of Economy and Finance and Parliamentary Commission on Health. The Project Steering Committee will meet at least every quarter to discuss quarterly reports, annual reports, and quarterly/yearly work programs. The Project Steering Committee will also meet at the request of the Director of the PMU to discuss any outstanding issues relevant to implementation. During negotiations, assurances were obtained from the Government for maintaining a roject Steering Committee. which at all tims shlnlude rgnresentatives from the MoH. Ministry Q1 EcononMvand Finance and the National Assembly Commission on Health. [para. 6.1.iJ

B. MONITORING,EVALUATION AND SUPERVISION

4.6 Project performance indicators have been developed to systematically monitor project progress and evaluate its outcome. The indicators which will serve as a basis for the quarterly reports on implementation, cover fiscal impact, improved use of resources, change in access to services, cost savings from rationalization programs, client satisfaction and so on. Some indicators will be monitored through qualitative and quantitative surveys based on the model of the Social Assessment which was successfully conducted during project preparation. The project will finance such surveys at mid-term review and at the end of the project. The surveys along with the indicators in the performance contracts between PHC facilities and PMU will be the evaluation tools for the pilot Primary Health Care Development Program. Other indicators will be monitored through routine collection of administrative and financial data.

4.7 Evaluation of project progress and adoption of necessary corrective actions are important to the project, particularly since this is the Bank's first health project in Armenia. Regular project progress evaluation activities, as well as a mid-term review (after two years of implementation) will be carried out jointly by the Borrower and the Bank. During negotiations. assurances were obtained from the Government that the Government will furnish on or about October 31. 1999. a report on the Progress achieved during the period preceding that date and review the submitted report with the IDA by December 31. 1999. [para. 6.1.al

4.8 The proposed project would be supervised by Bank personnel from both headquarters and the Bank Resident Mission in Armenia. The project will require extensive supervision by the Bank. It is estimated that it would require 25 staff weeks per fiscal year in the two first years and 15 staff- weeks per fiscal year thereafter. The lack of experience of the borrower with Bank project - 24 -

implementation and procurement and the Primary Health Care Development Program sub-component justify special supervision to be carried out at the community level.

V. SOCIO-ECONOMIC ANALYSIS

A. ANALYSISOF PROJECT ALTERNATIVES

5.1 Project alternatives were considered in the context of addressing key sector issues and of the Country Assistance Strategy (CAS) objectives. Timing, policy context, particular component design, presence of and coordination with donors and other World Bank operations were the parameters considered in project design.

Poor health status

5.2 The current project will emphasize adult health problem through: upgrading primary health care services that are expected to improve primary and secondary prevention of non-communicable diseases as well as more effective chronic case management; and design of the publicly funded basic benefits package to include cost-effective interventions targeted at the main components of Burden of Disease.

5.3 The current project does not address direct public health interventions. Scarce public health funds are currently needed to provide access to curative responses to existing Burden of Disease and there is the need to demonstrate tangible results and improvements in health system in the short and medium term. The main stakeholders have relatively short time horizons and perceived high discount rates for the future health benefits. The World Bank, however, intends to use other instruments to support development of public health policies targeted at major risk factors. In the Letter of Development for the SAC II, the GoA commits itself to develop comprehensive public policy strategy to fight smoking, including regulation of advertising, smoke-free public places, public education campaigns, etc.

5.4 The project does not have targeted intervention for maternal and child health, an area which has been actively supported by UNICEF and international and national NGOs. It supports, however, the integration of UNICEF supported Maternal and Child health services in the PHC structure and will monitor essential health indicators. World Bank support for immunization programs was discussed during project preparation but assurances were received from the GoA that the programs will receive highest priority for public health spending. The project will monitor immunization coverage and incidence of vaccine preventable diseases.

5.5 Long tenn health benefits will also arise from investments in social infrastructure, especially development of housing for disadvantaged groups (refugees and earthquake victims), and investments in water and sewage systems. The World Bank has completed the Earthquake Zone Infrastructure Rehabilitation Project and is currently preparing a project addressing water and sanitation issues. The Armenia Social Investment Fund under implementation is also looking at these issues. - 25 -

Chronic under-funding and low efficiency of health care system

5.6 Health financing is a clear health sector reform priority in all former socialist economies. A mandatory social insurance system has been a politically attractive option, but the GoA has postponed plans to introduce compulsory health insurance. This is supported by the World Bank due to the current high proportion of the informal economy and related problems with tax collection (compliance is estimated at 45%) and also because of the impact it would have on labor costs and economic growth. For the short and medium term, the GoA will rely on general revenue for health financing. However, there is a strong political constituency in Armenia favoring social insurance and it is likely to return to the political agenda as the economic situation improves.

5.7 The project will establish a public State Health Agency. This option was chosen against an alternative to improve the MoH capacity to finance health services because SHA would introduce transparent separation between purchaser and provider functions and will allow for broader accountability through a Board arrangement. SHA will lead to faster improvement, given the rigidity of bureaucracy and political interference; and can easily be transformed into a core institution for a successful social health insurance system if so decided in the future; it also enables the MoH to focus on regulative functions rather than day-to-day management of finances. 5.8 The project does not directly address the large and inefficient hospital sector. Instead, it will focus on strengthening PHC. In the context of this project, this includes 'traditional' primary health care services (vaccination, family planning, etc.) as well as secondary prevention and curative services which could be more efficiently provided by outpatient services. Strong PHC capable of providing pre- and post-hospital care is a prerequisite for efficient hospitals (the average hospital stay in 1995 was 16 days). The GoA plans to introduce a gate-keeping function to PHC providers to promote efficiency. One finding of the Social Assessment was that there was general agreement among stakeholders that emphasis on primary health care can reduce costs for health care among households level and nationally. Limited IDA funding and high political sensitivity are the other arguments against an intervention in the hospital sector: US$10 million is perceived to be insufficient to have any meaningful impact on the hospital sector.

5.9 The GoA is committing itself to prepare a strategy for hospital sector rationalization in the Letter of Development Policy prepared for the SAC II. SATAC II will support the GoA with technical assistance. Health financing reform supported by the project is expected to create favorable incentives for restructuring of the hospital sector. A Social Adjustment Credit (SAC III), planned for FY 1999, may integrate other measures and allocate funds to implement hospital rationalization. In parallel to the IDA project, hospital management training and institutional capacity building for policy planning are included in the EU/TACIS project. Inequitable access and low qualitv

5.10 Improving access to health services is a complex task. In Armenia the main determinants of access are high out-of-pocket costs, low quality and low public trust in health care providers. The GoA strategy to reduce price barriers is to guarantee universal coverage for basic health benefits and additional access to vulnerable groups to services also beyond the package. Major altematives to the BBP approach are: identifying and fully funding health care facilities for the poor; and introducing and regulating across-the-board co-payments. The "Hospitals for the Poor" option was dropped because of political unpopularity of an explicit two-tier health care system, need for a transition period from the former political declaration of free health care to limited public responsibility and difficulties in identifying the genuinely poor. The Govemment, however, is considering allocating a - 26 - hospital to be managed by an NGO to provide services for the poor using the NGO screening procedures. This hospital(s) would serve as safety net during the transition period of moving towards sustainable BBP. The need to legalize co-payments is being addressed in the GoA health financing reform and will occur alongside the implementation of the current project.

5.11 In developed countries, the quality of inputs (sufficient recurrent funding, investments) has generally been achieved and the focus is on improving the process. Both inputs and process need to be improved concurrently for poor and middle income countries. Hence, the project's emphasis is on investment in infrastructure, equipment, training for PHC providers, development of practice protocols and managerial skills to improve provision of care. PHC focus was chosen over specialist and hospital sector because: it will have impact on more users (0.08 hospital visits vs. 5 outpatient visits per capita); PHC proximity to the population and community ownership; the need for a more balanced approach to health care in a system strongly biased towards hospital and specialist; recurrent expenditures needed to sustain PHC investments are lower than investments for the hospital sector.

5.12 The project does not formally address the need to improve voluntary risk-pooling (insurance). Increased community participation and ownership, however, may lead to risk pooling at the community level.

B. FiSCAL IMPACT AND PROJECT SUSTAINABILITY

5.13 Public spending on health. Public funding for health care will be limited in the medium and long term even using optimistic estimate for economic growth and Government spending. 17 Projected public sector health care expenditures will be about US$120 million by 2005 or US$17.6 per capita in 1997 dollars compared to US$6.75 in 1997 (Table 5.1). The implication of such projections are two-fold: BBP will continue to be an important instrument for the Government to prioritize health care spending and the emphasis should be placed on increased efficiency and service rationalization.

Table 5.1: Projections of public sector health care expenditures (1995, 1996 actual; 1997 budgeted; 2000, 2005 projected). Source: Armenia PER, CAS. 1995 1996 1997 2000 2005 GDP (in mill. US$) 1,285.8 1,591.6 1,546.0 2,326.0 4,159.0 Averageinflation rate % 176.7 18.6 7.9 6.2 6.2 Govt. Expenditures(as % of GDP) 29.8 26.2 24.4 21.6 20.8 Govt. Expenditure(in mil US$) 383.2 417.0 377.2 502.4 865.1 HCE (as % of GDP) 1.9 1.3 2.0 3.0 2.9 HCE (as % of Govt. Expenditures) 6.4 5.0 6.4 13.9 13.9 HCE (mill. US$) 24.5 20.9 24.3 69.8 120.25 HCE (mill. 1997US$) 24.3 52.55 66.91 HCE per capita(1997 US$) 6.75 14.9 17.6

5.14 Sustainability of Basic Benefits Packane The Government aims to improve efficiency and equity of the health care system by concentrating limited financing on the basic package of essential

17 "Public Expendituresin Armenia:Strategic Spending for Creditworthinessand Growth(World Bank report, draft, 1997). - 27 -

public health and clinical services free of charge to all and additional services free of charge to children and vulnerable groups. As the MoH tries to maintain comprehensive coverage and extensive scope of essential services, the BBP is currently not sustainable. In 1997, with per capita financing of US$6.75 for health care, GoA intends to cover about 40% of all hospitalizations and provide a comprehensive range of outpatient services for about US$1.5 per capita. According to cost studies done by the MoH working group, reimbursement is 2-3 times lower than cost. This forces the system to continue to rely on informal private payments for all services. Technically, the current BBP is inefficient, for example, BoD results suggest that it is not based on the current epidemiological profile of Armenia, e.g. including services with high per saved DALY costs such as hemodialysis; intervention standards are inefficient, for instance long hospital stays for tuberculosis and sexually transmitted diseases; categories of services included in the BBP are not clearly defined; and the number of beneficiaries receiving free full coverage of health care services needs to be reduced. The project team believes that there is strong Government commitment exists to improve credibility of the package. A sub-component of the current project is designed to improve its efficiency and sustainability. This is also a SAC 1I condition.

5.15 Restructuring of health services. Over-capacity of hospital infrastructure compounded with scarce financial resources prompts for the need of restructuring of the hospital sector. The Government is reluctant to use administrative methods and hopes that 8000 financial incentives of the health financing reform will induce efficiency 7000 . improvements. As a parallel mechanism, 6000 the Government has decided to privatize eight specialty care hospitals in 1997. In 5000 1996, the public financing of the above 4000 hospitals amounted for US$560,000, or _ about 2% of total Government health 3000 expenditures. These funds could be partly 2000 reallocated to support essential services in L / other health care institutions, in particular 1000 in outpatient sector. 0 . 1995 PHC 5.16 The Government strategy aims strategy at strengthening primary health care UGPs * Di1strictDr. ElDistrict Ped. services to improve the balance between cl Neurologist* ENT * Eye secondary and primary health care. If iESurgeon l Other there were a functioning Primary Health Care system in Armenia (see Figure 5. 1), Figure 5.1 Impact of PHC strategy scenario on about 30% - 35% of admission to composition and number of medical profession in specialists would be redundant. An Armenia. 18 additional 35% - 40% of specialist's work load a GP can take upon him/herself. Generic analysis from Russia19suggest that a GP should be able to take on the workload of neurologist by 47%, ENT (ear-nose-throat) by 41%, ophthalmologist by

18 RMC Inc., "Armenia:Primary Health Care Reform", September1996, Project Files. 19 Yuri Komarov,"Physician of GeneralPractice in Russia:Still an Utopia or Alreadya Reality?" MeditsinskyVestnik, No. 2 (69), January 16 - 31, 1997. - 28 -

36%, surgeon by 23%, and other specialists by 30%. At the same time, a GP needs a consultation of ENT in 16%, ophthalmologist in 10%, surgeon and dermatologist in 9%, and neurologist in 8% of cases, which is significantly less compared to a current district physician workload. Implementing PHC strategy should result in net decrease of the number of practicing physicians by about 14%.

5.17 Recurrent expenditures The project will generate recurrent spending estimated at US$2 million. Roughly US$130,000 is incremental cost generated by investment in PHC infrastructure. These incremental costs will maintain quality standards of the service. Neglected preventive maintenance is one of the main reasons for deteriorated infrastructure and low quality of health care services. It is expected that these incremental costs will be covered through official payments for non-BBP services and community contributions. According to the design of the PHCDP, communities commitment to sustaining investments in health facilities will be a selection criterion. As grant allocation is demand driven, committed funds by communities will have politically acceptable opportunity costs. The project will support the communities and PHC teams in developing sustainability plans.

5.18 The State Health Agency will generate incremental recurrent expenditure estimated at US$175,000 a year, related to information system maintenance and staff hired from outside Government. It is expected, however, that this incremental staff will be drawn from other public enterprises and hired on fixed term contracts. The staff will have to acquire new skills necessary for the agency. The incremental costs are expected to be offset by health financing efficiency gains. Operating costs related to project activities in NIH, SMU and Medical College will be covered through savings from restructuring of their organization due to reduced enrollment and re-organized specialist training.

C. INSTITUTIONALCAPACITY ANALYSISAND LESSONSLEARNED FROM PREVIOUS BANK OPERATIONSIN ARMENIA

5.19 In Armenia, institutional capacity to implement health sector reform, manage projects and administer health care systems in the new socio-economic environment is limited. But, the situation has been improving steadily. The public health and health administration program of the American University of Armenia, health projects of NGOs and diaspora the presence of UNICEF, foreign technical assistance supporting MoH working groups have all contributed to the emergence of professional trained and experienced in public health and project management. Many Armenians have excellent skills in sciences and technology. These people constitute a resource that will be used during implementation.

5.20 Administrative capacity within the health system needs to be improved. Functions and responsibilities of regional and municipal health authorities are still being defined, and management skills for autonomous health facility managers still need to be developed. The EU/TACIS technical assistance project is expected to develop institutional capacity. It will improve capacity in health care financing and support selected communities in developing management skills. The positive experience with the Armenia Social Investment Fund reveals that with adequate incentives, communities can be extremely effective agents of change. The SIF experience has been used to develop the PHC Development Program.

5.21 Armenia has one IBRD and seven IDA projects under implementation: energy, housing, transport, agriculture, social, and private sector development. Experience from implementation of - 29 - recent IDA projects shows that the Government can administer and implement a project in a satisfactory manner and within an agreed timetable. The key to success are careful selection of PMU staff of the PMU and training in Bank procurement procedures and accounting. The Ministry of Health has some experience with international organizations. It has worked with UNICEF on immunization and Maternal and Child health programs, coordination of substantial humanitarian assistance and support from a wide range of diaspora. The World Bank project will be the largest single project that the MoH will implement. Currently, the MoH is implementing a PHRD grant for project preparation, effective since November 1996. The Project Preparation Unit, operational in the MoH since 1996, has managed the PHRD in a timely and satisfactory manner. The staff of PPU has received assistance to set up its accounting system from the Armenia Highway Project PMU.

5.22 Lessons learned from the World Bank health sector lending in the ECA region are: (a) expectations for reform have been too optimistic for both the World Bank and client countries; (b) institutional aspects of reform are as important as technically proficient strategies; (c) greater attention needs to be paid to the political economy of reform; (d) projects have been too complex; and (e) adequate resources need to be committed to supervision of projects. The institutional aspects of this project are designed to allow for sufficient time to build up capacity before taking on full functions and raising expectations. The SHA will have a year to train staff, develop procedures and test them through pilots before assuming full responsibility of managing public health funds. Similarly, NIH, SMU and Medical College will build up capacity for a year before admitting students. The project has a relatively simple design of only two components. The complexity of the PHC Development Program is expected to be manageable.

D. SOCIALASSESSMENT AND STAKEHOLDER PARTICIPATION

5.23 A Social Assessment was conducted during project preparation. The assessment included: a household survey, focus groups of community members and interviews with service providers. The assessment focused on utilization, access and satisfaction with health services. Results contributed to the sector analysis and project design. The assessment also established that there was not enough information on health reform among the population, communities and health care providers.

5.24 The vehicles for stakeholder participation in health care reform and project design were: two broad based working groups established by the Ministry of Health; a national workshop on health care reform for key stakeholders; field visits and consultations by the project team; and consultation with Armenian NGOs. The working groups included representatives from Ministry of Health, Ministry of Finance, State Medical University, National Institute of Health, Medical College, private health sector and regional health authorities. The groups were supported by external technical expertise and were the principal authors of project design. The national and regional workshops, supported by the World Bank, brought together about 80 representatives from all levels of health care administration and provision. Feedback from the conference confirmed once again the importance of information dissemination and consultation for the success of health care reform.

5.25 The health financing working group will be integrated in project implementation. The project will also allocate resources (estimated at US$250,000 base cost) for continuing public information and consultation process. UNDP will support the campaign with a US$150,000 grant. The Social Assessment will be repeated as part of the mid-term review and at the end of the project to monitor performance and impact of the project and receive feedback for improving implementation. - 30-

E. BENEFITS AND RisKs

5.26 Benefits. More efficient public health spending will improve the sustainability of the basic benefits package in providing access to basic health care services to the people. The poorer segments of the population are more likely to benefit from improved targeting. Improving transparency and introducing appropriate incentives will create an enabling environment for restructuring the large and inefficient health sector. The communities eligible for PHC development grants will benefit from improved access to better quality health services, increased sense of ownership and improvement in their capacity to manage community affairs. Primary health care providers will benefit through strengthening their skills, increasing professional prestige and job satisfaction from improved practice. The PHCDP will also create employment opportunities for small scale contractors.

5.27 Ministry of Health will benefit from improved institutional capacity to manage public funds for health care. State Medical University, National Institute of Health and Medical College will benefit from improved institutional capacity and links to international professional community.

5.28 Risks. The Government faces certain risks in implementing its reform program as well as the project. The risks and mitigation measures for the project are summarized (Table 5.2).

Table 5.2: Project risks

Risk PossibleCause MitigationMeasures Financial Shortfall in health care budget => low tax compliance X public information and consultation activities; allocation,discrediting of reforms > low priority for MoFE included in the project

= SAC 11has a conditionality for minimum spending

Unsustainabilityof BBP, . political unpopularity to =, SAC 11has a conditionality aboutsustainability continuationof informal explicitly reducehealth of BBP paymentsand inequities benefits will explain to the =r public information campaignw1 xlmt h lack of medical intervention public the resourceconstraints; included in the standards project

-3 current project will provide TA to increase efficiency of BBP interventions Lack of Govemmentcounterpart =, difficult budgetsituation => legal covenanton the Govemmentcontribution funds z health sector a low priority will be in the Credit Agreement for the MoFE MoFEW representativeswill participate in project steeringcommittee

Community and local z> lack of information n PHCDPwill havepromotion activities Governmentunwillingness or communication inability to contribute and PHCDPwill provide communitieswith incentives participatein PHCDP ~ lack of financial resources through matchingfunds and with training in > lack of skills in management management mg regulatory clarity will be a condition for = legal regulatory uncertainty negotiations Insufficientfunds allocatedfor => political pressurefrom =' earmarkfor per capita PHC allocation will be PHC reform hospital sector monitored by the Bank

r public information and consultationactivities included in the project - 31 -

Risk PossibleCause MitigationMeasures Political Discontinuationof overall socio- => politicalinstability, change =, not likelybecause of general agreementwith economicreforns of Govemment opposition Discontinuationof health care r changein leadershipin the r duringproject preparationbroad consensus has reform MoH been built through workshopsand public

- strong politicallobby by informationand consultationactivities; these opposedstakeholders activitieswill continueunder the project =, re-trainingwill be offered to specialists Institutional

Failureand discreditingof new => lack of managementskills = by the projectdesign, the institutionswill be institutions:SHA, chairs in SMU, and procedures graduallygeared up before takingon full NIH lack of transparent functions:project will supporttraining, MIS, regulation transparentby-laws, pilots Difficultiesin project => first World Bank health =, PMUis gainingexperience through PHRD management project management;project will providetraining and TA =* clearoperational procedures will be developed =, ASIFexpertise will be used for micro-project r> multiplemicro-projects management

H. POVERTY IMPACT The project will have no direct and targeted impact on the poor because of difficulties in identifying the poor. The project is expected, however, to better benefit the poor through: (i) The design of the BBP which will emphasize health services important for the poor, including immunization, tuberculosis, prenatal care, school health programs and emergency services; (ii) Improving quality and access to primary health care services in selected communities: outpatient services are closer to the population (no transport cost) and considerably cheaper in terms of informal out of pocket payments, and although efforts are being made to gradually eliminate informal payments, it will only be achieved in the medium to long term; and, (iii) improving efficiency of public health expenditures in the short term will enable improvement of the sustainability of the BBP and reduce out-of-pocket costs and in the longer term, enlarge the scope of the package.

I. ENVIRONMENTAL IMPACT

5.29 The project does not have a negative environmental impact and has been assigned environmental category C.

VI. AGREEMENTS AND RECOMMENDATIONS

A. AGREEMENTS REACHED DURING NEGOTIATIONS

6.1 During negotiations, assurances were obtained from the Government:

(a) The Government will furnish on or about October 31, 1999, a report on the progress achieved during the period preceding that date and review the submitted report with the IDA by December 31, 1999. [para. 4.7]

(b) Accounting and reporting arrangements were confirmed. [para.3.22] - 32 -

(c) The Government shall ensure that the training facilities (including hostels) to be rehabilitated under the Project, shall at all times be available to accommodate students enrolled in the PHC training programs at the NIH, SMU and Medical College. [para. 2.93

(d) The Government will establish, not later than January 1, 1998, a State Health Agency (SHA) in accordance with the institutional plan and terms of reference acceptable to the IDA. [para. 2.22]

(e) The Government shall maintain PMU within the Ministry of Health with staff and other resources and terms of reference, satisfactory to the IDA. [para. 4.2]

(f) The Government shall maintain the PHCDP Unit within the PMU and PHCDP Committee within the MoH which shall follow procedures and criteria set forth in the Operational Manual and shall not amend, abrogate or waive any provision in the Operational Manual without a prior consent of the IDA. [para. 4.4]

(g) The Government shall maintain a PHC Training Coordination Committee. [para. 2.51

(h) The Government shall establish and maintain a working group which will be responsible for designing and implementing methodology for cost-accounting, price calculation, contracts between SHA and health services providers, strategy for legalizing and regulating payments to health care providers. The working group will be set-up first in the Ministry of Health and transfer to the State Health Agency once the Agency is officially created. [para. 2.26]

(i) The Government shall maintain a Project Steering Committee, which shall at all times include representatives from the MoH, Ministry of Economy, Ministry of Finance and the National Assembly Commission on Health. [para. 4.5]

(j) The Government shall submit not later than November I st each year during implementation of the project for the IDA's review the BBP to be included into the state budget for the next fiscal year, and shall in timely manner incorporate and implement the IDA's comments. [para. 2.24]

(k) The Government will maintain a Project Account in a commercial bank on terms and conditions acceptable to IDA and replenish the said account at the beginning of each semester to ensure that adequate funds, as deemed necessary by IDA, are available to meet expected local expenditures for the next eight months. [para. 3.20]

B. CONDITIONSOF EFFECTIVENESS

6.2 Following the signing of the Credit Document, the following conditions for effectiveness of the Credit Agreement must be completed by the Borrower:

(a) Approval of the Final Operational Manual of Primary Health Care Development Program by the Ministry of Health, acceptable to IDA. [para. 4.4]

(b) Opening the Project Account and an initial deposit of equivalent to US$80,000 to this account by the Government. [para. 3.4) - 33 -

(c) Signing an agreementbetween Ministryof Health and ASIFfor overseeingprocurement of civil works under the Primary Health Care DevelopmentProgram. [para. 3.7]

(d) Allocationof suitableoffice space for the State Health Agency.[para. 2.23] ANNEX I Page 1 of 6

ARMENIA HEALTH SECTOR INDICATORS TABLES AND FIGURES1

Table 1: Main Causes of Death: Age Adjusted Mortality Rates per 100,000 Population. International Comparisons.* Cause of death Armenia Georgia Russia Estonia Germany USA Japoan Cardio-Vascular 390.5 676.3 768.9 752.5 544.2 378.3 245.6 Neoplasms 96.1 97.3 206.9 218.1 244.7 228.3 189.4 Respiratory diseases 51.4 28.5 74.5 30.2 58.7 40.6 68.8 Accidents/poisonings 62.8 63.6 227.9 152.2 51.6 60.9 45.5 Digestive diseases 27.78 31.7 38.3 28.0 27.8 13.6 16.7 Infectious diseases 19.6 17.3 8.9 8.5 12.4 10.0 Other 45.9 276.2 112.2 Sources: The World Bank, Armenia Ministry of Health, Georgia Ministry of Health , Estonia Ministry of Social Affairs * Armenia 1993, Georgia, Estonia 1992; Russia 1993; Germany 1990; tJSA 1989; Japan 1991

Table 2: Comparative Health Data: Main Health Indicators in Arnenia and Selected OECD Countries Indicator I Country Armenia Belgium Canada Mexico Turkey UK HCE as % of GDP 1.9 8.2 9.8 4.9 2.6 6.9 Doctorsper 1,000 3.4 3.7 2.2 1.0 1.1 1.5 Hospital Beds per 1,000 7.6 7.6 6.0 0.8 2.5 5.1 ALOS 15.2 12.0 12.6 3.9 6.7 10.2 Total Fertility Rate 1.63 1.55 1.7 2.9 2.69 1.75 Infant Mortality Rate 1.4 0.76 0.68 1.7 4.68 0.62 Life Expectancy at Birth: 68.9 / 75.9 73.0 / 79.8 74.9/81.2 69.4 / 75.8 65.4/70.0 74.2 / 79.5 Male / Female

Note: Data: Armenia -- 1995, OECD countries -- 1994. SoJrces: Armenia -- Ministry of Health Data, 1995; OECD countries -- OECD Health Data, 1996, OECD.

Table 3: Disability DALYs by Age and Sex Arnenia 1995 0-4 5-14 15-44 45-59 60+ Total % of Total Males 1299 12244 23348 8802 8367 54060 53.95% Females 1062 10314 19136 7251 8376 46139 46.05% Total 2360 22559 42484 16053 16743 100198 % of Total 2.36% 22.51% 42.40% 16.02% 16.71%

Table 4: Death DALYs by Age and Sex Armenia 1995 0-4 5-14 15-44 45-59 60+ Total % of Total Males 17623 4571 51191 38437 59944 171767 60.30% Females 14144 2357 17917 19604 59045 113066 39.70% Total 31767 6927 69108 58041 118989 284833 % of Total 11.15% 2.43% 24.26% 20.38% 41.77%

1 Data source for the Tables 3-5 and Figures 1-6 is a report: Burden of Disease in Armenia: A Preliminary consultant report. Costa, C. et Gouveia, M. 1997. ANNEX I Page 2 of 6

Table 5: Total DALYs by Age and Sex 0-4 5-14 15-44 45-59 60+ Total % of Total

Males 18922 16815 74539 47239 68311 225826 58.65% Females 15206 12671 37053 26855 67420 159205 41.35% Total 34127 29486 111592 74094 135732 385031 % of Total 8.86% 7.66% 28.98% 19.24% 35.25%

Figure 1: Incidence of tuberculosis (per 100,000 population). 2

25

20-

15

10

5

0- I I I I I I I 1987 1988 1989 1990 1991 1993 1994 1995 Anen U

Figure 2: Total Male DALYs by Age. Figure 3: Total Female DALYs by Age.

5-14 15644 5-14 0-4 16-44 10% 04 16% 2% 13% 30% 3%

4S69-~ ~~~~~~~~_ _ 17% ~~~60+ 45-59 60+ 52% 22% 3°%

2 ArmenianMinistry of HealthData; WHO/Europe,Health For All Database,1994. ANNEX I Page 3 of 6

4W

04 1D14 54 7134 4044 ) 74- 8

1 -1 F9igure4: Age and Sex SpecificTotal DALYs, per 1,000 population.

FIgure5: Male Death DALYsby Nosological Figure 6: Female Death DALYsby Grxoups. N osologicalGroups. i~~~~~o

-~~~~4 1-1 D4 3,4 4¾4W4 07- 81

" r,0% e Armnenia Health Sector Indicators ANNEX I Page 4 of 6

Year 1980 1985 1990 1991 1992 1993 1994 1995 1996 Demographics. Economy and Finance Population 3,096,300 3,339,100 3,544,700 3,611,700 3,685,600 3,731,320 3,746,850 3,759,950 3,780,600 Urban (%) 66% 68% 69% 69% 69% 68% 67% 68% Male (°/) 44% 49% 49% 48% 48% 48% 48% 48% Age Structure 14 and Under (% ofpopulation) 32.2% 31.4% 32.3% 32.2% 32.0% 31.7% 31.30% 28.00% 15-64 (% ofpopulation) 61.9% 62.9% 62.0% 61.8% 59.6% 61.6% 61.6% 63.8% Population Growth Rate (% per annum) 1.72% 1.82% 1.63% 1.51% 1.21% 0.85% 0.70% 0.35% Urban (%per annum) 1.90% 1.90% 2.40% 1.80% 1.00% 0.80% -0.10% 0.16% Fertility Crude Birth Rate (per 1,000 popula.ion) 22.68 23.99 22.54 21.61 19.23 15.79 13.70 13.02 Total Fertility Rate (births per woman) 2.34 2.55 2.63 2.58 2.35 1.97 1.70 1.63 Finance and Economy GDP per capita in US$ 780 586 367.37 Health expenditures per capita US$ 35.1 20.5 7.0 Health expenditures as % of GDP 4.5% 3.5% 1.9% Health expenditures as % of public expenditures 7.2% 5.2% 6.4% Informal payments as % of public health expenditures 232% Health Expenditures Breakdown Salaries 932.0 7,775.9 Benefits 248.0 2,715.6 Pharmaceuticals 158.5 3,053.6 Food 212.1 1,934.6 Equipment 131.1 1,192.7 Disposable Items 586.1 5,993.5 Capitalinvestment 111.6 157.0 Capital repairs 213.9 2,572.1 Other expenditures 109.9 2,822.2 Total 2,703.2 28,217.2 Arnenia Health Sector Indicators ANNEX I Page 5 of 6 Year 1980 1985 1990 1991 992 1993 1994 1995 1996 th Sabtus Average Life Expectancyat Birth Overall 72.8 73 70.7 72.4 71.2 71.2 71.6 72.5 Male 69.5 69.8 67.4 68.9 68.7 67.9 68.1 68.9 Female 75.7 75.7 73.3 75.6 75.5 74.4 74.9 75.9 Average Life Expectancyat 30 Overall 46.5 46.6 43.4 44.9 44.7 43.8 44.2 44.9 Male 43.3 43.5 41 n/a 41.6 41.0 41.3 41.8 Female 49.2 49.1 45.7 n/a 47.6 46.4 47.0 47.8 Mortality Crude Death Rate (per 1,000 population) 5.52 5.85 6.21 6.51 7.03 7.36 6.58 6.61 Infant Mortality Rate (per 1,000 live births) 26.2 24.8 18.5 17.9 18.5 17.1 14.7 14.2 Under-5 Mortality Rate (per 1,000 live births) 33.0 34.7 23.8 22.6 24.2 24.2 21.4 19.9 Maternal Mortality Ratio (perO00,000 live births) 27.0 22.1 40.1 23.1 14.2 27.1 29.3 34.7 Mortality Breakdown Cardio-vascular diseases 247.7 278.65 305.89 333.89 360.56 390.49 339.12 358.03 Neoplasms 74.3 83.31 99.89 102.11 99.14 96.06 84.42 91.90 External causes (accidents, injuries, suicides) 46.4 43.06 55.63 53.2 69.3 62.83 68.09 45.39 Respiratory illnesses 89.4 78.79 50.3 44.31 45.88 51.42 42.86 42.67 Digestive diseases 21.3 21.41 21.07 23.36 24.12 27.78 26.32 23.81 Other Total 553.0 586.4 620.4 650.9 700.7 736.9 657.95 660.99 Service Capacity Physicians per 1,000 population 3.6 3.8 4.1 4.1 3.9 3.7 3.4 3.4 3.4 Nurses per 1,000 population 8.5 9.1 9.9 9.9 9.8 9.3 8.5 8.3 7.7 Hospital beds per 1,000 population 8.35 8.35 8.5 8.46 8.28 8.19 7.75 7.62 7.01 Number of hospitals 168 167 176 179 183 182 181 183 169 Number ofpoliclinics 462 484 516 537 516 517 504 501 499 Immunization coverage (12-18months) BCG (%6of age group) 86 88 83 83 84 82 DPT (% of age group) 83 85 85 86 98 86 Measles (%6of age group) 93 93 95 89 OPV (9l of age group) 92 92 92 95 96 97 Arnenia Health Sector Indicators ANNEX I Page 6 of 6

Year 1980 1985 1990 1991 1992 1993 1994 1995 1996 Utilizationof Health Services PrimaryCare (polyclinics) Officevisits (per capita/year) 9.0 10.5 7.8 7.4 6.1 5.1 5.0 4.8 4.6 Home (District)Visits (per capita/year) 0.7 0.8 0.68 0.62 0.48 0.42 0.33 0.37 0.32 Ambulancevisits 0.25 0.24 0.25 0.24 0.19 0.13 0.10 0.10 0.10 HospitalCare ALOS 17.1 16.6 15.6 15.4 15.6 15.9 16.3 15.2 Bed occupancyratio 83% 86% 68% 62% 51% 44% 44% 40.1% 42.7% Admissions(per capita/year) 0.147 0.153 0.132 0.121 0.096 0.082 0.076 0.075 0.075 EpidemiologicalTrends Incidenceoftuberculosis /100,000 17.6 20.5 15.8 14.5 19.5 21.6 23.9 Incidenceof hepatitis/ 100,000 217.4 109.7 102.2 106.6 80.95 79.5 89.5 Incidenceof gonorrhea 1I00,000 28.6 21.6 13.3 28.0 33.4 35.2 37.8 Accidentsand poisoning/ 100,000 21.2 18.9 13.8 Workrelated fatalities/ 100,000 0.06 0.03 0.03 Suicide and self-injury/100,000 3.3 2.3 2.7 3.5 Communicablediseases: number of cases of Polio 0 5 3 0 Diphtheria 1 36 29 11 Pertussis 98 329 12 2 Tetanus 1 2 0 7 Measles 338 149 187 2027 Rubella 224 706 2135 0 Environment % of populationwith accessto hygienicsewage disposal Urban 100% Rural 40% % of populationwith water supplyin home Urban 100°/. Rural 100% Mr. Basil Kavalsky Director Europe and Central Asia RegionalOffice Country DepartmentIV The World Bank

May 15, 1997

Dear Mr. Kavalsky,

Attached is the Document on Primary Health Care Reform Strategy in the Republic of Armenia.This Documenthas been approved by the Ministers of Health, Economyand Finance.We are providing this Document for the Health component of the proposed Health and Education project.

Sincerely,

Ara Babloyan VahramAvanessian Levon Barkhudarian Ministerof Health Minister of Economy Minister of Financ

cc: Mr.V. Nercissiantz,Chief, Armenia Resident Mission ANNEX2 Page 2 of 12

PRIMARY HEALTH CARE REFORM STRATEGY IN THE REPUBLIC OF ARMENIA (Translationfrom the official Armenian Document)

Table of Contents

Section

I The Concept of PHC 1.1 The Definition of PHC 1.2 The Tasks of PHC 1.3 The Main Principles of PHC Implementatior

2 Introduction of PHC in the RA 2

3 Services to be Provided by the Armenian PHC 1'eam 2

4 Providers of PHC in Armenia 3

5 Organization and Management of the PHICSectcor within the Health Care System 3 5.1 The Types of Ownership 3 5.2 Responsibilities at the National, Marz (Region s and Hamaink (Community) Levels 4 5.3 Community Participation In the Organization of the PH-(W 4 5.4 Financing of PlIC 4

6 PHC Reform 5 6.1 PHC Providers - The Current Infrastructure 5 6.2 Transition Activities 6

7 Integration of Vertical Programs 7

Appendix - Strategy for the Introduction of Family Practice 8 ANNF.X2 Page 3 of 12 1. The Conceptof PrimaryHealth Care(PHC)

1.1 The definition of PHC

The development of a PHC strategy, within the context of health care system reforms in the Republic of Armenia (RA), is based on the PHC concept adopted at the Alma-Ata conference in 1978.

According to the WHO definition, " Primary Health Care is the main part of health care, based on scientific, practical methods accessible for the population, and is implemented at a cost the country and community can afford. PHC is the central function of the State Health Care System, the principal vehicle for the delivery of health care, the most peripheral level in a health system stretching from the periphery to the center, and an integral part of the social and economic development of a country " (1994 Copenhagen, WHO Glossary).

In the RA, PHC, as "the first contact zone between a person/family and the health care system, is the basis for the health care system and an integral part of it, aiming to satisfy the main medical-social needs of the population using a limited amount of simple and inexpensive medical technologies, with an emphasis on preventive activities; special attention is focused on accessibility and equity, integration of services, participation of the community and intersectoral coordination."

1.2. The Tasks of PHC

* Promotion of health * Prevention of disease * Treatment of disease * Rehabilitation

1.3. The Main Principles of PHC Implementation

ACCESSIBILITY Geographic, time, psycho-social and financial; evaluation of accessibility is based on public opinion.

EQUITY It is impossible to attain equality in health status for everybody. It is, however, necessary to provide equal opportunityfor all individuals to realize theirfull health potential.

COMPREHENSIVENESS The broad range of services offered satisfies the main health care needs of the population (although the final solution to any given health care problem may not be realized at the PHC level).

CONTINUITY PHC addresses not the treatment of a special case, but the whole range of health care issues arising during an individual's lifetime. ANNEX2 Page4 of 12

COORDINATION The majority of health care issues faced by an individual are addressed at the PHC level. The individual, however, can receive additional specialized medical care, coordinated through his/herfamily doctor. Centralizedpatientfiles would ensure an efficient coordination process.

2. PHC in the Armenian Context

The primary reason for health care reform in the RA is the fact that PHC, although present, has many shortcomings at the organizational level. These include:

* an insufficient level of preventive measures;

* the low level of authority of the district therapeutist, and his/her passive role as a "dispatcher"/controller (In the past, emphasis was placed on specialized and hospital services. In order to ensure maximum occupancy rates for hospital beds, the district therapeutist was persuaded to refer patients to in-patient care and testing. As a result, the district therapeutist was deprived of his/her main function of providing patients with services);

* lack of consideration of the family as a unit with regards to health care provision, resulting in a separation of therapeutic, pediatric and obstetrical-gynecological services;

* the absence of financial incentives to develop activities; and

* insufficient capacity building.

As a result, the system is inefficient, and the quality of services is insufficient. Health indicators in the RA are currently lower than international standards.

The need for PHC reform is obvious. The main goal of this reform is to improve the health of the population, through:

* the provision of high quality health care;

* the organization of more effective and efficient health services;

* greater emphasis on health promotion and preventive measures;

* a partial shift of the health care burden from the hospitals to the PHC units, i.e. from more expensive to more cost-effective medical care;

* increased accessibility of medical care by the introduction of a "family medicine" approach;

* a "gate keeper" role for the family doctor;

* financial motivations for doctors to provide a better service; ANNEX2 Page 5 of 12

* continuous examination and follow-up of the patient;

* coordination between the PHC providers' services and secondary health care services.

3. Services that will be Provided by the Armenian PHC Team

* Health education * Maternal and child health care programs, including immunization and family planning * Prevention and control of endemic diseases * Identification of the social, environmental, demographic, and psychological risk factors for disease, and development of preventive measures directed towards health promotion for the population * Diagnosis, treatment and rehabilitation for health care problems * Medical assistance in emergency situations * Social services

4. Providers of PHC in Armenian

The PHC medical services in Armenia will be provided by the PHC team. During the transition period the PHC team will consist of the following providers: family doctor/general practitioner, general practice pediatrician, general practice nurse, midwife. In the future, in connection with the development of the social and economic conditions of the Republic, the team members can be reviewed and changed.

5. Organization and Management of the PHC Sector in the Health Care System

S.1 The types of ownership

Medical facilities providing primary health care services will be owned by hamainks (communities). At present these facilities belong to marzes (regions) and will be transferred to hamainks when the State Health Agency (SHA) begins to function. Transfer of PHC facilities to hamaink ownership will be carried out gradually. Priority will be given to hamainks that will invest in the development of these facilities. Several hamainks can join together to own a single PHC facility. In this case, the same team of family doctors will provide services addressing the health needs of the entire population in the associated hamainks.

Hamaink ownership of PHC facilities will stimulate hamaink participation in both facility- related activities, and the refurbishing and renovation of the PHC facilities.

Family doctor services can also be provided on a private basis. ANNEX2 Page 6 of 12

5.2 Responsibilities at the National, Marz and Hamaink Levels

National level (Ministry of Health)

* Formulate and implement health care policy. * Design drafts of legislative and regulatory acts for the main health tasks. * Define health priorities based on health survey data. * Within the scope of health priorities, design the Basic Benefits Package (BBP) including the plan for its implementation and monitoring. * Prepare a health care budget according to the BBP. * Define health care standards and monitoring. * Provide the authorized bodies at the marz and hamaink levels with guidelines, according to adopted health policy. * Store health care strategic resources for emergency situations. * Develop and introduce methodology for the collection of health statistics and accountability. * Organize a health information system. * Organize licensing for health care providers. X Implement control measures aimed at ensuring the hygienic-epidemiological safety standards for State programs, and the quality of medical aid and services, independent of type of ownership and juridical structure.

Marz level:

* Organize the activities of health care facilities at the marz level. * Monitor non-governmental providers' activities. * Ensure the implementation of the national health care program at the marz level. * Collect and analyze statistical information from medical aid and service providers at the marz and hamaink levels, independent of the type of ownership; present the information to the Ministry of Health. * Identify the health needs of the marz, approve tasks and, if necessary, present proposals to the Ministry of Health for further action. * Coordinate inter-hamaink health care activities. * Organize and implement hygienic and epidemiological measures to prevent transmitted and non-transmitted diseases and poisoning. * Provide support to the national hygienic and epidemiological providers in water control, food and environmental safety, and sanitation of schools and other buildings. * Organize the construction, maintenance and utilization of facilities at the marz level.

Hamaink level:

* Organize activities of the health care facility at the hamaink level. * Define and assess the health care needs of the hamaink. * Provide the marz information-analytical center with health care data from medical aid and service providers, in the framework of the PHC programs. * Develop and implement hamaink health care programs and time schedule according to adopted standards. * Prepare the hamaink health care budget. * Ensure the implementation of national and hamaink health care programs. ANNEX2 Page 7 of 12

* Support the provision of hygienic-epidemiological measures. * Organize the construction, maintenance and utilization of facilities at the hamaink level.

5.3 The Active Participation of the Community in the Organization of PHC

Community members are not only the consumers of PHC services, but can also be active participants in its organization, implementation and monitoring in the following ways: consultation with program users; control of results; participation of users in service provision; development of proposals for improving the health of different social groups (elderly people, socially vulnerable groups, chronically ill patients, etc.) based on needs assessment survey data.

There is some uncertainty regarding the regulations and management structure at the hamaink level. Consequently, the active participation of community members in PHC is not yet clear.

5.4 Financing of PHC

The PHC providers' team will contract with the SHA according to which services will be provided within the framework of the BBP. The SHA will implement quality assurance monitoring for the services provided. Payment for these services will be carried out according to the principle of capitation.

In facilities which meet certain criteria, the family doctor, along with his/her team, will provide PHC services directed towards the promotion of health and treatment of diseases for the population. Concurrently, the family doctor will act as the financial and logistic manager of the team. All members of each team should act within the same administrative managerial unit.

In urban areas, former polyclinics can be used as family doctors' offices. Each polyclinic will be allocated some family doctor teams, and provide these teams with appropriate laboratory, diagnostic, X-ray and other services in common facilities. The logistics of the teams' activities will be the responsibility of the manager, who will be appointed by the owner of each PHC facility. The manager will also contract with the SHA regarding services implemented by teams within the framework of the State Order. Team members will be paid via contracts with the manager from the sources allocated for them by the Government. The manager will be accountable to a council for his/her activities. The council will be made up of family doctors.

PHC teams will be given the opportunity to work independent from the polyclinics and establish private offices.

In rural areas, family doctors' teams will be located mainly at ambulatory clinics. The family doctor will be the manager of the team. The team will contract directly with the marz branch of the SHA.

Diagnostic laboratories and medical specialists will be paid for services according to separate contracts with the SHA based on reports from family doctor's team members.

For services outside the National Health Care System, the patient will pay himself, on the basis of a fee-for-service system. ANNFX2 Page 8 of 12

6. Reformof the PHC System

6.1 PHC Providers - Present Infrastructure

There is a high number of potential PHC providers in all marz areas of the RA. In urban areas they are mainly employed at polyclinics, based on district (or territorial) health services provision. These providers are separate for adults and children. In addition to the therapeutist and pediatrician, the polyclinic staff is comprised of doctors of various specialties (cardiologists, neurologists, surgeons, etc.).

In rural areas PHC providers are employed at Rural Health Centers (RHC) and Feldsher Obstetrical Units (FOU) . These facilities serve as separate stages of health provision for the rural inhabitants. FOUs are more peripheral establishments, and employ feldshers (medical personnel with a four-year education from special medical colleges) and a midwife. The RHC is the main medical establishment in the rural area which, according to legislation, should have four doctors (therapeutist, pediatrician, obstetrician-gynecologist and dentist). In addition to these establishments, the rural population can also use the wide range of services provided by the local hospitals, which have a capacity of approximately 25-30 beds.

RHCs, according to Governmental decision, have State Enterprise Status. This status allows the RHC the opportunity to carry out activities which will build a foundation of necessary financial resources that may result in a more efficient and rational implementation of medical activities.

The distribution of doctors in the RA is unequal.

6.2 Transition Activities

6.2.1 Health care, social welfare and other relevant services will be reoriented in order to obtain maximum fulfillment from the activities of the family doctor. These activities will be directed towards solving the health problems of the family through community health promotion, disease prevention and treatment, rehabilitation and social assistance.

6.2.2 New approaches will be developed for the selection and distribution of health care providers. By optimizing the system, resources will become available that can be used for strengthening the PHC system according to need and demand. This process will also involve training programs in family practice medicine designed for doctors from different specialties to become family doctors. Additionally, PHC facilities will be provided with essential drugs, diagnostic and other necessary equipment.

To ensure the efficiency of PHC activities, it is necessary to work out a rationalization plan for the units that provide services (for example, the establishment of PHC facilities where needed; in the case of underutilized rural district hospitals, to reconstruct them into out-patient facilities or to join them to the marz hospitals).

In the future, it is planned to transform a certain number of FOUs into offices for family doctors. The remaining FOUs will be preserved, staffed by one public nurse. They will be responsible for answering health-related questions from the population of the hamainkcs, and ANNEX2 Page 9 of 12

accountable to the family doctor. FOUs will provide some team services, ensuring a greater accessibility to services for the population of each hamaink. The staff of FOUs will be paid from the budget allocated for hamaink health care. Hamainks will also participate in ensuring the ongoing activities of FOUs.

6.2.3 With the aim of utilizing the limited national resources for medical assistance in a more effective and equitable way, these resources will be pooled together to finance the minimal Basic Benefits Package (BBP), which will be provided free of charge to the entire population in the RA.

The basis for the BBP will be the burden of disease in the RA, and the cost-effectiveness of the interventions.

6.2.4 A rational system for estimating and evaluating the economic cost of the health care system will be developed and implemented. The aim of the system will be to set up a direct link between the PHC providers' reimbursement and indicators of consumers' health.

6.2.5 PHC providers will be given training, re-training and continuous education.

6.2.6 An increase in burden of responsibility will be placed on the person, family and community for their own health.

6.2.7 Standards will be developed for PHC services.

6.2.8 Standards will be developed for the physical infrastructure of PHC units.

6.2.9 A stage-by-stage implementation plan for the introduction of family practice will be followed (see Annex).

Taking into account the variety in PHC infrastructure present in different marzes, it is obvious that introduction of family practice in each marz should be implemented in the most optimal way for the particular situation. Nevertheless, a number of common organizational aspects can be identified.

* Certain medical services currently provided by different specialists can be delegated to the family doctor. The specialists will be limited to the consultation and treatment of patients who need very specialized care due to complicated pathology or chronic diseases. This will result in a reduction of specialists at the primary level and, consequently, will free resources.

* Certain medical activities (preventive, out-patient, patient follow-up) that are currently performed by doctors can be delegated to medical mid-level staff who have received special professional education and are eligible to work independently in providing these medical services. This will result in a decreased demand for physician services. The ratio of doctors to mid-level personnel in the RA is 1:2.5 , though 1:4 is considered to be more optimal.

* Family doctors and general practice pediatricians are the only doctors who will have complete responsibility for the promotion of the patient's health. ANNEX2 Page 10 of 12

* The hamaink will be responsible for providing the conditions necessary for the implementation of PHC services. Hamaink authorities will ensure the planning and organization of PHC activities in their district through the officials responsible for health care.

* Although family doctors can be located in any medical institution, polyclinics (in urban areas) and RHCs (in rural areas) are considered to be a more appropriate choice. In the near future family doctors may also be practicing at private facilities.

7. Integration of vertical programs

At present, several vertical programs (diarrhea, respiratory diseases, tuberculosis program, etc.) are implemented concurrently with PHC at all levels of the health care system. The majority of these vertical program activities will be transferred to family practice. Several sanitary- epidemiological programs will remain as vertical programs. ANNEX2 Page 11 of 12

Appendix: Strategy for the Introduction of Family Practice

Short-term strategy (Jan 1997 - Dec 1997); This time period is the preparation stage. Activities will include the following:

* development of an organizational-legislative base for the transition to family doctor practice;

* extended analysis of PHC services in the RA health care system; detailing a precise program for the transition to family medicine; development of the mechanisms for management and capacity building at each marz;

* selection of PHC providers to work in the sphere of family practice; organization of their training and re-training;

* preparation of training programs;

* improvement of programs in family practice training, increased information, and other activities for the purpose of ensuring the authority of the family doctor;

* provision of information on reforms to raise awareness among medical staff and the population;

* development of incentives for PHC providers, especially in rural areas;

* development of a computerized information system network for family doctors;

* development of mechanisms for the introduction of the next 2 stages.

M-d-term strategy (1998 - 2000) This is the transition stage towards the introduction of family practice. The main goal of this stage is the transition of district therapeutic and pediatric services to the corresponding family practice services.

Structural and functional changes will occur at this stage. In addition, PHC teams will be recruited within the limits of existing possibilities.

Increase in the authority of family doctors will be achieved through an increase of salary and responsibility, and through the provision of adequate medical supplies and equipment, premises.

Individuals will be give a choice in the selection of PHC providers (family doctor with his/her team). If necessary, a consultation with an obstetrician-gynecologist and other specialists, or in-patient treatment will be provided. It will be essential that a patient be referred by a family doctor for consultations with specialists.

The activities of the PHC team will be implemented in polyclinics (for urban areas) and health centers or rural hospitals (for rural areas). In order to achieve this, and also to ensure family ANNEX2 Page 12 of 12 doctor, specialist-consultant, diagnostic and rehabilitation services, necessary changes in management structure and organization will be made.

Thus, the final results of this stage are.:

1. The development of the principles of PHC organization at each marz.

2. The development of regulations which reflect PHC providers' (family doctor, general practice pediatrician, general practice nurse, midwife and other providers') rights and responsibilities.

3. The development of procedures and methodology to ensure links between PHC and other providers' medical and social assistance.

4. The development of procedures and methodology for the conduct of daily activities and quality assurance monitoring.

Long-term strategy (2000 - ) This is the final transition stage for the introduction of family practice. The aim of this stage is the further development of family practice medicine and the final transition into family-oriented PHC. Mr. Basil Kavalsky Director Europe and Central Asia Regional Office Country Departnent IV The World Bank

*..--November 28, 1996

Dear Mr. Kavalsky,

Atached is the Statement of Health Care Einance Strategy of the Republic of Armenia. This statement has been tythe Ministers of Health, Economy and Finance. We are providing; fthis statement for the Health component of the proposed Health and Educi on project.

Sinccrcly,

Ara Babloyan Avan ari. Levon Barkhudarian Minister of Hcalth Minister of Economy Minister of Finance

cc: Mr. V. Nercissimne,Chief, ArmeniaResidcat Mission ANNEX3 Page 2 of 6

STATEMENT OF HEALTH CARE FINANCE STRATEGY

OF THE REPUBLIC OF ARMENIA

1. Health System Reforms in the Republic of Armenia: Introduction

The Government of Armenia has defined basic foundations for major reforms in the health care system. These reforms are described in the elaborated in 1995 by the Ministry of Health "Program on Development and Reforms of the Health Care System in the Republic of Armenia for 1996-2000", the legislative basis provided for which has become the "Law on Medical Aid and Services to the Population", adopted in 1996. The reforms include diversification of the health care system financing, reorientation of the system towards primary health care, improvement and updating of medical education. Introduction of licensing for professional activities, and structural changes of the system such as the decentralization of the management and financing systems, privatization and denationalization of some facilities, and significant improvement of the information analytical system. Strengthening primary health care and improving the health care financing mechanisms in Armenia are the two main directions of the reforms. The Government is preparing a separate primary health care strategy draft. Our strategy for reforming the health financing system of the republic of Armenia is presented below.

Health Care Financing

2. According to approximate estimations about 41 billion drams, or 11,000 drams per capita, was spent on health care in the Republic of Armenia in 1995. Approximately twenty-five percent - 10.1 billion drams - came from the state budget. According to the same estimations the sufficient part of the expenditures was made directly by the population, including informal out-of-pocket payments. The amount of public funding for health, though on a small scale, has been increasing in both absolute and relative terms, reflecting our commitment to the health sector. In 1996, the public health expenditures are expected to reach 13 billion drams in 1997 are budgeted at 15.7 billion drams. In the short term, the Government will continue to rely upon the state budget to finance the State Health Target Program till abstaining from introduction of a new, health payroll tax. However, the question of introduction of compulsory health insurance will be kept in the agenda and can become an issue for discussion alongside with the improvement of general economic situation.

3. Along with increasing total spending in health, the Government is also committed to allocating increasingly large share to primary health care financing. In the 1997 budget, allocations for one of the most important sectors of primary health care - outpatient- policlinic service - in comparison with the last year, will be increased by more than 36 ANNEX3 Page 3 of 6 percent, from 1.8 billion drams to 2.45 billion drams. Other important public health programs will receive priority in the frames of the overall health budget. 4. The state is not the only actor responsible for public health care. Citizens also have their own responsibility for health and health expenses. The state will remain responsible for essential service within its limited financial capacities. The Government will also attempt to improve the efficiency of the sizable non-public spending by using several approaches described below in the portion on non-public sources of financing.

5. Health Care Public Financing Strategy

The Government objectives for state health financing over the next years are to ensure universal access to essential health care services while introducing appropriate financial incentives and ensuring fiscal sustainability of the State Health Agency. The Government will focus its efforts on the following main issues: 1) creation of the State Health Agency 2) completion of the transformation process of health institutions into state enterprises 3) definition of a Basic Benefits Package to be included in the State Target Health Program 4) ensuring medical assistance to the most vulnerable groups of population by improved equity and better targeting of public spending 5) elaboration and adoption of new payment mechanisms for health care providers 6) improvement of the financial information system

6. Creation of the State Health Agency

It is necessary to separate the health care provision and the health care financing functions in order to improve the efficiency of the Armenian health care system. To this effect, the Government plans to establish a separate body for purchasing health care services - the State Health Agency. Within the State Target Programs the Agency will have the following tasks: 1) contracting with health care providers 2) paying providers 3) monitoring the quality and contents of services.

Important functions such as setting overall health policy as well as defining the Basic Benefits Package would remain the responsibility of the Government. The non- governmental health care providers will have equal rights with the state enterprises in contracting the agency. The State Agency will not be obliged to enter into agreement with all health care providers. The government will elaborate certain criteria for health care institutions selection, which would be considered by the Agency when signing agreements. The State Health Agency could be transferred to become a social insurance fund in the future, when the Government will resolute to implement compulsory health insurance. The Government will define the legal basis and the administrative and ANNEX3 Page 4 of 6 organizational structure of the Agency and launch its icti x ities during the first year of project implementation

7. Structural Changes and D)ecentralization

An important element of the Armenian health financti ret )rms appears the granting of state enterprise status to the budget institutiolls State ent ~rpriseno lo'nger receive per item budget allocation based on capacity, hut instead ire paid by the volurme of services they produce and have more freedonmto manage theiih\ ' l nudgct. Xl present most of both Republican and mnarzhealth care t'acilities ha\ e tire idy obtained state enterprise status. This process will he continued and finished dcurinl 1997 At the same time out- patient and polyclinic institutions have obtained the sxatu ofI legal entities and no longer are under the administrative authority of hospitals. Giver tht large nuLmberof health care institutions in Armenia, the Government is not sure that iTi state enterprises will be financially viable under this new budgeting system. At tf e same tinme, in order to make the bulk of the system and the personnel correspond tt i1-e real demand, the Government intends to elaborate a program for reformation and chang ing the scope of'activities of the low-efficient health care institutions, as well as for closir g of a parn of them. The Government will not promote the enterprises sufftered as lresult of a competition, except for those which implement specific tasks within the Statt I arget Health Programs, or those which are fundamental in providing accessible hea Ih care ser\ ices and ensuring homogeneous geographic distribution. The stafft' f tht ht althi care institutions which is subject to closing will be retrained to become mostlx gereral practitioners, and the facilities of those institutions will he redistributed tfor I r!1 rt efficient provision of health care services. Along with establishment statt enterpri hen~the (jovernment is committed to implement decentralization of the health care system nai iagenmenitt the marz and local (hamaink) level, as well as to continue the programmed privatization of health care institutions, considering those steps an importanit parl v' estructuring, taking into account all the positive and negative features of the process a, k\t 11as the necessity to implement it carefully.

8. Basic Benefits Package

According to the "Law on Medical Aid and Services ro t ie Population" (1996), within the framework of the State 'Farget f-lealth Program,. pro% sit 1a v a limited package of essential clinical services (the basic benefits package 1B 1P). financ ed from the state budget, is guaranteed for the population. Fhi oheti ct ) inplemetiLing the BBP is to first finance those services which will have ihe greatest i npact on improving the health status of our population within the limited public huLd,.et I he content ot' the BBP should be later revised and its methodology should he seriously refined by lirst assessing the burden of disease in Armenia in order to quantitatively e .aluate heallh priorities. In improving the BBP methodology the Government will g ve priorit\ to the issue of using the present limited financial resources in the most efficierl way, considering both the medical and economic effectiveness of the services inclu led in the IIBP ANNEX 3 Page 5 of 6

9. Guaranteed Medical Assistance to the Vulnerable Groups of Population

Equity and solidarity are important concepts in Armenian health care reform. Therefore, the Government will provide free of charge and accessible health services to the country's most vulnerable citizens. The Government will put a task to the Ministry of Social Affairs to identify the really most vulnerable groups of citizens which have the right to receive free of charge medical assistance. Besides, it's assumed that the rest of population will pay official fees for delivery of those health services, which are not included in the Basic Benefits Package.

10. New Forms of Payment of Health Care Providers

In the next few years the Government will proceed with the design, testing and implementation of new forma of payment of health care providers. In this connection some important steps have been already done in terms of shifting from the old, capacity- based budgeting system to the activity based one, also to the financing the out-patient polyclinic services on the basis of the number of population served by each GP. The Government will try to form a payment system which will: 1) emphasize the Primary Health Care as the basis of the health care 2) pay the health care providers according to the efforts they put and efficiency of those 3) allow patient to choose a provider so long as the provider has an appropriate license for professional activities 4) remunerate health care providers of both public and private sector equally for similar services

11. Improvement of Financing Information Systems

In order to implement the health finance reforms described above, it is necessary to improve and modernize the health financial information system. In particular, the Government intends to design, test, and implement an integral medical and financial information system which will assist health care authorities in making strategic decisions, will allow improvement of forms of payment of health care providers, and will allow the Government to control the expenditures of public money in health care.

12. Health Care Non-Public Financing Strategy

Armenian Government is actively designing a reform in order to improve the efficiency and fair distribution of public funds of health care. Alongside with this it remains true that most of financing of Armenian Health Care is done in a private way, directly from patients as unofficial payments to health care providers. In the long term the Government expects this situation to be improved in the frame of the general economic situation improvement, when the state is able to extend the scope and types of medical assistance ANNEX3 Page 6 of 6 guaranteed by itself. In the short term, the Government is intending to undertake the following steps to improve the situation: 1) introduction of a BBP guaranteed for everyone 2) introduction of a system of official charges for non-vulnerable groups for services not included in the BBP 3) promotion of a competition among health care providers by offering free choice of provider to citizens.

The Government is also committed to exploring options for increasing the efficiency of private spending by piloting insurance schemes on the community level, as well as creating a legal basis for formation of private medical insurance companies which can offer voluntary insurance for the layers able to pay. ANN~EX4 Page 1 of 7

EXECUTIVE SUMMARY OF SOCIAL ASSESSMENT IN HEALTH SECTOR

Background

1. The Social Assessment (SA) of the Health and Education Sectors was conducted to provide information to the Government of Armenia about people's attitudes and behaviors regardingutilization, access and satisfaction with education and health services. This SA is only one step in the information consultation process. The SA consisted of both quantitative (a questionnaire)and qualitative research (interviews and focus group discussions). The main findings are summarized below.

Health Sector Assessment

Chapter 1: Utilization of Services

2. Attendance at the Facilities: The quantitative study puts attendance of polyclinics over the last twelve months at 37 percent of visits at the polyclinics and 19.3 percent at the hospital. Attendance did not vary along rural-urban lines. This level of use of polyclinics provides an opportunity for reforms focused on the support of primary care facilities.

3. Choosinga Facility:

a. Polyclinics: Patients commonly visit the district polyclinic where they are registered but may chose to go to a different one -- knowing that specialists may require a fee. According to the survey, patients chose to go to the polyclinics for the following reasons: primary care visits initiated by the patient (51.6 percent); immunizations (26.5 percent) follow-up or other visits initiated by the physician (15.3 percent); and humanitarian assistance (3.6 percent). However, according to physicians, patients were spurred to come to the polyclinic for humanitarian assistance (drugs), and other administrative reasons.

b. Hospitals: The main finding regarding hospital attendance is that patients chose to go to the hospital not only for in-patient care or tests but also for outpatient care from a specialist (39 percent of visits). Inpatient care represents 46.5 percent of visits and consultation or diagnostic tests represent another 14 percent. Urban patients outside of Yerevan were least likely to go to the hospital for hospitalization (34 percent of visits) and most likely to go for outpatients care (50 percent of visits). This difference in level of attendance between Yerevan and other cities may be explained by the fact that many polyclinics outside of Yerevan are housed in the same building as the hospital, share the same specialists, thereby blurring a strict distinction between the two types of facilities.

4. Choice of Practitioner: At the polyclinic level, 33 percent of visits were to a specialist yet over half went to the district physician. The type of practitioner visited differed significantly by location. According to the survey, * Villagers are least likely to visit the district physician (46.7 percent).

from "Social AssessmentReport on the Educationand Health Sectorin Armenia."E. Gomart, December1996. ANNEX4 Page 2 of 7

* Yerevan residents are slightly less likely (54 percent) than other urban residents (56.5 percent) to visit a district physician. * Villagers are least likely to visit an outpatient specialist and Yerevan residents are most likely. * Only village residents reported visiting a nurse (30 percent of visits by villagers).

With regard to hospital attendance, according to the survey: * Patients mainly went to the hospital on their own initiative (56 percent), rather than by referral (30 percent). * Referral rates do not vary significantly between rural and urban areas or between Yerevan and other cities. * However, in Yerevan, patients are least likely to go to the hospital on their own initiative (48 percent) compared to other types of sites (approximately 60 percent of visits).

5. Treatment Seeking Behavior:

a. Diagnosis: The majority of respondents (59.4 percent) who said they were ill in the last 30 days were not diagnosed at a formal health facility. Instead patients chose not to get a diagnosis (19.8 percent); self-diagnosis (27.5 percent); to be diagnosed by a friend or acquaintance doctor (10.4 percent) or by a folk healer (1.4 percent). Self- diagnosis and no diagnosis were chosen by over half of those who were ill living in Yerevan (50.4 percent); and 49.2 percent in the villages, and only 37.5 percent of other urban residents. The highest rate of non diagnosis was in the villages. These may be seasonal figures. Focus groups conducted at the same time as the survey, at harvest time in August, said that they are postponing diagnosis until after the harvest because of lack of cash and time. Villagers were also the only ones to report that a nurse had provided a diagnosis (12 percent). In focus groups, people explained that they seek out diagnosis from different practitioners because they said that they do not trust diagnoses which are seen to be motivated by profit. Another reason is that patients believe that diagnostic equipment and skills are poor.

b. Treatment: Overall, more than half of the people who were ill in the last 30 days did not seek treatment. The treatment seeking behavior varied by category of location: Yerevan (40.7 percent); villages (43.5 percent) and other cities (52.9 percent). According to survey respondents, the main reason for not seeking treatment is the cost of care, including transportation costs for 30 percent of village residents. Another reason was that patients prefer to self-treat -- which may hide other problems of access or perception of quality of care.

6. Focus group discussions pointed out that because of the cost of care, people need to prioritize health needs at the household level. People prioritize according to two main criteria: * Emergency care prevails over maintenance, including preventative care such as pre- natal care; and * Children's needs prevail over those of parents and other adults. ANNEX4 Page 3 of 7

Chapter 2: Access to Health Services

7. There are three main issues with regard to access to health care: physical access, costs of access, and cost and availability of essential inputs.

a. Physical Access: According to the survey, the majority of respondents live within a 30 minute walk from the nearest facility. Even in villages, distance and time to the facility are short. However, 10 percent of the sample said that they have no access to a polyclinic because none exists in the vicinity. It is evident that physical access is more difficult for village residents. Indeed, as noted previously, 30 percent said that they had not sought treatment when they were last ill because of transportation difficulties, including costs. A response which was never given by urban residents. In addition, during focus groups, rural participants explained that their health problems commonly require more sophisticated assistance than what is available at the local facility because: appropriate specialist services do not exist; the facility is closed or the facility is devoid of the necessary equipment and medicines.

b. Costs of Health Care: According to the survey, the cost of treatment is the main determinant of access. 39.7 percent of survey respondents said that they did not seek treatment because of high costs of care. The mean cost of a polyclinic visit is US $8 while the mean cost of a hospital care is US $70. The following comments refer to Table 2, which provides quantitative findings on pricing of health services: * There is a two tiered-pricing system, one at the polyclinic level and the other at the hospital level. Prices are lower at the polyclinic level and payments are less frequent. At the hospital level, prices are high and payment is customary for most services. * Nurses and FAP doctors are rarely paid.

From the qualitative work the following comments can be made (Refer to Table 1): * A conformity in prices quoted by participants for services at a same facility suggests that there is in fact, little opportunity to negotiate price and a level of formality in pricing. * While some prices vary considerably around the country for various services (e.g. diagnostic exams, births and abortions), others are remarkably the same (e.g. dental care). * Prices vary however greatly by type of facility. Prices are higher in the city hospital than in the district center's hospital, which in turn are higher than those in the village hospital. * Frequency of payment varies greatly by site for polyclinics and FAPs and depends on the type of service. * Everyone gets paid in the hospital. As one interviewee said: "You have to pay everyone [in the maternity ward]: from the sanitation worker, to the nurses, the doctors, for medicines, the mechanic, registration, the guard, etc." Sometimes, even the head doctor takes a "tax" from the doctors' fees. * To many, it is not clear whether the fees they pay are formal/ legal or whether they are informal. This limits the patients' ability to claim his/her right to free care. * Payments for health services are not new for Armenia. In the past, they were generally paid as thanks to the doctor upon successful completion of the treatment. The price was also set by the patient and therefore based on the patient's willingness to pay. Today, patients are increasingly required to pay before treatment and for consultations at a fee set by providers. ANNEX4 Page 4 of 7

* Direct payment to the doctor seems to remain taboo for two reasons. First, prices are communicated to patients by "everyone wearing a white coat except for the doctor." And when doctors did tell patients their fees "to their faces," many patients were appalled at doctors' callousness. Second, an intermediary -- a relative or acquaintance -- is often asked to physically pay thle doctor.

c. Essential Inputs: Medicines: According to the survey, medicines is one of the main concerns of patients -- with patients outside of Yerevan reporting the highest rates of dissatisfaction. According to the focus groups, dissatisfaction is linked to costs and availability. Indeed, focus group discussants said that free medicines from the health facilities are rare. When they are provided they are often the cheapest drugs, and the amount provided is insufficient to cover full treatment. Even with a prescription for free medicines, they are difficult to obtain from pharmacies. In addition, pharmaceuticals -- from basic supplies to specialized medicines -- are often unavailable in cities outside of Yerevan. Finding medicines even in Yerevan is time-consuming and unsystematic. Another issue raised by participants is that of the lack of quality control of pharmaceuticals and the lack of professionalism of plharmacists.

8. Financing: Survey respondents said that they finance these high medical costs through current income, savings, and above all the sale of sold property, jewelry, and other assets (43.5%). In focus groups, patients said that they generally borrow money to cover immediate costs of care until they can sell personal assets and repay the loan. Without the assets, people are reluctant to borrow money, and are likely to avoid or discontinue treatment.

9. Coping Strategies: According to the focus groups, because of the high costs of care, households have sought to reduce their health expenditures. The most common strategy is to decrease their use of health care services or to drop out before treatment is completed, according to doctors and patients alike. Other coping strategies includc: * seeing a friend, neighbor or acquaintance doctor outside of the formal health care system; * paying in-kind (agricultural products or crafts); * negotiating a lower price for the services; and * turning to folk imnedicine(medicinal plants), or folk healers.

However these offer a fairly limited opportunity to reduce costs while meeting health needs.

Chapter 3: Satisfaction with Services

10. Quality of care: Patients' assessment of the quality of care depends greatly on their expectations from the health services. Over 75 percent of survey respondents were generally satisfied or highly satisfied with practitioners' expertise, attitude toward patients, and duration of waiting time. On the other hand, they were most dissatisfied with availability of medicines and the physical conditions in the facilities.

11. According to the focus groups, criteria for evaluating services include: * a free cure (including consultation, medicines and supplies) is available; * the doctor does not require payment up front and accepts to be paid once treatment is completed successfully; * the doctor is attentive and kind; * the doctors are present during opening hours; * the premises are clean and hygienic, and ANEX 4 Page 5 of 7

* the treatment is effective.

12. Contrary to the survey findings, the focus groups discussed many instances which suggest: * Tense patient-client relations. Conflicts arose around issues of payment or availability of supplies and medicines; * Lack of trust in diagnosis and treatment because doctors are seen to be motivated by profit, rather than an interest in the patient's well-being. This is linked to a perceived lack of accountability of doctors; * Quality of care is satisfactory only if the patient pays, otherwise patients say that doctors ignore them, even in emergency situations; * Lack of trust in doctors' expertise is exacerbated by the numerous cases of misdiagnosis and failed treatment provided during the discussions.

Chapter 4: Conclusions and Recommendations

13. Main problems: Based on the survey and focus groups results, the main problems identified by respondents were: cost of treatment; cost and availability of medicines; lack of accountability of doctors; and lower access to health care for the rural population. The latter is evidence by: highest rates of non-diagnosis, highest rates for seeing a nurse instead of a qualified health care provider; lower access to medicines; and higher overall access cost because of transportation difficulties.

14. Recommendations: During the focus groups, a number of recommendations were made: * Formal fees are not expected to reduce the costs paid by the patient. An increase in the salaries of doctors is not seen as the answer to decrease the informal fees charged by doctors. * The government should provide health insurance options and information. * A parallel system should be created to guarantees a degree of equity of access to the poor. * An emphasis on primary health care can reduce the cost of care at the national and household levels. * More information on reforms should be provided to communities and health care providers.

15. Feedback on proposed Reforms: The main comments on the proposed reforms were: * An emphasis on primary health care could reduce health costs at the household and national levels. * Family doctors, if well trained, may be well received by patients. However, health providers, especially specialists, are generally not open to the concept of re-training as primary care providers. Community managed health facilities may generate a higher level of accountability to the population they serve. ANNEX4 Page 6 of 7

Table 1: Cost of Services Depending on the Site and Type of Facility, According to focus group participants: Site Dental care FAP Polyclinic Ambulance Hospital* category\ (price per tooth) facility Yerevan 1000 dr. for extraction Documents (some 500-2000 dr. Consultations 4,000 dr. formal) Medicines Medicines Medicines Fuel (as needed) Diagnostic Tests ($80) Tests (100-500 dr.) Supplies Operation $150-500 GYN visit (500 dr. + Births $150-200 2000 dr. for tests) Abortions $30-$40 Home visit 4000 dr.

Gumri 4000 dr. for filling Vaccinations 20,000 RR ($4) Examination 50,000 RR GYN visit (1000 dr.) Injections (Nurse - 1,000 dr.) Diagnostic tests Births ($50-100) (2000 dr.) Cesarean birth ($120) Birth certificate Abortion $40 Sisian 4000 dr. for filling Analysis (100-500 dr.) Free but limited Births $40-60 1000 dr. for extraction Abortions $10-36 1200-400 dr. with painkiller $250 for prosthesis Vedi 2000 dr. at polyclinic Cardiogram 3000 dr. ($7.5) Maralik Births $10-15 Abortions $1 0 Medicines and supplies Sunik 4000 dr. for filling Injections (cash) Ambulance in Darbas Village hospital 4,000 dr. villages 550 dr. extraction Vaccinations (200 Fuel + 500 dr. to nurse 1000 dr. with painkiller dr.) Shirak 2000 dr. with painkiller in-kind thanks none Cheaper than Maralik, district villages hospital Ararat 2000 extraction in-kind thanks Examination at Vedi none Birth $35-50 in Vedi villages I 000 by itinerant dentist Child clinic 2000 dr. with painkiller

* Only twelve hospitals in Armenia have received state enterprise status and are able to charge fees. Prices were given in different currencies (US dollar, Russian rouble, and drams). AMNEX4 Page I of 7

Table 2: Summary of Median Amount and Frequency of Payments for Services Depending on the Facility, According to the Survey (in US dollars) Service facility FAPs2 Policlinics Hospitals % of visits for which doctors were paid 3.8 16 60 Median amount paid to doctors $2.5 $5 $37.5 % of visits for which nurses were paid 0 % 8.5 % 47.8 % Median amount paid to nurses $2.5 $2.5 $12.5 % of tests which were paid -- 18.5 % 40.7 % Median amount paid for tests -- $1.5 $7.5 % of respondents paid for bed use -- -- 7.3 % Median amount paid for bed use (per day) -- -- $15 % of respondents who paid for linens and bedding -- -- 3 % Median amount paid for linens and bedding -- -- $1.5 % respondents who paid for pharmaceuticals -- -- 52.4 % Median amount paid for medicines -- -- $22.5 Median total cost of visit - $8 $70

2 Health post staffed with a nurse and/or midwife. ANNEXS Page I of 6

HEALTH FINANCING AND PRIMARY HEALTH CARE DEVELOPMENT PROJECT

PROJECT IMPLEMENTATION PLAN OUTLINE

ABBREVIATIONLIST

1. PREPARATION

The Project Implementation Plan (PIP) for Health Financing (HF) and Primary Health Care (PHC) project is prepared based on the project proposals elaborated by two working groups and the World Bank (WB) Project Preparation Unit (PPU) of the Urmenian Ministry of Health (MOH).

PHC Working Group:

* Mr Ara Babloian, Minister of Health * Mr Derenik Doumanian, First Deputy Minister of Health * Ms Gayane Gharagebakian, Dept. of Reform Programs Implementation and Monitoring of the MOH (secretary of the Working Group) * Mr Samvel Hovhannesian, Director of National Institute of Health (Chairman of the subgroup for PHC training) * Ms Ofelia Injikian, Dept. of Maternity and Child Health of the MOH * Ms Tereza Khachatrian, National Institute of Health (Chairwoman of the subgroup for strategy development) * Ms Nune Mangasarian, Dept. of Curative and Preventive Care of the MOH * Ms Ruzanna Mkhitarian, Head of the Dept. of ReformlPrograms Implementation and Monitoring of the MOH; at present: NIH * Ms Irina Poghosian. Dept. of Curative and Preventive Care of the MOH * Mr Romen Babloian, Vice-rector of the State Medical University * Ms Donara Hakobian, State Basic Medical College * Ms Medeya Vardanian, Dept. of Maternity and Child Hlealthof the MOH

Health Financing Working Group:

* Vladimir Astvatsaturian - Director of the MOH affiliated Health Insurance Agency and docent of Yerevan State Medical University * Gayane Gevorgian - Senior Specialist of the Treasury Planning and Analysis Department, Ministry of Finance * Volodia Harutiunian - Head of the Economic Department of the MOH * Arthur Hovsepian - Department of Reform Programs Implementation and Monitoring of the MOH * Zaruhi Janibekian - Children's Polyclinic no. I * Hovhannes Margariants - Senior Specialist of the State Order division of the Economic Department of the MOH * Ashot Melkonian - Leading Specialist of the State Order division of the Economic Department of the MOHI ANNEX5 Page 2 of 6

* Ara Tadevosian - Head of the Analytic Publications and Graphics Department of the National Health Information Analysis Center of the MOH * Saro Tsaturian - Vice-Chairman of the Board and Deputy Executive Director of "Diagnostica" Medical Company and Senior Consultant to the Social-Economic Department of the Parliament (Chairman of the Working group)

Project Preparation Unit: * Susanna Hairapetyan - Head of PPU * Ruzanna Stepanian - Office Manager and Assistant to Head * Karine Ghazarian - Secretary- Translator * Ruben Dulian - Accountant

II. TABLE OF CONTENTS OF HEALTH PROJECT IMPLEMENTATION PLAN A. CHAPTER 1. BACKGROUND AND RATIONALE OF THE HEALTH PROJECT B. CHAPTER 2. PRIMARY HEALTH CARE COMPONENT 2.1 Introduction 2.2 Outline of the Component 2.3 Establishment of PHC Providers Training Program 2.4 PHC Development Program 2.5 Development of Guidelines for PHI

C. CHAPTER 3: HEALTH FINANCING COMPONENT 3.1 Introduction 3.2 Outline of the Health Financing Component 3.3 Creation of the State Health Agency 3.4 Improvement of the Basic Benefits Package Methodology 3.5 Improvement of Providers Payment Mechanism 3.6 Improvement of Health Financing Information System

D. CHAPTER 4: PROJECT MANAGEMENT UNIT III. ANNEXES ANNEX 1: PACKAGE OF BUDGETS ON OVERALL PROJECT COST, COMPONENTS, SUB-COMPONENTS, PROJECT MANAGEMENT UNIT ANNEX 2: TIME TABLE OF PROJECT COMPONENTS, SUB-COMPONENTS ANNEX 3: OPERATIONAL MANUAL ANNEX 4: TORs on TA for PROJECT SUB-COMPONENTS ANNEX 5: PROJECT MONITORING AND EVALUATION ANNEX5 Page 3 of 6

PMUORGANIZATION CHART

| HEADOFPMU l

PROJECASSAT |FNANCIALADMINMSTRATIVE PROJECT ASSISTANT PHCDPMANAGER SECRETARYTRANSLATOR ONTRAINNGl MANAGER ONFINANCING

ACCOUNTANTACOUNTANT FOR PROCUREMENTOFFICE MANAGER PROMOTION APPRAISAL EVALUATION COMPUTERAND SECRETARY PHCDP OFFICER OFFICER OFFICER ANDMONITORING MEDICAL EQUIPMENT OFFICER SPECIALIST ANNEX 5 Page 4 of 6

PROJECT COORDINATION COMMITTEE

MINISTER

Curative Care Deputy Deputy Head of Ministryof Ministry of Ministry of Yerevan Marz Parliament 15'Dleputy 'Minister on Ministeron PMU, Finance Economy Social Security, representative Health Comm. Minister Reforms representative representative representative representative

The responsibilities of the Committee are following:

I. Oversee the consistency of project developtnent with the overall policy of the Government

2. Ensure that the possible changes, if any, will not deviate from the strategy stated in the project 3. Periodically accept and discuss reports on project sub-components development

4. Make decisions and settle problems emerging in the process of project implementation. ANNEX5 Page 5 of 6

Primary Health Care Development Program (PHCDP) Outline of Operational Manual

Background

I. Description of PHCDP Component

2. PHCDP Goals and Objectives

3. PHCDP Targeting Methodology (selection of marzes)

4. PHCDP Institutional Set Up (Annex 1-- Organizational Chart) 4.1 PHCDP Committee 4.2 PHCDP Unit

5. Promotion

6. PHCDP Microproject Cycle (Annex 2 -- M/P Cycle Flow Chart) 6.1 Identification (Annex 3 -- Letter of Intent, Annex 4 -- Standard Proposal) 6.1.1 Community Participation (General Community Meeting) 6.1.2 PHC Facility Management Board 6.1.3 Pre-Appraisal -- Eligibility Criteria (Annex 5 -- Letter of Acknowledgment, Annex 6 -- Pre-appraisal Report Form) 6.1.4 Technical Assistance to Management Board (Annex 7 -- TOR for the TA for the PHC Facility Development Plan) 6.1.5 Community PHC Development Plan -- Business Plan 6.1.6 Community Contribution

6.2 Microproject Appraisal (Annex 8 -- Appraisal Report Form) 6.2.1 Exclusive Criteria 6.2.2 Evaluation Criteria 6.2.3 Norms and Standards (Annex 9 -- Norms and Standards) 6.2.4 Performance Benchmarks

6.3 Microproject Approval (Annex 10 -- Letter of Approval)

6.4 Microproject Implementation 6.4.1 Signing of Performance Contract (Annex II -- Standard Performance Contract signed between PHCDP and Facility Management Board) 6.4.2 Civil Works (Annex 12 -- Draft Contract between PHCDP and ASIF, Annex 13 -- Joint ASIF PHCDP Follow Up Report Form, Annex 15 -- Hand Over Agreement Form) 6.4.3 Equipment and Supplies 6.4.4 Performance Monitoring -- Community Health Fund (second tranche) (Annex 14 -- Performance Contract Monitoring Form) 6.4.5 Hamaynk Health Board -- Optional (end of PHCDP program in the community)(Annex 16 -- Hamaynk Conformation Letter)

7. Training and Technical Assistance ANNEX5 Page 6 of 6

7.1 Capacity Building of PHCDP Unit 7.2 Training/TA to PHCDP Promotion Officers (Annex 17 -- TOR for Promotion Training) 7.3 Training/TA to on Development of PHCDP Norms and Standards (Annex 18 -- TOR for International Consultant) 7.4 Training/TA for Facility Management Board 7.5 Training/TA for PHC Team

8. Monitoring and Evaluation 8.1. Lessons Learned from PHCDP 8.2 PHCDP Impact Assessment

9. Procurement 9.1 Procurement Management 9.2 Procurement Methods 9.3 Procurement Monitoring (Annex 18 -- TOR for Procurement and Technical Review)

10 Disbursement 10.1 Payment Methodology 10.2 Bank Accounts 10.3 Transfer of PHCDP Funds

11. Accounting and Reporting 11.1 Accounting Obligations 11.2 Reporting Obligations 11.3 Accounting System

12. PHCDP Administrative Procedures

Annexes

1. Annex I -- Organizational Chart 2. Annex 2 -- Microproject Cycle Flow Chart 3. Annex 3 -- Letter of Intent 4. Annex 4 -- Standard proposal Form 5. Annex 5 -- Letter of acknowledgment 6. Annex 6 -- Pre-appraisal Form 7. Annex 7 -- TOR for PHC Facility Development Plan 8. Annex 8 -- Standard Microproject Appraisal Form 9. Annex 9 -- Norms and Standards 10. Annex 10 -- Letter of Approval 11. Annex 11 -- Draft Contract between PHCDP and ASIF 12. Annex 12 -- Standard Performance Contract between Management Board and PHCDP 13. Annex 13 -- Joint ASIF-PHCDP Follow Up Report 14. Annex 14 -- PHCDP Performance Contract Monitoring Form 15. Annex 15 -- Hand Over Agreement for Civil Works, Supplies and Equipment 16. Annex 16 -- Conformation of Community Board of Health 17. Annex 17 -- TOR for Training for Promotion Officers 18. Annex 18 -- TOR for International Consultant on Norms and Standard 19. Annex 19 -- TOR for Procurement and Technical Review. ARMENIA ANNEX6 HealthProject Table 1. EstablIshmentof SHA Detailed Costs (US$ '000)

Base Cost Total IncludingContingencies

Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total 1.Investment Costs A. Civil works and goods Central Ofrice sq.m. 425 425 - - - 850 0.06 25.5 25.5 - - - 51.0 29.2 30.3 - - - 59.5 Yerevan offices sqm. 200 200 - - - 400 0.05 10.0 10.0 - - - 20.0 11.4 11.9 - - - 23.3 Premises in 10 marz sq.m. 650 650 - - - 1,300 0.05 32.5 32.5 - - - 65.0 37.2 38.7 - - - 75.8 Subtotal Clvil works and goods 68.0 68.0 - - 136.0 77.8 80.9 - - - 158.7 B. Offce equipment and fumniture Personal computers each - 90 - - 90 2.45 - 220.5 - - - 220.5 - 226.7 - - - 226.7 Fax machines each - 16 - - - 16 0.5 - 8.0 - - - 8.0 - 8.2 - - - 8.2 Photocopy machines each - 16 - - - 16 3.5 - 56.0 - - - 56.0 - 57.6 - - - 57.6 UPS unis each - 42 - - - 42 0.3 - 12.6 - - - 12.6 13.0 - - - 13.0 Printers each - 43 - - - 43 0.7 30.1 30.1 30.9 30.9 Telephones each - 150 - - - 1500.05 7.5 7.5 7.7 7.7 Extension phone unn each - 2 - - - 2 1 - 2.0 - - - 2.0 - 2.1 - - - 2.1 Slide projector each - 5 - - - 5 0.5 2.5 - - - 2.5 - 2.6 - - - 2.6 Overhead projector each - 5 - - - 5 0.5 - 2.5 - - 2.5 - 2.6 - - - 2.6 Fumiture set 25 52 - - - 77 1 25.0 52.0 - - 77.0 25.5 54.5 - - - 80.0 Set of office supplies set - 12 - - - 12 1 - 12.0 - - - 12.0 - 12.3 - - - 12.3 Subtotal OMce equipment and fumiture 25.0 405.7 - - - 430.7 25.5 418.2 - - - 443.7 C. Vehices each - 16 - - - 16 10 - 160.0 - - - 160.0 - 164.5 - - - 164.5 D. Technical Assistance 1. Foreign consultants Healtheconomics and financing person/month 1 3 2 1 1 8 25 25.0 75.0 50.0 25.0 25.0 200.0 25.2 77.1 52.6 27.0 27.8 209.8 Financialmanagement and accounting person/month 1 2 1 1 - 5 25 25.0 50.0 25.0 25.0 - 125.0 25.2 51.4 26.3 27.0 - 130.0 Legal aspects person/month 2 - - - - 2 25 50.0 - - - - 50.0 50.4 - - - - 50.4 Subtotal Foreign consultants 100 0 125 0 75.0 50.0 25.0 375.0 100 9 128.5 79.0 54.1 27.8 390.2 2. Local consultants Economist person/month 18 - - - 18 0 5 9 0 - - - - 9 0 9 4 - - - 9.4 Lawyer person/month 6 - - - - 6 0 5 3.0 - - - - 3.0 3.1 - - - - 3.1 Medical expert person/month 6 - - - - 6 0.5 3 0 - - - - 3.0 3.1 - - - - 3.1 Subtotal Local consultants 15.0 - - - - 15.0 15.6 - - - - 15.6 Subtotal Technical Assistance 115.0 125.0 75.0 50.0 25.0 390.0 116.5 128.5 79.0 541 27.8 405.8 E. Training 1. Abroad Long-term training person/month - 15 - - - 15 6 - 90.0 - - - 90.0 - 92.5 - - - 92.5 Short-termstudy tours person/month - 25 8 7 5 45 6 - 150.0 48.0 42.0 30.0 270.0 - 154.2 50.5 45.4 33.3 283.5 Subtotal Abroad - 240.0 480 42.0 30.0 360.0 - 246.8 50.5 45.4 33.3 376.0 2. Local person/month - 450 - - - 450 0.1 - 45.0 - - - 45.0 - 48.7 - - - 48.7 Subtotal Training - 285.0 48.0 42.0 30.0 405.0 - 295.4 50.5 45.4 33.3 424.7 Total investmentCosts 208.0 1,043.7 123.0 92.0 55.0 1,521 7 219.8 1,087.5 129.5 99.5 61.1 1,597.3 H.Recurrent Coats A. PC and equipmentmaintainnce month - 9 12 12 6 39 1.5 - 13.5 18.0 18.0 9.0 58.5 - 146 21.0 22.3 11.9 69.8 B. Staff salaries person/year - 70 135 135 75.5 415.5 0.84 - 58.8 113.4 113.4 63.4 349.0 - 63.6 132.1 140.8 83.6 420.0 C. FacilityMaintenanceandULtilRties persqmlyear - 850 2,550 2,550 1,225 7,175 0.012 - 10.5 31.4 31.4 15.1 88.3 - 11.3 36.5 38.9 19.9 106.6 D. Office supplies month - 12 12 12 6 42 0.1 - 1.2 1.2 1.2 0.6 4.2 - 1.3 1.4 1.5 0.8 5.0 E.Vehiclemaintainance vehicle/year - 16 16 16 8 56 1.8 - 28.8 28.8 28.8 14.4 100.8 - 31.1 33.5 35.7 19.0 119.4 Total Recuent Coats - 112.8 192.8 192.8 102.5 600.8 - 121.9 224.5 239.3 135.1 720.8 Total 208.0 1,156.5 315.8 284.8 157.5 2,122.5 219.8 1,209.4 354.0 338.8 196.2 2,318.1

Page1 ARMENIA ANNEX 6 Health Project Table 2. Improvement of Basic Benefits Package Methodology Detailed Costs (US$ 0O0)

Unit Base cost Totals Including Contingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total

1. Investment Costs A. Civil Works Renovabon of premises sq.m. 25 25 - - - 50 0.05 1 3 1.3 - - - 2 5 1.4 15 - - - 2.9 B. Office equipment and fumiture Telephone each 6 - - - 6 0 05 0.3 - - - 0 3 0.3 - - - 0.3 Fumiture set 2 - - - 2 1 2 0 - - - - 2 0 2 0 - - - - 2.0 Photocopy machine each 1 - - - - 1 5 5.0 50 50 - - - - 5.0 Fax machines each 1 - - - - 1 0 6 0 6 - - - - 0.6 0.6 - - - - 0.6 Subtotal Office equipment and furnitu 7.9 - - - - 7 9 8.0 - - - - 8 0 C. Technical Assistance 1. Foreign consultants Public health person/month - 1 - - - 1 25 - 25.0 - - - 25 0 - 25 7 - - - 25.7 Health organization person/month 1 1 - - - 2 25 25 0 25.0 - - - 50 0 25.2 25 7 - - - 50.9 Health economics person/month - 1 1 - - 2 25 - 25.0 25.0 - 50.0 - 25.7 26.3 - - 52.0 Subtotal Foreign consultants 25.0 75 0 25 0 - - 125 0 25 2 77.1 26.3 - - 128.6 2. Local consultants Economist person/month 9 18 18 18 9 72 0.5 4.5 9.0 9.0 9.0 45 36.0 4.7 97 10.5 11 2 59 42.0 Information systems expert person/month 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6 0 3.0 24 0 3.1 6 5 7.0 7 4 4 0 28.0 Physician person/month 9 18 18 18 9 72 05 4.5 90 9.0 90 4.5 36.0 4.7 97 105 11.2 59 420 Secretary/operator person/month 6 12 12 12 6 48 05 3.0 6.0 6.0 6.0 30 24.0 3.1 6.5 70 74 4.0 28.0 Subtotal Local consultants 15.0 300 30.0 300 150 120.0 15.6 32.4 34.9 37.2 19.8 140.0 Subtotal Technical Assistance 40.0 1050 550 30.0 15.0 245.0 40.8 109 5 61 3 372 19.8 268.6 D. Computer equipment Personal computers each 3 3 2 5 7 5 - - - - 7 5 7 6 - - - - 7 6 Printers each 3 3 06 18 - - - t 8 1 8 - 8 UPS each 1 1 1 2 12 -- - - 2 12 - - 12 Subtotal Computer equipment 105 - - - 105 106 - - - 106 E. Training 1. Abroad Long-term person/month - 6 - - 6 6 - 36 0 - - 36 0 - 37.0 - - - 37 0 Short-term person/month 2 3 2 1 8 6 12.0 18 0 12.0 6.0 - 48 0 121 18 5 12 6 6.5 - 49.7 Subtotal Abroad 12 0 54 0 12.0 6 0 - 84 0 121 55 5 12.6 6 5 - 86.7 2. Local Workshops each 1 1 1 1 1 5 25 2.5 2.5 25 25 2.5 12.5 26 2.7 2.9 31 3.3 14.6 Subtotal Training 14.5 56.5 145 8.5 2.5 96.5 14.7 58.2 155 9.6 3.3 101 4 Total InvestmentCosts 74.2 1628 69.5 38.5 175 362.4 75.5 1693 76.8 468 23.1 391 5 II. Recurrent Costs A. Equipment maintainance amount/month 6 12 12 12 6 48 0.05 0.3 0 6 0.6 0.6 0 3 2 4 0.3 0.6 0 7 0 7 04 2.8 B. Office supply set 1 1 1 1 1 5 0.05 01 01 o01 0.1 01 0 3 0.1 0.1 0 1 01 01 03 C. Office maintenance and utilities er sq. m./yea 25 50 50 50 25 200 0.012 0 3 06 0.6 0.6 0.3 2.5 0.3 0.7 0.7 0.8 0.4 2.9 Total Recurrent Costs 0.7 1.3 1.3 1.3 0 7 51 0.7 1.4 1.5 1.6 0.9 6.0 Total 748 164.0 708 398 18.2 3675 762 170.6 783 48.4 23.9 3975

Page 1 ARMENIA ANNEX 6 Health Project Table 3. Providers PaymentMechanism's Improvement DetailedCosts (US$ '000)

Unit BaseCost Total IncludingContingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. InvestmentCosts A. TechnicalAssistance 1. Foreignconsultants Financialmanagement and acc erson/mont 1 2 0.5 0.5 - 4 25 25.0 50.0 12.5 12.5 - 100.0 25.2 51.4 13.2 13.5 - 103.3 Healtheconomics erson/mont 1 2 - - - 3 25 25.0 50.0 - - - 75.0 25.2 51.4 - - - 76.6 Subtotal Foreignconsultants 50.0 100.0 12.5 12.5 - 175.0. 50.4 102.8 13.2 13.5 - 179.9 2. Local consultants Economist erson/mont 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6.0 3.0 24.0 3.1 6.5 7.0 7.4 4.0 28.0 Accountant erson/mont 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6.0 3.0 24.0 3.1 6.5 7.0 7.4 4.0 28.0 Health care managementspeci erson/mont 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6.0 3.0 24.0 3.1 6.5 7.0 7.4 4.0 28.0 Informationsystem expert erson/mont 3 6 6 6 3 24 0.5 1.5 3.0 3.0 3.0 1.5 12.0 1.6 3.2 3.5 3.7 2.0 14.0 Subtotal Local consultants 10.5 21.0 21.0 21.0 10.5 84.0 10.9 22.7 24.5 26.1 13.8 98.0 SubtotalTechnical Assistance 60.5 121.0 33.5 33.5 10.5 259.0 61.3 125.5 37.6 39.6 13.8 277.9 B. Training 1. Abroad Long-termtraining erson/mont - 6 - - 6 6 - 36.0 - - - 36.0 - 37.0 - - - 37.0 Short-term study tours erson/mont 1 4 3 2 - 10 6 6.0 24.0 18.0 12.0 - 60.0 6.1 24.7 19.0 13.0 - 62.7 Subtotal Abroad 6.0 60.0 18.0 12.0 - 96.0 6.1 61.7 19.0 13.0 - 99.7 2. Local Workshops workshops - 15 - - 15 2.5 - 37.5 - - - 37.5 - 40.5 - - - 40.5 SubtotalTraining 6.0 97.5 18.0 12.0 - 133.5 6.1 102.2 19.0 13.0 - 140.2 Total 66.5 218.5 51.5 45.5 10.5 392.5 67.4 227.8 56.6 52.6 13.8 418.1

Page 1 ARMENIA ANNEX 6 Health Project Table 4 Improvement of Financial Information Systems Detailed Costs (US$ 000)

Unit Base Cost Totals Including Contingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total 1.Investment Costs A. Computer and network hardware 1. Global network Global network's server each - 2 - - - 2 12 - 24.0 - - - 24.0 - 24.7 - - - 24.7 General switch system set - 1 - - - 1 43.8 - 43.8 - - - 43.8 - 45.0 - - - 45.0 Central switch system set - 1 - - - 1 21.9 - 21.9 - - - 21.9 - 22.5 - - - 22,5 PAO-6ports each - 11 - - - 11 1.2 - 13.2 - - - 13.2 - 13.6 136 Modems 3266 with cables set - 90 - - - 90 0.81 - 72.9 - - - 72.9 - 75.0 - - - 75.0 Computersoftware each - 50 - - - 50 0.33 - 16.5 - - - 16.5 - 17.0 - - - 170 Global network software package - 2 - - - 2 1 - 2.0 20 - 21 - - - 2.1 Communication channels/rent and section - - 6 22 22 50 1.5 - - 9.0 33.0 33.0 750 - - 9.5 35.7 36.6 81.8 Subtotal Global network - 194.3 9.0 33.0 33.0 269.3 - 199.8 9,5 35.7 36.6 281.6 2. Local networks Local networks servers each - 2 - - - 2 5 - 10.0 - - - 10.0 - 10.3 - - - 10.3 Token-ring network interface card each - 50 - - - 50 0.4 - 20.0 - - - 20.0 - 20.6 - - - 20.6 Multi-station access unit each - 7 - - - 7 0.4 - 28 - - - 28 - 2.9 - - - 2.9 CSH premise communication cable metre - 2,500 - - - 2,500 0.01 - 25.0 250 - 25.7 - - - 25.7 LANcableplugs each - 100 - - - 100 002 - 20 2.0 - 2.1 - - - 2.1 Local network software package - 2 - - - 2 4 - 8.0 - - - 8.0 - 8.2 - - - 8.2 Subtotal Local networks - 67.8 - - - 67 8 - 69 7 - - - 69.7 3. Other equipment Scanner each - 1 - - - 1 13 - 1.3 - - - 1.3 - 1.3 13 Printerswrtches and cables set - 48 - - - 48 0.04 - 1.9 - - - 1.9 - 2.0 - - - 2.0 Subtotal Other equipment - 3.2 - - - 3.2 - 3.3 - - - 3.3 Subtotal Computer and network hard - 265.3 9.0 33.0 33.0 340.3 - 272.8 9.5 35 7 36.6 354.6 B. Technical assistance 1. Foreign consultants Information systems erson/mont - 2 - - - 2 25 - 500 - - - 50.0 - 51.4 - - - 51.4 Computer networks erson/mont - 1 1 - - 2 25 - 25.0 25.0 - - 50.0 - 25.7 26.3 - - 52.0 Financial management erson/mont - 1 - - - 1 25 - 25.0 - - - 25.0 - 25.7 - - - 25.7 Subtotal Foreign consultants 100.0 250 - - 1250 - 102.8 26.3 - - 129.1 2. Local experts Physicial-statistician erson/mont 5 12 - - - 17 0.5 2.5 6.0 - - - 8.5 2.6 6.5 - - - 9 1 Economist erson/mont 5 12 - - - 17 0.5 2.5 6.0 - - - 8.5 2.6 6.5 - - 9.1 Informiabonsystems expert erson/mont - 96 48 36 18 198 0,5 - 48.0 24.0 18.0 9.0 99.0 - 51.9 28.0 22.3 11.9 114.1 Subtotal Local experts 5.0 60.0 24.0 18.0 9.0 116.0 5.2 64.9 28.0 22.3 11.9 132.2 Subtotal Technical assistance 5.0 160.0 49.0 18.0 9.0 241.0 5.2 167.7 54.3 22.3 11.9 261.4 C. Training 1. Abroad Long-term training erson/mont - 6 - - - 6 6 - 36.0 - - - 36.0 - 37.0 - - - 37.0 Short-term study tours erson/mont 2 3 2 1 - 8 6 12.0 18.0 12.0 6.0 - 48.0 12.1 18.5 12.6 6.5 - 49.7 Subtotal Abroad 12.0 54.0 12.0 6.0 - 84.0 12.1 55.5 12.6 6.5 - 86.7 2. Local erson/mont - 150 30 - - 180 0.1 - 15.0 3.0 - - 18.0 - 16.2 35 - - 19.7 Subtotal Training 12.0 69.0 15.0 6.0 - 102.0 12.1 71.7 161 6.5 - 106.5 Total 17.0 494.3 73.0 57.0 42.0 683.3 17.3 512.2 79.9 64.5 48.5 722.4

Page1 ARMENIA ANNEX6 HealthProject Table 5. PHC ProvidersGuidelines Development DetailedCosts (US$ '000)

Unit Base Cost Total Including Contingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total L.Investment Costs A. Refurbishment of facilities sq. m. 30 30 - - - 60 0.06 1.8 1.8 - - - 3.6 2.1 2.1 - - - 4.2 B. Officeequipment and furniture Computer each 7 - - - - 7 1.5 10.5 - - - - 10.5 10.6 - - - - 10.6 Printers each 3 - - - - 3 0.7 2.1 - - - - 2.1 2.1 - - - - 2.1 UPS each 3 - - - - 3 0.3 0.9 - - - - 0.9 0.9 - - - - 0.9 Fax machine each 1 - - - - 1 0.5 0.5 - - - - 0.5 0.5 - - - - 0.5 Copy machine each 1 - - - - 1 2.4 2.4 - - - - 2.4 2.4 - - - - 2.4 Telephones each 2 - - - - 2 0.05 0.1 - - - - 0.1 0.1 - - - - 0.1 Furniture set 3 - - - - 3 1 3.0 - - - - 3.0 3.1 - - - - 3.1 Subtotal Office equipment and fur 19.5 - - - - 19.5 19.7 - - - - 19.7 C. Technicalassistance 1. Foreign erson/mont 1 0.5 0.5 0.25 0.25 2.5 25 25.0 12.5 12.5 6.3 6.3 62.5 25.2 12.9 13.2 6.8 6.9 64.9 2. Local erson/mont 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6.0 3.0 24.0 3.1 6.5 7.0 7.4 4.0 28.0 Subtotal Technicalassistance 28.0 18.5 18.5 12.3 9.3 86.5 28.3 19.3 20.1 14.2 10.9 92.9 D. Training 1. Studyabroad Short-termfellowships erson/mont 1.5 1.5 1 1 1 6 6 9.0 9.0 6.0 6.0 6.0 36.0 9 1 9.3 6.3 6.5 6.7 37.8 2. Workshops erworksho - 16 16 16 8 56 1 - 16.0 16.0 16.0 8.0 56.0 - 17.3 18.6 19.9 10.5 66.3 SubtotalTraining 9.0 25.0 22 0 22.0 14.0 92.0 9.1 26.6 25.0 26.3 17.2 104.1 E. Printing Printing b/guid/thou - 48 96 96 48 288 0.4 - 19.2 38.4 38.4 19.2 115.2 - 20.8 44 7 47 7 25.3 138.5 Dissemination/mailing year - 4 4 4 2 14 1.5 - 6.0 6.0 6.0 3.0 21.0 - 6.5 7.0 7.4 4.0 24.9 SubtotalPrinting - 25.2 44.4 44.4 22.2 136.2 - 27.2 51.7 55.1 29.3 163.3 Total InvestmentCosts 58.3 70.5 84.9 78.7 45.5 337 8 59.2 75.3 96.8 95.7 57.4 384.3 I. RecurrentCosts A. Office Staff salaries erson/mont 24 48 48 48 24 192 0.5 12.0 24.0 240 24.0 12.0 96.0 12.5 25.9 28.0 29.8 15.8 112.0 B. Office operationcosts Office space sqm'year - 60 60 60 30 210 0.012 - 0.7 0 7 0.7 0.4 2.6 - 0.8 0.9 0.9 0.5 3.1 Office supplies month 6 12 12 12 6 48 0.15 0.9 1.8 1.8 1.8 0.9 7.2 0.9 1.9 2.0 2.1 1.1 8.0 SubtotalOffice operationcosts 0.9 2.5 2.5 2.5 1.3 9.8 0.9 2.7 2.9 3.0 1.6 11.1 TotalRecurrent Costs 12.9 26.5 26.5 26.5 13.3 105.8 13.4 28.6 30.8 32.8 17.4 123.1 Total 71.2 97.0 111.4 105.2 58.7 443.6 72.6 103.9 127.6 128.5 74.8 507.3

Page 1 ARMENIA ANNEX6 Health Project Table 7 Training of PHC Providers Detailed Costs (US$ '000)

Unit Base Cost Totals Including Contingencies UnRt 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Redurbishmernt of facilities SMU trainingqpremises sq.m 257 256 - - - 513 0.1 25 7 256B 51 3 29 4 304 - - - 59,9 SMU hostel sq m 365 365 - - - 730 0 05 18.3 16 3 - - - 36.5 20.9 21 7 - - - 42.6 NlH training prermises sq.m, 315 315 - - - 630 0 07 22 1 22 1 - - - 441 25.2 26 2 - - - 51.5 NIH Hostels sq.m. 544 544 - - - 1,088 0 07 381 38 1 - - - 76 2 43 6 45 3 - - 6 9 Medical College training premises sq m Boo Boo - - 1,600 0 09 72.0 72.0 - - -144,0 82A4 85 6 - - - 168,0 SubtrftittRe1Wubishmerntof facitles 176.1 17650 - - -352.1 201.5 209.3 - -410.8 B. OflEke equipmettt *ttd funntture 1. SMU fumtmture Tables each - 100 - - - 100 0.1 -10.0 - - - 10 0 - 10 8 - - - 10 8 Chairs each - 200 - - - 200 0 03 - 6 0 - - - 6 0 6 5 -- 6 5 Bookshelves each - 20 - - - 20 0 13 - 2 6 - - - 2 6 - 2 8 - - - 2 8 Blackboards each - 14 -- 14 0.03 - 0.4 - - 4 - 05 - 05 Sutttotatl SMU fumttume 19.0 19 0 -20 6 - - - 20 6 2. NIH fumniture Tables each - 150 - - - 150 0 1 -15 0 - - - 15 0 - 162 - - - 162 Chains each - 300 - - - 300 O 03 - 9,0 - - - 9.0 9 3 - 9 7 BoDtksheives each - 20 - - - 20 0 13 - 2.6 - - - 2.6 - 2.8 - - - 2.8 Subtotal NIH fumiture- 26 6 - - - 26 6 - 28 8 - - - 28,8 3. Medkcal College fumtnure Tables each - 200 200 0 1 -20.0 - - - 20.0 -218 - -6 2161 Chairs each - 400 -400 0 03 -12 0 - - - 12.0 - 13,0 - - - 13 0 Bookshelves each - 40 - - - 40 0 1 - 4,0 -- 4.0 4 3 - - - 4 3 Subtotal Medical College fumtture -36 0 - - - 36 0 38 9 - - 38 9 4. SMU equlpmernt Overhead projector each - 4 - - - 4 0 5 - 2 0 .2 0 2 2 - - 2 2 Slide projector each I 1 0 75 - 0 6 0 6 0 8 - 8 TV each I 1 08 - 06 0 6 - 06 - - - 06 Video reoorder each I 1 o 85 - 0 9 - - - 0 9 - 0 9 - - - 0.9 Phones each 6 6 0 05 - 0 3 - 3 - 0 3 - 3 Scanner each - 1 Computers each 2 1 2 - - 4 2 5 5 0 30 0 -35 0 5 2 32 4 37 6 Pninters each 2 1 3 1 2 0 1 0 - - - 3 0 2 1 1 1 3 2 Fax machine each - I, 0 7 0 7 0 7 0 6 o 8 Copy machine each - I 1 2 3 - 2 3 2 3 2 5 - -2 5 UPS each 2 5 - - - 7 0)3 0 6 1 5 - - - 2 t 0 6 1 6 - - - 2.2 Sutttotal SMU equipment 7 6 41 3 - - - 48 9 7 9 44 7 - - - 52 6 S. NIH equipment Overhead projector each - 4 - -4 0 5 - 2 0 - - - 2 0 2 2 - 2 2 Slide projector each - 1 - 1 0 75 - 0 8 - . - 0 8 - 0 8 - - - 0,8 Phones each - 6 6 0,05 - 0 3 0 3 - 0 3 - 3 Video recorder each I 1 0 85 0 9 0 9 0 9 -0 9 Tv eac-h 1 I 0 6 - 06 - 06 - 0,6 - 06 Scanner each 1I 3 3131414 Fax machine earh - 1 - - - 1 0 7 - 0 7 - -0 7 086 8 Copy machine each I 2 2 3 2 3 2 3 - - - 4 6 2 4 2 5 - - 4 9 Computer hard and software each 4 12 - - 16 2 5 10 0 30 0 -40 0 t04 32 4 42 8 UPS each 4 3 - - - 7 0 3 1.2 0 9 - - - 21 1 2 1 0 - - - 2 2 Pnnters each 4 1 - - - 5 1 4,0 1.0 - - - 5,0 4.2 1 1 - - 5 2 Subtotal NIH equipment 17 5 40 7 - - - 56 2 16 2 44 0 - - 62 2 6. Medical College equipment Phones eachi - 2 - - - 2 0 05 - 01 -1 - 01 01 01 Fax each 1 -1 05 05 -0 Overhead projerdor each - 4 - - - 4 o 5 - 2 o 2 o 2 2 - - - 2 2 Slide pnojertor each - 2 -2 0 75 - 1 5 - - - 1 5 - 1 6 1 6 Video recorder each - 1 - - - 1 0 85 - 0 9 - - - 0 9 - 0 9 - - - 0 9 TV each - 1 - - - 1 06 - 06 - - - 06 - 06 - - - 06 Copy machine each 1 1 - - - 2 2,3 2 3 2.3 4 6 2 4 2 5 -- 4 9 Computers each 2 12 - - - 14 2 5 5 0 30.0 - -35.0 5 2 32 4 - - - 37 6 Pnnters each 2 1 - - - 3 1 2 0 1 0 - - - 3 o 2 1 1 1 3 2 UPS adaptors each 2 5 - - - 7 0 3 0 6 1.5 - -2 1 0 6 1 6 2 2 Subtotal Medical College equipment 10 4 39 9 - - - 50.3 10 8 43 1 - - . 53 9 Subtotal OMce equipment and fumniture Pagel1 35 5 203 5 - - 239 0 36,9 220 0 - 256 9 ARMENIA ANNEX 6 Health Project Table 7 Training of PHC Providers Detailed Costs (US$ '000)

Unit Base Cost Totals IncludingContingencies Untt 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 200O1 Total C. Technical assistance 1. Foreign SMU persor/month 1 7 2 1 0 75 0 25 5 7 25 42 5 50 0 25 0 18 8 6 3 1425 42 9 51 4 26 3 20 3 6 9 147.8 NIH person/month . 3 1 0 75 0 25 5 25 - 75 0 25 0 18 8 6 3 1250 - 77 1 28 3 20 3 6 9 1307 Medic-alCollege person/month 1 1 0 5 0 5 - 3 25 25 0 25 0 12 5 12.5 - 75 0 25 2 25 7 13 2 13 5 - 77 6 SubtotalForeign 67 5 150 0 62 5 50 0 125 342 5 68 1 154 2 65 41 13 9 35681 2. Local SMU person/month 6 6 - - - 12 0 5 3 0 3 0 - - - 6 0 3 1 3 2 - - - 6 4 NIH person/month 3 6 - - - 9 0.5 1 5 3 0 - - - 4 5 1 6 3 2 - - - 4 8 Medic-alCollege person/month 3 6 -- 9 0 5 1 5 3 0 - - - 4 5 1 6 3 2 -4 8 Subtotal Local 6 Q 9 0 - -15 Q 6 2 9 7 - - - 16 0 Subtotal Technical assistance 73 S 159 0 62 S S0 0 12 5 357 5 74 3 164 0 65 8 54.1 13 9 372 0 D. Training 1. SMU Fellowships persorn/month 20 12 . 32 6 t20QQ 72Q0 - - .192Q t 21 0 74Q0 - - 195 0 Student sbpends er student yea - 10 6G 15C 100 320 0 2 - 2 0 12 0 30 0 20 0 64 0 - 2 2 14 0 37 2 26 4 79 7 Subtotal SMU 120 0 74 0 12 0 30 0 20 0 256 0 121 0 76 2 14 0 37 2 26 4 274 8 2. NIH Fellowshipsand study visits person/month 24 ler - 40 6 144 0 96 0 - - 240 0 145 2 98 7' 243 9 Student sbpends(doctors) ourse/student - 90 180 180 90 540 0 25 - 22 5 45 0 .150 22 5 1350 - 24 3 52 4 SS9 29 7 162 3 Student stpends (nurses, midwives) ourse/student - 70 140 140 70 420 0 1 - 7 0 14 0 14 0 7 0 42 Q - 7 6 16 3 17 4 9 2 50 S SubtotalNIH 144Q0 125 5 59Q0 59 0 29 5 417 0 145 2 130 6 68 7 73 2 38 9 457 3. MedicalCollege Fellowships person/month 15 5 20 6 90 0 30 0 - - -120 0 90 8 30 8 - - 121 6 Sbpends (midwives) ourse/student - - 65 65 65 195 0 03 - - 2 Q 2 C 2 Q 5 9 - 2 3 2 4 2 6 7 3 Sbpends(nurses) ourse/student - 1Q0 1QQ tO0 300 QQ04 - - 4.0 4 0 4Q0 12Q0 - - 4 7 5.0 53 14.9 Subtotal MedicalCollege 90 Q 30 Q 6 Q 6 Q 6 0 1379 90 8 30 8 6 9 7 4 7 8 143 8 SubtotalTraining 354Q0 229 5 77Q0 95Q0 5556 810 9 357Q0 237 6 89 6 1179 73 1 8752 TotallInvestmentCosts 639 1 768 0 1395 145Q0 68Q0 #gt 669 7 830 9 1554 1719 87 0 1.914 9 11.Recurrent Costs A. Maintenance and utilities NIH office sqm/year - 630 630 630 31!5 2.205 o 012 - 7 7 7 7 7 7 3 9 27 1 . 4 9 Q 9 6 5 1 32 1 NIH hostel sqmtyear b44 1 066 1 Q66 544 3 264 Q 012 6 6 13 3 13 3 6 6; 39 8 7 9 15 5 16 5 8 7 47 9 SMU office sqm/year - S1 1 020 10Q20 510u 3 06Q Q 012 - 6 3 12 5 12 5 6 3 37 6 6 8 14 6 15 6 6 3 45 2 SMU hostel sqm/year 375 750 750 37' 2,25C QQ012 4.6 9 2 5. 4 6 27 7 5u. 1Q,i 11 5 6 1 33 3 Medical College sqm/year -1,QQ0 2.QQQ 2 QQQ 1 QQ0 6 000 0 012 12 3 24 6 24 6 12 3 73 8 13 3 28 6 30 5 16 2 88 7 Subtotal Maintenanceand utilities - 37 6 67 4 67 4 33 7 206 1 40 6 78 5 83 7 44 4 247 2 B. Publications and subscriptions NIH per month 4 12 12 12 6 46 Q 7 2 8 6 4 8 4 8 4 4 2 32 2 268 8 6 8 8 9 1 4 7 34 1 SMU per month 4 12 12 12 6 46 0 5 2 , 6 6 0e 5Q0 3Q0 23C0 2C2 6 6 3 6 5 3 3 24 3 Medical College per month 4 12 12 12 6 46 0 5 2 0 6 0 6 o 6 o 3 C, 23 0 2 0 6 2 6 3, 6 5 3 3 24 3 SubtotalPublications and subscriptions 6 8 20Q4 20Q4 20 4 1Q2 7862 6 9 21Q0 21 5 22 1 11 3 82 7 C. Staff salaries NIH FTE/year - 40 40 40 20 140 Q 25 10Q0 1QQ la1Q sQ 35Q - 1Q8 116 12 4 6 6 41 5 SMU FTEtyear - 8 6 4 28 Q 25 - 2Q0 2Q0 2Q 1Q 7Q - 22 23 2 5 13 8 3 Medical College FTE/yea, 5 1Q 1Q 10 5 40 Q 6 3Q0 6Q0 6.0 6Q0 3Q0 24Q0 3 1 6 5 7 0 7 4 4.0 28 0 SubtotalStaff salarles 3 0 18 0 18 0 18 0 9 0 66 0 3 1 19 5 21 0 22 3 11 9 7768 D. Offlce supplies NIH per month 6 12 12 12 6 48 0 5 3 0 6.0 6 0 6C0 3Q0 24Q0 3 1 6 5 7Q0 7 4 4 0 2860 SMU per month 6 12 12 12 6 48 OS5 3Q0 6Q0 60 6Q0 3Q0 24Q0 3t 6 5 7Q0 7 4 4Q0 28 0 MedicalCollege permonth 6 12 12 12 6 48 0 5 3Q0 601 6Q0 6Q0 3Q 24Q0 3t 6 5 7 0 7 4 4.0 28.0 SubtotalOflficesupplies 90 18.0 18 0 18 0 9 0 72 0 9 4 19 5 21.0 22.3 11 9 84 0 Total Recurrent Costs 18.8 941.0 123 8 123 8 61 9 422.3 19.3 1G0.5 141.~9 150.4 79 5 491 6 Total 657 9 861 9 263 2 268 7 129 6 ##. 689 1 931 4 297 3 322.3 166.5 2,406 5

Page 2 Table 6. Primary Heafth Care Development Program (PHCDP)

(US$ '000)

Unit Base Cost Totals Including Contingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total _1997 1998 1999 2000 2001 Total 1.Invownt Costs A. Civil Works PHCDP offlke sq.m. so so - - - 100 0.05 2.5 2.5 - - - 5.0 2.9 3.0 - - - 5.8 PHC faciiities each - 10 25 25 10 70 25 - 250.0 625.0 625.0 250.0 1,750.0 - 297.3 800.7 853.4 362.5 2,313.9 Subtota lCivil Works 2.5 252.5 625.0 625.0 250.0 1,755.0 2.9 300.3 800.7 853.4 362.5 2,319.8 B. Office equipment and fumiture 1. PHCDP offiice Fumiture set 6 - - - - 6 1 6.0 - - - - 6.0 6.1 - - - - 6.1 Telephones each 3 - - - - 3 0.05 0.2 - - - - 0.2 0.2 - - - - 0.2 Copy machine each I 1 2.3 2.3 - - - - 2.3 2.3 - - - - 2.3 Fax machine each 1 - - - - 1 0o .5 - - 0.5 0.5 - - - 0.5 Computers each 5 - 1.5 7.5 - - - - 7.5 7.6 - - - - 7.6 Pnriners each 3 - - - - 3 0.5 1.5 - - - - 1.5 1.5 - - - - 1.5 UPS each 3 - - - - 3 0.3 0.9 0 .9 0.9 - - 0.9 Subtotal PHCDP offiice 18.9 - - - - 18.9 19.1 - - - - 19.1 2. PHC fcilities Olffce equipment and fumiture set - 10 25 25 10 70 2.5 - 25.0 62.5 62.5 25.0 175.0 - 26.2 68.4 71.3 29.7 195.7 Computers number - 10 25 25 10 70 1.5 -15.0 37.5 37.5 15.0 105.0 -15.4 39.5 40.5 16.7 112.1 Printers number - 10 25 25 10 70 0.5 - 5.0 12.5 12.5 5.0 35.0 -5.1 13.2 13.5 5.6 37.4 software number - 10 25 25 10 70 0.5 - 5.0 12.5 12.5 5.0 35.0 - 5.1 13.2 13.5 5.6 37.4 Subtotal PHC facilities -50.0 125.0 125.0 50.0 350.0 -51.9 134.2 138.9 57.5 382.5 Subtota lOfficeeLqulpment and fuml 18.9 50.0 125.0 125.0 50.0 368.9 19.1 51.9 134.2 1138.9 57.5 401.6 C. Vehicles Car each 1 - - - - 1 8 8.0 - - - - 8.0 8.1 - - - - 8.1 Van each 1 - - - - 1 12 12.0 - - - - 12.0 12.1 - - - - 12.1 Subtotal Vehicles 20.0 - - - - 20.0 20.2 - - - - 20.2 O. Mediicat equipmnent set - 1 25 25 io 70 a - B0.0 200.0 200.0 80.0 560.0 - 82.3 210.6 216.3 88.8 597.9 E. Drugs and disposables kd - 10 25 25 10 70 1 - 10.0 25.0 25.0 10.0 70.0 - 10.3 26.3 27.0 11.1 74.7 F. Technical assistance 1. Foreign TA Managerrent and programming person/month 2 2 0.5 0.5 - 5 25 50.0 50.0 12.5 12.5 - 125.0 50.4 51.4 13 2 13.5 - 128.5 2. Local TA Civilwrs procurement and supe of civil wor - 10 25 25 10 70 1.25 - 12.5 31.3 31.3 12.5 87.5 - 13.5 36.4 38.8 16.5 105.2 PHCsoftare developmntdmaint persorVmonth 12 6 - - - 18 0.5 6.0 3.0 - - - 9.0 6.2 3.2 - - - 9.5 Subtota lLoca lTA 6.0 15.5 31.3 31.3 12.5 96.5 6.2 16.8 36.4 38.8 16.5 114.7 Subtotal Tochnica iassistance 56.0 65.5 43.8 43.8 12.5 221.5 56.7 68.2 49.6 52.3 16.5 243.2 G. Trainingi Stipends for PHC teams r team memb - 20 50 52 20 142 0.25 - 5.0 12.5 13.0 5.0 35.5 - 5.4 14.6 16.1 6.6 42.7 Totallnvstinit Cob 97.4 463.0 1,031.3 1,031.8 407.5 3,030.9 98.8 518.3 1,235.9 1,304.1 543.0 3,700.1 II. Rectuinrt Cods A. PHCDP staff FTEtyear 3.5 7 7 7 3.5 28 6 21.0 42.0 42.0 42.0 21.0 168.0 21.8 45.4 48.9 52.1 27.7 196.0 S. Office supplies per month 6 12 12 12 6 48 0.5 3.0 6.0 6.0 6.0 3.0 24.0 3.1 6.3 6.6 6.8 3.6 26.3 C. Vehicles Fuel, maintenance er yearhvehicl - 2 2 2 1 7 1.8 - 3.6 3.6 3.6 1.8 12,6 - 3.8 4.0 4.2 2.2 14.2 D. PHC facilities Mairntenanoe and utilities er facility/yea - - 10 35 60 105 'I.25 - - 12.5 43.8 75.0 131.3 - - 14.6 54.3 98.9 167.7 E.Perfoffnance bonuses /a of CW invest - - 10 25 35 70 1.25 - - 12.5 31.3 43.8 87.5 - - 13.2 33.8 48.6 95.5 TotaIRecu. CrttCa 24.0 51.6 76.6 126.6 144.6 423.4 24.9 55.5 87.2 151.3 180.9 499.7 Total 121.4 514.6 1,107.9 1,158.4 552.1 3,454.2 123.7 573.8 1,323.1 1,455.3 723.9 4,199.8

~aBonuses ame paid to the PHC teams successfullyffieeting the ,oerforrnancecontrct mntoritongindicator targets

Page 1 ARMENIA ANNEX 6 Health Project Table 8. Project Management Unit Detailed Costs (US$000)

Unit Base Cost Totals Including Contingencies Unit 1997 1998 1999 2000 2001 Total Cost 1997 1998 1999 2000 2001 Total 1997 1998 1999 2000 2001 Total I. Investment Costs A. Office reconstructon sq m. 40 - - - - 40 0.05 2.0 - - - - 2.0 2.3 - - - - 2.3 B. Office equipment and tumiture Computers each 4 - - - - 4 1.5 6.0 - - - - 6.0 6.1 - - - - 6.1 Laptop each I - - - - 1 3 3.0 - - - 3.0 3.0 - - - - 3.0 Pnnterdesk jet each 2 - - - - 2 0.7 1.4 - - - - 1.4 1.4 - - - - 1.4 Pnnterlaser jet each 1 - - - - 1 1 1.0 - - - - 1.0 1.0 - - - - 1.0 Copy machine each 1 - - - - 1 1.5 1.5 - - - - 1.5 1.5 - - - - 1.5 Telephone system each 1 - - - 1 1.5 1.5 - - - 1.5 15 - - - - 1.5 Heaters each 4 - - - - 4 0.15 0.6 - 0.6 0.6 - - - - 0.6 Fumiture set 1 - 1 3 3.0 3.0 3.0 3.0 Air conditioner each 2 - - - - 2 1 2.0 - 2.0 2.0 - - - - 2.0 Minor equipment amount 1 - - - 1 1 1.0 - 1.0 1.0 - - - - 1.0 Subtotal Office equipment and fumitu 21.0 - - - - 21.0 21.2 - - - - 21.2 C. Vehicle each 2 - - - - 2 10 20.0 - - - - 20.0 20.2 - - - - 20.2 D. Technical assistance 1. Foreign Procurement erson/mont 2 1 - - - 3 25 50.0 25.0 - - - 75.0 50.4 25.7 - - - 76.1 Audit erson/mont - 1 1 1 1 4 25 - 25.0 25.0 25.0 25.0 100.0 - 25.7 26.3 27.0 27.8 106.8 Subtotal Foreign 50.0 50.0 25.0 25.0 25.0 175.0 50.4 51.4 26.3 27.0 27.8 183.0 2. Local Engineer/achitect erson/mont 6 3 - - - 9 0.5 3.0 1.5 - - - 4.5 3.1 1.6 - - - 4.7 Subtoal Technical assistance 53.0 51.5 25.0 25.0 25.0 179.5 53.5 53.0 26.3 27.0 27.8 187.7 E. Infomalbon and consultabon activities amount 50 100 50 25 25 250 1 50.0 100.0 50.0 25.0 25.0 250.0 51.5 106.5 56.6 29.8 31.4 275.8 F. Training erson/mont 1.5 1.5 - - - 3 6 9.0 9.0 - - - 18.0 9.1 9.3 - - - 18.3 Total Investment Costs 155.0 160.5 75.0 50.0 50.0 490.5 157.8 168.8 82.9 569 59.2 525.5 II. Recurrent Costs A. Staff Salaries HeadofPtU erson/mont 6 12 12 12 9 51 0.88 5.3 10.6 10.6 10.6 7.9 44.9 5.5 11.4 12.3 131 10.4 52.8 Projectassistants erson/mont 12 24 24 24 18 102 0.68 8.2 16.3 16.3 16.3 12.2 69.4 8.5 17.6 19.0 20.3 161 81.5 Administrabive officer erson/mont 6 12 12 12 9 51 0.68 4.1 8.2 8.2 8.2 6.1 347 4.2 8.8 9.5 10.1 8.1 40.8 Secretary-translator erson/mont 6 12 12 12 9 51 0.58 3.5 7.0 7.0 7.0 5.2 29.6 36 7.5 8.1 8.6 6.9 34.8 Financial officer erson/mont 6 12 12 12 9 51 0.68 4.1 8.2 8.2 8.2 6.1 34.7 4.2 8.8 9.5 10.1 8.1 40.8 Accountant erson/mont 6 12 12 12 9 51 0.58 3.5 7.0 7.0 7.0 5.2 29.6 3.6 7.5 8.1 8.6 6.9 34.8 AccountantforPHCDP erson/mont 6 12 12 12 9 51 0.58 3.5 7.0 7.0 7.0 5.2 29.6 36 7.5 8.1 8.6 6.9 34.8 Procurement officer erson/mont 6 12 12 12 9 51 0.58 3.5 7.0 7.0 7.0 5.2 29.6 3.6 7.5 8.1 8.6 6.9 34.8 Diver erson/mont 12 24 24 24 18 102 0.27 3.2 6.5 6.5 6.5 4.9 27.5 3.4 7.0 7.5 80 6.4 32.4 Subtotal Staff Salaries 38.8 77.5 775 77.5 58.1 329.5 40.3 83.8 90.3 962 76.6 387.3 B.Officemaintenanceandutiblites ersqn/yea 35 110 110 110 55 420 0.012 0.4 1.3 1.3 1.3 0.7 5.0 0.4 1.4 1.5 1.6 0.9 5.9 C. Operatdng expenditures E-mail month 6 12 12 12 9 51 0.1 0.6 1.2 1.2 1.2 0.9 5.1 0.6 1.3 1.4 1.5 1.2 6.0 Phone/Fax month 6 12 12 12 9 51 0 5 3.0 6.0 6.0 6.0 4.5 25.5 3.1 6.5 7.0 7.4 5.9 30.0 Equipment maintenance month 6 12 12 12 9 51 0.1 0.6 1.2 1.2 1.2 0.9 5.1 0.6 1.3 1.4 1.5 1.2 6.0 Vehite maintenance month 6 12 12 12 9 51 0.5 3.0 6.0 60 6.0 4.5 25.5 3.1 6.5 7.0 7.4 5.9 30.0 Fuel month 6 12 12 12 9 51 0.1 0.6 1.2 1.2 1.2 0.9 5.1 0.6 1.3 1.4 1.5 1.2 6.0 Mail month 6 12 12 12 9 51 015 0.9 1.8 1.8 1.8 1.4 7.7 0.9 1.9 2.1 2.2 1.8 9.0 Oflice supply month 6 12 12 12 9 51 0.1 0.6 1.2 1.2 1.2 0.9 5.1 0.6 1.3 1.4 1.5 1.2 6.0 Miscellaneous month 6 12 12 12 9 51 0.2 1.2 2.4 2.4 2.4 1.8 10.2 1.2 2.6 2.8 3.0 2.4 12.0 Subtotal Operating expenditures 10.5 21.0 21.0 21.0 15.8 89.3 10.9 22.7 24.5 26.1 20.8 D.Monitonngstudies 104.9 perstudy - - 1 - 1 2 60 - - 60.0 - b0.0 120.0 - - 69.9 - 79.1 149.0 Total Recurrent Costs 49.7 99.8 159.8 99.8 134.6 543.8 51.7 107.9 186.2 123.9 177.4 647.1 ToWl 204.7 260.3 234.8 149.8 184.6 1,034.3 209.5 276.8 269.0 180.8 236.5 1,172.6

Page 1 ANNEX7 Page I of 3 Armenia Health Project: Procurement Information

Section 1: Procurement Review Goods ICB NCB IS NS Direct contracting 1. Procurement method thresholds >$250,000 <$100,000 <$250,000 <$25,000 aggregate$50,000 <$10,000per contract 2. Prior Review yes first contract yes Works ICB NCB IS NS Other methods 3. Procurement method thresholds <$250,000 <$30,000 14. Prior Review j first contract I Consultant Services QBCS QBS Sole Sourcing Minor Other methods li ______Contracts 5. Procurement method thresholds >$100,000firms >$100,000firms decidedon a case- <$100,000firms >$50,000indiv >$50,000indiv by-casebasis <$50,000indiv 6._Prior Review yes yes yes [ 6. Prior ______only TOR ______rn______I_sio_te 7. Ex-post Review Ex-post review will be conducted during supervision missions by the supervision team.

Section 2. Capacity of the Implementing Agency in Procurement and Technical Assistance requirements 8. The PNfU will have a procurement officer who will receive training from the existing PMUs in Armenia. The Director of the PMU will have received training in procurement for generalists and Bank operations. The credit will finances external procurement advisor to the PMU during timetirst semester oi the project implemiientatiotn. c. Country Procurement Assessment Report or Country Procurement Strategy Paper 10. Are the bidding documents for the procurement status: Draft report May 15, 1997 actions of the first year ready by negotiations? No !------Section 3. Training, Information and Development on Procurement ll. Estimated date of Project [12. Estimated date of 13. Indicate if contracts are 14. Domestic 15. Domestic Preference Launch Workshop: Genieral Procuremenlt subject to mandatory SPN in Preference for for Consultant Services: September 1997. Notice publication: Development Business: Goods/Works: August, 1997 No Yes No

16. Retroactive financing N/A

17. Explain briefly the Procurement Monitoring System and Information System:

Section 4. Procurement Staffing 18. Indicate name of Procurement Staff as part of Project Team: Gyorgy Novotny Division: EC4HU Ext. 19. Explain briefly the expected role of the Field Office in Procurement: Armenia Resident Mission staff will participate in prior review ANNEX 7 Page 2 of 3

Procurement Plan: Armenia Health Financing and Primary Health Care Development Project

1 2 3 4 5 6. Estimated Schedule

Description' Type No. of Estimated Procurement Pre- Document Invitation Contract Contract slices/items/ cost (US$) method qualification preparation to bid signing Completion sub-packages Computers and Goods 1 150,000 IS 05/97 06/97 10/97 11/97 Office equip. I _ Computers and Goods 1 0.8 million ICB 08/97 12/97 03/98 05/98 Office equip. ll Computers and Goods 1 150,000 IS 02/99 03/99 07/99 08/99 Office equip. III Furniture I Goods 4 300,000 NCB 09/97 10/97 11/97 03/98 1/98,99. 2/98,99, 3/98,99, 6/98,99, 00,01 00.01 00,01 00,01

Small furniture Goods I ( 250,000 NS -According to need. Contract value less than iandsupplies l US$25,000 Vulhicles Goods I J)'0.000 Is09/97 10/97 01/98 002/98 Mcdical Goods 8 1600,000 from Will be procured semi-annually for PHC micro-projects based on equipment IJNICEF selections from an optional equipment list acceptable to IDA Pharmaceuticals Goods 8 70I000 from Will be procured semi-annually for PHC micro-projects based on and supplies UNICEF essential pharnaceuticals and supplies list acceptable to IDA Printing PHC Goods 4 150,000 NCB - 11/97 01/98 04/98 06/99 guldelnes Information Goods 10 50,000 DC Will be procured according to plan approved by IDA. activities __ Contract value less than US$10,000 PHC TA I CF 2 750,000 QCBS 05/97 06/97 08/97 01/98 07/98 PHC TA II CI 15 300,000 SLI n/a PHC TA III CF 2 90,000 SSF - 05/97 06/97 06/99 HF TA I CF 15 750,,000 QCBS 05/97 06/97 08/97 01/98 06/99 HF TA II CI 15 300,000 SLI 11/97 12/97 02/98 06/98 06/2001 PMU CI 4 100,000 SLI 04/97 05/97 07/97 08/97 12/97 ANNEX 7 Page 3 of 3

1 2 3 4 5 6. Estimated Schedule

Description Type No of Estimated Procurement Pre- Document Invitation Contract Contract slices/items/ cost (US$) method qualification preparation to bid signing Completion sub-packages PMU (social CF 2 150,000 QCBS 03/99 04/99 05/99 07/99 10/99 assessment) 03/01 04/01 05/01 07/01 10/01 Fellowships and CF 30 1.0 million QBS Will be procured for students satisfying selection criteria, study tours commitment to return to certain positions and acceptance to a foreign training institution SHA renovation CW 1 140,000 NCB - 07/97 08/97 10/97 01/98 NIH renovation CW 1 140,000 NCB - 08/97 09/97 11/97 02/98 SMU renovation CW 1 100,000 NCB - 09/97 10/97 12/97 03/98 Medical College CW 1 170,000 NCB - 10/97 11/97 01/98 04/98 office renovation Other minor CW 3 15,000 NS - 09/97 09/97 09/97 10/97 office renovation PHC micro- CW 70 2.3 million NCB/NS Contracts for above US$30,000 will be procured through NCB, projects Contracts for below US$30,000 will be procured through NS. Supervision of procurement will be contracted to ASIF Operating costs 1.5 million Other n/a Total US$10.7 million_l l l _

Name of Package ICB(internationalcompetitive bidding), NCB (nationalcompetitive bidding), IS (internationalshopping), NS (nationalshopping), DC (DirectContracting), MW(for MinorWorks), QCBS (quality and cost basedselection), QBS (qualitybased selection), SLF (for short-listingof consultantfirms); SLI (for short- listingof individualconsultants); SSF (for Sole sourcingof consultantfirms); SSI (for sole sourcingof individualconsultants); Other (for recurrentcosts procuredon the basis of administrativeprocedures based on a scheduleand budget acceptableto the Bank);NBF (not Bankfinanced).

1 US$ 0.7 millionexceeding credit amount accounts for VAT for civil works and furniturewhich are procuredlocally. ANNEX8 Page I of 2 PROJECTMONITORING INDICATORS

1. Two sets of indicators have been defined: process indicators (or input and output indicators) to measure progress in project implementation and impact indicators (or outcome and impact indicators) to evaluate the impact of the project towards project objectives. In addition, some key health sector indicators will be monitored to get assurances that adequate public resources are allocated to the health sector and essential public health programs are implemented. Most project inputs will be monitored as part of the Project's Implementation. Key policy benchmarks included in the Letter of Development of Armenia Government will also be monitored and reviewed annually by the World Bank and the Government.

Table I . Armenia Health Financing and Primary Health care Development Project Indicators Process Indicators Impact Indicators

Selected Health Sector Indicators Adequate public sector health care spending as % of GDP (2% in 1998, 2.5% in 1999, 3% in 2000, 3% in 2001) Adequate vaccination coverage (at least of 95 % of targets) Incidence of vaccine preventable diseases evaluated based on internationally accepted criteria (WHO - HFA 2000) Component 1: Strengthening Primary Health Care System Sub -component 1.1: Primary Health Care Provider Training Program * PHC Training Coordination Committee established and * Number of Primary Health Care Providers trained and meeting regularly (established by 09/97; minutes of at certified in the following categories: general least quarterly meetings sent to the Bank); practitioners and pediatricians in NIH, family * Number of faculty trained outside Armenia and assumed practitioners in SMU, nurses and midwives in the training responsibilities in SMU, NIH and Medical Medical College College (09/98; 10/98); * number ot trained PHC providers practicing in new * Number of trainees admitted to the training programs on settings (starting 03/98) September 1, 1998. * declining referral rates from newly trained PHC teams * Curriculum in NIH, SMU and Medical College (target to achieve 15% referral rate); (starting 01/99) developed and evaluated by external experts (09/98); Sub- component 1.2 Primary Health Care Development Program * number of micro-projects applications received, approved * improved access to PHC providers in target areas: and completed (semi-annually) decrease of self-referrals to specialist care; decrease in * number of PHC Teams in training from micro-project no-diagnosis cases; (Social Assessment at project mid- areas (target 90% of staff) term and end project compared to base-line); * improved management of PHC facilities in target areas: percentage of practices meeting development indicators to be set forth in the performance contracts (01/99; 06/2001); Sub-component1.3 PrimaryHealth Care GuidelinesDevelopm= * number of guidelines developed, published and * proportion of PHC providers reporting to use distributed (first developed 01/98; monitored quarterly; guidelines in day-to-day practice; the Bank will receive a copy of each guideline); * number of workshops held

ANNEX 8 Page 2 of 2

Process Indicators -inpact hidketors.

Component 2: Strengthening Health Financing System Sub-component 2.1 Establishment of State Health Agency * enabling regulation to establish and operate the SHA * the SHA etstablished, accommodated and staff recruited developed and approved by GoA in December 1997: by May 1998; * number of staff trained abroad and assumed working * SHA assummigfull functions (01/99); responsibilities in the SHA: * Pilots to test contracting, accounting forms, payment methods started (08/98); * Number of workshops held; number participants Sub-component 2.2 Improvement of Basic Benefits Package Methodology * Working Group fully operational (members employed, * increased efficiency and transparency of BBP. based office established, equipment procured) (12/97) on the Bank review and comparison with the BBP of a * number of workshops held; number of participants year before (12/97, 12/98, 12/99, 12/00); * improved targeting: number of people social groups entitled to free health care above the BBP well defined and commensurate with available resources (12/97, 12/98, 12/99. 12/00); Sub-component 2.3 Improvement of Provider Payment Mechanism * working Group fully operational (members employed. * increased efficiency of health services: shortening of office established, equipment procured) (12/97); ALOS (15 days - 1998; 14 days - 1999: 13 days * number of workshops held; number of participants: 2000); increase in bed occupancy rates (target 65% in 2000);~ * contracting and reporting forms developed, approved by the GoA(12/98); * transparent private payment procedures in health care facilities: existence of a cashier office and official price list (annually; target 100% by end project); Sub-component 2.4 Improvement of Health Management Information System * HMIS hard and software procured and installed (08/98): * aggregate reports available on uses of public health * HMIS custom software developed (08/98); care funds (02/00; 02/01) * number of workshops held and number of people trained. ANNEX9 Page I of I List of Selected Documents in Project Files

1. Asatrian, A. Armenia: Health Status and Health System. Consultant report. 1997.

2. Asatrian, A. Armenia Health Project: Analysis of Financial Sustainability. Consultant report. 1997.

3. Braithwaite, J. Armenia: A Poverty Profile. Consultant report. 1995.

4. Costa C. et Gouveia M. Burden of Disease in Armenia: A Preliminary Report. Consultant report. 1997.

5. Dudwick, N. A Qualitative Assessment of the Living Standards of the Armenian Population. Consultant report. 1995.

6. Gomart, E. Social Assessment Report on the Education and Health Sector in Armenia. Consultant report. 1996.

7. Ministry of Health. Primary Health Care Development Program Operational Manual. Final Draft.

8. Ministry of Health. Project Implementation Plan. May, 1997.

9. Munar, W. Health Care Decentralization. Consultant report. 1996.

10. Palu, T. Armenia: Health Status, Access to Health Services, and Public Health and Primary Health Care Issues. Consultant report. 1995.

11. Resource Management Consultants. Armenia: Primary Health Care Reform. Consultant report. 1996

12. Schmidt, M. Health and Education Expenditures in the Republic of Armenia. Consultant report. 1996.

13. TNO Prevention and Health. Health Financing Reform in Armenia. Consultant report. 1996.

14. The World Bank. Public Expenditure Review in Armenia: Strategic Spending for Creditworthiness and Growth. Country Operations EC4C2, draft report, The World Bank, 1997. MAP SECTION

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