World Bank Documents on Similar Projects in Other Countries

41457

Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 41457-KZ

PROJECT APPRAISAL DOCUMENT

ON A

Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$117.7 MILLION

TO THE

REPUBLIC OF KAZAKHSTAN

FOR A

HEALTH SECTOR TECHNOLOGY TRANSFER AND INSTITUTIONAL REFORM PROJECT

December 13, 2007 Public Disclosure Authorized

Human Development Sector Unit Central Asia Country Unit Europe and Central Asia Region

Public Disclosure Authorized

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

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 1, 2007)

Currency Unit = Kazakh Tenge (KZT) KZT 120.7 = US$1 US$ = SDR 1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AIDS Acquired Immune Deficiency Syndrome ISQUA International Society for Quality BTS Blood Transfusion Service IT Information Technology CAC Codex Alimentarius Commission JERP Joint Economic Research Program CCT Core Coordination Team JSC Joint Stock Company CDC Centers of Disease Control KZT Kazakhstan Tenge CEO Chief Executive Officer MCH Maternal and Child Health CFAA Country Financial Accountability Assessment MHI Mandatory Health Insurance CIS Commonwealth of Independent States MIT Ministry of Industry and Trade CME Continuous Medical Education MOA Ministry of Agriculture CPD Curative and Preventive Department MOEBP Ministry of Economy and Budget Planning CPG Clinical Practice Guidelines MOF Ministry of Finance DEF Department of Economic and Finance MOH Ministry of Health DRG Diagnosis-Related Group MOLSP Ministry of Labor and Social Policy DSDIC Department for Strategic Development and MSA Medical Savings Account International Cooperation NCD Non-Communicable Diseases EBM Evidence based Medicine NHIC National Health Information Center EC Expert Council NPV Net Present Value ECA Europe and Central Asia OFD Oblast Finance Department EPC Economic Policy Council OHD Oblast Health Departments FAO Food and Agriculture Department PAD Project Appraisal Document FMS Financial Management System PAF Project Accelerating Funds FSU Former Soviet Union PHC Primary Health Care GDP Gross Domestic Product PIST Project Implementation Support Team GFATM Global Fund to fight AIDS, TB and Malaria PMO Prime Minister’s Office GOK Government of Kazakhstan POM Project Operational Manual GOSO State General Mandatory Education Standard PPP Public Private Partnership HACCP Hazard Analysis and Critical Control Points QCBS Quality and Cost-Based Selection HALE Healthy Life Expectancy RBC Republican Budget Commission HCDI Health Care Development Institute SARS Severe Acute Respiratory Syndrome HCSCC Health Care Services Control Committee SES Sanitary and Epidemiological Surveillance HDI Health Development Institute SOE Statement of Expenditure HiT Health Systems in Transition SPS Sanitary and Phytosanitary HIV Human Immunodeficiency Virus SPU State Procurement Unit HMIS Health Management Information System TA Technical Assistance HPC Health Policy Council TB Tuberculosis HTA Health Technology Assessment TBD To be determined HYLG Healthy Years of Life Gained UHIS United Health Information System IBRD International Bank for Reconstruction and UN United Nations Development UNAIDS Joint United Nations Program on HIV/AIDS ICB International Competitive Bidding UNICEF United Nations Children’s Fund ICPPC Internal Control and Public Procurement USI Universal Salt Iodization Committee VHI Voluntary Health Insurance ILO International Labor Organization WFME World Federation of Medical Education IMR Infant Mortality Rate WTO World Trade Organization IRR Internal Rate of Return

Vice President: Shigeo Katsu Country Director: Annette Dixon Country Manager Sergei Shatalov Sector Manager: Armin H. Fidler Task Team Leader: Peyvand Khaleghian

FOR OFFICIAL USE ONLY

KAZAKHSTAN Health Sector Technology Transfer and Institutional Reform Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE...... 6 A. Country and sector issues...... 6 B. Rationale for Bank involvement ...... 6 C. Higher level objectives to which the project contributes...... 8

II. PROJECT DESCRIPTION ...... 8 A. Lending instrument ...... 8 B. Project development objective and key indicators...... 9 C. Project components...... 9 D. Lessons learned and reflected in the project design...... 14 E. Alternatives considered and reasons for rejection ...... 17

III. IMPLEMENTATION ...... 18 A. Partnership arrangements...... 18 B. Institutional and implementation arrangements...... 18 C. Monitoring and evaluation of outcomes/results...... 20 D. Sustainability ...... 20 E. Critical risks and possible controversial aspects...... 21 F. Loan/credit conditions and covenants...... 25

IV. APPRAISAL SUMMARY ...... 27 A. Economic and financial analyses...... 27 B. Technical...... 27 C. Fiduciary ...... 27 D. Social ...... 28 E. Environment...... 29 F. Safeguard policies...... 29 G. Policy Exceptions and Readiness...... 29

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 1: Country and Sector or Program Background ...... 31

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 49

Annex 3: Results Framework and Monitoring...... 51

Annex 4: Detailed Project Description...... 61

Annex 5: Project Costs ...... 80

Annex 6: Implementation Arrangements ...... 81

Annex 7: Financial Management and Disbursement Arrangements ...... 87

Annex 8: Procurement Arrangements ...... 96

Annex 9: Economic and Financial Analysis ...... 104

Annex 10: Safeguard Policy Issues...... 110

Annex 11: Project Preparation and Supervision ...... 111

Annex 12: Documents in the Project File...... 112

Annex 13: Statement of Loans and Credits...... 113

Annex 14: Country at a Glance ...... 114

MAP: IBRD 33425

KAZAKHSTAN

HEALTH SECTOR TECHNOLOGY TRANSFER AND INSTITUTIONAL REFORM

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSHD

Date: December 13, 2007 Team Leader: Peyvand Khaleghian Country Director: Annette Dixon Sectors: Health (40%); Information technology Sector Manager/Director: Armin H. Fidler (35%); Compulsory health finance (10%); Central government administration (10%); Vocational training (5%) Themes: Health system performance (P);Administrative and civil service reform (P);Education for the knowledge economy (S);Other human development (S);Trade facilitation and market access (S) Project ID: P101928 Environmental screening category: Not Required Lending Instrument: Specific Investment Loan

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 117.7 Proposed terms: FSL Financing Plan (US$m) Source Local Foreign Total Borrower 112.00 66.40 178.40 International Bank for Reconstruction and 54.00 63.70 Development 117.70 Total: 166.00 130.10 296.10

Borrower: Republic of Kazakhstan Kazakhstan

Responsible Agency: Ministry of Health Administrative Building Left Bank Astana 010000 Kazakhstan Tel: +7 (7172) 74 32 43 [email protected]

Estimated disbursements (Bank FY/US$m) FY 2009 2010 2011 2012 2013 2014 Annual 28.0 62.0 12.5 8.0 6.0 1.2 Cumulative 28.0 90.0 102.5 110.5 116.5 117.7 Project implementation period: Start July 1, 2008 End: June 30, 2013 Expected effectiveness date: July 1, 2008 Expected closing date: June 30, 2013

Does the project depart from the CAS in content or other significant respects? Ref. [ ]Yes [X] No PAD A.3 Does the project require any exceptions from Bank policies? Ref. PAD D.7 [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [ ] No Does the project include any critical risks rated “substantial” or “high”? [X]Yes [ ] No Ref. PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref. [X]Yes [ ] No PAD D.7

Project development objective Ref. PAD B.2, Technical Annex 3

To introduce international standards and build long-term institutional capacity in MOH and related healthcare institutions in support of key health sector reforms pursued by the Government of Kazakhstan in the context of the State Health Care Reform and Development Program.

1. Improved efficiency and equity of health expenditure and better financial protection for households in oblasts that implement a comprehensive package of healthcare financing and management reforms; 2. Improved quality and efficiency of medical care through the establishment of functioning systems/ institutions for clinical practice guideline development/dissemination and health facility accreditation, and through improved performance in the laboratory and blood transfusion systems; 3. Improved quality of medical graduates and improved ability to carry out medical research through upgrading the medical/pharmacological education and research systems and introducing international standards; 4. Improved efficiency and quality in health facility management through access to reliable, timely health information from a unified health information system; 5. Improved safety, efficacy, quality and affordability of drugs through reforms in pharmaceutical procurement, pricing, prescribing monitoring, information provision, benefit package design and quality control; and 6. Improved food safety and speedier WTO accession through the introduction of international sanitary and phytosanitary norms.

Project description: Ref. PAD B.3.a, Technical Annex 4

Component A: Health Financing and Management: Would strengthen policy formulation, investment planning and management in the health sector through a combination of capacity building, evidence- based policy development and support for regulatory reform and introduction of international standards in investment planning, budget planning, sector/master-planning and the use of performance-based budgeting and provider payment methods. Would also finance large-scale training in healthcare

management

Component B: Health Care Quality Improvement. Would help improve healthcare quality in Kazakhstan by supporting the development of an independent accreditation system with formal standards, trained staff and trained assessors; building capacity for the development and dissemination of evidence-based clinical practice guidelines; financing the dissemination of 50 such guidelines to 65 percent of practicing physicians in selected medical specialties; building capacity in evidence-based medicine and health technology assessment; introducing and promoting a system of voluntary blood donorship; and supporting organizational reform, network restructuring and the introduction of international equipment and accreditation standards for the laboratory and blood transfusion systems, all through twinning relationships with internationally-recognized partner agencies.

Component C: Reform of Medical Education and Medical Science. Would help upgrade medical education and medical science in Kazakhstan through twinning relationships and implementation of a five-year transformation agenda that addresses governance, financing, human resources and operational issues and promotes the adoption of internationally-recognized standards/practices.

Component D: Health Information System Development. Would improve the quality, efficiency and effectiveness of health sector and healthcare facility management by introducing a world-class integrated health information system to three oblasts and one city over a 3-4 year period (other oblasts/cities would subsequently receive the same system through a fully Government-funded scheme; the Project would provide extensive support for development, testing, deployment, capacity-building and evaluation and would thus guide the nationwide roll-out to follow).

Component E: Pharmaceutical Policy Reform. Would help improve the safety, efficiency, economy, quality and affordability of pharmaceuticals in Kazakhstan by supporting reforms in pharmaceutical procurement, pricing, monitoring, information provision, benefit package design and quality control.

Component F: Food Safety and WTO Accession. Would help improve food safety and Kazakhstan’s WTO accession efforts by introducing international sanitary and phytosanitary norms.

Component G: Project Management. Would finance project management and monitoring and evaluation activities for the project.

Which safeguard policies are triggered, if any? Ref. PAD D.6, Technical Annex 10 None

Significant, non-standard conditions, if any, for:

Board presentation: None

Loan/credit effectiveness: None

Covenants applicable to project implementation:

Implementation Arrangements

assign, amend, abrogate or waive any provisions of the Operational Manual without prior approval of the Bank.

At all times during the implementation of the Project, the Borrower shall maintain the CCT and the PIST with a composition, resources, and terms of reference satisfactory to the Bank.

No later than July 1, 2008, the Borrower shall: (a) establish the Health Policy Council with a composition and terms of reference satisfactory to the Bank; and (b) thereafter maintain the Health Policy Council with sufficient and suitable human, financial and technical resources satisfactory to the Bank, until its functions are fully implemented.

No later than July 1, 2008, the Borrower shall appoint a financial management consultant on terms of reference satisfactory to the Bank to assist the DEF with implementation of the Project.

No later than July 1, 2008, the Borrower shall have adopted the Operational Manual.

In order to ensure that adequate funds are available to cover the Borrower’s contribution to the Project, the Borrower shall make the appropriate annual budget allocations to the MoH, for a total Project cost of $296,000,000 of which the anticipated contribution by the Borrower to the Project is US$178,300,000 (including the Front-end Fee).

Project Reports

The Borrower shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 5.08 of the General Conditions and on the basis of the indicators agreed with the Bank. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the Bank not later than forty five (45) days after the end of the period covered by such report.

For purposes of Section 5.08 (c) of the General Conditions, the report on the execution of the Project and related plan required pursuant to that Section shall be furnished to the Bank not later than six (6) months after the Project Closing Date.

On or about January 5, 2011, the Borrower, through the MoH, shall carry out jointly with the Bank, a midterm review of the progress made in carrying out the Project (hereinafter referred to as the Midterm Review). The Midterm Review shall cover, amongst other things:

(a) progress made in meeting the Project’s objectives; and

(b) overall Project performance against Project performance indicators.

The Borrower, through the MoH, shall prepare at least four (4) weeks prior to the Midterm Review, furnish to the Bank, a separate report describing the status of implementation of each component of the Project and a summary report of Project implementation generally.

Financial Management, Financial Reports and Audits

The Borrower shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 5.09 of the General Conditions.

Without limitation on the provisions of Part A of this Section, the Borrower shall prepare and furnish to the Bank not later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Bank.

The Borrower shall have its Financial Statements audited in accordance with the provisions of Section 5.09 (b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one (1) fiscal year of the Borrower. The audited Financial Statements for each such period shall be furnished to the Bank not later than six (6) months after the end of such period.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Kazakhstan inherited from the Soviet Union a health system based on outdated norms and practices, delivered through an oversized network of publicly-owned facilities, managed through direct control rather than through regulation/contracting, and with few incentives for efficiency or quality. For a country with rapidly increasing income, Kazakhstan’s health indicators are not encouraging. Kazakhstan has among the highest rates of TB in the Former Soviet Union and indicators of infant and child mortality are high. Adult mortality and heart disease, cancer, tobacco- and alcohol-related diseases and injuries are also increasing. Kazakhstan’s current health system is not capable of meeting these challenges even though several reform programs have been attempted over the past 10 years. Key reforms in health financing, expanding the scope of private sector involvement, strengthening information systems and introducing incentives for efficiency and quality have, until recently, moved slowly, and the sector’s performance has been less than optimal, as described in detail in Annex 1.

2. Kazakhstan has ambitious goals. With rapid economic growth fuelled by natural resources, the Republic has embarked on a reform and investment program designed to propel it into the ranks of the world’s 50 most competitive nations by 2015. The Government’s aspirations for the health sector mirror its intentions for the economy as a whole. Kazakhstan has adopted a State Health Care Reform and Development Program for 2005-2010. The Program sets ambitious goals and a sensible reform path. Implementation of the Program will, however, stretch Kazakhstan’s existing human resources beyond their capacity. To succeed, the reform program will require more than simply building facilities and buying equipment, neither of which will improve efficiency or quality by itself, but also a substantial boost in the relatively low level of technical and managerial expertise currently existing in Kazakhstan. It is for this reason that an institutional reform and technology transfer project was requested: its main objective being to introduce international standards and build long-term institutional capacity in MOH and related healthcare institutions in support of key sector reforms pursued by the Government of Kazakhstan in the context of the State Health Care Reform and Development Program 2005-2010. Specific areas for support are, as described further below, health financing and management; healthcare quality improvement; laboratory and blood transfusion system reform; medical education and medical science; health information systems; pharmaceutical policy; and food safety.

B. Rationale for Bank involvement

3. Kazakhstan has ample budgetary resources: so Bank financing is about knowledge transfer, implementation support, procurement efficiency and operational rigor. Health reform poses significant technical, operational and policy challenges in all countries. These challenges are especially pronounced in transition countries whose inherited systems do not conform to international standards and where across-the- board reforms are required. To effectively design sequence and implement these reforms needs high-level managerial and technical skills that are in short supply in countries such as Kazakhstan. Building this capacity is a priority for Kazakhstan and is a key rationale for the current Project. In the meantime, the implementation of urgent reforms cannot be undertaken on a “learn as you go” basis and international expert support is essential both for the reforms to succeed and for Kazakh specialists to gain the experience and skills required to carry them forward independently. International procurement of complex high-quality goods and services (e.g. healthcare IT investments) is also a complex undertaking and needs expert support to maximize efficiency and quality. This is another rationale for involving the Bank: namely, to give Kazakhstan’s health reform program the benefit of World Bank’s quality assurance, project design, implementation management and policy advisory skills and draw on the Bank’s extensive experience with health reform programs in other ambitious middle-income countries such as Slovenia, Estonia, Poland, Brazil and Argentina. By involving the Bank as a financier, Kazakhstan receives not only policy advice (which,

while important, does not by itself address implementation constraints) but also a partner in the full spectrum of implementation-related issues where Kazakhstan needs most support.

4. The Bank is a leading agency in knowledge/technology transfer on health systems and has played this role in Kazakhstan for many years. While other agencies such as the World Health Organization, bilateral aid agencies and consulting firms have specific expertise in key technical areas, the Bank is recognized for its comparative strength in the planning and management of health care reform programs in transition economies and in supporting government-led reform programs. The Bank’s relationship with Kazakhstan is guided by a Country Partnership Strategy (29412-KZ) approved by the Board on August 10, 2004. The Strategy envisages a flexible lending program built around a jointly-funded non-lending program of economic and policy research: the Joint Economic Research Program. The Joint Economic Research Program has been the Bank’s primary instrument for policy dialogue on health issues since 2003. Topics covered have included inter alia health care quality, health financing, information systems, cost-effectiveness of HIV/AIDS, pharmaceutical policy and comparative health systems. The Project is also consistent with the Bank’s newly-approved (2007) Health Strategy and strongly reflects that strategy’s focus on institutional strengthening as opposed to narrowly focused interventions.

5. Circumstances have changed considerably since the premature closure and cancellation of the Bank’s previous health project. The Bank’s previous health project (Health Restructuring: P046499) was cancelled in 2002. This cancellation was portfolio-wide, not project-specific, and resulted primarily from a significant increase in government resource revenues and a related decision to reduce external debt and self-finance all existing projects. 1 The lack of an overall reform vision in the health sector played a part (the Project’s focus on primary health care was not shared by an incoming Minister of Health) and the rejection of TA and training was also problematic. After a brief hiatus during which the Bank’s dialogue on health issues was carried out on an ad hoc basis (but which nevertheless included achievements such as high-level dialogue on ending an ill-conceived health insurance experiment and a medical malpractice program), the Government included health in the Joint Economic Research Program. This re-opening of dialogue coincided with the emergence of a comprehensive, strong and technically-grounded health reform vision in the form of the State Health Care Reform and Development Program 2005-2010. The Bank-MOH relationship under the JERP strengthened progressively from a program of demand-driven but piecemeal policy advice to a coordinated advisory/TA program focusing primarily on health information systems, health financing and healthcare quality improvement. Work under the JERP, which provided shared GOK/IBRD financing for advisory services, was supplemented by a flagship piece of Economic and Sector Work on health information systems in 2004. By early 2006, after several years of deepening relations, it became apparent to all parties that the Government needed assistance primarily on implementation rather than policy dialogue. Accordingly, in mid-2006 the Government formally requested the Bank to help prepare an institutional reform and capacity- building project for the health sector and allocated a budget for project preparation.

6. The Project benefits from strong country ownership. Kazakhstan has a well-conceived State Health Care Reform and Development Program 2005-2010 that was developed by the Ministry of Health and approved by the Government of Kazakhstan. The Program is technically strong and was developed in a consultative process that included a broad range of health sector stakeholders. The Project is designed to support the implementation of this Program; all components are integral parts of the Program’s second phase (2008-2010) and benefit from significant client ownership because they derive from, rather than dictate to, the Government’s reform program and sectoral goals. The Project provides support to existing policy objectives and existing components in the State Health Care Reform Program and does not propose new and/or tangential strategies/objectives. Implementation experience with the State Health Care Reform Program has been positive to date, with a marked improvement in policy stability in the health sector since

1 While economic growth has continued apace, with GDP per capita now approaching US$ 7,000, the Government’s view on external borrowing remains focused on debt minimization but with a willingness to borrow for projects and sectors where external financing is associated with technology transfer or other important non-financial benefits. This applies strongly to the current project with its focus on technology transfer, institutional reform and introduction of international standards.

its inception in 2005. The Project, although in many respects a derivative of the Program, was subjected to the full scrutiny of a Feasibility Study as required by MOEBP Order #144 (“On Approval Requirements for Budget-Funded Investment Projects”: 30 September, 2004). The Feasibility Study was prepared by the Ministry of Health and reviewed/approved by the Ministries of Education, Justice, Finance and Economy and Budget Planning as part of the Government’s due diligence process. The Government’s commitment is also evident in the relatively large share of Government co-financing (60% = US$180 million); the anchoring of several Project activities in whole-of-government reforms such as Public Administration Reform and Public Financial Management Reform; and the fact that the Government financed a large share of preparation costs from its own resources.

C. Higher level objectives to which the project contributes

7. Public Financial Management and Public Administration Reform. Kazakhstan is entering a new phase of public administration and public financial management reforms. These reforms, which were approved in principle in 2007, include inter alia performance-based budgeting, management by contract, separation of policy and execution functions in government departments and increased autonomy for managers of public facilities, enterprises and services. The reforms are modeled loosely on New Zealand’s new public management reforms of the 1990s and senior officials from New Zealand and Australia have been retained to advise on the program. The program will be supported in the Ministry of Health by the present Project: in particular by Components A (on healthcare financing and management reform) and D (on health information systems). These reforms are complex and politically difficult and require heavy investment in communication and capacity-building alongside policy and organizational change.

8. International Competitiveness. Kazakhstan aspires to be counted among the world’s 50 most competitive nations. Improving the health system is essential to achieving this objective. A better health system would improve competitiveness by reducing illness-related productivity losses and, by protecting people from the financial consequences of ill-health, would release funds from precautionary savings to productive investments. The intangible dimensions are also important. Kazakhstan’s perception among international investors is not helped by international press coverage that highlights the country’s poorly- performing health system, of which there has been a considerable amount in recent years.

9. WTO accession. Kazakhstan aspires to join the World Trade Organization. Two Project components will contribute to this objective: Component F, on Food Safety, will help upgrade Kazakhstan’s sanitary/phytosanitary norms to international standards as per the Codex Alimentarius, while Component E, on Pharmaceuticals Policy, will introduce international standards to quality management and procurement for pharmaceuticals. Both are important in terms of addressing respectively non-tariff and tariff barriers to trade.

II. PROJECT DESCRIPTION

A. Lending instrument

10. The lending instrument will be a Specific Investment Loan of US$117.7 million equivalent with US$178.4 million in co-financing from the Government of Kazakhstan. Total Project cost is US$296.1 million. No other co-financing is envisaged. Project implementation will be from 2008 to 2013.

B. Project development objective and key indicators

Project Development Objective Project Outcome Indicators To introduce international standards and build long-term Improved efficiency and equity of health expenditure and better financial institutional capacity in MOH and related healthcare protection for households in oblasts that implement a comprehensive package institutions in support of key health sector reforms of healthcare financing and management reforms; pursued by the Government of Kazakhstan in the Improved quality and efficiency of medical care through the establishment of context of the State Health Care Reform and functioning systems/ institutions for clinical practice guideline Development Program. development/dissemination and health facility accreditation, and through improved performance in the laboratory and blood transfusion systems; Improved quality of medical graduates and improved ability to carry out medical research through upgrading the medical/pharmacological education and research systems and introducing international standards; Improved efficiency and quality in health facility management through access to reliable, timely health information from a unified health information system; Improved safety, efficacy, quality and affordability of drugs through reforms in pharmaceutical procurement, pricing, prescribing monitoring, information provision, benefit package design and quality control; and Improved food safety and speedier WTO accession through the introduction of international sanitary and phytosanitary norms.

11. Project outcome indicators reflect both the Government’s reform priorities and the Project components that have been designed to achieve them. These reforms are necessary and technically sound and will be supported by the Project as further described below. However their speed and scope will depend on political process beyond the Bank’s direct control and to which the Project may need to respond by adjusting, replacing or in some case dropping components in the course of implementation. The likelihood that such adjustments would impair the Project’s ability to meet development objectives is low, given the high level of commitment and consistency between the Project and the Government reform program it will support.

C. Project components

Component A: Health Financing and Management

12. Subcomponent A1. Strengthening the Capacity for Health Policy and Strategy Formulation (total estimated cost: US$6.1 million). This subcomponent will improve the quality of policymaking at the Ministry of Health by establishing a twinning arrangement between an internationally-recognized health policy agency and a newly-established Economics and Policy Analysis Unit in MOH to carry out economic and policy analysis (including survey-based exercises) and develop strategic options for policy reform and budget development in the health sector. These capacities are weak in MOH but are essential if the Ministry is to modernize its operations and bring them in line with international practice. The subcomponent will provide equipment for an Economics and Policy Analysis Unit under the Department for Strategic Development and International Cooperation and will finance international TA, training, study tours and a series of special studies/surveys to provide factual input to policy decisions on financing issues. The subcomponent will also finance special studies/surveys including inter alia household health surveys, out-of- pocket payment surveys, patient and provider satisfaction surveys and surveys of human resource surveys.

13. Subcomponent A2. Strengthening Budgeting, Planning and Management in the Health Sector. This subcomponent will extend the above-mentioned twinning relationship to strengthen planning, budgeting and “purchasing” functions in the health sector by strengthening performance among health sector “principals” such as MOH, the Oblast Health Departments (OHD) , and regulatory agencies/financial departments such as Treasury, the Ministry of Economy and Budget Planning (MOEBP) and oblast finance departments. With a move towards output-based financing, arm’s-length relationships and managerial autonomy in public administration in general and the health system in particular, the importance of specifying roles,

responsibilities and performance indicators becomes critical. This subcomponent will finance capacity building activities to strengthen the ability of MOH and OHDs to plan, execute and monitor health spending under three headings: collection, pooling and purchasing. Collection of health sector resources will be strengthened by (a) helping MOH staff (and several oblasts) complete a comprehensive National Health Accounts for Kazakhstan, including study tours and dissemination efforts; and (b) providing technical support, training and special studies on budget planning, the role of health insurance and the role of additional tax sources for the health budget (including training in how to regulate health insurance markets and how to model budgets and alternative revenue sources). Pooling of health sector resources will be strengthened by (a) developing and refining a risk-adjusted geographic allocation formula; (b) moving toward output-based program budgeting and (c) carrying out an advocacy program to help policymakers, oblast leaders and the public understand the rationale and benefits of oblast-level budget consolidation. Purchasing of health care services, i.e. moving away from input-based financing (e.g. financing beds and staff directly) to a more market-oriented model that finances outputs, will be strengthened at national and oblast levels. At the national level, purchasing will be strengthened by (a) reviewing and reforming the health sector control environment to streamline operations and improve the business climate for private providers; (b) continuously refining the Basic Benefits Package and co-payment policy; (c) introducing performance-based payment methods for all MOH programs and implementing the necessary regulatory changes; and (d) reviewing and implement reforms in health sector governance (esp. appointment of health facility managers). At the oblast level, purchasing will be strengthened by providing training for OHD, OFD and others in implementation of these reforms, especially those concerning provider autonomy, performance- based provider payment methods and health facility governance.

14. Subcomponent A3. Management Training and Investment Planning for the Health Sector (total estimated cost (A2/A3): US$14.1 million). This component will improve the quality and efficiency of healthcare facility management and the efficiency and effectiveness of investment decisions in the health sector by (a) strengthening the capacity of health care managers and building capacity for long-term health care management training in Kazakhstan and (b) introducing modern techniques for investment planning in the health sector. Management training will be strengthened by (i) identifying and building capacity in a long-term home for health management training in Kazakhstan, including through the development of faculty and training materials and the establishment of satellite training centers in the six Medical Academies; (ii) providing advanced on-the-job training and overseas training opportunities for managers of large and/or merged facilities, especially in oblast capitals; and (iii) establishing a formal set of health management qualifications, including possibly a Master of Health Care Management program. The modernization of investment planning will be achieved in three steps: (i) upgrading health facility planning standards to international standards and establishing a cogent, comprehensive set of planning standards in the form of a new health planning “atlas”; (ii) training MOH and OHD staff to carry out a detailed review of existing health systems using the new standards to identify gaps, surpluses and opportunities for rationalization; and (iii) carrying out a detailed master-planning exercise in four oblasts through a twinning relationship between international experts and MOH/OHD staff through which detailed opportunities for rationalization and a prioritized list of investments will be identified.

Component B: Health Care Quality Improvement

15. Subcomponent B1: Accreditation: Modernizing Standards for Health Facilities (total estimated cost: US$10.5 million). This subcomponent will improve the quality of healthcare facilities by establishing an accreditation system and carrying out first-cut accreditation of at least 20 health facilities by 2012. This will involve: (a) contracting an internationally-recognized accreditation body to review Kazakhstan’s accreditation standards and accreditation system regulations (including those of the planned accreditation body) and develop business,, investment and communication plans for the accreditation agency as well as a training program, curriculum and guide book for assessors; (b) establishing a permanent institutional mechanism for training of surveyors and quality managers; (c) training 500 surveyors and 500 quality managers; (d) printing of standards for all health facilities in Kazakhstan; (e) creating a permanent review

and upgrading mechanism for periodically adjusting standards; (f) developing a national and subnational monitoring and evaluation indicator packages for eventual recognition by an international accreditation body. The subcomponent will also finance training, study tours and learning activities for staff involved in the design and implementation of accreditation system reforms.

16. Subcomponent B2: Upgrading Clinical Practice and Introducing Health Technology Assessment (total estimated cost: US$34.6 million). This subcomponent will improve the quality of clinical/ medical practice by (a) establishing a system for continuous development and review of evidence-based clinical practice guidelines (CPG); (b) supporting the development and widespread dissemination of 20 international- standard CPGs in each of five key clinical specialties; (c) printing and training 60 percent of the workforce in each of these clinical specialties in the updated CPGs; (d) and building the capacity of Kazakh specialists to carry out Health Technology Assessment (HTA) and conduct 3-4 HTAs independently by 2012

17. The subcomponent will support two lines of action: one on institution and capacity building (to build the capacity of Kazakh institutions and specialists in economics, epidemiology, clinical epidemiology, medical statistics and evaluation methods and develop a national cadre of leaders in evidence-based medicine) and one on dissemination and implementation (to upgrade clinical practice among the body of practicing physicians in Kazakhstan by disseminating and providing training in 20 core CPGs). The institution and capacity building line will finance a twinning relationship between an internationally-recognized institution and the Health Care Development Institute (plus other key players such as the Expert Council and professional associations) on CPG/HTA development and in developing a business plan, budget (investment and recurrent costs), training plan, communication plan, CPG uptake plan and overall work-plan for HTA and CPG development. The twinning institution will also arrange for training and professional exchange opportunities for Kazakh specialists from MOH, clinical centers, universities and professional associations on subjects including health economics, epidemiology, evaluation methods, pharmacoeconomics, evidence- based medicine and HTA. The dissemination line will involve a large-scale effort to disseminate the 20 core CPGs among practicing physicians throughout Kazakhstan using a combination of cascade training, classroom/skills lab education and distance learning using the Internet, modern videoconferencing/IT techniques and self-directed learning through CD-ROMs and DVDs. This will involve printing CPG manuals for the entire targeted medical workforce, building training capacity and establishing distance learning facilities in each oblast.

18. Subcomponent B3: Reform of Laboratories (total estimated cost: US$4.7 million). This subcomponent will help improve quality in the laboratory network in two ways: by supporting organizational reform, network restructuring and the establishment of a quality control function for state and private laboratories (including specifications and profiles for equipment, staffing, reference laboratories and a preventive maintenance program) by upgrading skills and knowledge through training and study tours for laboratory staff, managers and policymakers. These will be carried out in the context of a twinning relationship between Kazakh specialists and an internationally-recognized agency/firm. No equipment financing is envisaged.

19. Subcomponent B4: Reform of Blood Transfusion System (total estimated cost: US$10.1 million). Following the HIV contamination of more than 70 children in South Kazakhstan, MOH carried out a major review of the Blood Transfusion Service (BTS) and decided to reform of the whole system of sourcing, processing, handling and utilization of blood and blood products. The Ministry’s program includes a structural overhaul of the agencies and configuration of BTS sites; progressive implementation of WHO guidelines, benchmarking with established BTS in other countries; a major upgrade of equipment, facilities and processes including a preventive maintenance program; social marketing to increase the number of voluntary donors; training for physicians in international guidelines on the use of blood products; and a comprehensive system for monitoring and evaluation and continuous quality improvement in the BTS. This subcomponent will support implementation of the Ministry’s program in two ways: by supporting organizational reform, network restructuring and the establishment of a quality control function for the BTS

(including specifications and profiles for equipment, staffing, a reference laboratories and preventive maintenance) and by upgrading skills and knowledge through training and study tours for laboratory staff, managers and policymakers. These will be carried out in the context of a twinning relationship between the Republican Blood Transfusion Service and an internationally-recognized peer agency.

Component C: Reform of Medical Education and Medical Science

20. Subcomponent C1. Reform of Undergraduate and Continuing Medical Education (total estiamted cost: US$6.5 million). This subcomponent will improve the quality of undergraduate and continuing medical education in Kazakhstan by (a) upgrading admission criteria, curricula, teaching methods, teaching materials, examination procedures, faculty skills and the overall structure of Kazakhstan’s six medical universities; (b) supporting efforts to obtain international accreditation for at least one of these medical universities; (c) helping modernize Kazakhstan’s licensing/attestation procedures for medical graduates; and (d) upgrading and institutionalize Continuing Medical Education in Kazakhstan. These will be carried out in three blocks: one to carry out an in-depth review of the current system and develop a change management plan; one to support MOH in implementing this plan; and one to finance study tours, professional exchanges, training, conferences and workshops for Kazakh specialists involved in the reform effort. These will be carried out in the context of a twinning relationship between the Ministry of Health and an internationally- recognized peer agency/university, including provisions for professional change management services (to help sequence and manage the transition) and for maintaining a dedicated medical education reform team in MOH.

21. Subcomponent C2. Reform of Medical Science (total estimated cost: US$2.9 million). This subcomponent will improve the quality, efficiency and relevance of medical science research in Kazakhstan by helping implement MOH’s Concept of Medical Science Reform to 2010 (see PAD Annex 4 for details). This will be achieved by (a) designing, communicating and introducing a contemporary competitive system for priority-setting, reviewing and financing medical research (including detailed specification of operational arrangements and procedures for the new system); (b) designing and introducing a system for patient protection in medical research, including detailed specifications of governance arrangements and operational procedures for a national medical ethical/research committee and corresponding institute-/university-level committees; and (c) introducing and providing training for researchers and research managers in internationally-recognized research management tools. These will be carried out in the context of a twinning relationship between the Ministry of Health and an internationally-recognized peer agency/university. Additional support will be provided to maintain a dedicated medical science reform, including provisions for professional change management services (to help sequence and manage the transition) and for maintaining a dedicated medical science reform team in MOH.

Component D: Health Information System Development (total estimated cost: US$188.6 million)

22. This component will improve the quality, efficiency and effectiveness of health sector and healthcare facility management by introducing a world-class integrated health information system to three oblasts and one city over a 3-4 year period. This will build on work already done under MOH Program 19 (informatics) to develop standards and software for a unified health information system including inter alia modules on patient management, resource management and financial management. The component will finance a consolidated contract with an internationally-recognized and experience healthcare IT provider including technical assistance, training, project management and communication services and equipment procurement, aimed at ensuring that at least 75 percent of key users in the target oblasts (Karaganda, East Kazakhstan and Pavlodar) and city (Astana City) are fully trained and able to use the system to its full functionality and that a sustainable institutional base is established for further deployment of the system. Based on results from the demonstration oblasts/city, the system would be rolled out to the rest of Kazakhstan over a 5-8 year period. Expected results include the introduction of a Kazakhstan-tailored Health Management Information System

(HMIS) with inter alia patient care management, financial management and resource management functionalities and the use of a common patient identifiers with swipe-card technology; deployment of the system to all health facilities in Astana City, East Kazakhstan, Pavlodar and Karaganda as Phase I of a nationwide rollout; training of the full user community (managers, administrators, clinicians etc.) in informatics, computer literacy and use of the new system; information campaigns to inform the healthcare community and general pubic of the system’s benefits and implications; and connectivity among all health facilities to provide real-time access to data on patient care, financial management and resource management.

Component E: Pharmaceutical Policy Reform (total estimated cost: US$4.2 million)

23. This component will help improve the safety, efficiency, economy, quality and affordability of pharmaceuticals in Kazakhstan by supporting reforms in pharmaceutical procurement, pricing, monitoring, information provision, benefit package design and quality control. Specific activities will include: (a) restructuring the benefit system; (b) introducing internationally-recognized methods for price control such as reference pricing and tender negotiation techniques; (c) studying underlying reasons for the proliferation of counterfeit and substandard drugs and developing mechanisms to address them; (d) establishing of institutional mechanisms to promote rational prescribing (e.g. drug information centers/bulletins, a National Formulary and advisory services); and (e) using evidence-based analysis to remove of outdated and/or unreliable drugs from the market. These will be carried out in the context of a twinning relationship between the Pharmaceutical Committee (and other key players in the drug control system) and an internationally- recognized peer agency.2

Component F: Food Safety and WTO Accession (total Project cost: US$8.7 million)

24. This component will help improve food safety and Kazakhstan’s WTO accession efforts by introducing international sanitary and phytosanitary norms. This will involve: (a) harmonizing an agreed set of food safety standards and practices with the Codex Alimentarius and other key international standards/benchmarks; (b) developing standards and specifications for food safety laboratories to comply with WTO requirements and obtaining accreditation for these laboratories; and (c) upgrading the knowledge and skills of staff involved in food safety oversight functions. These will be carried out in the context of a twinning relationship between Kazakh specialists in the Sanitary-Epidemiological Service and an internationally-recognized food safety regulatory agency, preferably from an OECD or similarly-advanced economy. The component will also support a dialogue on structural changes in the food safety system, including the possibility of institutional consolidation between MOH and the Ministry of Agriculture, and will avoid duplicating work being done under the World Bank, Agricultural Competitiveness Project and other WTO-related programs financed by the European Commission and USAID.

2 The final institutional structure for oversight of the pharmaceutical sector in Kazakhstan has yet to be determined. Activities under this subcomponent would begin within the current institutional structure (centered on the Pharmaceutical Committee and the National Expertise Center) but may migrate over time to a National Drug Agency, especially on issues to do with pricing, information and the promotion of rational prescribing and drug use.

Component G: Project Management (total estimated cost: US$4.6 million)

25. This component will finance project management and monitoring and evaluation activities for the project. While technical oversight and management of project activities will be carried out by the same Core Coordination Team (CCT) already established by MOH and MOEBP to oversee the Project during preparation, day-to-day administrative support for implementation will be provided by a team of local consultants in a Project Implementation Support Team (PIST). This will consist of an administrative coordinator responsible for Component A and for overall PIST management; coordinators for Components B-F; an office manager; a procurement specialist; and a financial management specialist. The component will also finance a range of surveys for project monitoring and evaluation;3 annual financial audits; and training, equipment/furniture and incremental operating costs for the PIST.

D. Lessons learned and reflected in the project design

26. Government commitment is essential for successful implementation and Bank Projects must be fully consistent with Government reform plans. The World Bank’s role is not to set policy, nor can its projects be effective unless they explicitly support of reforms that have been conceived of, approved and supported by the implementing government/agency. This is especially true of reforms that are technically and politically complex. Kazakhstan has a well-conceived State Health Care Reform and Development Program that was developed by the Ministry of Health and approved by the Government of Kazakhstan. The Program is technically strong and was developed in a consultative process that included a broad range of health sector stakeholders. The Project is designed to support the implementation of this Program; all components are integral parts of the Program’s second phase (2008-2010). A detailed Feasibility Study for the Project was prepared by the Ministry of Health and reviewed/approved by the Ministries of Education, Justice, Finance and Economy and Budget Planning as part of the Government’s due diligence process for investment projects. 4 The Feasibility Study includes a detailed exposition of reform goals, project activities, implementation arrangements and term budget implications. Approval of the Feasibility Study leads to the inclusion of all Project costs in the Government’s medium-term budget plan: a tangible signal of the Government’s commitment to the Project and its activities. It also provides the Ministry of Health with assurance that budget funds for Project implementation will be made available in the amounts and on the schedule reflected in the Feasibility Study.

27. Overly prescriptive approaches are seldom successful. Reform implementation is full of surprises and bends in the road. Overly prescriptive approaches are seldom successful and a more flexible approach to implementation is often required. Implementation should not lack rigor or structure; but it should be recognized that with any complex or politically charged reform, mid-course corrections are frequently necessary and should generally be accommodated rather than resisted. This poses a challenge for project implementation: to strike a balance between detailed project planning and flexibility in reacting to changing circumstances. The current Project addresses this challenge in two ways. First, while the Project is designed in a comprehensive and detailed way, each component leaves scope for in-process adjustments, e.g. by changing the physical location of reforms, their sequencing or even (in some cases) their content. This flexibility is a feature of Bank-financed projects that makes them especially useful for supporting complex reforms, and is one that budget-funded activities do not always have. Second, the Project supports a broad range of reforms but recognizes that some may proceed more smoothly or successfully than others, simply by virtue of the inherent unpredictability of complex change and the inability to predict reform trajectories with complete accuracy. The Project therefore spreads ‘reform risk’ across multiple fronts and allows for strength in one direction to compensate for weakness in another (as, for example, if medical education reforms

3 These are included here rather than in the individual components because of their cross-component nature, e.g. household health surveys, patient/provider satisfaction surveys, etc.. 4 Requirements for the Feasibility Study are exhaustive and are laid out in Ministry of Economy and Budget Planning Order #144 dated September 30, 2004.

proceed slowly but are compensated by strength in post-graduate training and certification of health care providers through upgraded methods of licensing and continuing medical education).

28. Financing needs to be comprehensive to avoid mis-steps during implementation. A key question for Bank projects in middle-income countries is the appropriate division of financing between IBRD and government financing. A clear division is possible for some activities, e.g. where IBRD finances capital investment needs while the budget finances recurrent costs in the implementing Ministry. For others the division poses risks, especially in countries with unpredictable and/or erratic budget procedures. A worst- case example is as follows: IBRD finances a team of IT consultants; these consultants are hired to work on an e-government project in which IT infrastructure is financed by the budget; but the budget, for whatever reason, fails to provide sufficient or timely funds for this purpose, leaving the consultants with no computers to work on but a contractual claim on fees. The consequences of this, both in terms of financial losses and disruption to reform implementation, can be significant. This is why financing for tightly-sequenced reforms/projects is usually bundled in a single multi-year source that does not require annual budget approval, e.g. through IBRD financing. It is also a reason why several EU countries continue to borrow from the World Bank.

29. Careful project management and stakeholder involvement are critical for complex reform programs. Attention to sequencing and detailed implementation planning is especially important for reform programs that consist of multiple interconnected activities. Ensuring clarity and adequate staffing is also critical. While the implementing Ministry should be in charge, additional staff/consultants are often hired as part of a ‘reform unit’ or similar implementation-focused entities. For highly complex activities, experienced professional managers are a wise investment even in places where hiring and retaining such skills is expensive. Equally important is to ensure adequate provisions for stakeholder involvement. This is especially true for activities which affect multiple constituencies in different ways. The Project addresses these issues in several ways, including through the development of detailed implementation and procurement plans and critical path analysis; use of a professional change management expert during preparation to review the sequencing and relationships among components; financing for full-time project implementation support staff; financing for professional management services or the inclusion of such in twinning arrangements; and substantial financing for stakeholder participation, public relations and communication activities.

30. Large Information Systems/Information Technology investments are highly risky. As outlined extensively in the Bank’s 2004 report, “Health Information Systems in Kazakhstan”, large healthcare IT investments are highly risky and have a propensity to exceed their budget, fail to win the support of key stakeholders or simply not work at all. These risks can be mitigated in a variety of ways, including investing in stakeholder mapping and communication efforts; paying close attention to standards and integration issues at early stages of project design; using professional project managers for development and deployment; selecting experienced and likely-to-succeed geographic targets for the first phase; synchronizing training, hardware deployment and application software deployment at individual project sites; focusing on business processes rather than IT demands; using independent assessment to identify progress and risks at key decision points; and adhering to professional project management practices that favor modularity, early documentation of outputs, explicit progress reporting and early detection of problems. The Project includes, in Component D, many of these risk mitigation measures.5

31. Twinning relationships and training can be highly effective if designed properly. A fundamental objective of the Project is to build capacity in Kazakh institutions and elevate their performance. This requires close attention to the design of study tours, training programs and twinning arrangements (which feature heavily in the Project) as instruments to reach the Project’s objective of technology transfer and

5 These conform to recommendations in the World Bank report: Quality of Information and Communication Technology in World Bank Projects: a QAG Assessment (February 28, 2007).

institutional reform. Lessons learned from previous Bank projects have been incorporated in the present operation. These include the fact that all activities—training and study tours included—are described and scheduled in the Project’s implementation plan with considerable specificity;6 that study tours have been located at decision points in each component and focus on specific objectives rather than generalized experience-gathering (e.g. identifying the model to be used in establishing an accreditation body for health facilities); that many of the Project’s training activities involve curriculum development and course delivery by indigenous institutions rather than external partners (e.g. for clinical practice guidelines and health management), with the external partner’s role being one of support rather than direct execution; and that twinning relationships are envisaged to allow for on-the-job training as a supplement to more formal programs.7,8 Twinning arrangements in particular are not planned as amorphous peer-to-peer relationship- building exercises but rather strictly designed, contractually-based activities with a clear specification of inputs, outputs, qualification requirements, reporting obligations and performance measures for monitoring and evaluation. What distinguishes them from traditional consultancies is their duration, their preference for peer institutions over consulting firms and their bundling of related tasks (e.g. curriculum development, institutional re-design, training implementation and study tours) for comprehensiveness. Terms of Reference for twinning arrangements have been prepared by the Ministry of Health and are included in the Project Operational Manual. The use of a limited number of carefully-specified twinning relationships (as opposed to a large number of disparate consultancies) is also expected to facilitate implementation by simplifying project management and improving the accountability of twinning partners as compared with the kind of task-shifting often seen when multiple firms/individuals are used. Twinning partners will be selected competitively based on criteria including the experience with policy reforms similar to those envisaged in Kazakhstan; their prior experience with peer-to-peer twinning relationships; their ability to prepare proposals for, and be held accountable against, clear, detailed and contractually binding implementation plans over an extended period, including explicit plans for monitoring and evaluation; and their own agency’s level of accomplishment and/or performance against accepted international standards in the field. The Bank will closely monitor the performance of twinning partners and study tours/training activities to ensure they remain effective in delivering the envisaged levels of technology transfer and capacity building. This will be done at least every six months during Project implementation.

32. Results measurement is critical. The Project makes substantial provisions for monitoring the impact of planned reforms on health sector performance.9 The Results Framework in Annex 3 focuses on individual components and their outputs/outcomes; in addition, however, broader monitoring of sector performance will be carried out through a complex of household surveys, provider and user surveys, pharmaceutical sector surveys and the development of National Health Accounts. These instruments serve two purposes: first, to help guide policy making and ensure that policies and expenditures are targeted to areas of proven weakness or need; and second, to monitor the impact of policy reform on health sector performance in general. Since health outcomes are subject to multi-factor causality and are not all directly influenced by the health system

6 This is also a requirement of the Government’s due diligence process for investment projects. 7 These practices conform to recommendations in a draft report of the World Bank’s Independent Evaluation Group: Using Training to Build Capacity for Development: An Evaluation of Project-based and WBI Training (October 2007). Key factors identified as determinants of success in capacity building included inter alia the existence of an appropriate and enabling institutional/organizational context for training; strong client commitment to training goals; opportunities for in-service and on-the- job training as supplements to formal/standalone training programs; follow-up support to trainees to help them implement knowledge and skills acquired; and clear targeting of training content/design to organizational and institutional needs. The study cautioned that when these factors are absent, training results in individual participant learning but only about half the time does it improve the capacity of client institutions to achieve development objectives. This is why the present Project would focus heavily on targeted, contextualized training for specific objectives and the provision of this training in the context of long-term twinning relationships that provide additional support for on-the-job learning and the implementation of newly-acquired skills. 8 It should also be pointed out that most training activities in the Project are of medium to large scale and only a few individual-level training activities are envisaged. These would be for highly specialized skills such as pharmacology and epidemiology where immediate capacity is required in the Ministry of Health and allied institutions and where the market demand and/or wage premiums is low enough that attrition (at least domestically) is not considered a major risk to staff retention in the public sector. 9 The budget allocation for surveys and sectoral M&E work is $1.44 million over five years (see Annex 3). This would be supplemented by within-component performance monitoring in the context of twinning relationships/TA.

itself, indicators like life expectancy and infant mortality should be interpreted with caution to avoid naïve conclusions about the impact of specific reforms. This will be addressed in the Project by using system-wide instruments for measuring health sector performance—looking at the levers through which the health system can impact on health status, as illustrated in Figure D1 below—as well as more traditional outcome measures.

Figure 1: How Health System and Project Components Affect Health Status A D A B E F

A B D E

A C

A B D E

C D A D E E

Source: Adapted from World Health Report 2000

E. Alternatives considered and reasons for rejection

33. JERP but no Project. The Joint Economic Research Program (JERP) has provided an excellent forum for Bank-GOK dialogue on important health policy issues since 2003. This dialogue, which has at various times taken the form of diagnostic reports, analyses, study tours, technical assistance and expert presentations, has been productive and useful, especially on issues concerning health financing and health care quality improvement. What Kazakhstan needs now is not policy dialogue—policy directions in the health sector have been identified in the State Health Care Reform and Development Program 2005-2010 and are in keeping with international best practice—but rather action, i.e. implementation support. The JERP does not provide scope for this kind of engagement and this is why the Government requested Bank support in the form of a project.

34. Small Project focused on limited reform program. Reform in the health sector consists of many interconnected parts. In the present Project, for example, Components A, B and D are very closely linked due to the complementary of financing reforms, training, information systems and measure to improve healthcare quality. There are many examples of this kind of linkage: without an upgraded information system and better training, newly-independent hospital managers won’t have the information they need to manage better; without accountability through an independent accreditation system, facility managers might take advantage of their new-found autonomy to run down capital stock; without improvements in drug

quality and access, no amount of good medical practice can improve well-being; and without reforms in medical education and the introduction of international standards in evidence-based medicine, improved access to drugs will simply mean more people getting inappropriate treatment. Because of this, and because of the Government’s ambitions for sector-wide change, it would be impossible to design a project around a single reform element and expect it to make a significant difference. This approach would also fail to fulfill the raison d’être of the Government’s request for Bank involvement, namely assistance with the design, sequencing and oversight of complex reforms. Simplification of Project design may have been possible by excluding several standalone components/subcomponents.10 This was rejected by the Government on account of the fact that these activities, though not as tightly linked as the activities in Components A, B and D, are nevertheless crucial elements of the Government’s reform program and ones for which international expertise and oversight are especially important.

35. Project financing exclusively for hardware. The title of the Project expresses its basic objective: to support institutional reform and technology transfer and thus to upgrade the quality of Kazakhstan’s health system in selected critical areas. This is not something that can be achieved by hardware alone, as the Project’s heavy investment in capacity-building and training attests. It is also a more complicated effort that capital-intensive projects such as road or dam construction, especially in the need for a ‘qualified client’ to ensure that expensive capacity- and/or institution-building efforts are planned, contracted and supervised to international standards. This is largely the Bank’s role, i.e. to help build capacity in MOH and allied institutions while at the same time ensuring that the funds spent for this purpose attract the world’s best firms and their work is done according to internationally-acceptable standards. For Kazakhstan to attempt this alone would involve a dilemma: the lack of capacity and international experience would make it hard for Kazakh specialists to get the best out of international firms; as a result, less qualified firms would apply; and as a result of this, the quality of work would be lower. This is why the Project includes a heavy emphasis on capacity-building and institutional development.

36. No project at all. Kazakhstan has attempted comprehensive health reform on at least three separate occasions since its independence from the Soviet Union in 1991. While progress has been made in some areas, the health system today is not dramatically improved over the one Kazakhstan inherited from the Soviet Union and there remains a pressing need for comprehensive reform. Hands-on partnership with the World Bank is one way of improving the likelihood of success this time around, especially for the most complex reforms.

III. IMPLEMENTATION

A. Partnership arrangements

37. No formal partnership arrangements are envisaged. MOH and the Bank team will continue to collaborate informally with the USAID-funded ZdravPlus project on Components A, B and E; with the World Health Organization on Component A and laboratory/BTS reform; and with the United States Centers for Disease Control, also on laboratory and BTS reform.

B. Institutional and implementation arrangements

10 Six of the Project’s components/subcomponents are standalone activities that do not pose generalized and/or critical path risks. These include Component F on Food Safety and WTO Accession; Subcomponent C2 on Medical Science Reform; Subcomponent B3 on Laboratory Services Reform; Subcomponent B2’s activities on Health Technology Assessment; Subcomponent B4 on Blood Transfusion Service Reform; and Subcomponent C1’s activities on Continuing Medical Education. There are close operational linkages between Components A and D and to a lesser extent between these Components and Component E, Subcomponent B1 and the CPG development and training activities in Subcomponent B2. These linkages are described in detail in the Project Operational Manual and will receive special attention during implementation/supervision.

38. The project will support a number of complex institutional reforms. As with all such reforms, details of the reform path are impossible to predict with complete accuracy at the outset. While the Government has indicated, in the Feasibility Study for this Project, its commitment to the overall trajectory of reform and the need for key institutions—such as an independent accreditation agency, an agency to oversee the Unified Health Information System and new departments/units in MOH for policy analysis and provider payment reform—the exact reform paths for establishing these functions may vary from the ones described here. This is normal in any country but especially so in transition countries. The existence of a comprehensive, technically strong health reform strategy also makes major deviations from the reform path unlikely, but the possibility cannot be ruled out altogether. To mitigate this risk, strong mechanisms are included for coordination of the reform program within the Government of Kazakhstan. These will be complemented by equally strong mechanisms for regular communication between the Government and the World Bank health team and a more intense than usual supervision effort on the Bank’s part.

39. MOH will be the implementing agency for the Project. Day-to-day responsibility for Project management will be with the Department for Strategic Development and International Cooperation (DSDIC). This Department will coordinate the work of a Core Coordination Team (CCT) consisting of ten middle- to senior-level officials in MOH, each responsible for one project component/subcomponent, and two liaison staff from MOEBP. The coordinator of this team will be the Director of DSDIC or, by nomination, his/her deputy. These staff, while remaining accountable for the progress of their respective components, will not work full-time on Project implementation. This will be done by a Project Implementation Support Team (PIST) consisting of local consultants (approximately one per component) and a small group of support staff, all of them reporting to the Director of DSDIC. These consultants will be financed from the Project. The others, i.e. core MOH staff responsible for Project implementation, will be financed by GOK through regular salaries with an adjustment in their work program to allow sufficient time for Project-related tasks. DSDIC reports, through its Director, to a Deputy Minister, and s/he in turn reports to the Minister of Health. Final accountability will rest with these three individuals: the Minister, the Deputy Minister responsible for DSDIC and the Director of DSDIC. These arrangements are considered optimal given the complexity of the Project and the need for additional staff to manage logistical and other non-technical tasks. They are not intended to represent a traditional Project Implementation Unit arrangement, since PIST consultants will not have decision-making authority and will be hired solely to facilitate the mechanics and logistics of Project implementation. This will be monitored closely during implementation but is not expected to lead to a “parallel Ministry” arrangement of the type commonly encountered in low-income countries, especially since the responsibilities of MOH staff under the Project are essentially the same as their responsibilities as MOH staff under the Government’s State Health Care Reform and Development Program 2005-2010.

40. Intra- and intersectoral policy oversight will be provided through separate mechanisms. For coordination within the health sector, a Health Policy Council (HPC) will be established to oversee Project implementation. The HPC will be chaired by the Minister of Health and comprise all MOH senior management (Deputy Ministers, Department Directors, Committee Chairmen and Deputy Director of DSDIC acting as Council secretary). Coordination and oversight from outside the sector will be provided by the Government’s Economic Policy Council (EPC), a high-level policy council whose membership comprises inter alia the Prime Minister, the Deputy Head of the Presidential Administration, the Minister of Economy and Budget Planning and the Minister of Finance. The EPC is responsible for “elaborating concerted approaches to the development and implementation of social and economic policy” and “elaborating recommendations on fundamentally important issues in social and economic development.” Since the Project touches on a number of key intersectoral issues including performance-based budgeting, administrative reform, civil service reform and the role of human capital in Kazakhstan’s competitiveness agenda, oversight from a high-level body such as EPC is appropriate. This will take place on a semi-annual basis or more frequently in connection with MOH’s periodic reporting of progress under the State Health Care Reform and Development Program.

41. Fiduciary functions will be the responsibility of MOH. All fiduciary functions including procurement, financial management, auditing and reporting will the responsibility of the Director, DSDIC. Financial management will be carried out by a full-time financial management consultant in the PIST but in close coordination with the Department of Economics and Finance (DEF) of MOH. Procurement will be supervised by a local consultant in the PIST with experience in international procurement and working knowledge of written and spoken English. He/she will collaborate with the State Procurement Unit in the Organizational and Legal Affairs Department of MOH. However, since staff in the State Procurement Unit have little experience of international procurement and only just enough capacity to carry out their existing responsibilities vis-à-vis procurement of health goods/services financed by the budget, these staffs will not have responsibility for procurement under the Project. For complex and/or large procurements, the PIST procurement consultant will receive support from an international procurement consultant with particular experience in IT procurement.

42. All reporting and oversight relationships are summarized in the Project Operational Manual.

C. Monitoring and evaluation of outcomes/results

43. MOH will monitor and evaluate the progress/outcome of reforms supported by the Project in the context of its overall monitoring of the State Health Care Reform and Development Program 2005-2010. Responsibility for monitoring and evaluation in MOH rests with the Monitoring, Medical Statistics and Analysis Unit in the Department of Strategic Development and International Cooperation. Project Monitoring will be integrated with monitoring of the State Health Care Reform and Development Program and will be the responsibility of this unit with support from PIST component coordinators and members of the CCT. To strengthen MOH’s long-term capabilities in monitoring and evaluation, selected staffs will receive extensive in-service and overseas training.

44. Project output/outcome monitoring will be supported and supplemented during Project implementation by three household health surveys and a number of out of pocket payment surveys, hospital budget surveys, provider surveys, user satisfaction surveys, drug price monitoring surveys, access to drug surveys and drug quality surveys. These will be carried out in a coordinated way and will provide input not only for Project implementation purposes but also for monitoring health sector performance more generally. This will be done using evaluation instruments from the EU or OECD to benchmark aspects of Kazakhstan’s health system performance.

D. Sustainability

45. Institutional sustainability. All Project components focus on establishing, strengthening or reforming healthcare institutions with the intention of ensuring sustainability after five years of intensive investment and capacity-building. Barring any major deviation from the policies laid out in the State Health Care Reform and Development Program 2006-2010, this approach is expected to have a substantial impact on long-term institutional functioning at MOH and among oblast health purchasers, health care providers/managers, medical universities, medical research institutions, the laboratory system, the blood safety apparatus and agencies/committees for accreditation control, pharmaceuticals and food safety, among others. For some, major changes in institutional roles and responsibilities are envisaged under the State Program and the Project will provide commensurate support; for others, the changes are more modest and the Project will adopt a less intensive approach.

46. Fiscal sustainability. Recurrent cost implications have been analyzed and are included in the Ministry of Health’s Feasibility Study for the Project. These estimates have been translated into budget and staff allocations for the life of the Project and beyond.

E. Critical risks and possible controversial aspects

47. This is a high-risk, high-reward Project. Key risks and mitigation strategies are outlined below. Project components, while ambitious and in some cases complex, are technically sound, operationally feasible and strongly supported by the Government in connection with the State Health Care Reform and Development Program. However the speed and scope of reform will depend on political processes beyond the Bank’s control and to which the Project may need to respond by adjusting, replacing or in some case dropping components in the course of implementation. The likelihood of such adjustments being required is high; but the likelihood that such adjustments would impair the Project’s ability to meet its development objectives is low, given the high level of commitment and consistency between the Project and the Government reform program it will support. Special attention will be required during Project implementation to Components A, B and D. The Project’s main technical and operational risks are in these components and their interrelationship makes careful supervision especially important. Other components/subcomponents are, in many cases, standalone activities that do not pose generalized and/or critical path risks but have been included in the Project at the Government’s specific request.

48. A broader risk relates to the fact that the Project, while broad in scope, is not sector-wide in influence, nor does it touch on all the manifold issues that contribute to the health status of individuals or the population. The Project does not, for example, deal significantly with primary health care except through the work on health financing; does not directly address infectious diseases such as tuberculosis except through its work on clinical practice guidelines; and does not deal at all with high-impact public health policy issues such as smoking, alcohol consumption, road safety or accidents, several of which are major contributors to the burden of disease and death in Kazakhstan. These are deliberate omissions that derive from the Project’s primary mandate to strengthen institutions and introduce international standards that will improve efficiency and quality in the Kazakhstan health sector. Institutional strengthening, although primarily a supply-side phenomenon, will have an impact on health status.11 In some cases this will be rapid, e.g. by improving the blood safety system; in some cases it will be slower, e.g. by improving the quality of clinical practice and upgrading medical education; and in some cases it will manifest indirectly through improvements in access and efficiency, e.g. through health financing reform. But in many cases, the full impact of systems interventions on final health status—as measured, say, by life expectancy—will only be realized if they are implemented in concert with demand-side behavioral interventions such as anti-smoking programs, better enforcement of seat belt legislation and tax disincentives for alcohol and tobacco consumption. This creates an important political risk: namely, that a naïve interpretation of the extent to (and pace at) which structural/institutional reforms lead to improvements in final health status leads policymakers to introduce mid-course changes that undermine progress and impede/retard toward a modernized health system.

49. Implementation risks related to Kazakh budget procedures should also be noted. These are described in the recent Country Portfolio Performance Review (2007) and include inter alia multiple extensive internal clearance procedures. inflexible budget implementation procedures,12 an inflexible interpretation of the Feasibility Study in national regulations,13 a fixed approach to remuneration of local consultants and delays

11 The Project would support critical demand-side interventions in Components A and D, both of them in connection with the design of benefit packages and financial incentives for health services utilization, including the appropriate place for insurance, and outpatient pharmaceuticals. It would not, however, support broader demand-side interventions concerning behavioral change, nor would it finance work on health protection interventions such as road safety, child-friendly building standards, etc. These are relatively new areas of policy discussion in Kazakhstan in which the European Commission has expressed interest in providing technical assistance and support. 12 Budget Requests are submitted by implementing agencies to MOEBP during the formulation of the budget for each program/project and contain the detailed breakdown of expected disbursements by month and category. Only activities included in the Budget Request can be financed during the year. Activities which slip for any reason (e.g. delay in procurement process, effectiveness or adverse weather conditions), or unforeseen but critical activities, cannot easily be shifted from or added to a given year and may therefore totally fall out of the project. 13 Once the Feasibility Study approved by the Republican Budget Commission, it can hardly be altered or deviated from for the entire duration of the project unless the Feasibility Suty formally revised, which is a complicated and time-consuming procedure. Budget

associated with contract registration and payment processing by the Treasury. All items are under high-level discussion between the World Bank and the Government of Kazakhstan but will continue to represent serious bottlenecks to smooth implementation until resolved, not only for IBRD-funded projects but also for investment projects financed by the budget itself.

50. There are no controversial aspects of note.

Risk Risk Mitigation Measure Risk Rating with Mitigation To Project Development Objective

Overall:

Potential erratic policy or investment Continuous engagement during project implementation S decisions driven by ad hoc, non evidence- with President’s Administration, Prime Minister’s based instructions from higher authorities in Office, Ministry of Economy and Budget Planning and spite of the existence of a strong, detailed Kazyna Fund in addition to MOH; partnership with the reform program, esp. on issues such as Center for Health Care Development, a parastatal think- mandatory health insurance, medical savings tank on evidence-based medicine; and heavy investment accounts, pharmaceutical procurement etc. in PR/communication/stakeholder consultations in all components (see below under IV(D) Social).

Recurrent changes in sectoral leadership Immediate moves to brief incoming leadership; building M result in fluctuating commitment to the State momentum and a constituency for reform at lower levels Health Care Reform and Development in MOH, incl. among department heads such as those in Program/reforms supported by the Project the Core Coordination Team; and ongoing work with MOEBP, PMO and the President’s Administration, including ad hoc interventions as justified

Naïve interpretations of the extent to and As per both the above S pace at which structural/institutional reforms lead to improvements in final health status leads policymakers to introduce mid-course changes that undermine reform progress and retard progress toward a modernized health system

Potential lack of synchronization of Project- All critical-path procurements, including those for IT S funded with counterpart-funded activities infrastructure, are financed by IBRD to avoid possible leading to delays and/or implementation delays associated with budget financing. Funds for failure budget-funded activities have already been approved by MOEBP/Republican Budget Commission in the context of the Project’s Feasibility Study. Regular supervision and updating of project implementation/procurement plans (continuous planning/coordination of activities).

Failure to obtain stakeholders’ cooperation Project allocates significant funds for stakeholder H with key reforms leading to “stakeholder involvement through consultation, communication and revolt” and/or refusal to change behavior in constituency-building efforts across all components but key areas such as health management, with special focus on A, B, C and D clinical practice, medical education, information systems and pharmaceutical policy

Staff allocated to project preparation and/or Appointment of a dedicated Core Coordination Team implementation would be overwhelmed by for project oversight; clarity on implementing / “routine work” (i.e. MOH work unrelated to beneficiary agencies; and retention of a full-time Project the Project) and unable to give the Project Implementation Support Team. Regular reports to the requests, which are submitted to MOEBP on an annual basis, have to be in full compliance with FS. Activities which deviate from Feasibility Study in either amount or timing may be excluded from the corresponding budget request and therefore may not be implemented. This complicates not only inflation adjustments but also unforeseen changes in the timing of project activities.

Risk Risk Mitigation Measure Risk Rating with Mitigation the attention it needs Health Policy Council and the Economic Policy Council would raise this issue if it becomes problematic during implementation.

To Component Results

Component A: Health Financing and Management

High-level stakeholders oppose the Addressing MOEBP, Parliament, Akims and other M implementation of planned health financing senior stakeholders to explained the planned financing reforms reforms, including through extensive analytical work in Component A1; Up-front work on defining legal and regulatory changes; study tours for senior officials in MOH and other involved ministries; close coordination with MOH, Presidential Administration and MOEBP on related government-wide Administrative Reform and performance-based budgeting programs and PR/communication/stakeholder consultation measures

Poor synchronization of financing reforms Front-loading HMIS implementation with the financial M with new HMIS management information module

Political resistance to adopting merit-based Up-front work on defining legal and regulatory changes; S appointment of facility managers and study tours for senior officials in MOH and other allowing for facility autonomy involved ministries; close coordination with MOH, Presidential Administration and MOEBP on related government-wide Administrative Reform and performance-based budgeting programs

Component B: Health Care Quality Improvement

Resistance of officials, rectors and medical Involvement of all stakeholders—from officials to S staff to accepting evidence-based standards health/teaching staff—in the decision-making process and/or external assessment methods for and via public communication arrangements at MOH, education, licensing and quality assurance oblast and institutional levels; informing the public of the changes, outcomes and expected benefits to them; and substantial budget allocations for study tours and participation in international conference for health and education officials and medical opinion leaders to provide first-hand access to international practice and opinions.

Unrealistic expectations about the time- Up-front agreement reached and embedded in Project S frame for complex institutional reforms such implementation schedule on realistic time-frames for as accreditation and licensing system reform: implementation; and constant monitoring of actual officials pushing too hard, too fast for implementation progress to make adjustments as implementation and creating resentment and necessary eventual failure of institutional reforms

Non-transparent intervention by medical Constant discussion with and inclusion of high-level S opinion leaders to prevent key changes in decision-makers in Presidential Administration, Prime e.g. accreditation, licensing and esp. medical Minister’s Office and MOEBP to ensure reforms are education understood and broadly supported

Resistance among Sanitary and Participatory approach to reform design and M Epidemiological Service (SES) and blood implementation; training and study tours for key transfusion officials to merge and/or have stakeholders their laboratories subjected to external

Risk Risk Mitigation Measure Risk Rating with Mitigation assessment

Component C: Reform of Medical Education and Medical Science

Opposition by senior stakeholders in Many aspects already touched upon in the approved S Medical Universities (e.g. rectors, faculty Concept on Medical Education/Medical Science etc.) to various dimensions of the reform Reform; extensive funds for stakeholder consultation program esp. those concerning governance, and communication through the twinning arrangement admission criteria, transparency etc.

Breakdown of or failure to properly establish Involvement of a broad constituency in early-stage M oversight mechanisms for reforms decision making incl. MOES, MOH; intense supervision by Bank/WHO to ensure well-functioning oversight mechanisms; close involvement of twinning partner

Component D: Health Information System Development

Inadequate provisions for stakeholder Formal inclusion of stakeholder participation in project S involvement in the design of the system, planning; and including stakeholder communication in resulting in resistance from institutions the formal mandate of the National Health Information receiving the system Center

Obsolescence of technology part-way Use of latest applicable technology and international M through the development or deployment standards; and development of systems on a modular processes basis so they can be updated as technology improves.

Adequate provision is not made to develop Substantial funding of capacity development in this area H capacity to support the development and formal inclusion of capacity-building measures in long- implementation of the system term mandate of NHIC and oblast health information centers

Required level of support is not provided for Substantial funding for deployment capacity building; M training and project deployment, esp. up-front agreement embedded in Project design on deployment teams minimum standards/costs for deployment capacity; inclusion of NHIC and oblast health information centers in the in the deployment process

Required level of support is not provided for Funding for capacity development in this area; and S training professionals needed for ongoing constant dialogue during implementation to link MOH operations and maintenance of the system with broader e-government efforts and planned public sector capacity building programs focused on informatics and IT skills

Component E: Pharmaceutical Policy Reform

Opposition from vested political and/or Strong emphasis on international experience and use of S commercial interests or external parties (e.g. a well-respected twinning partner to define diplomatic missions of pharmaceuticals- internationally-accepted best practices in price producing countries) to proposed changes in regulation and procurement; extensive training for staff tendering and procurement practices in the proposed methodologies; use of evidence-based decision making to justify policy changes; extensive investment in monitoring and evaluation; and funds for conferences, consultations and other ways of building stakeholder support

Pressure from domestic manufacturers for Use of WTO compliant methods to provide legitimate H preferential treatment in state procurement domestic preference without compromising competition

Risk Risk Mitigation Measure Risk Rating with Mitigation

Slow uptake of new clinical guidelines, Complementary efforts in Components B and E to M Formulary etc. leading to slower than change clinical behavior expected introduction of evidence-based prescribing

Component F: Food Safety and WTO Accession

Resistance from national food producers Use of media and public information efforts—advocacy M who fear difficulty complying with within government and work with universities, the press international standards or feel threatened by etc.—to highlight the importance of planned reforms the prospect of market entry by international and their long-term economic and health benefits to the competitors country; close coordination with Ministry of Agriculture and WTO Accession Committee

Overall Risk Rating S Risk Rating: H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

F. Loan/credit conditions and covenants

51. The Borrower shall carry out the Project in accordance with the following institutional and other arrangements:

Implementation Arrangements

The Borrower, through MOH, shall carry out the Project in accordance with the requirements, criteria, organizational arrangements and operational procedures set forth in the Operational Manual and shall not assign, amend, abrogate or waive any provisions of the Operational Manual without prior approval of the Bank.

At all times during the implementation of the Project, the Borrower shall maintain the CCT and the PIST with a composition, resources, and terms of reference satisfactory to the Bank.

No later than July 1, 2008, the Borrower shall appoint a financial management consultant on terms of reference satisfactory to the Bank to assist the DEF with implementation of the Project.

No later than July 1, 2008, the Borrower shall have adopted the Operational Manual.

In order to ensure that appropriate funds are available to cover the Borrower’s contribution to the Project, the Borrower shall make annual budget allocations to MOH as follows: for 2008, US$5,549,627; for 2009, US$29,622,776; in 2010, US$75,315,603; in 2011, US$29,990,189; in 2012, US$28,056,477; in 2013, US$9,769,596.

Project Reports

(a) progress made in meeting the Project’s objectives; and

(b) overall Project performance against Project performance indicators.

Financial Management, Financial Reports and Audits

The Borrower shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 5.09 of the General Conditions.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

52. Economic analysis of the Project was carried out in three analytical domains: the health sector, the government and the economy/society as a whole. Cost-effectiveness of the project was analyzed using Healthy Years of Life Gained (HYLG) as the difference between healthy years lost with and without the Project’s intervention. The time horizon for the analysis is 10 years given that system impacts would take time to fully manifest. Three discount rates are utilized: 4 percent rate as the rate of risk-free government bonds, 7 percent as the rate of deposits guaranteed by the state, and 10 percent as the rate of deposits at savings account in the commercial banks. These rates provide a sensitivity analysis of project results.

53. The cumulative savings of hospitals on current expenditures and from reduced bed-days are estimated at US$350.3 million and US$343.6 million respectively by the end of the project. Consumer savings as a result of improved access to free and subsidized medicines are estimated at US$112.6 million. Increases in the average cost of subsidies received by pharmacies or an extension of the list of subsidized drugs would result in even larger savings. Fiscal benefits would accrue in terms of revenues to the budget coming from additional personal income and social taxes resulting from HYLG. The results indicate a Net Present Value (NPV) of US$210 million with an internal rate of return of 31.3 percent (range: 23.6-38.0 percent for pessimistic/optimistic scenarios) and a breakeven/payback period of 5 years.

B. Technical

54. All technical approaches included in the Project are based on the experience of high-performing OECD or upper-middle income countries and have been appropriately tailored by MOH to Kazakhstan’s past reform experience and future aspirations. While implementation challenges and risks are substantial, there are no unusual and/or experimental technical aspects and all proposed activities are based on well-documented international experience in health reform. The only technical issue of note is the existence of significant cross-component linkages between components A, B and D. These are illustrated schematically in Figure 2 below and will receive close attention during Project implementation.

C. Fiduciary

55. Public procurement reform in Kazakhstan began in 1996. The Law on State Procurement was first enacted in June 1997 and became effective on January 1, 1998. It was amended in December 1998. A new Law on Public Procurement of Goods, Works, and Services was introduced on May 16, 2002. The Government of Kazakhstan and the World Bank conducted a Joint Public Expenditure and Institutional Review under the JERP in 2004. This included, among other topics, a review of the efficiency of the public procurement. This assessment led to Kazakhstan being ranked as a High Risk country from the public procurement point of view. Amendments to the Public Procurement Law were initiated recently. These include many provisions that reflect the Bank’s recommendations; however, since many of the recommendations were not accepted, the law remains in need of further improvement and the country’s procurement risk category remains unchanged. The lack of transparency in public procurement and MOH’s lack of experience, especially in international procurement, give the current Project a similar High Risk rating for procurement. As such: Procurement under the Project will be implemented by a team of national and international procurement consultants and will not be mainstreamed into the implementing agency, i.e. MOH. MOH will, however, take measures to improve the capacity of existing procurement staff, especially in international procurement. Procurement risks and recommendations for mitigation are listed in Annex 8.

56. Financial management functions will be handled by the Economics and Finance Department (DEF) of MOH with additional support from a local consultant working exclusively on the Project’s accounts.

Although overall responsibility for the flow of funds, accounting, reporting and auditing under the Project will rest with DEF, a financial management consultant will be hired and will be responsible for all day to day technical financial management activities such as liaising with the World Bank on financial management issues, maintaining accounting records in the system, submitting required financial reports to the Bank and relevant government agencies, making sure that a reliable internal control framework as described in the POM is in place, and preparing detailed annual budgets. An initial assessment of financial management arrangements for the Project was undertaken in February 2007 to determine if the existing financial management arrangements in MOH—i.e. systems of budgeting, accounting and financial reporting, auditing and internal control—are acceptable to the Bank. Bank policy requires that acceptable accounting and internal control systems should be in place when project implementation begins; in the Europe and Central Asia Region, these are expected to be in place by the time of Board presentation. This assessment found that while existing MOH systems are adequate for budgeting and accounting under the requirements of local legislation, staffs are not familiar with the Bank’s fiduciary requirements regarding the financial management, disbursement and audit and current arrangements need to be strengthened in order to meet Bank requirements. Specifically, 1. The 1C accounting software will need to be designed to take into account Project requirements including the ability to differentiate between project-related transactions and produce project financial reports; 2. MOH, through the Economics and Finance Department, will need to prepare a financial management section in the Project Operational Manual on the basis of Ministry of Finance (MOF) instructions concerning accounting in budgetary entities and internal orders regulating document processing and internal controls at MOH; and 3. Economics and Finance Department should recruit a financial management consultant to be located in the DEF office and assist with project-related transactions and reporting. Terms of Reference for the consultant should be cleared with the Bank and his/her roles and responsibilities—along with those of current DEF staff—should be described in the Project Operational Manual. Implementation of these action points was reviewed by the Bank at the beginning of November, 2007. The review concluded that the implementation of the action plan was satisfactory and current Financial Management arrangements are acceptable to the Bank. Financial management overall risk for the proposed project is substantial before mitigation measures due to lack of MOH staff previous experience in Bank FM procedures, not adequate documented internal control framework and not fully acceptable accounting system for the project. The financial management residual risk rating was upgraded to moderate after adequate mitigation measures agreed

57. Annual audits for the project accounts will be carried out in accordance with Guidelines for Financial Reporting and Auditing of Projects Financed by the World Bank (June 2003). These guidelines require a single audit opinion on the project financial statements as a whole, which will include the Special Account Statement and the Statement of Expenditures used as the basis of withdrawing funds from the Credit Account.

D. Social

58. The Project’s social impacts are of three types: those that affect the patient-provider interface directly, e.g. inter alia patient-friendly improvements in facility management/governance, better and more transparent information on fee structures, improvements in clinical quality for basic medical conditions, improved interpersonal communication by physicians and improvements in the outpatient drug benefit; those that affect the public indirectly, e.g. addressing geographic disparities in health spending and facility access through reforms in investment planning, health sector budgeting and provider payment systems; and those that have a direct affect primarily on healthcare providers, e.g. changes in financing arrangements, quality improvement methods and clinical practice, the latter through a large-scale effort to introduce evidence-based clinical practice guidelines for a set of 50 basic medical conditions. The Project includes extensive provisions for client and stakeholder communication, drawing on international/OECD experience with the implementation of similar reforms. These include extensive stakeholder consultations on new planning standards for hospitals and laboratories; annual conferences and regular stakeholder consultations on accreditation system development, medical education/medical science reform, evidence-based medicine, and pharmaceutical

policy; over US$12 million for a five-year consultation, training and information campaign to develop and introduce new clinical practice guidelines targeting both healthcare providers and the general public; US$1 million to carry out a communications strategy on reforms in the blood transfusion system and promote voluntary donorship; funds for a communication strategy and a campaign to raise stakeholder and public awareness of reforms in food safety; dissemination workshops and public communication strategies to inform stakeholders about important survey results; and funds to support seminars/training activities targeting journalists and high-level audiences in the Parliament and the medical and academic communities with information about the reform program and its implications. Heavy investments in stakeholder consultation, communication and training are also included in the Project’s work on health information systems. Poor communication and a lack of stakeholder buy-in are known contributors to the risk of failure in large IT projects. Kazakhstan’s lack of a well-developed ‘information culture’ justifies a larger-than-usual investment in these activities: a total of over US$10 million has therefore been allocated for professional project management and large-scale communication/training.

59. It should be noted that the State Health Care Reform and Development Program was itself developed through an extensive process of stakeholder consultation. This may explain why the Program continues to successfully and stably guide health sector development in Kazakhstan almost two years after its inception: a remarkable achievement given the sector’s past policy turbulence.

E. Environment

60. No environmental assessment was carried out for the Project as no environmental implications are envisaged. The Project is a Category C for environment purposes.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [ ] [ X ] Natural Habitats (OP/BP 4.04) [ ] [ X ] Pest Management (OP 4.09) [ ] [ X ] Physical Cultural Resources (OP/BP 4.11) [ ] [ X ] Involuntary Resettlement (OP/BP 4.12) [ ] [ X ] Indigenous Peoples (OP/BP 4.10) [ ] [ X ] Forests (OP/BP 4.36) [ ] [ X ] Safety of Dams (OP/BP 4.37) [ ] [ X ] Projects in Disputed Areas (OP/BP 7.60)* [ ] [ X ] Projects on International Waterways (OP/BP 7.50) [ ] [ X ]

G. Policy Exceptions and Readiness

61. Policy exceptions. The project does not require exceptions from current Bank policies.

62. Readiness criteria. Most applicable readiness criteria such as detailed component activities, budgets, establishment of a monitoring and evaluation system, agreement on procurement and financial management arrangements, the first year implementation plan and procurement plan have been fulfilled, reviewed by the Bank team and agreed with the counterparts. The financial management system has been designed and a Financial Management Manual has been drafted. Financial management and accounting software systems will be established by Negotiations. Elaboration of procurement documents for the first year’s procurement will be done by the time of Effectiveness. A draft Project Operational Manual has been prepared.

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

Figure 2. Illustration of cross-component linkages: Components A, B and D

Modern methods of control and fiduciary and quality assurance: ex-post performance-based rather than ex-ante input-based Use of accreditation instead of input-control for quality improvement Exception-based + (limited) random audit for quality and/or fiduciary control Mandatory annual independent financial audit for healthcare providers using private sector auditors Introduction of internal (procedural) audit

A1 B1 Development of new audit/control Development of new health facility Improved methods for methods (A2) new service contracts standards (B1) and audit/control and performance expectations (A1) methods content of training accountability and Development of revised program budget program for healthcare managers (A2) control in the health structure (A1) new approach to Changed legal status of providers (A1) sector auditing and financial management (A2) changed legal obligations in terms of financial management and accountability (A2).

D Improved information Contracting for outputs, not inputs, through the use of Changed legal status of providers, systems for decision from state institutions to state performance-based contracts economical enterprises making and performance Program budgets with clear Professional management and measurement performance indicators for business planning by healthcare A2 A3 A1 A2 purchasers / program facility managers Improved healthcare Improved methods for administrators Reviewed/upgraded planning and management capacity budget planning and Performance-based payment staff norms; reduced number of and flexibility contracting for service methods for providers, e.g. input norms; reformed governance capitation in PHC, case-based structures; better management provision payment in hospitals capacity; and level regulatory environment for public and private providers

Development of new contracting and payment methods (A1) content of training program for healthcare managers (A2) and methodology for master-planning facility network (A3) Level of regulatory playing field between public and private providers (A1) new opportunities for contracting private providers

Annex 1: Country and Sector or Program Background KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Economic and Public Sector Reforms

Kazakhstan’s economic prospects are favorable and driven in large part by its significant natural resource endowment and more recently by high oil and commodity prices on world markets. Kazakhstan’s oil reserves are substantial and production is expected to reach three million barrels a day by 2020, bringing as much as US$7 billion in annual revenues to the budget. However, as oil revenue increases, the associated fiscal, monetary and credit expansions can overheat the economy, possibly leading to currency appreciation beyond the equilibrium exchange rate and exerting negative pressure on tradable sectors such as agriculture and manufacturing. These pose a threat to economic competitiveness and have been addressed through a number of fiscal and monetary interventions over the past few years. These have successfully retrained overheating but the risk remains high and a longer-term strategy is required to diversify Kazakhstan’s economy beyond natural resources and improve its overall competitiveness. To this end, the President of Kazakhstan has set a goal for Kazakhstan to become among the world’s 50 most competitive nations. This has become a leitmotif for reform in Kazakhstan and has brought a broad of range issues such as human capital development, public administrative reform, labor market reform and WTO accession under a common objective. According to the World Bank, Kazakhstan’s Gross National Income per capita puts it alongside other lower-middle-income economies such as Albania, Algeria, Belarus, FYR Macedonia and Tunisia. Economic growth, still driven largely by the resources sector, has been around 10 percent annually since 2000.14

Table 1.1 - Kazakhstan Basic Economic Indicators, 2005-2006 Economic Indicators 2005 2006 GNI per capita, Atlas method (current US$) 2,940 3,870 Gross Domestic Product (GDP) growth (annual %) 9.8 9.7 Inflation, GDP deflator (annual %) 17.4 17.9 Agriculture, value added (% of GDP) 8.7 6.8 Industry, value added (% of GDP) 40.5 39.5 Services, etc., value added (% of GDP) 50.8 53.7 Exports of goods and services (% of GDP) 56.6 53.5 Imports of goods and services (% of GDP) 49.1 44.6 Gross capital formation (% of GDP) 18.1 27 Revenue, excluding grants (% of GDP) 11.3 21.3 Cash surplus/deficit (% of GDP) 0.1 2.6 Source: World Development Indicators database, April 2007

Reforms in public sector management are a key element of Kazakhstan’s competitiveness agenda. A far- reaching public sector reform program was initiated in 2007 including performance-based budgeting, management by contract, separation of policy and execution functions in government departments and increased autonomy for managers of public facilities, enterprises and services. The reforms are modeled on New Zealand’s new public management approach of the 1990s and a number of senior officials from New Zealand and Australia have been retained to provide advice.

14 World Bank, World Development Indicators, 2006; World Bank staff estimates

Demographic and Health Status15

The size of the population in Kazakhstan decreased from 16.5 million in 1989 to 15.1 million in 2005, mainly due to out-migration of ethnic Russian and other groups. The migration balance remained negative, but declined from minus 523,500 in 1994 to negative 123,200 in 2000. This has reversed in recent years due to in-migration from neighboring republics including Uzbekistan, Kyrgyzstan and Tajikistan as well as from China.16 The birth rate dropped from 23.12 births per 1,000 population in 1989 to 14.19 in 1999, increasing again to 18.19 in 2004 (Table 1.1). The total fertility rate (the number of children a woman is likely to bear in her lifetime) declined from 2.81 in 1989 to 1.79 in 1999, but has since increased again to 2.2 in 2004. While in the Soviet period, a woman who had seven or more children was proclaimed as a ‘mother-hero’ and given various extra benefits, the President’s message in 1997 in Kazakhstan 2030 called for the “improvement of the health of women and children, together with a broad pronatalist policy to curb the decline in population”. Although the population structure in Kazakhstan is slightly older than in the other Central Asian republics, 24.79 percent of the population was below 15 years in 2004.

Table 1.2 - Kazakhstan Basic Demographic Indicators, 1989-2005

1989 1991 1993 1995 1997 1999 2001 2003 2004 Mid-year population (in million) 16.53 16.81 17.12 16.54 15.75 14.93 14.86 14.91 15.01 % of population aged 0-14 years 31.79 31.29 30.89 30.08 29.54 28.35 27.27 25.37 24.79 % of population aged 65+ years 5.64 6.08 6.58 6.89 6.85 6.72 6.79 7.42 7.63 Live births per 1000 population 23.12 21.07 18.48 16.78 14.75 14.19 14.85 16.63 18.19 Crude death rate per 1000 population 7.64 8.01 9.13 10.21 10.17 9.77 9.93 10.42 10.14 Total fertility rate 2.81 2.8 2.5 2.4 1.9 1.79 1.82 2.03 2.2 Average population density per square km 6.17 6.28 6.07 5.78 5.48 5.45 5.47 5.51 Source: Kazakhstan HiT, 2007 (draft)

Trends in life expectancy in Kazakhstan are broadly similar to those observed in the Commonwealth of Independent States (CIS), although life expectancy in Kazakhstan has remained below the CIS average and the decline in life expectancy after 1991 was steeper. The dissolution of the Soviet Union was followed by a dramatic decline in life expectancy. In Kazakhstan, life expectancy dropped from 68.81 in 1990 to 64.4 in 1996, and has since increased again to 66.21. However, despite the economic recovery, this still fell more than two years short of its 1990 level and was more than 13 years lower than average life expectancy in the EU-15, which was 79.43 years in 2004. As in the rest of the former Soviet Union, there is a substantial gender gap in life expectancy. In 2004, males could expect to live 60.72 years and females, 72.02 years. Male life expectancy also experienced a much steeper fall than female life expectancy in the first half of the 1990s, from 63.9 years in 1990 to 58.93 years in 1996. The largest proportionate increases in mortality have occurred among males of working age. Between 1987 and 1995, mortality rates more than doubled for men aged 30-44 and rose by more than 75 percent for men aged 45-54. There are also substantial regional variations in life expectancy. The most prosperous areas, i.e. Almaty and Astana, have a substantial advantage in terms of life expectancy over other areas of the country. Healthy life expectancy (HALE) at birth was estimated at 52.6 years for males and 59.3 years for females in 2002.17

15 This and subsequent sections draw heavily on European Observatory (2007): Draft Health Systems in Transitions Report, Republic of Kazakhstan 16 Tishkov et al. 2005, Global Commission for International Migration 17 WHO Statistical Information System. It should however be noted that actual life expectancy may be even lower than recorded in official statistics due to the underreporting of infant mortality. Estimates that take this factor into account point to an actual life expectancy of 61 years in 2003, four years less than official statistics.

Table 1.3 - Life expectancy in Kazakhstan, 1990-2004 1990 1992 1994 1996 1998 2000 2002 2003 2004 Life expectancy at birth, in years 68.81 68.24 65.91 64.4 65 65.75 66.15 65.89 66.21 Life expectancy at birth, in years, male 63.9 63.31 60.85 58.93 59.43 60.18 60.92 60.63 60.72 Life expectancy at birth, in years, female 73.4 72.98 71.07 70.33 70.95 71.65 71.62 71.47 72.02 Estimated life expectancy, (World Health 62.49 63.6 61 Source: Kazakhstan HiTS, 2007 (draft)

The decrease in life expectancy in Kazakhstan in the 1990s is largely due to an increase in mortality from cardiovascular diseases, in particular among middle-aged males. The age-standardized death rate from ischemic heart disease for males increased from 405 per 100,000 male population in 1989 to 611 in 1996, declining again to 512 in 2004 (compared to 85 in the EU-15 in 2004). However, the overall age- standardized mortality rate for cardiovascular diseases in 2002 was estimated at 713 per 100,000 people. The age-standardized death rate for selected alcohol-related causes is also high and stood at 308 per 100,000 people in 2003, compared to 61 per 100,000 in the EU-15. Age-adjusted cancer mortality rates (at 174 per 100,000 in 2004) are comparable to those in the EU-15, but significantly higher than in the other central Asian republics. With respect to infectious diseases, Kazakhstan is also experiencing a considerably high age-standardized mortality rate for tuberculosis, which stood at 26.4 per 100,000 people in 2004, compared to 0.62 per 100,000 in the EU-15. From another perspective, the age-standardized rate for selected smoking related causes was nearly 4 folds that of the EU-15 in 2003, where Kazakhstan stood at 806 per 100,000 population and the EU-15 at 216 per 100,000 population. However, since there are problems with identifying causes of death, mortality related statistics by cause of death have to be treated with some caution.18

Alcohol consumption, smoking, diets high in fats and low in antioxidants, and poor detection and treatment of hypertension are major contributing factors to the increase in cardiovascular mortality.19 According to a nationally representative survey with 2000 respondents conducted in 2001, 55.6 percent of men in Kazakhstan were heavy vodka drinkers and only 13.8 percent consumed fruits on a daily basis.20 Central Asia has also become one of the key targets for the international tobacco industry.21 The Living Conditions, Lifestyles and Health Study of eight countries in the former Soviet Union (Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, and Ukraine) found the highest smoking prevalence among males in Kazakhstan, where 65.3 percent of male and 9.3 percent of female respondents reported to be currently smoking.22 However, according to three surveys conducted by the National Centre on Healthy Lifestyles in 1998, 2001, and 2004, the incidence of tobacco smoking among the general population decreased from 28 percent to 23 percent and smoking among health professionals decreased from 34 percent to 26 percent. Despite health education campaigns in schools, however, the surveys did not find evidence of reduced smoking rates among adolescents, with an incidence of 14 percent of 13-15 year-olds in 2004. Like in other countries of Eastern Europe and central Asia, Kazakhstan has recorded a significant increase in the incidence of diabetes in recent years. Rates increased from 43.3 per 100,000 population in 1993to 106.3 in 2004.23,24

Kazakhstan has also very high death rates due to external causes (accidents, injuries, poisonings, and traumas) and an increase in external cause mortality contributed to the mortality crisis in the 1990s, in

18 President of Kazakhstan (2004). State Health Reform and Development Program for 2005-2010, approved 13 September 2004 19 McKee, M. and L. Chenet (2002). Patterns of health. Health care in central Asia. M. McKee, J. Healey and J. Falkingham. Buckingham, Open University Press. 20 Cockerham, W. C., B. P. Hinote, et al. (2004). "Health lifestyles in central Asia: the case of Kazakhstan and Kyrgyzstan." Social Science & Medicine 59: 1409-1421 21 Gilmore, A. and M. McKee (2004). "Moving east: how the transnational tobacco companies gained entry to the emerging markets of the former Soviet Union. Part I: Establishing cigarette imports." Tobacco Control 13: 143-150 22 Pomerleau, J., A. Gilmore, et al. (2004). "Determinants of smoking in eight countries of the former Soviet Union: results from the Living Conditions, Lifestyles and Health Study." Society for the Study of Addiction 99: 1577-1585 23 MOH (2002). Health of Population and Health Care of Republic of Kazakhstan, 1991-2001. Astana, Ministry of Health 24 WHO (2006). WHO Regional Office for Europe health for all database, June 2006, World Health Organization, Regional Office for Europe.

particular for non-Kazakh males of working age.25 Age-standardized mortality rates increased from 118 per 100,000 in 1991 to 163 in 2004, which was close to the CIS average (160 in 2004), but considerably higher than the Central Asia average (82) and more than four times higher than the EU-15 average (38). In 2004, external cause mortality in Kazakhstan was second only to Russia in the whole of the WHO European region. A significant proportion of external cause mortality is due to suicide, in particular among males (56 per 100,000 males in 2004).24

The officially recorded infant mortality has decreased since 1990, reaching 13.98 per 1,000 live births in 2004,24 but the recorded decline is likely to reflect growing underreporting. Furthermore, the large discrepancy between the official statistics and the World Bank estimates are largely due to definitional inconsistencies in the classification of IMR. This is due to the fact that until recently, protocols used by the Ministry of Health for collecting information on infant deaths were those established in the former Soviet Union and did not follow recommended WHO definitions. Three main factors that contribute to the discrepancy between official data and estimates by international organizations: the continued use of the Soviet definition of live birth (which considers infants who are born at less than 28 weeks of gestation or weigh less than 1,000 grams as aborts unless they survive to 7 days of age);18 misreporting by medical staff; and failure by parents to report births and deaths of children to the authorities.26 A study in Dzhambul oblast in 1996-1997 found an infant mortality of 32 per 1,000 live births according to the Soviet definition and a mortality rate of 59 when using the WHO definition. The Demographic and Health Survey of 1999, based on a nationally representative sample of 4,800 women of reproductive age, established an estimated infant mortality of 62 per 1,000 live births for the period 1994-1999 and an under-five mortality rate for the same period of 71 per 1,000 live births.27 These figures have improved since 1999. According to a cluster survey carried out in 2006 by UNICEF and the Statistics Agency of the Republic of Kazakhstan, infant mortality was 36.56 per 1,000 live births among boys and 26.56 per 1,000 live births among girls. While this represents an impressive improvement over the figures from 1997, it masks significant regional and wealth- based differentials. Regional differences range from a low of 6.17 in Astana City to 55.39 in Dzhambul oblast and wealth-based differences from 14.63 in the richest wealth quintile to 35.32 in the poorest. Similar differentials are seen in under-five mortality rates. Immunization rates are, however, universally high.28,29

Table 1.4 - Infant mortality rates in Kazakhstan, per 1000 live births 1990 1995 2000 2004 Official statistics (MOH) 26.69 27a 27.43 25.93 World Bank estimate 53 57 63 63 Source: DHS 1999 Report

25 Becker, C. M. and D. S. Urzhumova (2005). "Mortality recovery and stabilization in Kazakhstan, 1995-2001." Economics and Human Biology 3: 97-122 26 Aleshina, N. and G. Redmond (2003). How high is infant mortality in central and eastern Europe and the CIS? Florence, Innocenti Research Centre 27 Demographic and Health Survey, 1999. Note that use of survey methodologies in estimating IMR is also prone to misclassification due to sampling and non-sampling errors. However, these errors typically lead to more conservative estimates, since misclassification is more likely to lead to under reporting as a result of information and recall bias and not vice versa. 28 UNICEF and Statistics Agency of the Republic of Kazakhstan, Multiple Indicator Cluster Survey 2006 29 In January 2005, MOH issued a decree to adopt the WHO definition of live birth. In 2006, all hospitals reported infant mortality data according to both old and new definitions.

Table 1.5 - Distribution of infant and under five mortality rates by key characteristics: Kazakhstan, 2006 Infant mortality rate U5 mortality rate Boys 36.56 41.73 Girls 26.56 30.34 Wealth index quintiles Poorest 35.32 40.52 Poor 40.97 47.60 Middle 34.44 39.70 Rich 26.24 29.52 Richest 14.63 16.23 Total 31.83 36.30 Source: UNICEF Multiple Indicators Cluster Survey, 2006

According to national statistics, maternal mortality rates are very high in Kazakhstan, with 36.63 deaths per 100,000 live births in 2004: more than eight times the EU-15 average. Virtually all births (98 percent according to the Demographic and Health Survey in 1999) take place in health facilities, most in special delivery hospitals. However, as is the case with infant mortality, actual maternal mortality rates can be assumed to be higher. UN agencies estimated that that actual maternal mortality rate was 210 per 100 000 live births in 2000, which was more than three times the official rate for the same year.

Table 1.6 - Maternal mortality in Kazakhstan, per 100 000 live births

1990 1992 1994 1996 1998 2000 2002 2004 Official statistics (MOH) 73.21 74.82 68.82 69.52 79.14 61.64 51.94 36.63 WHO/UNICEFF/UNFPA estimates 80 210 Source: (WHO 2006a)

Like other countries in central Asia and the former Soviet Union, Kazakhstan has witnessed epidemics of sexually transmitted diseases and tuberculosis since the early 1990s. The incidence of tuberculosis initially declined from 96.57 per 100 000 population in 1980 to 60.9 in 1993, but has since almost trebled, reaching 175.56 in 2004. Although this mirrors trends in central Asia and the former Soviet Union as a whole, rates in Kazakhstan are currently higher than in any other country of the WHO European region.24 In the 1999 Demographic and Health Survey, 9 percent of respondents reported that someone in their family had had tuberculosis and more than 23 percent reported having frequent exposure to a person with tuberculosis but only 68 percent of women and 62 percent of men knew that tuberculosis can be completely cured with proper medication. There are also considerable regional variations. In 2001, tuberculosis prevalence varied from 121 per 100,000 people in Almaty city to 308 per 100,000 in Kyzylorda oblast. Prisons in particular constitute high risk environments. In 2001, tuberculosis incidence rates were 30 times higher than among the general population and mortality rates were 9 times higher. A growing concern is multi-drug resistant tuberculosis, which is much more difficult and expensive to treat. Although there are as yet no national data available on drug resistance, an estimated 10 percent of all smear positive cases are multi-drug resistant. 30

Table 1.7 - Infectious diseases in Kazakhstan, 1990 - 2004 1990 1992 1994 1996 1998 2000 2002 2004 Tuberculosis incidence per 100 000 population 65.8 64.36 62.24 85.16 136.82 173.44 185.44 175.56 Number of new HIV cases 4 1 2 48 299 347 694 699 Syphilis per 100 000 population 1.45 3.49 32.32 238.67 239.13 161.38 N/A 79.31 Gonococcal infections per 100 000 population 105.21 126.59 110.53 113.59 84.67 88.16 N/A 76.19 Source: WHO Regional Office for Europe, Health for All database, June 2006

Although the absolute number of registered HIV cases is still comparatively low, an exponential increase has been recorded in recent years and the real number of cases is likely to be much higher, as in the other

30 Godhino, J., T. Novotny, et al. (2004). HIV/AIDS and Tuberculosis in Central Asia. Country Profile Kazakhstan. Washington, World Bank

countries of the region.31 At the beginning of 2006, there were 6363 HIV infected persons officially registered in Kazakhstan, 393 of whom had AIDS, while 395 were HIV positive pregnant women. The epidemic is mainly driven by the inflow of heroin from Afghanistan and the growth in injecting drug use. In Kazakhstan, the number of registered injecting drug users has increased five-fold since the early 1990s.32 A rapid assessment response carried out by UNAIDS in 1998-2002 suggested that there might be more than 250,000 injecting drug users. Of the estimated 25 000 people living with HIV in Kazakhstan, 80 percent were believed to be drug users. There has also been an increase in commercial sex work, with an estimated 20 000-50 000 commercial sex worker in 2002.30,32 The epidemic in Kazakhstan is concentrated among highly vulnerable populations (injecting drug users and sex workers) but is also spreading to other vulnerable groups including youth, migrants and truck drivers. There is great potential for the continued rapid spread of HIV among injecting drug users, in particular as between 8 percent and 28 percent of sex workers inject drugs, according to sentinel surveillance results for 2003 and 2004. Sentinel surveillance in 2003 indicated HIV prevalence levels of 3.8 percent among injecting drug users and 4.6 percent among sex workers. About 78 percent of reported cases are attributed to unsafe injecting drug use, and sexual transmission accounts for 14 percent. More than 25 percent of newly registered infections in 2004 were attributed to unprotected sex.33 The country is still at an early stage of the HIV/AIDS epidemic, but there are a number of factors in place that create the potential for a dramatic increase: widespread injecting drug use, migration, extensive commercial sex work, high risk behavior, marginalization of vulnerable groups, low public awareness of HIV/AIDS, and the limited capacity of government and civil society to implement effective responses. While Kazakhstan has adopted overarching policies and strategies to control HIV, coverage of highly vulnerable groups such as injecting drug users, commercial sex workers or prisoners is still insignificant and treatment with anti-retroviral drugs is not yet widely available. If HIV control efforts are not significantly expanded, the HIV epidemic will broaden and, according to an optimistic scenario, will reduce the country’s GDP by 2.2 percent by 2015 and slow down GDP growth by about 5 percent.32

The possible effects on population health of severe environmental degradation and pollution are of considerable concern in Kazakhstan. The basin of the shrinking Aral Sea is heavily salinated since its feeder- rivers are siphoned off in irrigation schemes. The remaining water is polluted from factories and agriculture. The air around the Aral Sea is polluted with salt, pesticides and chemicals. The already limited supply of fresh water in Kazakhstan is made worse by various forms of contamination. Air and water pollution is severe particularly in industrial areas. In 2002, only 75 percent of the urban population had access to piped water and 62 percent had access to a sewerage system.34 Globally, children under 5 years of age are most vulnerable to air and water pollution hence the biggest burden of diarrheal diseases and acute respiratory infections, particularly pneumonia, falls primarily on this age-group. In Kazakhstan, deaths in this age-group due to diarrheal diseases in 2000 stood at 14.5 percent, while those for pneumonia accounted for 16.9 percent.35 Radiation exposure from atomic testing in the Semipalatinsk area that once served as the Soviet Union’s main testing ground for atomic weapons has also been high. Between 1953 and 1963, when the Nuclear Test Ban Treaty banned all testing in the atmosphere, a large number of surface and atmospheric atomic tests were carried out at Semipalatinsk. Underground testing continued until August 1991 when the site was closed. The current impact of the atomic testing on population health remains unclear.36

31 Bernitz, B. L. and B. Rechel (2006). HIV data in Central and Eastern Europe: fact or fiction? HIV/AIDS in Europe. Moving from death sentence to chronic disease management. S. Matic, J. Lazarus and M. C. Donoghoe. Copenhagen, World Health Organization: 232-242 32 Godinho, J., A. Renton, et al. (2005). Reversing the Tide: Priorities for HIV/AIDS Prevention in Central Asia. World Bank 33 WHO (2005). Summary country profile for HIV/AIDS treatment scale-up, Geneva, World Health Organization 34 WB (2004). Dimensions of Poverty in Kazakhstan, Volume 1: Policy Briefing. Washington, World Bank 35 WHO Statistical Information System 36 Stone, R. (2003. "For a Long-Suffering Population, Uncertainty Reigns." Science 300: 1222; and Stone, R. (2003). "Plutonium Fields Forever." Science 300: 1220

Table 1.8 - Percentage of children aged 0-59 months severely or moderately malnourished: Kazakhstan, 2006 Weight for age Height for age Weight for age Number of % below % below % below % below % below % below % below children aged - 2 SD - 3 SD - 2 SD - 3 SD - 2 SD - 3 SD + 2 SD 0-59 months Sex Male 4.3 0.8 13.4 4.5 4.4 1.3 11.1 2200 Female 3.6 0.7 12.1 3.5 3.2 0.6 11.6 1990 Wealth index quintiles Poorest 4.7 1.0 15.7 4.9 3.3 0.8 12.5 1146 Poor 5.0 0.8 13.7 4.4 3.3 1.0 10.6 879 Middle 4.5 0.5 13.8 4.5 4.1 0.8 11.0 821 Rich 4.1 1.4 9.9 3.2 4.9 1.4 12.0 668 Richest 0.8 0.1 8.4 2.2 4.0 1.2 9.9 676 Source: Source: UNICEF Multiple Indicators Cluster Survey, 2006

The Health System: Overall Issues

Kazakhstan inherited a health system organized according to the Semashko model of Soviet health care. The system was state owned and centrally planned and key principles were that services should be free and accessible to everyone. Before independence, the Ministry of Health in Kazakhstan administered policy made in Moscow through a centrally organized hierarchical structure, from the republic level to oblast/city administrations, then to the subordinate rayon level. After independence in 1991, there was initially little change to the health system, as priority went to political and economic reform. Improvements to the infrastructure and quality of health care services lagged due to the severe budgetary crisis. Various options were debated and pilot projects were set up in four oblasts (Zhezkazgan, Semipalatinsk, South Kazakhstan and Almaty), in order to test new approaches such as restructuring primary care, insurance funding, new provider payment mechanisms and user fees. A compulsory health insurance scheme was introduced in the mid-1990s but was discontinued in 1998. A comprehensive health reform program—the State Health Care Reform and Development Program 2006-2010—was adopted in 2004, envisaging changes in all aspects of the health system.

National health policies are set by the government but implemented by national and local authorities. The Ministry of Health heads the hierarchy but services are administered mainly by oblast health departments which have considerable autonomy in running health services in their area. The State Health Care Reform and Development Program for 2005-2010 envisages strengthening MOH’s role in health policy formulation. Its current main functions are formulating policy, preparing legislation, commissioning research, developing reform strategies, monitoring population health, supervising the implementation of reforms, and ensuring the training of health personnel. The Ministry draws up the health care budget, controls the republican portion, nominally supervises the national research institutes and national hospitals, and has ultimate control over the health system. It also monitors environmental health through the sanitary-epidemiological service. Other key Ministries include the Ministry of Finance, which allocates funds to the Ministry of Health and the oblasts, including funds for health services and capital investments, and the Ministry of Labor and Social Protection, which sets the national pay scale and remuneration incentives and is responsible for monitoring the implementation of labor laws.

Basic structure of the KZ Ministry of Health MINISTER

Quality Committee FIRST VICE- VICE- MINISTER MINISTER

SES Committee Head of Administrative Department

Director of Department Director of Department Pharmacy Committee Director of Department Director of Department

Health Programs Monitoring and Evaluation Unit Budget Programs Planning and Monitoring Specialized Care Unit Unit Legal and HR Health Statistics and Unit Information Support Departmental Unit Legend PHC Unit Organizations Economics and Local Budgets State Procurement International Monitoring Unit Unit Cooperation Unit Direct subordination Highly Specialty Health Health Financing Legal Activity Division Care Unit Methods Improvement . Health Care Development Strategy and International Unit Health Care Organization Cooperation Division Division Planning and Economics State Language Division Overseeing Development Unit Planning and Monitoring of Medical Children and and Pharmaceutical Accounting and Adolescents Health Staff Training Unit Organizational Reporting Unit Activity and Control Protection Unit Structural subdivision Unit Post-graduate Education Unit Financing and Reproductive Health Consolidated Analysis Unit State Secrets and Mob. Protection Unit Science and New Supply Unit Technologies Unit Accounting, Reporting and Mother and Child Health Financing Division Protection Division Organizational-Control Education and Science Division Activity Division Education, Science and Organizational Legal Activity International Cooperation Economics and Finance Department Curative-Preventive Activity Department Department Department

In 2004, there were more than 8,000 health facilities, including 1,666 public outpatient facilities, 1,101 private outpatient facilities, 894 public hospitals, and 148 private clinics. The distribution of health facilities and provision of health services varies significantly across regions.18 Some health care organizations (such as some hospitals, large polyclinics and primary health care groups) are now legally able to become juridical entities with the capacity to manage their own funds. This became possible under the 1995 Law on Self- government and later amendments and decrees. The oblasts must decide (subject to various exclusions) which facilities will remain state owned and funded, and which will be reorganized as enterprises. Pharmacies and dentists have mostly become private for-profit organizations, while hospitals, sanitaria and large polyclinics continue to be mainly state-owned. Some ministries and government agencies run their own comprehensive network of health services. These include the Ministry of Internal Affairs, the Committee of National Security, and the Railroads Department, and represent a substantial share of the health care system. In 1996, these health care facilities had 14 695 beds (about 9 percent of all hospital beds), which had been reduced to 9365 by 1997 (7 percent of the overall total). Prior to 1992, some large state enterprises also ran their own health services but these have mainly closed. The parallel health services are formally required to report to the Ministry of Health but may not always do so in practice.

Kazakhstan began to privatize state-owned facilities such as factories and large collective farms from 1991 onwards. Privatization has been more limited in the health system and mostly involved pharmacies and dental care. By 1997, over 90 percent of drugstores had been privatized. Private medical practice was permitted under the 1991 Law on Health Protection. By January 1997, only 834 physicians (1.6 percent of all physicians) were working on a fee-for-service basis; this had increased to 14 percent by 2005.

Devolution from national to oblast level was embedded in the 1995 Law on Local Self-government, which delegated health management and financing functions to the oblast level. According to this law, the level of budget consolidation was to be determined by the oblast Akim. Until 2004, in some oblasts the budget was centralized at oblast level, whereas in most oblasts the budget was decentralized to the rayon level. Beginning in 2005, according to the Budget Codex of Kazakhstan, the budgets of all oblasts are consolidated at the oblast level. According State Health Care Reform and Development Program 2006-2010, the next major step toward devolution will involve autonomization/corporatization of health facility management, with a goal of 6,300 facilities to be autonomized/corporatized or privatized/converted to Joint Stock Companies by 2012 from a base of only 26 facilities in 2007.37

In the second half of the 1990s, the hospital network of the country was significantly reduced, in particular in rural areas where many village hospitals were closed. The number of hospitals in Kazakhstan was reduced from 1,796 in 1991 to 845 in 2001 and has since increased again to 1,042 in 2004. The number of acute care hospital beds per 100,000 people has decreased from 1,167 in 1991 to 541 in 2001 and has since increased to 618 in 2004. This is still roughly 50 percent higher than the ratio in the EU-15 in 2003.24 There is little in the way of objective hospital sector investment planning and oblasts have considerable autonomy in terms of investment. This complicates efforts at rationalization and investment, since it combines ad hoc decision- making with Soviet-era facility and equipment norms and provides few safeguards against inappropriate investment decisions, e.g. buying equipment without a clear picture of demand or upgrading facilities that would be better off closed, merged or re-profiled. Addressing these issues is a high priority, especially as Kazakhstan becomes wealthier and seeks to spend more on its health infrastructure. In terms of length of stay, average length of stay in acute care hospitals in Kazakhstan was 13.7 days in 1991 but decreased to 10 days in 2004. This is still significantly higher than the EU-15 average of 6.9 in 2003.24 There are some noticeable differences in the average length of stay across regions. In 2004, the shortest average length of stay was recorded in Almaty city (10.1 days) and the longest in Aktobe oblast (14.9 days).

Health Expenditure

Health financing suffered a major fall in the 1990s. Several factors were responsible including the collapse of GDP, high inflation, the end of subsidies from Moscow and difficulties in collecting tax revenue. In 1994, real health expenditure was only 37 percent of its pre-independence level.38 The lowest share of GDP allocated to health was recorded in 2002 at 1.93 percent. This has increased significantly since, both in absolute terms and as a proportion of GDP. Between 2000 and 2005, public health care expenditures increased from US$23 per capita to US$98 according to Ministry of Health data. As a share of GDP, budget allocations to the health sector increased in Kazakhstan from 1.9 percent in 2000 to 2.5 percent in 2005. The State Health Care Reform and Development Program 2005-2010 envisages a gradual increase to 4 percent by 2010. These data are only for public spending and do not capture out-of-pocket payments for health care services and pharmaceuticals.

Table 1.9 – Government health expenditure in Kazakhstan, 2000-2005 2000 2001 2002 2003 2004 2005 2006 Healthcare expenditures (as % of GDP) 1.9 2 1.9 2.1 2.3 2.5 3.4 Share of expenditures in the overall national budget 9.3 8.7 9 9.2 9.4 9.1 9.2 Health expenditures per capita per year (US $) 23 29 32 41 64 98 128 Source: Ministry of Health

There is no National Health Accounts for Kazakhstan. This hampers efforts to gain a clear picture of health expenditure by sources, intermediaries and uses. Available data suggest that as in many countries, health expenditure in Kazakhstan is skewed toward hospital care. Soviet-era data show hospitals receiving up to 85

37 MOH Decree 1117 (102804), 2007 38 World Bank (1996). Kazakhstan: the impact of transition on budgetary expenditures in health and education

percent of the total health budget.39 This has been reduced in recent years as Kazakhstan has adopted an increasingly PHC-focused health policy. According to MOH sources, in 2005 primary care received 28 percent of the total health budget, an increase from an estimated share of 10 percent in the mid-1990s. By 2010, the primary care sector is expected to account for at least 40 percent of public health care resources allocated for the implementation of the state guaranteed package of services.18 A major problem in assessing the structure of health expenditure in Kazakhstan is that health care expenditures are categorized according to budget line items and it is difficult to trace what is spent on particular areas such as inpatient or primary care. In addition, many polyclinics are attached to hospitals and it is difficult to estimate what proportion of polyclinic services can be categorized as primary vs. outpatient specialty care.39 According to the WHO Regional Office for Europe Health for All database, in 2005, the hospital sector accounted for 44.2 percent of public expenditures, the outpatient sector for 27.7 percent, capital expenditures for 15.5 percent, and pharmaceutical supply for 11.8 percent. As in Ministry of Health data, the share of inpatient expenditure shows a downward trend, from 53.6 percent of total public health expenditure in 2000.24 According to the Ministry of Health, the share of the outpatient sector increased to 29 percent in 2006.

Revenue Collection, Financing Methods and Entitlements to Care

Health care revenue comes from three main sources: the state budget, official user fees and unofficial out-of- pocket payments. Voluntary Health Insurance and international assistance area additional sources of revenue, the former increasing and the latter decreasing. The State Health Reform and Development Program envisages a balanced health financing policy that consists of budget financing with limited user fees for basic health care services with out-of-pocket payment and Voluntary Health Insurance for non-essential services.

Sensibly, Medical Savings Accounts (MSA) and Mandatory Health Insurance (MHI) have been rejected as options for the immediate future. MSAs were rejected on account of Kazakhstan’s rapidly increasing dependency ratio (expected to double between 2000 and 2030); a relatively large grey economy with only around half the population paying into the pension fund; Kazakhstan’s lack of experience with supply-side regulations and delivery system reforms required for MSAs to work;40 the absence of a level playing field for public and private providers and of adequate consumer information on health care quality and service options; the absence of an adequate information system; the absence of effective mechanisms for covering the poor, elderly and vulnerable; the lack of effective mechanisms to formalize informal payment systems and avoid further informality as a result of MSAs; and the negative impact of MSAs on efforts to formalize the economy since MSA contributions will effectively constitute a payroll tax on employers and employees. Arguments against Mandatory Health Insurance included the fact that Kazakhstan is not short of budgetary resources and does not need payroll taxes for revenue-raising purposes; that the administrative cost of revenue collection would be higher than the additional revenues collected; that countries with historical MHI systems such as Germany and The Netherlands are moving toward budget-based financing (i.e. away from contribution-based systems) for reasons of equity and efficiency; and that additional social taxes would make it harder for Kazakhstan to formalize the informal sector and, worse, reduce Kazakhstan’s enterprise competitiveness.

Decree No. 815 of MOH dated 17 November 2004 specifies rules for the provision of the guaranteed benefits package and establishes limits for the volumes of free-of-charge inpatient services. With government resolution No. 1296 of 28 December 2005, a guaranteed package of basic health services provided free of charge was approved for the period 2005-2007. The basic benefits package covers specified health services which are paid from the national state budget. It includes emergency care, outpatient care and inpatient care and is envisaged to be revised every two years. The list of population groups entitled to free or subsidized

39 Kulzhanov, M. and J. Healy (1999). Health Care Systems in Transition: Kazakhstan. London, European Observatory on Health Systems and Policies 40 Note that many of these reforms are included in the State Health Care Reform and Development Program and supported by the project, including the introduction of incentive payment systems, a transparent benefit package and sophisticated health sector management, payment and information systems.

pharmaceuticals has been extended every year. Children, adolescents, and women of reproductive age are now entitled to pharmaceuticals free of charge. In 2006, 12 percent of all state funds allocated for the provision of the state guaranteed package were used for these pharmaceutical expenditures. As mentioned above, health services not included in the basic benefits package (which is de jure a free-of-charge package) are paid out-of-pocket or with support from Voluntary Health Insurance.

Hospitals and other health care organizations now officially charge for services and this has become an increasing source of revenue. User charges for goods and services by public sector health care organizations were legalized in 1995. Oblast administrations can decide the level and extent of such payments and many have drawn up price lists for services. The price lists envisage full payments for health services not regarded as essential, such as some dentistry and cosmetic surgery. Patients also often pay for food and drugs in hospitals, although these are supposed to be provided free of charge, and patients are routinely given a list of medicines and medical supplies to bring with them to hospital. Patients usually pay for drugs, aids or dentures from outpatient services and polyclinics. Voluntary Health Insurance is now being promoted as a means of expanding the sources of health financing. VHI schemes are currently offered by most large industrial enterprises, the financial sector, and the gas and oil sector. In 2005, approximately 5 percent of the population was covered by VHI. The government is also encouraging contracts between enterprises and health care providers for preventive medical examinations of employees.

Pooling, Purchasing and Purchaser-Provider-Treasury Relations

Until 2004, in some oblasts the budget was centralized at oblast level but in most oblasts the budget was decentralized to the rayon level. Beginning in 2005, according to the Budget Codex of Kazakhstan, the budgets of all oblasts are consolidated at oblast level. This is a major accomplishment. Pooling at the oblast level has created economies of scope and scale, allowed for rationalization and management at a meaningful scale and created modest but appropriate scope for provider competition, especially in oblast capitals. This mimics similar systems seen in countries such as Canada and Australia: both of them large, federated states with dispersed populations. The idea of rayon level pooling (i.e. the old Soviet RaiZdrav system) was abandoned because it has none of these advantages, being at too small a unit to allow for efficient management of health care services. The next major challenge is to build the capacity of oblast health departments in purchasing and provider payment.

While oblast-level pooling has been a major recent accomplishment, a remaining challenge for the Kazakhstan health system is the issue of regional inequalities in per capita allocations for health services. In 2003, a total of KZT 6,095 was allocated per capita for guaranteed health care services. The level of per capita funding for health varied greatly across regions, from KZT 3,500 in Almaty oblast to KZT 10,400 in Mangistau oblast, demonstrating the lack of an effective mechanism of geographic leveling.41 Since then, regional inequities have slightly decreased. In 2006, per capita allocations ranged from KZT 8,500 in Almaty oblast to KZT 20,500 in Astana city according to MOH data. Part of the problem is the oblasts’ significant fiscal freedom to reallocate spending to/from the health sector and to make independent investment decisions on capital and recurrent spending. This has several consequences. It leads to large inter-oblast variation in spending and performance; limits the ability of MOH to manage the health sector and ensure a consistent, common approach to key issues across the country; and leads to uncoordinated and/or irrational capital expenditure and thus to unproductive recurrent expenditure that creates an ever-increasing demand for more spending at lower levels of efficiency. The problem is recognized and is currently under review. Re- centralization of the budget is neither the only (nor the preferred option) and other tools such as conditional grant schemes and Certificate of Need procedures need to be considered as well. A key step will be the introduction of a risk-adjusted geographic allocation formula for health spending. A model formula was developed by MOH with World Bank support in 2007 and is under discussion by MOEBP, which is looking

41 UNDP (2004). Human Development Report Kazakhstan 2004. Education for All: the Key Goal for a New Millennium. Almaty, UNDP Kazakhstan

at introducing similar formulas for a number of other services. A simple risk-adjustment using age, sex, remoteness and a handful of other basic variables has been recommended to ensure transparency and ease of calculation.

Budget formulation at facility, oblast and republican level has been partially reformed in recent years. Kazakhstan is a centralized state, so that the oblast and city budgets are mainly determined at republican level. Of the general revenue collected within an oblast, some is retained and the rest transferred to the republic, which redistributes to achieve some (modest) leveling using a per capita formula. Available resources determine the size of the health budget. The budgetary process for health involves negotiations between oblast and city administrations, MOH and the Ministry of Finance. In the Soviet period, budgets were based on 38 line items with allocations based on past expenditures. In recent years, new formulae have been introduced, including capitation and case based financing. At present, health care facilities (including those at primary care level) receive resources from the national budget based on three line items: services, capital investments and procurement of medical and non-medical equipment. According to the Law “On Health Protection for citizens of the Republic of Kazakhstan” of 19 May 1997, primary health care facilities are paid according to capitation, specialized outpatient facilities according to fee for service, and hospitals according to diagnosis related groups (DRGs). These allocation mechanisms have been approved through government resolution No. 806 of 27 May 2000 “On approval of rules for reimbursement of costs for health services.” Implementation is not yet universal, however, and a key goal of the State Health Care Reform and Development Program is to accelerate and expand provider payment reforms deriving from this resolution. This includes a full and final move away from input-based budgeting, an increase in budgetary autonomy for health facilities and oblast-level budget administrators, introduction of modern methods for community involvement in facility oversight and a move toward modern systems of periodic (retrospective) financial and performance auditing rather than the current system of input-based inspection and control.

Under the Soviet model, hospitals were funded by their respective administrations (republican, oblast or rayon) based on their previous year’s expenditure on up to 18 budget categories, but mostly based on the number of staff and the number of hospital beds. There was little incentive to use resources efficiently, since funds could not be transferred across line items and savings could not be retained. The budgetary incentive was to maximize admissions and keep patients for longer, not shorter, stays, with no regard to outcomes and quality of care. Implementation of a case-based hospital payment system began with government decree No. 806 in 2000. A case-based system was designed with a diagnosis related groups (DRGs) based case classification system and piloted in Karaganda oblast. However, implementation faced the obstacle of decentralization of funding to the rayon level. In 2005, first steps were undertaken for the national implementation of case-based financing under a single payer system at oblast level, using a refined hospital payment system. At present, hospitals are financed according to two forms of reimbursement. Inpatient facilities for patients with “socially significant and hazardous” diseases, as well as for certain groups of the population (including children, pregnant women, and people with disabilities) are reimbursed on the basis of all expenditures incurred, without specifying particular health services. All other inpatient services provided by public or private facilities are, in theory, reimbursed according to the services provided or according to diagnosis related groups (DRGs). The Reform Program envisages that DRG coefficients will be periodically reviewed and evidence based diagnostic and clinical protocols developed.

A key actor in the purchaser-provider payment relationship is the Treasury System. Since the majority of health care facilities are budget entities rather than (more autonomous) state economical enterprises, Treasury Committees are empowered to inspect, review and audit their expenditures. At present, budget administrators including Oblast Health Departments and health facility managers are unable to reallocate funds across line items without approval from the Treasury Committee. This not only limits flexibility but also creates significant inefficiencies by forcing budget administrators to engage in a near-constant stream of approval correspondence with the Treasury Committee. In essence, the current system treats health facilities as if they were commodity producers or factories. Health facilities have to estimate the total volume of services to be delivered in the coming year and are then held to account for any deviations from this total

estimate. This fails to account for the inherent complexity of demand forecasting in the health sector, where accurate prediction of things such as volume, acuity and cost for a given period is next to impossible given the inherently unpredictable nature of illness when measured over small areas such as those covered by health facilities.

Part of the problem concerns the legal status of health providers. If facilities were state economical enterprises or JSC/privatized, these rules would not apply and there would be greater flexibility. This is a priority within the State Health Reform and Development Program. Other benefits would include allowing for professional and/or corporate management of health facilities; cost reductions associated with facilities’ residual claimant status, i.e. the ability to retain savings; a leveling of the playing field with private providers; and—in keeping with the government’s overall drive toward performance-based budgeting—a move toward contemporary methods of output-based financing rather than Soviet-era input controls. As mentioned earlier, the current goal is for 6,300 of Kazakhstan’s 8,000 facilities to be autonomized, corporatized, privatized or converted to Joint Stock Companies by 2012 from a base of only 26 such facilities in 2007. This will also require heavy investment in large-scale training and capacity development for health care managers, which is also a goal of the State Program.

In terms of expenditures at the facility level, an analysis of health expenditures recorded in the database of the Ministry of Health in 1999-2003 showed that the largest part of expenditures of health care facilities was devoted to recurrent costs with only a small share allocated to actual health services. Salaries accounted for 53.9-64.3 percent of expenditures and a large proportion of facility budgets were devoted to utilities such as electricity, water and heating with less than 10-15 percent spent on direct clinical care.

Health Information Systems

The development of a unified computerized health information system has been a recurrent theme in Kazakhstan’s health sector development efforts since the mid-1990s. As with other FSU countries, Kazakhstan inherited from the Soviet Union a health information system characterized by massive data collection in multiple streams with little use of the data for aggregation, analysis or decision-making beyond annual statistical reports and the justification of targets and target attainment. Different data were collected at different levels and seldom used for anything but the most localized decisions. The use of data to inform decision making was also constrained by the use of inflexible historical normative for everything from infrastructure decisions to budget allocations. Starting in the 1980s, some data collection was automated and computerized in the Republican Computer Bureau of the Ministry of Health. Information was collected from manual reports of primary data, aggregated by methodologists in the Ministry of Health and then summarized—with ‘corrections’ to ensure a positive picture relative to previous years—to the Ministry of Health for final review. These data were then submitted to Moscow for the All-Union statistical report. The process provided little if any meaningful input for decision making at any level. However, one of its positive features was the establishment of a clear system for reporting requirements and a common reporting codex for the entire country.

The 1990s saw two new developments in the health information field. With the establishment and later suspension of the Mandatory Health Insurance Fund, certain billing and cost-control functions were computerized to allow for oblast branches to manage the payer-provider relationship. A nascent information system was developed using an Oracle platform but was later shelved along with the Insurance Fund itself. At the same time, the Republican Computer Bureau of MOH was converted to a Joint Stock Company “Medinform” and separated from the core MOH. Medinform was commissioned to develop information systems for national registers, a statistical reporting system and other information systems to meet ad hoc objectives of MOH. This was positive in that an information culture began to develop in some health institutions and the use of computers gained acceptance; but as a whole, systems were designed simply to automate Soviet-era collection methodologies (forms, reports) and did not make a significant difference in terms of improving management or decision making in the sector. The USAID-funded ZdravReform Project

worked with both the Insurance Fund and Medinform to address some of these issues in East Kazakhstan and Karaganda Oblasts. This involved an important shift in the ideology of information collection: from Soviet- style information for reporting to modern information for decision-making. While the resulting information systems were still piecemeal, disconnected and implemented at a small scale, the ideological shift marked an important turning point in the informatization process in Kazakhstan and brought a broader user constituency (including providers and managers) in contact with information for decision-making purposes.

From 2001 to 2004, positive developments continued in East Kazakhstan and Karaganda Oblasts. A number of disconnected systems were integrated and a greater understanding of the relationship between information and decision making—especially financial decision making—was developed among users. With support from ZdravPlus, some modules began to perform extremely well, including a basic but highly functional hospital information system that allowed for DRG-based billing and reporting.

These systems worked well in Karaganda and East Kazakhstan but were not widely understood or used elsewhere. The Ministry of Health therefore prepared, in 2004/2005 an ambitious program designed to introduce a world-class health information system throughout the country and included HMIS development among the key objectives of the State Health Care Reform and Development Program. This was a major turning point in HMIS development in Kazakhstan. The State Health Care Reform and Development Program referred to “A single information system for health care to ensure collection of current, accurate, and quality information required for making effective management decisions” and envisioned specific functionalities including an “e-passport of people’s health”, a “single identification code” for accounting of individual patients” and a “central databank” where information can be collected.

Following the adoption of the Program, a Feasibility Study was performed to further specify the tasks ahead. This document looks at information flows at the Republican, oblast and rayon levels. The Study made a number of insightful comments but was designed in its technical and operational aspects by staff with little previous experience in large-scale informatization efforts. A detailed assessment carried out by the World Bank in 2005 drew the following conclusions:42

There is strong political commitment for HMIS; resources are available to finance HMIS development and deployment; synergies exist between HMIS development and e-government initiatives; there is no “technology drag” from previous, failed efforts at HMIS development; and the need for a comprehensive, well-functioning HMIS is clearly accepted by high-level stakeholders including MOH and MOEBP.

The overall vision for HMIS development is poorly developed and technically weak. The level of technical and managerial capacity to envision, design and deploy an integrated HMIS is low in both the public and private sectors, and MOH staff lack the qualifications or experience to act as an informed client or manager of such a complex undertaking. Stakeholder involvement has been minimal, creating a risk of slow adoption or eventual rejection of the developed system. The legal foundations for an effective HMIS do not appear to exist and inherited regulatory frameworks will make it difficult to streamline health information and management processes. The meaning of “integration” in “integrated HMIS” is poorly understood, both among MOH staff and private contractors. Human resource and capacity requirements for implementing HMIS have been seriously underestimated. And the proposed time frame is profoundly unrealistic: the pace of the proposed roll-out substantially exceeds similar undertakings elsewhere, including in OECD countries, and is likely to lead to a collapse of the effort, especially given the other weaknesses identified.

42 World Bank and Government of Kazakhstan Joint Economic Research Program (2005). Kazakhstan Health Management Information Systems: Assessment (vol. 1) and Alternative Approach (vol. 2); June 27, 2005.

The program does not pay sufficient attention to the issue of human resource development. There is passing reference to low computer literacy among end-users and the lack of qualified IT and IS professionals in the health sector but the significance of these constraints, and their impact on the sector’s ability to effectively design and deploy the kind of HMIS desired, has been substantially underestimated.

The program inverts the planning process, with technology rather than functionality “driving” the process. The HMIS Feasibility Study and many vendors are focused on end-stage issues such as server specifications, hardware requirements etc. rather than on the “big picture” of HMIS development. When technology rather than functionality drives HMIS development, the result is usually a technologically impressive but practically ineffective system with no impact on efficiency or quality.

These conclusions led to a revision of the original Feasibility Study for the HMIS Project and to a sensible scaling-back of the effort to cover only first-phase activities such as module design, establishment of national and oblast HMIS management capacities and the development of a modest informatization plan to begin familiarizing health workers throughout the country with the principles and practice of a unified HMIS. But since the original aspirations for a world-class HMIS remained valid, MOH and the World Bank (with extensive support from ZdravPlus) began discussions on a more feasible and technically sound approach. The World Bank prepared a discussion paper and proposals in mid-2005; these were reviewed by MOH, modestly adjusted upward in terms of complexity and coverage and then formalized in a new Feasibility Study during 2006/2007. This is summarized in Annex 4.

Human Resources and Medical Education

Kazakhstan has inherited the Soviet system of training and retraining of health professionals and there have hardly been any changes in this area in the years since independence.18 The quality of training and retraining remains poor, partly due to an underdeveloped regulatory system with regard to university entry and the quality of medical and pharmaceutical teaching and partly to years of underinvestment in educational buildings and facilities. The limited funds allocated to medical training in the public sector do not allow the purchase of up-to-date technical equipment or visual aids. In addition to state-funded students, universities try to attract additional funds by accepting medical students who pay for the tuition themselves. The number of students paying for their studies has increased in recent years. In 1999, 1059 students were paying for their medical education, compared to 1245 on state scholarships. By 2001, the number of paying students had increased to 2190, compared to 1345 on state scholarships. One of the problems associated with this development is that the entry requirements for self-funded students are considerably lower than for state- funded students, which threatens to undermine the quality of medical education even further.18 A Concept for the Educational Development of Kazakhstan until 2015 envisages changes to the higher education system that would also impact medical education. In line with this concept, new obligatory standards for medical and pharmaceutical education were introduced in 2003 that place greater emphasis on continuity between different educational levels.

In 2005, Kazakhstan had nine medical schools, three of them private; 26 nursing colleges; an Institute of Continuing Training; a national School of Public Health; and 65 research enterprises. As per Soviet-era practice, physicians, pediatricians and sanitarian-epidemiologists are in entirely separate courses. Physicians and pediatricians train for six years and specialize in their sixth year. Sanitarian-epidemiologists and dentists train for five years. A one year internship was recently reintroduced based on six major specialties. This is similar to a Soviet-era scheme and was reintroduced to improve the practical skills and clinical quality of medical graduates. Following this internship, physicians can specialize in more than 80 specialties with a training duration of 2-4 years. A family practice specialty was introduced in 1995 as a four-month short course at the postgraduate medical institute; in 2005, the government spent 2 percent of the total health care budget on the training of general practitioners and health managers. Further education is conducted at the

Postgraduate Medical Institute or at one of the medical research institutes. Physicians are obliged to take a short retraining course and undergo recertification every five years. This requirement has faltered with budget cuts and the difficulties of taking leave from employment and no longer constitutes a meaningful system for continuing medical education. Introducing a CME system to international standards is therefore a high priority for MOH under the State Health Reform and Development Program. There has been an increase in short-term overseas training and sabbatical programs over the past few years. This has been a welcome development but it is recognized that a more sustainable and broad-based system of CME and licensing/re-licensing is required if Kazakh doctors are to approach international standards.

A postgraduate course in public health commenced in 1997 at the Kazakhstan School of Public Health in Almaty. Management courses are also available at the Kazakhstan Institute of Management, Economics and Strategic Research and at the Centre for Medical and Economic Research.

In 2005, there were 41 medical colleges (16 of which were private) training nursing and other middle-level health personnel. Nursing education consists now of two years basic training followed by one year of specialization in general medicine, emergency care, obstetrics or health management. Nursing education is being reformed with the aim of upgrading it to postgraduate level, strengthening the status of nurses as an independent health profession and providing a system of continuing education. More attention is also paid to the training and retraining of managerial and administrative staff, including nurse managers, in line with the increased importance of primary health care, where most nurse specialists are expected to work in the future. At Almaty Medical College for example, a 4-year training program for nurse managers has been introduced. Feldshers receive nurse/midwife training with additional training in diagnosis and prescribing. They carry out clinical responsibilities that are mid-way between doctors and nurses. In rural areas, feldshers work in effect as primary care physicians.

Table 1.10 - Educational facilities in Kazakhstan, 2005 (absolute numbers)

Public Private Medical schools Number of medical schools 6 3 Number of students at the beginning of academic year (total) 22 358 1 939 Number of accepted students at the beginning of academic year 3 828 509 Number of graduates at the end of academic year 2 534 546 Nursing schools Number of nursing schools 25 16 Number of students at the beginning of academic year - total 28 131 10 029 Number of accepted students at the beginning of academic year 9 369 4 460 Number of graduates 4 825 1 270 Source: Kazakhstan HiTS, 2007 (draft)

Table 1.11 - Physicians and nurses graduated in Kazakhstan per 1,000 population, 1990-2004 1990 1992 1994 1996 1998 2000 2002 2004 Physicians 0.15 0.18 0.2 0.22 0.22 0.16 0.12 0.2 Dentists 0.02 0.02 0.02 0.03 0.02 0.01 0.01 0.02 Nurses 0.66 0.66 0.63 0.38 0.36 0.4 0.35 0.43 Midwives 0.05 0.05 0.04 0.05 0.07 0.05 0.05 Pharmacists 0.04 0.04 0.03 0.02 0.0002 0.01 0.03 0.03 Source: WHO Regional Office for Europe, Health for All database, June 2006

Table 1.12 - Postgraduate enrolment (residency, masters and doctoral programs)Kazakhstan, , 2001-2006 Academic year 2001–2002 2002–2003 2003–2004 2004–2005 2005-2006 Clinical residency 50 60 90 90 90 Doctor candidate programs 35 40 60 63 63 Doctoral programs 16 20 30 30 33 Master’s programs 44 Total 101 120 180 183 236 Source: Kazakhstan HiTS, 2007 (draft)

In the former Soviet Union, the health sector was not seen as productive compared with sectors such as mining, so that wages for health care personnel were set below the workforce average. Despite repeated increases in the salaries for health care workers in Kazakhstan, with an increase by 20 percent in 2004 alone, the official average salary in the health sector remains around half the national average for all sectors combined.18 The prestige and financial reimbursement of nurses continues to be very low. While the official salary of physicians is not much higher than that of nurses, they can gain various official bonus payments and informal payments from patients. Physicians might also be appointed to more than one position. The skill mix of health care workers is being adjusted in many European countries with the aim of increasing the number of trained nurses in relation to the number of doctors. In Kazakhstan, doctors often do tasks that in western European countries would be performed by nurses, while nurses do many tasks that elsewhere would be performed by auxiliary nurses or support staff. The difference in Kazakhstan is that the salary differential is not as large and that nurses receive far less training than doctors.

Pharmaceuticals and Drug Policy

The state has only weak regulatory and control functions over the quality of imported pharmaceuticals. This results in the purchase of overpriced equipment and the use of low quality pharmaceuticals or equipment. The monitoring of side effects, quality control, drug utilization, prices, and accessibility is inadequate. Testing laboratories are insufficiently equipped and there is for example no laboratory for immunological testing. There are also increasing problems of drug falsification and aggressive advertising of drugs. There is no state control over the availability of prescribed drugs and most domestic producers do not meet international manufacturing standards. A large share of pharmaceuticals is believed to be imported illegally.18 In recent years, a Concept of Drug Policy has been approved and a vertical structure of state regulation of the pharmaceutical sector restored in form of a newly established Pharmaceutical Committee and its 16 territorial divisions.

Since 2000, the government has actively promoted the development of a pharmaceutical market and Kazakhstan has now become one of the most dynamic pharmaceutical markets in the former Soviet Union. This development is driven by the high speed of economic development, value added tax (VAT) exemption for pharmaceuticals and low perceived risk for investors. The distribution system has been decentralized and placed on a contracting basis. Key actors in the pharmaceutical sector are MOH, the Pharmacy Committee with 16 territorial divisions, National Centre of Pharmaceutical Expertise with 15 territorial divisions, 28 bodies for the certification of pharmaceuticals, plus pharmaceutical companies and pharmacies. In 2005, approximately 80 representative offices of pharmaceutical companies were located in Kazakhstan with more than 350 distributors. Professional associations include the Association of Representatives of Foreign Pharmaceutical Companies in Kazakhstan (38 members), the Association of Pharmaceutical and Medical Producers (representing 39 companies), the Association for Support and Development of Pharmaceutical Activity (205 companies) and the Association of Importers of Pharmaceutical Products (a distributors’ forum). In 2005, there were 8,426 pharmaceutical outlets including 3,800 pharmacies, 1,400 pharmacy posts, 1,680 pharmacy kiosks and 590 pharmaceutical warehouses. The distribution and sale of pharmaceuticals has been largely privatized and the share of the state sector has been reduced to 3.6 percent in 2005. In 2005 the ratio of retail pharmacies per 10,000 people was 6.46 in urban areas and 3.22 in rural areas.

Irrational drug use is a significant problem. Under the Soviet system, drugs were freely available and their use was encouraged. There was a very long list of drugs but many were not identifiable under international categories. An approved list of essential drugs was drawn up in 1995 by the Committee of Health, based on WHO categories, listing 290 items by 1998. There is no state regulation of the drugs that can be imported and sold, with the exception of the essential drugs list, so that a great variety of drugs are available. The most recent essential drug list was approved by the Ministry of Health in December 2004.

The privatization of the pharmaceutical market, the liberalization of prices, and the lack of mark-up limits and price regulation mechanisms have led to steep increases in the prices of pharmaceuticals and many are not affordable by large parts of the population. The reform of the pharmaceutical sector has resulted in deteriorating access to drugs, in particular for vulnerable groups of the population.18 Many patients must purchase their own drugs even when staying in hospital, although the official policy is that these should be supplied by the hospital. According to a study in Karaganda in 2001, the absence of reference pricing or other price control mechanisms leads most drugs to be priced well above international benchmarks. The study found that of the drugs tested, four were less than the international median price, 14 were 100-199 percent of the median, 21 were 200-499 percent of the median and 10 drugs were more than 500 percent of the international median price.

A new drug policy has now been adopted that regulates the prices of pharmaceuticals and provides outpatients with benefits for a specified list of pharmaceuticals. However, according to an expert review carried out in 2006, there remain significant problems in terms of weak monitoring of prices, quality, prescriber behavior and access to medicines; uncritical and excessive prescribing leading to inefficient pharmaceutical expenditure; high unit prices relative to international benchmarks; a shortage of clinical pharmacologists; inadequate attention to rational prescribing in undergraduate and continuing medical education curricula; and inadequate assurance of drug quality with circulation of both counterfeit and substandard drugs.43

43 World Bank Expert Review of Pharmaceutical Sector, 2006

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Project Sector Issue Latest ISR Rating or OED Evaluation Rating for Closed Projects; Implementation Status for non-Bank Projects Joint Economic Research Program TA to Government for work on strategic Implemented since 2003, renewed once priorities of sector reform including inter in three years. alia the following main areas: health financing, health care quality, medical education and science reform, HMIS, and pharmaceuticals.

Central Asia Regional HIV/AIDS US$25 million IDA Grant plus US$1.9 Implemented since 2005; Marginally Project million DfID Grant for Kazakhstan, Satisfactory Kyrgyzstan, Tajikistan, and Uzbekistan.

WHO Biennial Collaborative Agreements that Implemented by WHO; current period cover the following priority areas: 2006-2007; operational budget strengthening core health systems (excluding salaries, office support, other functions; MCH; reproductive health; communicable diseases; NCDs with overheads) for 2006-2007 biennium – emphasis on healthy lifestyle; US$ 446,954 (regular budget US$ environmental health risks, capacity 185,000); building in Emergency Preparedness and estimated regular budget for 2008-2009 - Response area US$ 220,000

ZdravPlus II Project: focuses on health Overall country allocation from USAID: USAID system strengthening including four key FY-06: US$3,930,000; components: stewardship, resource use, FY-07: US$2,790,000 (tentative). service delivery, population and 2005 to 2009. Implemented by Abt community involvement. Associates

TB Control Project: aims at supporting 2004 to 2009. Implemented by Project DOTS, building political support for HOPE effective and sustainable TB control; strengthening human and systems capacity; raising community awareness of the risks and symptoms of TB and encouraging positive care-seeking behavior.

CDC: activities aimed at strengthening 2006 to 2009. Implemented by CDC general disease surveillance system and establishing an epidemiology network including: HIV second generation sentinel surveillance among five high- risk groups; building capacity of epidemiologists; supporting TB electronic surveillance system operation; introduction and application of quality assurance methods in HIV and TB laboratories; blood safety activities; TA for nationwide implementation of WHO- recommended criteria on live and still birth; support to Hepatitis B immunization of newborns.

The CAPACITY Project: TA aimed at 2004 to 2009. Implemented by JSI implementation of GFATM grants for Research and Training Institute, Inc.

Project Sector Issue Latest ISR Rating or OED Evaluation Rating for Closed Projects; Implementation Status for non-Bank Projects large-scale and urgent responses to HIV/AIDS epidemics among vulnerable groups in the following areas: improving stewardship of the National AIDS Programs; educating and empowering vulnerable populations; improving quality of AIDS services; improving resource-use through integration of AIDS services

ADB Regional TA to address micronutrient 2006 to 2008. Two-year Country deficiencies in children and mothers Strategy and Program. Some activities ($8.85 million), SARS outbreaks implemented by partner organizations. ($250,000 in total), avian influenza, communicable diseases, HIV/AIDS.

UNICEF Mother and child health: advocacy, 2005 to 2009. Five-year cooperation communication, technical assistance, programs implemented by UNICEF. capacity building US$2,580,000 allocated for 2005-2007 Children, young people and HIV: youth focused services, subnational response to HIV outbreak among children, capacity building, communication campaign, support to PMCT Program. Micronutrient deficiency prevention: flour fortification, Vitamin A promotion and Universal Salt Iodization (USI). Public Health Campaign on prevention of Avian and Human Pandemic Influenza.

TA for the following: 2005 to 2009. Implemented by UNFPA UNFPA • Population and development strategies Allocated budget:

– family, ageing, migration policies, 2007 - US$578,000

building capacity on demography and 2006 - US$590,000

population studies curriculum at 2005 - US$600,000

graduate and post-graduate levels.

• Reproductive health – scaling up of

Making Pregnancy Safer Initiative,

building capacity in RH/FP • Gender disparity and gender based

violence

2003 to 2008, Implemented by Global Global Fund Provides grants to Kazakhstan for Fund to fight AIDS, Tuberculosis and HIV/AIDS, TB and malaria programs Malaria (GFATM) PIU (22,1 million for 5 years);

Internal UN agency: no specific UNAIDS Facilitates joint response to HIV agreement with COK indicating epidemic by nine co-sponsor UN operational periods. Has only project agencies; promotes multi-sectoral accelerating funds (PAF) transferred to approaches to HIV as well as UN UN agencies to strengthen their initiatives such as universal access to implementation capacities (the most prevention, treatment, care and support recent PAF--US$75,000--released and the Three Ones; provides assistance in 2006 to UNDP for improving HIV in collecting and applying strategic governance on local level. information, improving technical and

institutional capacities to track and project the epidemic and to design, monitor and evaluate the response.

Annex 3: Results Framework and Monitoring KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Results Framework44

Project Development Project Outcome Indicators Use of Outcome data Objective To introduce international Improved capacity for policy making, health financing and standards and build long-term management to ensure efficient and equitable use of healthcare institutional capacity in MOH resources and improved financial protection for households in oblasts and related healthcare that implement a comprehensive package of healthcare financing and institutions in support of key management reforms; health sector reforms pursued Improved quality and efficiency of medical care through the by the Government of establishment of functioning systems/ institutions for clinical practice Kazakhstan in the context of guideline development/dissemination and health facility the State Health Care Reform accreditation, and through improved performance in the laboratory and Development Program. and blood transfusion systems; Improved quality of medical graduates and improved ability to carry out medical research through upgrading the medical/pharmacological education and research systems and introducing international standards; Improved efficiency and quality in health facility management through access to reliable, timely health information from a unified health information system; Improved safety, efficacy, quality and affordability of drugs through reforms in pharmaceutical procurement, pricing, prescribing monitoring, information provision, benefit package design and quality control; and Improved food safety and speedier WTO accession through the introduction of international sanitary and phytosanitary norms. Component A: Health Financing and Management Intermediate Outcomes Output Indicators Use of Output Data Subcomponent A1: • National Health Accounts developed using new • Confirms existence of Strengthening the Capacity for household/provider/client survey data appropriate staffing/skills to carry out Health Policy and Strategy • Establishment and operation of a well-functioning Health Policy health policy analysis and policy Formulation` Unit with at least five staff possessing an appropriate skill-mix development • NHA/surveys provide evidence- based input to policy development Subcomponent A2: • 10 percent decrease in the percentage of funds spent by • Monitors the degree to which Strengthening Budgeting, hospitals (excluding outpatient facilities) on utilities (heat, outpatient funding is increasing. Planning and Management in electricity) in oblasts that introduce the full package of reforms • Monitors system level efficiency the Health Sector • Increase in the proportion of public health expenditure on • Monitors facility-level efficiency/ outpatient care to 40 percent in oblasts that introduce the full package space utilization. of reforms • 20 percent reduction in hospital beds per capita, by oblast (republican facilities separately) in oblasts that introduce the full package of reforms • Improved financial risk protection as defined by an increase in the level of pre-payment45 Subcomponent A3: • 75 percent increase in the proportion of state health care • Measures the degree of Management Training and providers given state economical enterprise status or managerial autonomy among Investment Planning for the privatized/converted to Joint Stock Companies with a target of healthcare providers Health Sector 6,300 facilities • Monitors whether upgraded • Increase to 3,000 the number of professionals trained in ‘Atlas’ standards are being used in healthcare management incl. budget planning and business plan facility-level investment plans. development • Development and use of revised, modern health facility planning standards (‘Atlas’) in investment planning for all new facilities

44 Note that indicators in bold-italic are closer to outcomes than typical output indicators 45 Measured using NHA data as (Public pre-payment + private prepayment) divided by (out of pocket payments+ public pre-payment + private prepayment)

Project Development Project Outcome Indicators Use of Outcome data Objective Component B: Health Care Quality Improvement Intermediate Outcomes Output Indicators Use of Output data Subcomponent B1: • Criteria and standards for licensing and accreditation of • Tracks the number trained in Accreditation: Modernizing healthcare facilities developed, adopted and implemented areas such as healthcare quality Standards for Health Facilities • 160 health professionals and health managers trained in health improvement, management skills, services quality improvement and quality management skills and standards and indicator according to international standards; 900 surveyors/quality managers construction trained • Monitors the compliance of • Establishment of an independent accreditation body, compliant facilities with national standards with ISQUA principles, and accreditation of at least 20 public facilities at republican and oblast levels by this body Subcomponent B2: Upgrading • Users’ perceived quality of care increased • Monitors user satisfaction Clinical Practice and • 60 percent of newly-developed CPGs implemented including • Monitors the number of experts Introducing Health Technology medical condition-based ordering and interpreting of laboratory trained in this area Assessment tests • Monitors the extent to which • 150 specialists trained in the development and review of CPGs, priority CPGs are being developed, according to local regulations and methodology, based on defined and implemented international standards • Monitors increasing capacity in • 20 key CPGs developed and reviewed the understanding of essential HTA, • Establishment of core, multidisciplinary capacity for desk-based the extent to which HTA priority Health Technology Assessment (HTA); and preparation of at least 3 areas are being defined, and the HTAs on prioritized topics number of HTAs • Monitors establishment of HTA unit and the number of staff trained. Subcomponent B3: Reform of • Laboratory network restructuring plan developed including • Monitors the percentage of Laboratories equipment and HR standards, service profiles and quality control trained doctors mechanisms • 11 specialists from a new Center for Lab Services Quality Management trained Subcomponent B4: Reform of • Increased share of donors per 1,000 people • Monitors improvements in BTS Blood Transfusion System • Increased quality and effectiveness of donor screening at performance on screening, safety and selection and laboratory screening the promotion of voluntary donorship • Increased share of voluntary to paid donors • Increased share of quarantined plasma • Decrease in post-transfusion complications • Increased number of trained blood transfusion and clinical transfusion specialists Component C: Reform of Medical Education and Medical Science Intermediate Outcomes Output Indicators Use of Output Data Subcomponent C1. Reform of • International accreditation standards adopted on basic medical • Monitors the number of doctors Undergraduate and Continuing education for medical universities licensed and re-licensed Medical Education • Regulatory/institutional/financial framework developed and • Monitors implementation of key approved for a sustainable, permanent system of continuing dimensions of medical education medical education reform • New curricula for medical/ pharmaceutical education implemented, together with a unified testing system and updated/upgraded criteria for admission, by all public medical universities • All clinical faculty members trained by new Centers for Evidence-Based Medicine • 1,500 physicians licensed/re-licensed under newly-developed licensing rules based on international standards Subcomponent C2. Reform of • Mechanism developed for the prioritization and review of • Monitors the number of Medical Science medical research and the issuance of competitive grants, according submitted and approved research to international principles proposals for funding. • 100 percent of new research grants/applications appraised and decided according to revised methodologies for funding Component D: Health Information System Development Intermediate Outcomes Output Indicators Use of output data Activity 1: Creation of HMIS • HMIS fully designed and approved by users

Project Development Project Outcome Indicators Use of Outcome data Objective Activity 2: Deployment of • 75 percent of key HMIS users fully trained and able to use the HMIS system • 75 percent of staff who use the HMIS report average or high levels of satisfaction • Full HMIS package incl. minimum patient management, resource management and financial management modules deployed in three oblasts plus Astana City Activity 3: Creation of an • National Health Information Center established with trained staff institutional base by 2009 Component E: Pharmaceutical Policy Reform Intermediate Outcomes Output Indicators Use of Output Data Activity 1: Rational Drug • Progressive restructuring of the pharmaceutical policy sector as • Monitors whether use is being Management evidenced by finalization and publication of a national drug policy made of available information and by 2010 helps to streamline and improve • Drug approval system updated, based on international targeted marketing to key standards by 2009, including removal from the market of some stakeholders ‘older drugs’ by 2012 • Increase in the number of doctors with access to a drug information center • Universal distribution of the National Formulary Reference book among healthcare institutions • Increase to 12 the number of fully trained clinical pharmacologists, and to 50 the number of physicians who possess certification in pharmacology Activity 2: Procurement • Establishment of drug price regulations by 2009 that decrease • Measures key benchmarks in the Optimization the average retail and procurement price for selected drugs by 2010 introduction of international methods • Establishment of a pricing unit that examines local drug prices in for procurement and price relation to foreign prices based on WHO methodology management in the pharmaceutical sector

Activity 3: Increasing access to • Decrease in out-of-pocket drug expenditures • Monitors progress on reducing pharmaceuticals • Increase in the number of pharmacies selling medicine at physical barriers to access and the subsidized prices consequences thereof • Increase access by pharmacies, to 90 percent of medicines (at reduced prices) on the approved list Activity 4: Quality • Decrease in the proportion of counterfeit or substandard drugs • Measures the effectiveness of systems to controls counterfeit drug circulation Component F: Food Safety and WTO Accession Intermediate Outcomes Output Indicators Use of Output Data Strengthened food safety • Harmonization of 10 food safety norms and rules in • Measures progress on key steps system accordance with international standards toward WTO accession and • Development and approval of 15 technical regulations to improved food safety, including the international standards results thereof • Revision of legal and regulatory documents related to post- processing food standards, according to international standards • 60 percent increase in the proportion of sanitary inspectors, laboratory technicians and others trained in food safety standards, and practices

Component G: Project Management Intermediate Outcomes Output Indicators Use of Output Data Continuous improvement in • Project work plans and budget produced and approved on an • Measures the timeliness and project management by MOH annual basis as described in the Project Operational Manual quality of project management • Quarterly financial management and procurement reports reporting produced and submitted on time and to acceptable standards as described in the Project Operational Manual • Semi-annual procurement plans and implementation monitoring reports for each component produced and submitted on time and to acceptable standards as described in the Project Operational Manual

MOH will undertake overall coordination and management of project activities and be responsible for measuring project results and outcomes. Annual project work plans and budgets will be developed along

with quarterly financial management and procurement reports and semi-annual procurement plans. MOH will report on the results framework on a semi-annual basis. Evaluation will be done at mid-term review and Project closing. Project output/outcome monitoring will be supported and supplemented during Project implementation by three household health surveys and a number of out of pocket payment surveys, hospital budget surveys, provider surveys, user satisfaction surveys, drug price monitoring surveys, access to drug surveys and drug quality surveys. These will be carried out in a coordinated way and will provide input not only for Project implementation (i.e. progress against specific project indicators) but also for monitoring health sector performance more generally. This will be done using evaluation instruments from the EU or OECD to benchmark aspects of Kazakhstan’s health system performance. National Health Accounts will also be prepared to provide information on financial risk protection.

Instrument Frequency Description and Methodology 1. National Health Accounts B, M, E Provides information on financial risk protection, incl. private/public prepayment.

2. Household Surveys B, M, E Survey will provide some of the data in the NHA

3. Out of Pocket Payment B, M, E Survey of informal payments related to both services and drugs Surveys

4. Hospital Budget Surveys Annual Monitors total recurrent costs, including heath and electricity

5. Provider Surveys B, M, E Measures the uptake of Clinical Practice Guidelines by doctors in the target group for specific CPGs

6. Formulary-Use surveys M, E Measures access to the formulary, and the extent to which they are used in administering drugs

7. User Satisfaction Surveys M, E Assesses user satisfaction with the HMIS

8. Drug Price Surveys Annual Monitors the average market price of drugs

9. Access to Drugs Surveys B, M, E Survey of pharmacies to ascertain the number of drugs from the approved list available at reduced prices

10. Drugs Surveys B, M, E Measures the percentage of counterfeit/ sub-standard drugs

Key: B = Beginning, M = Middle, E = End

Arrangements for results monitoring

Data Source/ Data Output Freq. of Responsible How measured/ tracked Methodology/ Reporting Baseline Target Indicator Reporting Party recording tool tool Component A: Health Financing and Management Sub-Component A1: Strengthening the Capacity for Health Policy and Strategy Formulation National Health Accounts developed At beginning, Household/provider/client using new household/provider/client Completion of NHA report NHA report middle and end MOH 0 2 surveys survey data of project This unit, which falls under DSDIC, should be staffed with at least five people with an Establishment and operation of a well- appropriate skill-mix including knowledge TORs/evaluation reports Implementation functioning Health Policy Unit with at of the legal base for health reform, health and impact assessments monitoring Annual MOH 0 1 least five staff possessing an appropriate financing, HR management, health reports skill-mix economics and health delivery systems models, etc. for the life of the project Sub-Component A2: Strengthening Budgeting, Planning and Management in the Health Sector 10 percent decrease in the percentage Expenditure on heat and electricity as a of funds spent by all hospitals proportion of total recurrent/non-capital (excluding outpatient facilities) on Hospital 10% spending (excluding outpatient spending) in MOH RK, DEF Annual MOH TBD utilities (heat, electricity) in oblasts Budget Surveys reduction hospitals that introduce the full package of reforms Increase in the proportion of expenditure on outpatient care to 40 Expenditure on outpatient hospital care as a 46 MOH RK, DEF MOH reports Twice-yearly MOH 25.6% 40.0% percent in oblasts that introduce the full share of total hospital expenditure package of reforms Calculated using NHA data as (Public pre- National Health At beginning, Improved financial risk protection as payment + private prepayment) divided by Accounts/ out of pocket NHA middle and end MOH TBD TBD defined by the level of pre-payment (out of pocket payments + public prepayment surveys of project payment + private prepayment) 20 percent reduction in hospital beds per capita, by oblast (republican MOH Annual 76 62 Beds per capita Official Statistics Annual MOH facilities separately) in oblasts that Report beds/cap. beds/cap introduce the full package of reforms Sub-Component A3: Management Training and Investment Planning for the Health Sector

75% increase in the proportion of state MOH, 75% Organization (~6,300 health care providers who have state Jurist <1% (26 Assess the degree of autonomy of facilities, MOH RK, Decree #1117 and Legal facilities economical enterprise status or have Information Annual facilities based on their legal status (102804) Provision based on been privatized or converted to Joint System in 2007) Department; total Stock Companies MOF; Oblast 8,390

46 Outpatient hospital care disbursements and total disbursements in 2006 were 47,949,994,300 KZT and 187,260,968,600 KZT respectively

Data Source/ Data Output Freq. of Responsible How measured/ tracked Methodology/ Reporting Baseline Target Indicator Reporting Party recording tool tool Akimats facilities in 2007)47 MOH: Re-Education and MOH, The number of health providers and high- Increase in the number of professionals Re-Training of Public Education, level managers trained in health trained in health management incl. Health Care Institutions’ Science and management: incl. head doctors, deputies, Six-monthly Six-monthly 1,380 3,000 budget planning and business plan Personnel, Republican Human chief accountants, chief economists, heads development Budget Program #014 Resources of department. among others Department 100% of 1. Establishment of standards’ “Atlas” and newly- Development and use of revised, legal approval; 2. Review of facility-level Implementation constructe modern health facility planning investment plans in order to determine Investment plans monitoring Annual MOH NA d/major standards (‘Atlas’) in investment whether ‘Atlas’ standards are being used, reports renovatio planning, for all new facilities including environment and health and n safety standards hospitals Component B: Health Care Quality Improvement: Sub-Component B1: Accreditation: Modernizing Standards for Health Facilities Criteria and standards for licensing Implementation and accreditation of healthcare Completion, adoption and implementation Implementation monitoring Annual MOH 0 1 facilities developed, adopted and of revised standards monitoring reports reports implemented

160 health professionals and health managers trained in health services Implementation quality improvement and management Implementation Monitors the number trained monitoring Semi-Annual MOH 0/0 160/900 skills according to international monitoring reports reports standards; 900 surveyors and quality managers trained Establishment of an independent accreditation body, compliant with Implementation Implementation ISQUA principles, which accredits at Monitors the number of facilities accredited monitoring reports; monitoring Annual MOH 0 20 least 20 public facilities at republican ISQUa accreditation reports and oblast levels Sub-Component B2: Upgrading Clinical Practice and Introducing Health Technology Assessment Implementation Beginning, Implementation 10% User satisfaction increased User satisfaction surveys monitoring middle and end MOH TBD monitoring reports increase reports of project 60% of CPGs implemented including Beginning, Institute for Measures the use of CPGs, by doctors in Periodic survey medical condition-based ordering and Provider survey middle and end Health Care TBD 60% target groups, per CPG results interpreting of laboratory tests of project Development

47 According to the Organizational and Legal Provision Department, there are 8390 public and private facilities

Data Source/ Data Output Freq. of Responsible How measured/ tracked Methodology/ Reporting Baseline Target Indicator Reporting Party recording tool tool 150 specialists trained in the MOH (and later development and review of CPGs as Implementation Monitors the number of specialists trained Implementation the Institute for according to local regulations and monitoring Annual 0 150 to develop/review CPGs monitoring reports Health Care methodology based on to international reports Development) standards Implementation Measures local capacity for development of 20 key CPGs developed and reviewed Project monitoring reports monitoring Annual MOH 0 20 international-standard CPGs reports Establishment of core, multidisciplinary Implementation MOH/Institute Unit capacity for desk Health technology This core unit should have at least 7 staff Project monitoring reports monitoring Annual for Health Care NA establishe assessment (HTA); and preparation of reports Development d/3 HTAs at least 3 HTAs on prioritized topics Sub-Component B3: Reform of Laboratories

Laboratory network restructuring plan Implementation Evidence of restructuring plan development Implementation developed including equipment and monitoring Annual MOH 0 1 and approval monitoring reports HR standards, service profiles and reports quality control mechanisms Implementation 11 specialists from a new Center for Implementation Monitors the number of specialists trained monitoring Annual MOH 0 11 Lab Services Quality Management monitoring reports trained reports Sub-Component B4: Reform of Blood Transfusion System Statistical forms/RBC RBC statistical 40- Increased share of donors per 1,000 Measured by quarterly donorship reports Quarterly RBC 25/1000 population data reports 50/1000 Measured as share of donors with detected Hepatitis B to total number of donors Implementation Increased effectiveness of donor blood External assessment data TBD in screened; and through external assessment monitoring RBC 97% screening at selection and laboratory from reference laboratory Semi-annually 2008 screening by an internationally-recognized reference reports laboratory TBD Implementation during Measured as share of voluntary donors to Statistical forms/RBC Increased share of voluntary donors to monitoring RBC first year 4:1 paid donors data Quarterly paid donors reports of the project Measured by adoption of blood services Statistical forms/RBC RBC statistical TBD in Quarterly RBC 80% Increased share of quarantined plasma standards data reports 2008 Implementation Measured by share of transfusions Data from HMIS (as of TBD in 10% Decreased share of post-transfusion monitoring Semi-annually RBC conducted 2009) 2009 reduction complications reports Implementation Increased number of trained blood Measured by number/share of specialists Consultant’s reports on monitoring RBC 0 142 transfusion and clinical transfusion trained training conducted Semi-annually specialists reports

Component C: Reform of Medical Education and Medical Science Sub-Component C1: Reform of Undergraduate and Continuing Medical Education International accreditation standards Implementation Adoption of international accreditation Implementation adoped on basic medical education for monitoring Annual MOH 0 1 standards monitoring reports medical universities reports

Regulatory/institutional/financial Measured by the number of physicians Implementation framework developed and approved for licensed and re-licensed; establishment of a Implementation 1,500/ monitoring Semi-annual MOH 0 a sustainable, permanent system for modernized CME system; and participation monitoring reports TBD reports continuing medical education rates in the new CME system Measured by the implementation of revised New curricula for medical and curricula in public medical universities; the pharmaceutical education adoption of instruments incl. knowledge, Implementation implemented, together with a unified skills and attitude testing in medical Implementation monitoring Annual MOH 0 6 testing system and updated/upgraded universities; and adoption of postgraduate monitoring reports reports criteria for admission, by all public standards which are in line with the medical universities European Federation for Medical Education. Measured by the number of EBM centers All clinical faculty members trained by Implementation established at medical universities and Implementation new Centers for Evidence-Based monitoring Annual MOH 0 100% research institutions and participation rates monitoring reports Medicine reports in their training courses 1,500 physicians licensed and re- Implementation Measured by the number of physicians Implementation licensed under newly-developed rules monitoring Annual MOH 0 1,500 licensed/re-licensed under new standards monitoring reports based on international standards reports Sub-Component C2: Reform of Medical Science Mechanism developed for the Implementation prioritization and review of medical Measured by the development of clear Implementation monitoring Annual MOH 0 1 research and the issuance of criteria for prioritization monitoring reports competitive grants, according to reports international principles Measured based on whether there is Implementation 100% of research grants/ applications, capacity to both review research proposals Implementation monitoring Annual MOH TBD 100 appraised and decided according to and also, to develop new funding monitoring reports reports revised methodologies for funding mechanisms Component D: Health Information System Development Implementation HMIS fully designed and approved by System designed and approved for use by Implementation Monitoring Semi-annual MOH 0 1 users MOH Monitoring reports reports Monitors the number of key users trained, Implementation Implementation 75% of key HMIS users fully trained i.e. financial managers, doctors and nurses, Monitoring Semi-annual MOH 0 75% Monitoring reports and able to use the system other relevant medical staff reports Monitors the satisfaction of key users, i.e. Periodic survey By MTR and 75% of staff who use the HMIS report financial managers, doctors and nurses, and User satisfaction surveys MOH n/a 75% results end project average or high levels of satisfaction other relevant medical staff Full HMIS package (incl. minimum Implementation reports from oblast health Acceptance reports Acceptance Semi-annual MOH 0 6

patient care management, resource departments reports management and financial management modules) deployed in three oblasts plus Astana City This Institute should have approx 41 staff, National Health Information Center and should be in place by end-2009. It Implementation TORs/impact once MOH 0 1 established with trained staff by 2009 should also be capable of taking over Monitoring reports assessment project management by 2012 Component E: Pharmaceutical Policy Reform Activity 1: Rational Drug Management Progressive restructuring of the pharmaceutical policy sector as The national drug policy is a central Implementation Implementation evidenced by the finalization and instrument in this component, which should Monitoring Annual MOH 0 1 Monitoring reports publication of a national drug policy be produced by 2010 reports by 2010 Drug approval system updated based Measured by evidence of changes to the Implementation Implementation on international standards by 2009, drug approval system and the list of Monitoring reports and Monitoring Annual MOH 0 1 including removal from the market of registered drugs special surveys reports some older drugs by 2012 Measured based on the number of requests Implementation Increase in the number of doctors with made for information from the 16 drug Provider surveys Monitoring Semi-annual MOH 0 5,000 access to a drug information center information centers established. reports Implementation Universal distribution of the National Measured by the number of medical Provider Surveys Monitoring Semi-annual MOH 0 100% Formulary Reference book among practitioners who received the book healthcare institutions reports Increase to 12 the number of fully Implementation trained clinical pharmacologists, and to Measures the number of practitioners Implementation Monitoring Semi-annual MOH 3/0 12/50 50 the number of physicians who trained in clinical pharmacology Monitoring reports reports possess certification in pharmacology Activity 2: Procurement Optimization Establishment of drug price Measures implementation of price control Drug price monitoring Annual survey 10% regulations by 2009 that decrease the Annual MOH TBD average retail and public procurement measures on actual prices to consumer surveys results reduction price for selected drugs by 2010 Establishment of a pricing unit that Drug price monitoring Implementation examines local drug prices in relation to Benchmarks local vs. international prices surveys Monitoring Annual MOH 0 1 foreign prices based on WHO reports methodology Activity 3: Increasing accessibility to medicated care Measures out-of-pocket drug expenditures At Beginning, Periodic survey 10% Decrease in out-of-pocket drug as a percentage of total household Out of pocket survey MTR, and end MOH TBD results reduction expenditure consumption, by quintile of project Contracts with ODB Measured by the number of contracts with Tender Pharmacy providers that indicate: TBD/ Increase in the number of pharmacies ODB providers/number of drug dispensing documents/cont Annually Committee TBD/585 pharmacies owned, or 1,170 selling medicine at subsidized prices facilities that sell drugs from the ODB list racts (MOH) contracted At Beginning, Increased access by pharmacies to 90% Periodic survey Measured by access to drugs surveys Access to drugs survey and end of MOH TBD TBD of medicines (at reduced prices) on the results approved list project

Activity 4: Quality Measured by the ratio of drugs which are At Beginning, Periodic Survey Decrease the ratio of counterfeit or either counterfeit, or which do not meet the Drug survey and end of MOH TBD TBD results substandard drugs technical standards of approved drugs project Component F: Food Safety and WTO Accession Implementation Harmonization of 10 food safety norms Evidence of updated SES/MOH/MOA/WTO commission reports Monitoring Semi-annual MOH 0 10 and rules in accordance with norms international standards reports Evidence of updated Monitoring Development and approval of 15 SES/MOH/MOA/WTO commission reports Annual MOH 0 15 technical regulations technical regulations reports Revision of legal and regulatory This will involve clearly defining and Implementation documents related to post-processing Evidence of updated legal distinguishing the roles and responsibilities Monitoring Semi-annual MOH 0 1 food standards, according to and regulatory documents of the MOH and SES reports international standards 60% increase in the proportion of Implementation sanitary inspectors, laboratory Monitors the number of sanitary inspectors, Implementation Monitoring Semi-annual MOH 0 60% technicians and others trained in food laboratory technicians and others trained Monitoring reports reports safety standards, and practices Tests to determine microbiological Monitoring Reduced microbial contamination of contamination of food products (E. coli, SES reports Annual MOH/ SES TBD TBD reports food (target TBD) Salmonella, Staphylococcus) Component G: Project Management Implementation Implementation Project work plans and budget on Project supervision Monitoring Annual MOH/DSDIC n/a n/a Monitoring reports annual basis reports Implementation Implementation Quarterly financial management and Project supervision Monitoring Quarterly MOH/DSDIC n/a n/a Monitoring reports procurement reports reports Implementation Semi-annual procurement plans and Implementation Project supervision Monitoring Semi-annual MOH/DSDIC n/a n/a implementation monitoring reports for Monitoring reports each component reports

Annex 4: Detailed Project Description KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Component A: Health Financing and Management

Objective: To establish a modern system of health care financing and management by building strategic financing reform capacity at the national level; building purchasing capacity among oblast health departments as single-payers; introducing payment mechanisms that motivate providers to deliver efficient, effective and high-quality services to the population; building capacity in health management; modernizing planning and investment standards in the health sector; and introducing modern tools in performance-based budgeting, forecasting and monitoring to ensure that health care funds are distributed equitably, efficiently and effectively.

Kazakhstan inherited from the Soviet Union a health system based on outdated norms and practices, delivered through an oversized network of publicly-owned facilities, managed through direct control rather than regulation/contracting and with few incentives for efficiency or quality. Hospitals and health workers are paid on inputs, given almost no autonomy to manage their resources and subjected to a multi- pronged system of punitive control. The Presidential Administration’s Administrative Reform Working Group recently submitted a proposal for administrative reform in the health sector that acknowledges these issues and suggests reforms to solve them. The proposal is broadly consistent with the State Health Care Reform and Development Program 2005-2010 and also consistent in most respects with international best practice in health financing and management. A key principle of the proposal—which is mirrored in relevant sections of the State Health Care Reform and Development Program—is to give managers greater autonomy and to specify, in contract-like terms, the outputs and outcomes they are expected to deliver. This is a marked departure from the Soviet model of input control and will require significant work on health system restructuring, capacity building for managers, the development of effective contracts and performance indicators, changes in the legislative and financial framework for health institutions and pharmacies and changes in the control environment. Some of this work has already begun: for example, consolidation of health budgets at the oblast level has provided greater scope for efficient and effective contracting of health services, though a great deal of capacity building will be required before oblast health departments can effectively manage the funds at their disposal. More than anything else, successful implementation of these reforms will require a large-scale effort to “re-program” policymakers, managers and providers to help them adapt to the technical and cultural changes associated with a more modern approach to health financing and management. Capacity building and technology transfer for key staff in MOH, MOEBP, MOF, Oblast Administrations and Oblast Health Departments will be required, as will strengthening the capacity of providers—hospital network managers in particular—to manage their services efficiently, effectively, transparently and at high quality.

Subcomponent A1: Strengthening the Capacity for Health Policy and Strategy Formulation (total estimated cost: US$6.1 million)

Objective: To strengthen MOH capacity to make health policy, set strategy and monitor implementation and sector performance on issues concerning policy and financing.

Performance indicators: Health Key stakeholders: MOH, Social Impacts: Better Linkages: HMIS, Quality, Policy Unit established; Provider MOEBP, MOF, Oblast information for decision making; technology assessment, hospital Payment Unit established; Administrations, Oblast Health better policy evaluation; restructuring, co-payments surveys carried out and National Departments, Oblast Finance proactive policy development policy, benefits package policy Health Accounts prepared Departments

According to the recent administrative reform concept of the government, the primary functions of a Ministry are to set strategy and make policy. To strengthen these functions, the project will establish of a Health Policy Unit under the Strategic Planning Department and a Provider Payment Policy Unit under

the Department of Economics and Finance of MOH. Experience from other countries suggests that a 4-5 highly-qualified specialists will be required for the Health Policy Unit and 1-2 specialists for the Provider Payment Policy Unit. (The Health Policy Unit is an economics and policy analysis unit that carries out economic and policy analysis and develops strategic options for policy reform and budget development in the short- and medium-terms. Most OECD countries have similar units in their Ministries of Health. The Provider Payment Policy Unit policy reviews and advises on policy issues such as defining provider payment methods, monitoring and evaluating the impact of payment reforms, designing the right mix of incentives to ensure efficient, effective work by health care providers, and piloting new and innovative models of delivery and financing. It is not an accounting unit and is not involved in payment transactions.)

This subcomponent will provide equipment for the Health Policy and Provider Payment Units and will finance international TA, training and study tours for their staffs. These will complement activities in Subcomponent A2 and the policy studies envisaged there.

Subcomponent A2: Strengthening Budgeting, Planning and Management in the Health Sector

Objective: To strengthen planning, budgeting and purchasing functions at national and oblast levels.

Performance indicators: Key stakeholders: MOH, Social Impacts: Fewer Linkages: HMIS, Quality, Increase in the share of hospital MOEBP, MOF, Oblast admissions and shorter lengths of technology assessment, hospital expenditure on outpatient care; Administrations, Oblast Health stay higher productivity; lower restructuring, hospital autonomy increase in the share of Departments, Oblast Finance hospital costs more funding prepayment in total health Departments for direct patient care; financing; 20% reduction in introduction of geographic hospital beds per capita, by allocation formula reduced oblast; 10% reduction in the spatial inequality in healthcare share of utilities in total hospital financing expenditure

This subcomponent will strengthen planning, budgeting and purchasing functions: in other words, the responsibilities of principals such as MOH, oblast health departments and regulatory agencies/financial departments such as Treasury, MOEBP and oblast finance departments. (Subcomponent A3 focuses on agents, esp. hospitals.) Kazakhstan’s health financing reforms predict a major change in the role of all players including those in policy and purchasing roles. With a move towards output/performance-based financing, arm’s-length relationships and managerial autonomy, the importance of specifying roles and responsibilities and the indicators used to monitor performance becomes critical. As described earlier, it also has implications for the budget process, the legal status of providers, the role of control agencies and many others. Managing the transition will not be easy and will require skills and instruments that do not currently exist in Kazakhstan.

The subcomponent will pair Kazakh specialists with an internationally-reputed team of health policy experts to carry out a detailed analysis of health financing policy in Kazakhstan—including such activities as increasing the detail and clarity of the basic benefit package, linking the BBP to financing, using survey data to establish co-payment prices, using cost-accounting to identify service costs, completing the already-started work on National Health Accounts, addressing constraints posed by the Treasury system and laying the legislative and regulatory foundation for Voluntary Health Insurance. The main objective of this will be technology transfer, i.e. to build the analytical capacity of Kazakh specialists to use internationally-accepted methods and modeling tools in health policy and financing. This will be done in Kazakhstan using Kazakh data and will thus have the corollary benefit of providing detailed input on issues such as the size, scope and cost of the basic benefit package, provider payment methods, co- payment policies and guidance on the introduction of Voluntary Health insurance. It will also finance special studies/surveys to provide factual input to policy decisions on financing issues. The special studies/surveys will include inter alia household health surveys, out-of-pocket payment surveys, patient and provider satisfaction surveys and surveys of human resources. The subcomponent will also finance

two candidates for Master’s level training abroad. These will strengthen implementation of the financing approach laid out in the State Health Reform and Development Program: namely, the “BBP plus VHI” strategy whereby the government finances a Basic Benefit Package (BBP) and leaves other services to be financed through out-of-pocket payments and Voluntary Health Insurance (VHI). The subcomponent will also finance a high-level training and capacity building program for staff in MOH, MOEBP, MOF and Oblast Administrations in modern principles of budget formation, program budgeting, budget forecasting, geographic and per capita allocation methods, provider contracting and methods to monitor sector expenditure and provider performance. The objective will be to build capacity in financial stewardship of the health sector, i.e., in how to allocate resources, manage contracts, monitor performance and implement performance-based payment systems for health care providers, i.e. how to act as effective purchasers of health services.

This component will finance capacity building activities to strengthen the ability of MOH and OHDs to plan, execute and monitor health spending under three headings: collection, pooling and purchasing. Collection of health sector resources will be strengthened by (a) helping MOH staff (and several oblasts) complete a comprehensive National Health Accounts for Kazakhstan, including study tours and dissemination efforts; and (b) providing TA, training and special studies on budget planning, the role of health insurance and the role of additional tax sources for the health budget—including training in how to regulate health insurance markets and how to model budgets and alternative revenue sources. Pooling of health sector resources will be strengthened by (a) developing and refining a risk-adjusted geographic allocation formula; (b) moving toward output-based program budgeting and (c) carrying out an advocacy program to help policymakers, oblast leaders and the public understand the rationale and benefits of oblast-level budget consolidation. Purchasing of health care services—i.e. moving away from input- based financing (e.g. financing beds and staff directly) to a more market-oriented model that finances outputs—will be strengthened at two levels: national and oblast. At the national level, purchasing will be strengthened by (a) reviewing and reforming the health sector control environment to streamline operations and improve the business climate for private providers; (b) continuously refining the Basic Benefits Package and co-payment policy; (c) introducing performance-based payment methods for all MOH programs and implementing the necessary regulatory changes; and (d) reviewing and implement reforms in health sector governance (esp. appointment of health facility managers). At the oblast level, purchasing will be strengthened by providing training for OHD, OFD and others in implementation of these reforms, especially those concerning provider autonomy, performance-based provider payment methods and health facility governance.

Subcomponent A3: Management Training and Investment Planning for the Health Sector (total Estiamted cost (A2/A3): 14.1 million)

Objective: To modernize health care management; upgrade investment planning norms in the health sector to international standards; and foster hospital autonomy and public-private partnerships.

Performance indicators: 3,000 Key stakeholders: MOH, Social Impacts: Modern and Linkages: HMIS, Quality, healthcare managers trained; 75 MOEBP, MOF, Oblast well-planned facilities and technology assessment, improved percent of healthcare facilities Administrations, Oblast Health hospitals, improved hospital purchasing arrangements converted to state economical Departments, Oblast Finance management; greater enterprise status; modern health Departments responsiveness to patients and facility planning standards families introduced and used.

Kazakhstan’s current system of health care institutions, hospitals in particular, is fragmented, inefficient and poorly suited to patient care. It is widely recognized that the current five-layer system is in need of restructuring and reform. It is also recognized that any such reform should be accompanied by the way in which the facilities—or groups of facilities—are managed, with a move toward output-based financing, performance contracts, managerial autonomy and in some cases public-private partnerships. This will require a major shift in culture and practice for Kazakh health providers. The objective of this

subcomponent will be to support this process by helping MOH restructure the health system, lay the legal and regulatory foundations for autonomous management of facilities according to international standards, hire professional managers and build management capacity in the health system, including inter alia through helping autonomized facilities prepare budgets, business plans, human resource plans and rationalization plans. These three activities are described as follows:

1. Hospital restructuring is an immediate priority. International best practices, standards and guidelines will be synthesized to assist in development of the model. Based on the chosen model, restructuring plans will be developed for each of the oblasts included in the pilot and ultimately for all oblasts in the country. It is not possible to apply any model indiscriminately. The purpose of restructuring plans is to tailor the restructuring model to the specificities of each oblast through a combination of analytical work and stakeholder consultation. Since oblasts vary in the exact composition and distribution of their hospitals, a tailored approach needs to be taken. This will require the use of modern health planning techniques. This subcomponent will finance an international planning firm to provide in-service training to Kazakh counterparts while developing Master Plans for five oblasts. It will then support Kazakh specialists in preparing Master Plans for the remaining oblasts using their new-found skills. Investment plans will also be developed for each oblast based on the Master Plan and on revised norms and standards for investment planning. These could be used to guide future investment programs in the health sector, though the investments themselves will not be financed under the Project.

2. For hospital and/or network managers to be given more autonomy, a number of far-reaching legal and regulatory changes are necessary. These include issues concerning the legal status of health facilities, their ability to raise and hold revenues, their ability to hire and fire staff and their ability to manage facilities as “enterprises” rather than as passive budget entities. This subcomponent will facilitate this process in two ways: first, by recommending legislative, regulatory and institutional reforms to create an enabling environment for provider autonomy and private participation, i.e. improving the business environment for private investment in the health sector. This activity (creating an enabling environment for provider autonomy and public-private partnerships) will combine a small team of international experts with a larger team of Kazakh specialists to study and recommend changes in the labor law, SES norms, corporate law and regulations concerning inspection and licensing of health facilities. It will also present the government with options for high-level financing reforms to promote facility autonomy, including ways of shifting the responsibility for capital financing from the budget and ad hoc budget actions to the facilities themselves. The subcomponent will also address private sector development directly. Health care in Kazakhstan is mainly delivered in publicly-owned, publicly-managed facilities. Involvement of the private sector in delivering health services can, if implemented properly, improve efficiency, responsiveness, patient satisfaction and provider performance. The institutional preconditions for stimulating greater private sector involvement are similar to those for hospital autonomy—a goal of which is actually to level the playing field between public and private providers—so these activities will need to be carried out first. Once these conditions are met, a core group of MOH and oblast-level experts will be given specific training in health sector PPPs and in contract management methods specific to the health sector. This will help identify facilities where privatization or public-private partnerships might be viable.

3. Upgrading the quality of health care managers is a high priority for Kazakhstan but health management has yet to emerge as a distinct specialty and no institutions in Kazakhstan currently have the capacity to provide health management training effectively. Hospital managers play an important role in ensuring effective, efficient, quality care. The current practice in Kazakhstan—as in most post-Soviet health systems—is to appoint senior clinicians as hospital managers with little training in modern management techniques. While some thrive and perform effectively, the majority lack the necessary training and skills. This subcomponent will help upgrade the quality of health care management in Kazakhstan by establishing a permanent mechanism by which Kazakhstan can develop and renew a trained, capable corps of health sector managers. Foreign training and occasional scholarships are not enough for this

purpose; what Kazakhstan needs, as countries such as Slovenia and Hungary already have, is the indigenous capacity to carry out health management training in a domestic institution. With World Bank support, Hungary established such an institution in the mid-1990s: the “Semmelweis Center for Health Care Management” in Budapest is now a leading global institution and provides health management training for numerous countries in Europe, Central Asia and beyond. In view of Kazakhstan’s size and aspirations, this subcomponent will help establish a similar institution for Kazakhstan. This could be attached to an existing institution, e.g. the Kazakh State Medical Academy or Kazakh National Medical University, or established de novo. At a regional level, medical academies will assist in delivering decentralized training programs led by the national body. Institutional development will be carried out through a twinning arrangement with an established university or health management institution with extensive experience in EU or OECD countries. The arrangement will cover business planning, faculty development, curriculum development, study tours and training for the Kazakh institution; international training for selected faculty and health sector managers; and in-country training for around 3,000 health managers over five years.

Component B: Health Care Quality Improvement

Objective: To improve the quality of healthcare in Kazakhstan by supporting the development of an accreditation system; strengthening the country’s capacity to develop, disseminate, evaluate and update evidence-based clinical practice guidelines; enabling Kazakh specialists to carry out Health Technology Assessment using internationally-accepted standards; and reforming critical aspects of the Blood Transfusion Service and the laboratory system.

Performance indicators: Key stakeholders: consumers, Social Impacts: Improved Linkages: HMIS, financing Independent accreditation body MOH, MOEBP, MOF, Oblast quality of care and access to reforms, medical education established with ISQua compliant Administrations, Oblast Health appropriate technology for standards/procedures; 160 quality and Finance Departments, consumers; significant behavioral of care experts trained; 150 CPG Committee on Control over change for healthcare providers methodology experts trained; 20 Health Services, Association of and health sector managers. key CPGs developed and Independent Experts, Health disseminated to 60 percent of the Development Institute workforce in relevant specialties; HTA capacity developed and three local HTAs developed

Health care in Kazakhstan is not delivered to international standards. Reasons include an outdated Soviet-era medical curriculum and methods for teaching and research; a rudimentary system of continuing medical education; a quality control system based on punitive external oversight that results in defensiveness and low transparency; the lack of a modern accreditation system for health facilities; limited use of quality management methods in hospitals; limited use of evidence-based clinical practice guidelines; and limited capacity for evidence based medicine, including the capacity to evaluate the cost- effectiveness of health care technologies. This component addresses issues of accreditation and evidence- based medicine. It also deals with two areas where direct quality improvement measures are required: the Blood Transfusion Service and the laboratory system.

Subcomponent B1: Accreditation: Modernizing Standards for Health Facilities (total estimated cost: US$10.5 million)

Objective: To establish an accreditation system for health care facilities that operates according to international standards; and to complete first-cut accreditation of at least 20 facilities by 2012.

MOH has been active in laying the foundations for an accreditation system since 2005 through its Health Care Services Control Committee (HCSCC). Achievements to-date include developing an implementation plan, formulating regulations for the accreditation body and the procedures to be followed, drafting accreditation standards and performing a first round of piloting on three tertiary care

facilities, and establishing an association of independent experts from which surveyors for external assessment of health care facilities will be drawn. With support from the World Bank, the first set of accreditation standards was reviewed by the International Society for Quality in Health Care (ISQua) in 2007. Assisting the HCSCC in its accreditation mandate is the Health Care Development Institute (HCDI). The HCDI is responsible for developing and further refining the methodology, standards, procedures and rules for accreditation on the basis of best international practices. The HCDI is also responsible for training of experts and inspectors.

Although currently the HCSCC is acting as the national accreditation body, ideally, another accreditation agency should be established to meet three criteria: independence, separation from control functions, and the ability to receive both budgetary funds and fee revenues. The HCSCC clearly does not fit the afore- mentioned criteria, and therefore the project envisages the establishment of a new accreditation agency in 2009 that will assume the role of a national body and will not require oblast branches. Surveyors will be drawn from a pool of independent experts and health care professionals, acting as peers on a mutual basis but in regions other than their own, and will be used on an ad hoc basis rather than establishing a full-time cadre of professional surveyors.

The Project will support the following activities: contracting an internationally-recognized accreditation body to review Kazakhstan’s accreditation standards and regulations for the accreditation system (including the planned accreditation body and its procedures) and to develop a business plan, investment plan and communication plan for Kazakhstan’s accreditation agency as well as a training program, curriculum and guide book for assessors; establishing a permanent institutional mechanism for training of surveyors and quality managers; training 500 surveyors and 500 quality managers; printing of standards for all health facilities in Kazakhstan; creating a permanent review and upgrading mechanism for periodically adjusting standards; and helping develop a national and subnational package of indicators for monitoring and evaluation for eventual recognition by an international accreditation body. It will also finance training, study tours and learning activities for staff involved in the design and implementation of accreditation system reforms. Expected results include a well-functioning accreditation system (eventually to be recognized by the International Society for Quality in Health Care) with standards, materials and staff at international standards; first-cut accreditation of around 20 facilities at the republican and oblast levels; and 1,000 trained surveyors and quality managers in Kazakhstan.

Subcomponent B2: Upgrading Clinical Practice and Introducing Health Technology Assessment (total estimated cost: US$34.6 million)

Objective: to establish a system for continuous development and review of evidence-based clinical practice guidelines; to support the development and widespread dissemination of 20 international- standard CPGs in each of five key clinical specialties; to print and train 60 percent of the workforce in each of these clinical specialties in the updated CPGs; to build the capacity of Kazakh specialists to carry out Health Technology Assessment; and to conduct 3-4 HTAs by 2012.

The Ministry of Health has, in close conjunction with the Health Care Development Institute and others, developed and approved 200 evidence-based CPGs in recent years. Most of these have been for high- technology, high-complexity interventions but recently-developed CPGs have also covered common but important conditions such as hypertension. The process to date has been excellent and has used many features from international best practice such as the use of professional associations for consultation and review. The intention now is to expand the range of this work, get professional associations more involved, strengthen the MOH’s capacity to review and disseminate these guidelines and—most ambitiously—to re-train a large cadre of health care providers in the new CPGs. In terms of CPG development, responsibilities are being divided along the following lines. The Curative and Preventive Department (CPD) at MOH will assume responsibility of financial support and administrative coordination of all processes related to development, quality evaluation, introduction and monitoring of

CPGs; the Health Care Services Control Committee (HCSCC) will carry out external monitoring of efficiency based on measurable and reliable outcome indicators; the Health Development Institute (HDI) would carry out technical-methodological support to the development, revision, quality evaluation, introduction and monitoring of CPG; and an Expert Council (EC) will conduct independent external evaluation of the methodological quality of clinical guidelines and indicators.

The Ministry of Health also plans to introduce Health Technology Assessment (HTA), a technique used in industrialized countries to objectively evaluate the evidence-basis, effectiveness and efficiency of health care interventions as basis for rational decision making about: (i) inclusion or exclusion of medical services/interventions/pharmaceuticals in the benefits package; (ii) allocation of resources (planning of facilities) and the eventual concentration of high-end and high-tech medical interventions; (iii) calculation of specific tariffs for reimbursing recurrent costs and (iv) provision of input to the CPG development process. Capacity building is required not only for the management and staff of the designated CPG/HTA agency but also for medical practitioners and clinical scientists, both of whom should become involved over time in original, clinically oriented HTA. This will make Kazakhstan a member of the international HTA community and networks that produce new assessments: an important step forward in Kazakhstan’s acceptance as part of the modern world’s medical community.

The subcomponent will support two lines of action: one on “institution and capacity building” to build the capacity of Kazakh institutions and specialists in economics, epidemiology, clinical epidemiology, medical statistics and evaluation methods and develop a national cadre of leaders in evidence-based medicine; and one on “dissemination” and implementation to upgrade clinical practice among the body of practicing physicians in Kazakhstan.

Specific activities in the “institution and capacity-building” line will include contracting an internationally-recognized institution to “twin” with the HCDI and other key players (including the Expert Council and professional associations) in CPG/HTA development and help develop a business plan, budget (investment and recurrent costs), training plan, communication plan, CPG uptake plan and work-plan for HTA and CPG development. The twin institution will also provide and arrange for training and professional exchange opportunities for Kazakh specialists from MOH, clinical centers, universities and professional associations in health economics, epidemiology, evaluation methods, pharmacoeconomics, evidence-based medicine and HTA. The “dissemination” line will involve a massive effort to disseminate newly-developed CPGs nationwide using a combination of cascade training, classroom/skills lab education and distance learning using the Internet and modern videoconferencing/IT techniques as well as self-directed learning through CD-ROMs and DVDs. This will involve printing CPG manuals for the entire targeted medical workforce, building training capacity and establishing distance learning facilities and videoconferencing sites in each oblast—all with a view to training at least 65 percent of the medical workforce in five key specialties in 50 CPGs within five years. The scale of effort is unprecedented globally but necessary if Kazakhstan is serious about upgrading clinical quality to international standards without waiting for the current generation of physicians to retire. It is also an essential complement to changes in the undergraduate medical curriculum because it creates a favorable environment for new graduates to practice their newly-acquired evidence-based skills among colleagues who have been through a similar process of learning.

Expected results will include an international-standard agency for CPG development and HTA; upgraded capacity in MOH for policymaking on important issues such as planning the basic benefit package and reimbursement schemes; upgraded capacity in national institutes and universities to analyze medical practice and medical technologies using internationally-accepted evaluation methods; 20 international- standard CPGs in five key clinical specialties developed, printed, disseminated and formally trained among at least 60 percent of health care providers in these specialties; and assessment of 3-4 priority technologies (existing or emerging) using internationally-recognized evaluation methods by 2012.

Subcomponent B3: Laboratory System Reform (total estimated cost: US$4.7 million)

Objective: To increase the quality of laboratory services to international standards; and to increase efficiency and effectiveness and client focus of service provision in the laboratory sector.

Performance indicators: 11 Key stakeholders: consumers, Social Impacts: Improved Linkages: HTA, BTS reform, laboratory experts trained in clinicians, laboratory staff, MOH, quality and convenience as EBM, CPG development, HMIS international standards; MOEBP, suppliers of equipment laboratory service management and health financing reform development of equipment and and consumables, health service and quality is improved, network specifications to providers including in terms of patient international standards focus/user-friendliness

A recent MOH-led survey of laboratories and their performance revealed that the current configuration of laboratories and their mandates, management, staffing and working methods are sub-optimal. While the past few years have seen significantly increased investment in laboratory equipment, this investment has not been well coordinated nor based on a clear vision of the profile and functions of laboratories at various levels of the health system. (Such a vision, in terms of well-described profiles for laboratories of various kinds, does not exist.) MOH is also concerned about a substantial increase in laboratory tests and the cost implications of over-testing. To assist in its laboratory reform program, MOH needs expert advice on how to organize, profile, equip and staff laboratories; develop standards and norms for laboratory procedures and tests; introduce a balanced system for internal and external quality improvement and assessment; and harmonize equipment standards and information technologies for integration in the country’s Unified Health Information System. It also needs assistance with training of laboratory staff and managers and study tours to observe well-functioning laboratory and quality control systems abroad. The Project will support these two lines of action: one on organizational reform, restructuring and the establishment of a quality control function including specifications for equipment, staffing, reference laboratories and the development of a planned preventive maintenance program, and one on upgrading skills and knowledge via training and study tours for laboratory staff, managers and policymakers. Both will be implemented by linking Kazakh specialists with peers in industrialized countries.

Expected results will include a reorganized laboratory system that functions at or near international standards (to be confirmed with international accreditation), is responsive to the needs of clinicians and provides reliable and standardized test results in an efficient way; a functioning system for continuous quality improvement/control of laboratory services; and local capacity for ongoing training of laboratory staff and managers.

Subcomponent B4: Reform of the Blood Transfusion Service (total estimated cost: US$10.1 million)

Objective: To create an effective, efficient blood transfusion system that assures a steady supply of safe blood and blood products at international standards and encourages evidence-based use of these products during routine medical practice as well as mass emergencies, disasters and conflicts.

Performance indicators: Key stakeholders: consumers, Social Impacts: Increased Linkages: HTA, laboratory Increase in the number of donors clinicians, BTS staff, MOH, /restored confidence in medical reform, EBM, CPGs, HMIS, per 1,000 population; increase in screened donors services involving blood and health financing reform the share of voluntary donors; blood products; increased increased effectiveness of donor willingness to donate blood on a screening at selection and during voluntary basis laboratory screening; reduced frequency of post-transfusion complications

Following the infection of over 70 children in Chimkent with HIV, MOH carried out a review of the country’s Blood Transfusion System (BTS) and a survey among the institutions and providers involved. The review identified a number of problems, including Problems in collecting blood due to donor

shortages and the lack of voluntary donors—leading to the higher risk use of paid donors—and the absence of a donor database that could support blood collection and tracing of donors with risk factors; the inability to monitor, evaluate and control the products (25 in total) of the BTS once they leave the production site reducing the capacity for a comprehensive quality control system; the fragmented organization of the BTS, outdated regulations and SES norms, big differences in the available budget per oblast (and in the apparent cost-effectiveness of different oblasts’ BTS’), lack of a centralized quality control system and apparent lack of coordination between health providers and the BTS at various levels; a high number of vacancies with lack of qualified staff and of adequate training possibilities for current and future staff; and outdated, poorly maintained and missing equipment leading to the use of unsafe blood and to inadequate availability of blood products, some of which need to be imported from abroad.48

Based on this review, MOH has decided to embark on a number of structural, regulatory and infrastructural reforms of the BTS. Specific areas for reform include a structural reform of BTS— eventually establishing a centralized BTS at the oblast level and blood banks as needed at the rayon level—and introduction of internal and external quality improvement and control functions, i.e. quality control systems inside BT centers/blood banks and an overall reference/metrological function (all in coordination with similar efforts for the laboratory system); refurbishing, re-equipping and re-training staff in the BTS, both management and staffs; a review and updating of standards and protocols for the collection, testing, processing, storage and distribution of blood and blood products as well as for the use/storage/handling/administering of blood and blood products to patients—all according to international standards—and updating BTS regulations to support the organization and functioning of a reformed BTS; and strengthening the capacity of Kazakhstan to become self-sufficient in producing its own blood and blood products within limits imposed by efficiency and the country’s size.

To support these reforms, MOH has requested expert advice on the following: (a) How to organize, equip and staff blood transfusion centers and blood banks according to international practice; how to introduce a balanced system for internal and external quality improvement and assessment; how to introduce a BTS- supportive information system including the bar-coded identification of blood and blood products and of patient blood groups and characteristics; and how to establish an effective system for recruiting voluntary donors and carrying out public information campaigns to inform the public and organize donor drives; (b) International standards and norms for BTS laboratories and tests; and (c) How to promote systematic capacity building and knowledge transfer for BTS staff through study tours, training opportunities and development of a training curriculum drawing on the experience of industrialized countries. The Project will support implementation of the Ministry’s program in two ways: by supporting organizational reform, network restructuring and the establishment of a quality control function for the BTS (including specifications and profiles for equipment, staffing, reference laboratories and preventive maintenance) and by upgrading skills and knowledge through training and study tours for laboratory staff, managers and policymakers. These will be carried out in the context of a twinning relationship between the Republican Blood Transfusion Service and an internationally-recognized peer agency.

Expected results will include a reorganized, effective BTS that functions at or near international standards, is responsive to the needs of clinicians and provides safe blood and blood products in an efficient way; a functioning system of monitoring and evaluation to promote continuous quality improvement/control of BTS services; and indigenous capacity for ongoing training of BTS staff and management.

48 Another issue is the existence of parallel blood transfusion systems in MOH and the Ministry of Defense. As in many other Former Soviet Union countries, this separation is maintained strictly and creates inefficiencies in the collection, procession, storage and distribution of blood and blood products. This separation does not exist in most countries and there is one national BTS serving all sectors of society.

Component C: Reform of Medical Education and Science

Subcomponent C1: Reform of Undergraduate and Continuing Medical Education (total estimated cost US$6.5 million)

Objective: To upgrade admission criteria, curricula, teaching methods, teaching materials, examination procedures, faculty skills and the overall structure of Kazakhstan’s six medical universities to international standards; to obtain international accreditation for at least one medical university; to modernize Kazakhstan’s licensing/attestation procedures for medical graduates; and to upgrade and institutionalize Continuing Medical Education in Kazakhstan.

Performance indicators: 1,500 Key stakeholders: Social Impacts: Improved fairness Linkages: HTA, CPGs, physicians licensed by a reformed consumers, clinicians, and quality of medical education in medical education reform, licensing agency operating to international students, medical universities, at least 2-3 medical universities; health management standards; introduction of a new rectors, research institutes, more opportunity for Kazakh training curriculum to all public medical healthcare providers, health medical graduates and scientists to universities; clinical faculty trained in management bodies, MOH, travel, work and study abroad as a EBM; upgraded entry/testing methods MOES, National result of international recognition. introduced; international accreditation for Accreditation Center at least one medical university

A key dimension of quality in health care is the quality of medical education and medical graduates. Kazakhstan’s medical curricula are not up to international standards and medical graduates enter the workforce without the knowledge and skills required to practice world-class medicine. Rectifying this is simple in principle but complex in practice. It calls for both an overhaul of the undergraduate medical curriculum—including teaching methods, faculty skills and methods for admitting, testing and licensing graduates—and the introduction of a formal system of Continuing Medical Education, linked to periodic re-licensing, to ensure that doctors engage in a continuous renewal of their skills.

MOH has done considerable work in this area. Achievements to date include adoption of a national reform program on medical education; adoption of a new regulatory framework to support the reforms and provide MOH with the rights to adjust Ministry of Education norms/standards—the National Education Standard—to the specific needs of medical and pharmaceutical education; adoption of detailed plans for further regulatory reform and for implementation of the reform program; drafting a new curriculum, based on a newly-drafted MOH National Education Standard for the first three years of medical and pharmaceutical studies; a decision to further realign the curriculum according to the international standards of the World Federation of Medical Education; and agreeing with all medical universities to start the new curriculum in September 2007. These are outstanding accomplishments and place Kazakhstan among the most forward-thinking reformers on medical education among Former Soviet Union countries. They also provide firm proof of the government’s and medical community’s commitment to bring Kazakhstan’s medical education system to international standards.

MOH has already made all major foundational decisions on medical education reform. The only exception is the establishment of a National Steering Committee including representatives from all stakeholder groups, which is planned for 2007. Implementation of the reform program will, however, require a massive and unprecedented effort. As such, MOH asked the Project for support in a number of critical areas, including: (a) reviewing the existing governance and management structure of Kazakhstan’s six existing medical universities and their functioning vis-à-vis the structure, content, pedagogical and faculty capacity requirements of a new curriculum; (b) carrying out a human resource assessment of the medical education system (and the health sector as a whole) to identify appropriate targets for admission and specialization; (c) assessing infrastructure and equipment needs in the Medical Universities; (d) upgrading the structure and content of the curriculum to international standards; (e) introducing international best-practices in admission policy, teaching methods, teaching materials, testing methods and faculty development; and (f) introducing information technologies, computer-based learning methods, advanced learning equipment and new textbooks/self-study equipment based on international standards.

The project will divide these tasks into three blocks: one to carry out an in-depth review of the current system and develop a change management plan; one to support MOH in implementing this plan; and one to finance study tours, professional exchanges, training, conferences and workshops for Kazakh specialists involved in the reform effort. As with other components, professional project management and twinning with a world-renowned medical university will be the primary mode of operation. Specific activities to be carried out in conjunction with the twinning partner include:

1. Improvement of the Medical and Pharmaceutical Education Management System. The twinning partner and MOH will together conduct a review of the current status of the medical education management system and will closely follow best international practice on medical education quality assurance with the aim of improving the current system while paying particular attention to the delineation of responsibilities, authority, functions and interactions among concerned stakeholders. The review will lead to a draft implementation plan for achieving the State General Mandatory Education Standard (GOSO 2007), which includes 5 years of medical education and 2 years of residency training, and recommendations on a time-line and monitoring plan for the implementation of these reforms.

2. Development of Admissions Regulation for Medical Education. The twinning partner and MOH will together identify new principles of selection and admission to medical higher educational institutions. This will involve development of requirements and criteria to the level of mandatory undergraduate training on natural sciences as well as the revision and introduction of amendments to the system of independent external evaluation of learning achievement (unified national testing). Requirements and criteria for interviewing procedures and the training of interviewers will also be developed.

3. Creation of the Medical Education Quality Assurance System. The twinning partner and MOH will together identify a path toward international accreditation of at least one medical university based on guiding principles of the World Health Organization/World Federation of Medical Education (WHO/WFME). This will incorporate the use of set standards of medical education, establishment of a transparent accreditation system and involvement of all stakeholders in the accreditation process.

4. Establishment and Development of Educational and Clinical Centers of Medical Higher Educational Institutions. The twinning partner and MOH will together review international experience related to in- service clinical training and develop legal frameworks for establishing and upgrading the clinical centers of medical universities. They will also develop methodological guidelines and a database to support the educational process, independent work, assessment of students’ clinical and practical skills.

5. Introduction of Innovative Technologies in Medical Education. The twinning partner and MOH will together develop of a training program for teaching staff at medical universities on new educational technologies, and a plan for introducing information and communication technologies in medical and pharmaceutical education while adapting them to university management systems.

6. Establishment of a training System in Evidence-Based Medicine. The twinning partner and MOH will together establish EBM Centers in medical universities. (This will be done in conjunction with the CPG/HTA activities in Subcomponent B2.) These will function as educational and resource centers on evidence-based medicine and will be attached to at least one of the chairs (base chair) or libraries of an educational organization. This will also involve integrating EBM principles in the teaching of clinical disciplines (problem-oriented training).

7. Program on Reforming Post-Diploma Medical Education and Continuous Professional Development. The twinning partner and MOH will together analyze the existing practice of post-diploma training of specialists in Kazakhstan and develop qualification characteristics and requirements for basic and highly- specialized medical specialties. They will develop a structure of post-diploma training and continuous

professional development of medical specialists in line with international requirements and harmonize it with GOSO-2007 requirements. Furthermore, they will revise the requirements for admission to educational programs on post-diploma training (residency, magistracy, PhD program).

8. Improvement of the Certification and Licensing System of Health Specialists. The twinning partner and MOH will together develop a certification and licensing of medical specialists system to ensure objective and reliable assessment of professional qualifications based on international practice for qualifications exams and registration of specialists. To this end, the twinning partners and MOH will develop the legal frameworks and establish a standardized approach for assessing the skill levels of health specialists.

9. Improvement of the Medical Education Financing System. The twinning partner and MOH will together analyze the existing system of education financing and estimate the minimum state expenditures (or other sources of financing) for effective functioning of the undergraduate, post-diploma and postgraduate medical education system. In light of the analysis, they will develop proposals to identify possible financing schemes (sources) and criteria to monitor efficient use of the funds allocated for medical education.

At the same time, MOH will need to upgrade the current system of professional licensing/attestation to have it ready for the first batch of new graduates in 5-6 years. OECD countries completed this process as recently as 20 years ago and a large body of international experience exists. The project will support a policy assessment covering licensing/attestation for all medical specialties and issues such as fees, responsible bodies, governance and anti-corruption measures, standards for course evaluation and linkages to CME; development of curriculum criteria and minimum standards for clinical specialties; development of internal and external training capacity; and establishment of a formal licensing agency with rules, regulations, procedures and a database. These activities are closely linked with CPG development as outlined in subcomponent B2. Expected results include an efficient, well-governed system of medical and pharmaceutical education, operating at or near international standards and under clearly-delineated responsibilities divided between MOH, other Ministries and the six medical universities; systems for selection, curriculum development, testing, faculty development, performance monitoring and CME/CPD all operating at international standards; international accreditation for at least one of the six medical universities; and recognition of Kazakh qualifications by universities outside the Former Soviet Union and the ability of Kazakh specialists to study and gain experience abroad.

Subcomponent C2: Reform of Medical Science (total estimated cost: US$2.9 million)

Objective: To upgrade Kazakhstan’s medical and health sciences research system using international best practices in the way research is funded, prioritized and implemented; and to develop an internationally competitive health research community.

Performance indicators: Key stakeholders: consumers, Social Impacts: Improved Linkages: HTA, CPGs, medical mechanism developed for clinicians, students, medical fairness and quality of medical education reform, health prioritization and review of universities, rectors, research education in at least 2-3 medical management training medical research and for a institutes, healthcare providers, universities; more opportunity for competitive grant funding system health management bodies, Kazakh medical graduates and according to international MOH, MOES, National scientists to travel, work and principles; 100% of new research Accreditation Center study abroad as a result of grants appraised and decided international recognition. according to these methodologies

Alongside reform of the medical education system, MOH has recognized the need for thorough reforms in the way medical research is funded, prioritized and implemented in Kazakhstan. To this end, MOH has developed a Draft Concept of Medical Science Reform to 2010 which proposes the following reforms: (a) Establishing competitive research funding mechanisms and improved ways to remunerate and retain key research staffs; (b) Establishing international-standard methodologies and capacity to evaluate research proposals, monitor their progress, assess their results and submit them for independent peer review,

including to international referents; (c) Introducing a new management system in research institutes that enhances links between medical research, medical practice and medical education—including opportunities for clinicians to do research and vice versa—and promotes integration with the international research community, and an information system to support communication between researchers, their financiers and their clients; (d) Coordinating medical research with the establishment of HTA capacity in order to involve clinical and research staff in original, innovative health technology assessments; (e) Adopting and/or amending regulations to implement the above reforms and widen the financial freedom of research institutions by changing their legal status, including measures to protect the rights of citizens and patients participating in or subject to medical research; and (f) Training young specialists in research methodologies, clinical epidemiology, medical statistics, health economics etc.

Managing this process will require an agency to monitor, evaluate and support the reform of medical research and the upgrading of research skills in research institutions. The agency will have a life-span of 5-10 years (until the medical science reform program is complete and universities/research institutes start operating according to international standards) and will be twinned with an internationally-recognized medical science research body such as the U.K. Medical Research Council. A full-time staff of 5-10 specialists will be required. The agency will be established by MOH as a service unit for medical science reform but will be an independent body. The Project will finance the initial operations of this unit as well as a Blue Ribbon expert team from an internationally-recognized medical research institution to advise on the reform program as a twinning partner from 2008-2010. It will also finance training, study tours and learning activities for staff involved in the design and implementation of medical science reforms. Expected results include a modernized system for priority setting, reviewing and financing of research; a system for patient protection, including a national medical ethical/research committee and committees on the level of research institutes or universities; and the use of internationally accepted research management methods.

Component D: Health Information System Development (total estimated cost: US$188.6 million)

Objective: To develop and deploy in four oblasts/cities a fully operational international-standard integrated health information system consisting of patient management, resource management and financial management modules that will improve patient care and managerial efficiency; to ensure that at least 75 percent of key users are fully trained and able to use the system to its full functionality; and to create a sustainable institutional base for further deployment of the system and for ensuring long-term technical and operational sustainability.

Expected results: Unified Health Information System (UHIS) designed to international standards using patient identifier with swipe-care technology and including patient care management, financial management and resource management systems; full UHIS introduced to all health facilities in Astana City, East Kazakhstan, Pavlodar and Karaganda (as Phase I of nationwide rollout); full user community (esp. managers) trained in informatics, computer literacy and use of system; public information campaign; and all health facilities connected to core servers for real-time access to data on patient care, financial management and resource management

The Bank, in a 2005 assessment under the JERP, laid out the design and implementation requirements of an integrated HMIS for Kazakhstan. Important progress has been made in a number of areas since then but the basic and immediate requirements for HMIS introduction are unchanged: namely, for international expertise to help design, integrate and manage the deployment process for Kazakhstan’s HMIS; for a realistic deployment schedule and deployment targets; for sensible packaging and the use of international standards in IT procurement to ensure efficiency, economy and quality; and above all, for heavy up-front investment in consultation, stakeholder analysis and end-user training to ensure that the system is acceptable, functional and appropriate to the needs of users as well as policymakers. As recommended by the 2005 report, this component will focus on providing technical assistance, training, procurement

packaging/expertise and other critical inputs in three broad areas: technology transfer for building information management capacity at national and oblast levels by upgrading the skills and clarifying the roles of newly-established Republican and Oblast Health Information Centers; training, technical assistance and international experts for the design of HMIS subcomponents including systems for patient care, financial management and resource management; international expertise and technology transfer for HMIS project management, including for the procurement of complex IT equipment and services; and hands-on training of a cadre of Kazakh specialists in this highly specialized field. These will introduce a fully-fledged HMIS in Astana City, East Kazakhstan Oblast, Pavlodar Oblast and Karaganda Oblast by 2011 and will lead to a second phase in which the HMIS is rolled out nationwide.

The scale of the Phase I rollout was determined by several factors. The original project concept envisioned a rollout to eight cities/oblasts in four years. This was scaled back in response to budget concerns and the need for a clear demonstration effect before further budget funds could be committed. Including fewer than four oblasts will, however, compromise quality and increase risk. Health information systems are complex: more so than other information systems because of their multiple objectives and the fact that they integrate a wide range of disparate activities and stakeholders. The primary goal when introducing such systems is to create a viable, successful demonstration effect that facilitates scaling up in future. If the system is to be properly demonstrated, with all bugs ironed out and a broad thrust of stakeholder support obtained, it needs to be introduced not as a small-area pilot but as a fully-integrated demonstration that covers a representative set of geographic entities to which the rest of the country can relate. It also needs to be done in oblasts/cities with the highest likelihood of success. International experience is full of cautionary stories about mistakes in choosing the scope and range of demonstration sites. This experience was summarized in the Bank’s 2005 JERP study on health information systems and formed the basis of the Ministry of Health’s decision on where (i.e. in which oblasts/cities) to begin.

Another option was to attempt full national coverage in Phase I. This was rejected for different reasons. Unlike activities in MOH’s Program 19 (a program that exists in almost all Ministerial budgets to cover informatics and related activities), which covers basic informatics, activities in the project are at a higher level of complexity and cover a larger number of stakeholders and health facilities per oblast. Program 19 and activities commenced under the 2005 Feasibility Study have begun the informatization process at a modest scale and are creating the foundation for stakeholders to progressively accept a more sophisticated health information system in future. By addressing computer literacy and the introduction of modular information systems throughout the country through Program 19, MOH has started building the health care community’s capacity to adapt to the more complex and productive information system being introduced under the project. This will take time, however, and it was for this reason that a maximum of eight oblasts/cities was originally envisaged for a five-year period even with intense international support. Overly-ambitious HMIS reforms have failed in many countries. MOH is therefore adopting a cautious, measured approach that avoids rushing and ensures the process is given sufficient time to achieve the desired results, bearing in mind that integration does not imply nationwide coverage but rather functional depth and connectivity. By choosing demonstration oblasts/cities with a good track-record of performance—whether in informatics such as Karaganda, or in health financing such as East Kazakhstan—the likelihood of success is increased.

A large share of project expenditure is for consulting services and training. This is because the establishment and deployment of a world-class health information system requires capacities that are in extremely short supply in Kazakhstan and will take at least 4-5 years to develop. Trying to carry out the process using local expertise along will result in certain failure. Health information systems are not the same as commercial systems for supermarkets, electronic commerce or accountancy, where common sense and basic knowledge of informatics are sufficient. They are highly specialized systems with a high risk of failure when implemented inexpertly, even in OECD countries. This is why the current project includes a heavy emphasis on technology transfer through joint action by internationally-recognized firms

and Kazakh specialists. The firm in question will be selected through a process of international tender and will represent an internationally-recognized company with significant experience in developing, deploying and providing large-scale training in health information systems in similar countries around the world. The contract will include an embedded training and capacity-building component that will, after 4-5 years, create a sufficient cadre of Kazakh specialists that future work can be done with greater independence.

Component E: Pharmaceutical Policy Reform (total estimated cost: US$4.2 million)

Objective: To introduce international best-practices to Kazakhstan’s drug benefit system; to improve the efficiency of procurement, reduce prices and improve quality in drug provision; and to introduce modern techniques for continuous monitoring of the pharmaceutical sector.

Performance indicators: reform of Key stakeholders: consumers, Social Impacts: Improved Linkages: NHA (to national drug policy; increase in the clinicians, pharmacists, MOH, choice, reduced cost and examine changes in number of doctors with access to reliable MOEBP, Customs Service, expanded access to pharmaceutical prescribing information; increase to 12 Border Control Service, trade pharmaceuticals; more rational expenditure); health in the number of trained clinical agencies, pharmaceutical prescribing and fewer counterfeit policy analysis in MOH; pharmacologists; upgraded drug companies drugs reduced morbidity and MOH and oblast approval system; establishment of a drug mortality; slow adjustment to purchasing functions; pricing unit and new “less is more” principle by HMIS procurement/pricing regulations; reduced providers and consumers; market out-of-pocket spending on drugs and repositioning by suppliers, increased access to subsidized drugs by pharmacists, doctors select population groups; improved drug quality and fewer counterfeits

Key challenges in Kazakhstan’s pharmaceutical policy include the following:

1. Impediments to access, including problems with the drug price benefit system. According to Ministerial Order No. 637 of December 2005, a system of subsidies was introduced in which drugs on a limited list are supplied free of charge to specified groups of patients suffering listed diseases. The list is broader for infants and children than for adults, and certain other patients (e.g. those with hypertension, heart conditions or pneumonia) receive a 50 percent subsidy. A patient benefiting from the system is thus provided with medicines at half-price or free of charge. At the end of the month, the pharmacy owner submits a documented claim to the health authorities to claim reimbursement for the rest of the price. The system appears reasonable in principle, except for the lack of coverage for patients with very low incomes, but uptake has been poor. The reasons for this are unclear. The system also has other disadvantages, including a complicated repayment procedure for the pharmacy and problems with the documentation of claims. Also problematic is the fact that medicines in Kazakhstan are expensive by world standards: as such, any attempt to restructure the subsidy program also needs to address the high procurement prices paid for pharmaceuticals in Kazakhstan, including those on the reimbursable list.

2. Inadequate assurance of drug quality, with circulation of both counterfeit and substandard drugs. Kazakhstan has well-established regulatory procedures and facilities for quality control and has improved the pharmaceutical quality control system significantly in recent years. These improvements notwithstanding, quality remains a problem on two fronts: counterfeit drugs and substandard drugs. Interventions under the Project will focus on understanding the underlying reasons and will establish an ongoing monitoring program for retail suppliers, strengthen the inspectorate, improve public procurement procedures to avoid untrustworthy suppliers, link Kazakhstan with regional anti-counterfeiting efforts led by WHO and IFPMA and implement a series of effective public information programs.

3. Inefficient use of financing, reflecting in particular uncritical and excessive prescribing and unnecessarily high unit prices. This is a major problem and should be a major focus of interventions under the Project. Kazakhstan pays too much for medicines and its providers engage in high-cost prescribing. This inflates the drugs bill and reduces efficiency in the health system. There continues to

be heavy promotional pressure on providers and widespread use of illegal incentives to prescribe expensive brand-name drugs instead of generics. Practicing physicians are poorly equipped to resist such pressures: they are not well trained in rational prescribing, have little access to objective drug information and their limited salaries render them prone to financial temptation. Also problematic is the high unit price of drugs in Kazakhstan. This problem arises at two levels, first as regards normal market prices (which are currently uncontrolled) and second as regards the price paid by the government for drugs in the subsidy system. There is an urgent need for measures at both levels. However, it should be noted that effective measures to contain prescribing practices and drug prices always encounter vigorous opposition from prescribers and/or the pharmaceutical industry, with both parties seeking to enlist public support for their views. As such, it is essential to meticulously document the reasons for revising these policies in this direction and recruit authoritative support, particularly from countries where similar measures have been successfully introduced.

4. Inadequate monitoring of the pharmaceutical sector on issues concerning financing, quality and access. Notwithstanding some excellent recent work by the Pharmaceuticals Committee, the amount and quality of data available on key aspects of the pharmaceutical sector remains too limited to permit effective monitoring or policy formulation. Established techniques for monitoring could be introduced to Kazakhstan and financed under the Project until a critical mass of local capacity develops. This is an essential complement to the above activities because it will document both the current situation and the impact of interventions such as price controls, procurement reforms or other policy changes.

Specific activities will include: (a) restructuring the benefit system; (b) introducing internationally- recognized methods for price control such as reference pricing and tender negotiation techniques; (c) studying underlying reasons for the proliferation of counterfeit and substandard drugs and developing mechanisms to address them; (d) establishing of institutional mechanisms to promote rational prescribing (e.g. drug information centers/bulletins, a National Formulary and advisory services); and (e) using evidence-based analysis to remove of outdated and/or unreliable drugs from the market. These will be carried out in the context of a twinning relationship between MOH, the Pharmaceutical Committee and other key players in the drug control system, and an internationally-recognized peer agency. Expected results include lower prices, improved access, higher quality, fewer circulating counterfeits or substandard drugs, better information on the pharmaceutical sector and a more rational—and functional— outpatient drug benefit program.

Component F: Food Safety and WTO Accession (total estimated cost: US$8.7 million)

Objective: To support the development and introduction of a robust, effective and internationally accepted system for the assurance of food safety in compliance with WTO requirements.

Performance indicators: mechanism Key stakeholders: Sanitary Social Impacts: Improved food Linkages: World Bank developed for prioritization and review of and Epidemiological Service, quality with fewer food-borne Agricultural medical research and for a competitive MOH, Ministry of illnesses; expanded choice and access Competitiveness grant funding system according to Agriculture, MOEBP, WTO to imported food products (through Project; other WTO- international principles; 100% of new accession committee, WTO accession); opening of related poicy reforms research grants appraised and decided Ministry of Industry and international markets to Kazakh food according to these methodologies trade, Kazakhstan Nutrition producers (through WTO accession) Academy

Kazakhstan aspires to join the World Trade Organization. WTO accession requires that countries comply with food safety standards outlined in the FAO/WHO Codex Alimentarius. This requirement has become especially prominent in the past few years with Russia’s decision to ban water and wine imports from Georgia and Moldova, ostensibly on health grounds but perceived by many WTO members to be for subjective reasons. This has raised the profile of sanitary and phytosanitary measures in WTO discussions. Kazakhstan’s current food safety standards, most of which were inherited from the Soviet Union, are similar to Russia’s and do not correspond to the Codex. Upgrading these standards will take

more than just the adoption of new definitions: it will also require a large-scale effort to train inspectors, ensure food safety laboratories are accredited and properly equipped for testing against the new standards, establish new practices for food inspection and change the way the food safety system is organized. These are critical issues for both WTO accession and Kazakhstan’s export competitiveness and are a high priority for action. To take full advantage of global trading opportunities the country need to improve its sanitary and phytosanitary (SPS) management capacity, harmonize national legislation and adopt a food safety system whose control and inspection measures are consistent with WTO SPS standards.

This subcomponent will support the above objective through a twinning relationship between MOH/SES and an internationally-recognized food safety agency, preferably from an OECD country. Objectives of the twinning relationship will include the following.

1. Institutional strengthening. This will involve establishment of (1) a Codex Alimentarius National Committee and (2) an information clearinghouse on sanitary and phytosanitary (SPS) measures. The Codex Alimentarius National Committee will coordinate and promote Codex activities in the country through an established consultation process. The committee will closely liaise with the International Codex Alimentarius Commission. (The Commission develops food standards, guidelines and related texts such as codes of practice with the purpose of protecting the consumer’s health and ensuring fair trade practices in the food trade. It also promotes coordination of all food standards work undertaken by international governmental and non-governmental organizations.) The committee will have representation from Ministry of Health, Ministry of Agriculture, and Ministry of Trade, Customs department, Association of Food Industry, consumer associations and the Kazakhstan Nutrition Academy. Terms of reference for the committee will include: to advise and convey to the government the implications of food standardization efforts carried out internationally (under the auspices of the Codex Alimentarius Commission, CAC); to represent the country during CAC meetings and advocate for Kazakhstan’s interests; to provide the government with technical input on food safety and quality issues; to study, revise and document all Codex documents, reports and publications; to cooperate with regional and local bodies working on food standardization; and to provide a coordinating role for the upgrading of local technical regulations in keeping with CAC/SPS requirements and WTO norms. The information clearing house will serve as a resource center for SPS-related issues and will service the national WTO Accession Committee (under the Ministry of Trade and Industry) and other key players in MOH and the Ministry of Agriculture in the upgrading of Kazakh standards to those consistent with international guidelines and recommendations.

2. Harmonization of standards in accordance with international requirements. This will involve upgrading national food safety standards and regulations by harmonizing them with international standards. This will require a team of national and international consultants to collect review and analyze food safety norms and regulations adopted by the Republican Sanitary and Epidemiological Services in relation to storage, operation, production, safety and/or maintenance of different food commodities, and to identify changes necessary in order to bring these into line with international standards. A total of 15 technical regulations and 10 sanitary and epidemiological rules and norms have been identified for upgrading during the period 2007-2012. These include:

Technical Regulations Sanitary and Epidemiological Rules and Norms

1. On requirements to safety of children’s 1. SE requirements on nutritional/dietary/curative/preventive foodstuffs» production/transportation/storage/sale of biologically MOH active food additives 2. On requirements to safety of bread and bakery and 2. SE requirements on maintenance/running of facilities confectionary products» MOH, Ministry of producing quick-frozen semi-finished products Agriculture (MOA) 3. SE requirements on maintenance/running of facilities 3. On requirements to safety of nutrition additives, their processing fish and producing fish products production and circulation» MOH 4. SE requirements on maintenance/running of facilities 4. On requirements to safety of juices and juice processing vegetable oil products» MOA, MOH 5. SE requirements on conditions for stocking up and 5. On requirements to safety of bottled potable water» processing mushrooms MOH 6. SE requirements on maintenance/running of facilities 6. On requirements to safety of packing, marking, producing ice-cream labeling, and proper marking and labeling processes» 7. SE requirements on maintenance/running of facilities MIT, MOH, MOA producing bakery products 7. On requirements to safety of meat and meat products» 8. SE requirements on facilities producing canned MOA, MOH vegetables and fruit, dried fruit, vegetables and potato, 8. On requirements to safety of milk and dairy products» sauerkraut, and salted vegetables MOA, MOH 9. SE requirements on maintenance/running of facilities 9. On requirements to safety of aromatic essences used in processing of soy(bean) and producing albuminous foodstuff, their production, circulation, utilization, and plant products (products from soy/bean) annihilation» MOH 10. SE requirements on maintenance/running of facilities 10. On requirements to safety of food colorants» MOH producing culinary products (hotdogs, pizza, 11. On requirements to safety of foodstuffs produced from hamburgers, salads etc.). genetically modified plants and animals» MOH, MOA 12. On requirements to safety of alcohol products» MOH 13. On requirements to safety of canned food and preserves» MOH 14. On requirements to safety of food designated for children and adolescents» MOH 15. On requirements to safety of chocolate production/circulation/utilization/annihilation» MOH

3. Strengthening the national food safety control system with effective enforcement of mandatory requirements concerning domestically-produced and imported foodstuffs. This will involve a review of the existing food control and inspection system; a study tour for a group of SES, MOH and other government officials to an internationally-recognized food safety agency, preferably from an OECD country; a series of workshops on risk analysis (including risk assessment, risk management and risk communication); and finally, drawing on these preliminary activities, development of recommendations for structural reform in the food safety control system.

4. Strengthening the food analysis laboratory infrastructure. This will involve a comprehensive review of the existing laboratory network and laboratory operating procedures; identifying capital and recurrent financing needs for the network of regional analytical laboratories; identifying technical specifications and capital needs for the establishment of regional reference laboratories; training of laboratory staff; and development of operational procedures and standard food analysis methods.

5. Establishment of a food safety monitoring information system. This will develop a simple food monitoring system in which regular food sampling programs are carried out to ensure the safety of all food supply. The monitoring system will establish linkages between food control agencies and the public health system.

6. Human Resources capacity building. This will strengthen the capacity of personnel involved in food safety through development of an overall training plan and curriculum for SES staff working on food safety; the development of a train-the-trainer program on basic food safety issues; and holding workshops on Codex Alimentarius, HACCP (Hazard Analysis and Critical Control Points), WTO TBT and SPS measurements and general food safety and quality issues.

7. Public awareness. This will involve the delivery of information, education, communication and training to raise public awareness on food safety, control and impact. Specific activities will include developing a communication strategy, establishing a food safety website, issuing publications in mass media (TV, radio and national and local news papers), developing information and education materials (booklets, brochures and information sheets) and carrying out awareness activities in educational institutions.

The Project will support three complementary activities related to food safety and WTO accession: harmonization of Kazakhstan’s food safety standards and practices with the Codex and other key international standards/benchmarks; developing standards and specifications for laboratory equipment to comply with WTO requirements and obtain the necessary accreditation; and upgrading the knowledge, skills and capacity of SES staff involved in food safety functions. As with other components—and in keeping with the technology transfer concept of the Project—this will be done by establishing and financing a relationship between MOH/SES and an internationally-recognized food safety agency, preferably from an OECD country. Attention will also be given to structural changes in the food safety system, including the possibility of consolidation, and to avoiding a duplication of effort with the Bank’s Agricultural Competitiveness Project and other WTO-related programs financed by the European Commission and USAID.

Expected results include a strengthened food safety system that helps Kazakhstan’s accession to WTO, reduces microbial and chemical contamination of food and reduces the incidence of food-borne diseases.

Component G: Project Management (total estimated cost: US$4.6 million)

Objective: To contribute to achievement of Project Development Objectives through clear, effective and timely project management.

This component will finance project management and monitoring and evaluation activities for the project. While technical oversight and management of project activities will be carried out by the same Core Coordination Team (CCT) already established by MOH and MOEBP to oversee Project preparation, day- to-day administrative support for implementation will be provided by a team of local consultants in a Project Implementation Support Team (PIST). This will consist of an administrative coordinator responsible for Component A and for overall PIST management; coordinators for Components B-F; an office manager; a procurement specialist; and a financial management specialist. The component will also finance a range of surveys for project monitoring and evaluation;49 annual financial audits; and training, equipment/furniture and incremental operating costs for the PIST itself.

49 These are included here rather than the individual components because of their cross-component nature, e.g. household health surveys, patient/provider satisfaction surveys, etc..

Annex 5: Project Costs KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Kazakhstan Health Sector Institutional Reform and Technology Transfer Project Project Cost Summary (US$) Cost Including % of World Bank % Contingencies Total Financing Financing

A. Health Financing and Management Modernizing Health Financing 6,055,732 2 5,904,280 98 Modernizing Health Care Management 14,077,514 5 6,081,912 43 Subtotal Health Financing and Management 20,133,246 7 11,986,192 60 B. Health Care Quality Improvement 1. Accreditation: Modernizing Standards for Hlth Facilities 10,490,032 4 6,195,923 59 2. Upgrading Clinical Practice and Intro Hlth Technology 34,601,208 12 4,743,992 14 3. Reform of Laboratories 4,745,242 2 - - 4. Reform of Blood Transfusion System 10,113,300 3 7,316,451 72 Subtotal Health Care Quality Improvement 59,949,782 20 18,256,366 31 C. Reform of Medical Education and Medical Science Reform of Undergraduate and Continuing Medical Education 6,551,882 2 3,810,928 58 Reform of Medical Science 2,923,882 1 - - Subtotal Reform of Medical Education and Medical Science 9,475,764 3 3,810,928 40 D. Health Information System Development 188,641,837 64 79,643,110 42 E. Pharmaceutical Policy Reform 4,282,522 1 313,971 7 F. Food Safety and WTO Accession 8,739,405 3 - - G. Project Management and Monitoring & Evaluation 4,583,953 2 3,644,009 80 Total PROJECT COSTS 295,806,509 100 117,654,574 40 Financial Charges During Implementation 294,136 0 - - Total Costs to be Financed 296,100,646 100 117,654,574 40

Components Project Cost Summary % % Total (US$) Foreign Base Local Foreign Total Exchange Costs

A. Health Financing and Management Modernizing Health Financing 1,584,273 3,615,100 5,199,373 70 2 Modernizing Health Care Management 2,335,591 10,672,400 13,007,991 82 5 Subtotal Health Financing and Management 3,919,864 14,287,500 18,207,364 78 8 B. Health Care Quality Improvement 1. Accreditation: Modernizing Standards for Hlth Facilities 6,252,510 1,878,889 8,131,400 23 3 2. Upgrading Clinical Practice and Intro Hlth Technology 15,563,960 11,558,240 27,122,200 43 11 3. Reform of Laboratories 1,419,736 2,633,350 4,053,086 65 2 4. Reform of Blood Transfusion System 5,246,406 3,150,050 8,396,456 38 3 Subtotal Health Care Quality Improvement 28,482,612 19,220,529 47,703,141 40 20 C. Reform of Medical Education and Medical Science Reform of Undergraduate and Continuing Medical Education 3,285,225 2,077,700 5,362,925 39 2 Reform of Medical Science 1,223,384 1,249,000 2,472,384 51 1 Subtotal Reform of Medical Education and Medical Science 4,508,609 3,326,700 7,835,309 42 3 D. Health Information System Development 74,887,981 78,768,458 153,656,439 51 64 E. Pharmaceutical Policy Reform 1,706,030 1,838,700 3,544,730 52 1 F. Food Safety and WTO Accession 3,756,104 3,074,100 6,830,204 45 3 G. Project Management and Monitoring & Evaluation 2,842,387 404,900 3,247,287 12 1 Total BASELINE COSTS 120,103,586 120,920,888 241,024,474 50 100 Physical Contingencies 1,252,274 1,773,906 3,026,179 59 1 Price Contingencies 43,888,249 7,867,607 51,755,856 15 21 Total PROJECT COSTS 165,244,110 130,562,400 295,806,509 44 123 Front-end fees 294,136 - 294,136 - - Total Costs to be Financed 165,538,246 130,562,400 296,100,646 44 123

Annex 6: Implementation Arrangements KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Project management and implementation. The Ministry of Health (MOH), through its Department of Strategic Development and International Cooperation (DSDIC), will be responsible for Project implementation. This Department will coordinate the work of a Core Coordination Team (CCT) consisting of ten middle- to senior-level officials in MOH, each of them responsible for one project component or subcomponent and representing the MOH department/unit/committee responsible for that activity in the State Health Care Reform and Development Program, and two liaison staff from the Ministry of Economy and Budget Planning (MOEBP).50 The coordinator of this team will be the Director of DSDIC or, by nomination, his/her deputy. These staff, while remaining accountable for the progress of their respective components, will not work full-time on Project implementation. This will be done by a Project Implementation Support Team (PIST) consisting of local consultants (approximately one per component) and a small group of support staff, all of them reporting to the Director of DSDIC and each of them responsible for the administration of one component/subcomponent or for fiduciary/logistical functions. These consultants will be financed from the Project. The others, i.e. the Core Coordination Team (CCT) of MOH staff responsible for Project implementation, will be financed by GOK through their regular salaries with an adjustment in their work program to allow sufficient time for Project-related tasks.51 DSDIC reports, through its Director, to a supervising Deputy Minister, and s/he in turn reports to the Minister of Health. Final accountability will rest with these three individuals: the Minister, the Deputy Minister responsible for DSDIC and the Director of DSDIC—with the Minister at the apex. The allocation of responsibilities by component/subcomponent is summarized in Table 6.2. The beneficiary agencies/departments/institutions for twinning relationships under components A-F are also described in Table 6.1. Figure 6.1 illustrates the overall structure of MOH. With 183 staff, and since the Project is fully integrated with the Ministry’s State Health Care Reform and Development Program, this combination of MOH staff and PIST consultants is considered adequate for project implementation.

Project oversight. Within MOH, strategic oversight and guidance for Project implementation would be provided by a Health Policy Council chaired by the Minister of Health and comprising all MOH senior management.52 For external dialogue and coordination, MOH will provide the Economic Policy Council with a written and/or verbal Project status update twice a year in conjunction with related updates on the State Health Care Reform and Development Program and other government programs (e.g. administrative reform program, GOK program for 2007-2009, etc.). The Economic Policy Council is chaired by the Prime Minister and includes the Deputy Prime Minister; Deputy Head, Presidential Administration; Minister and Deputy Minister of Economy and Budget Planning; Chief Executive, Kazyna State Development Fund; Head, Prime Minister’s Office; Minister of Finance; Executive Director of State Holding Company Samruk; and Minister of Industry and Trade.53 Advantages of the EPC as a high-level oversight body include the fact that it is an extant body with relevant Terms of Reference; 54 is a small enough for in-depth discussion but senior enough for its recommendations to have meaningful effect; is

50 MOEBP representatives the CCT would not have an operational role but would facilitate interaction between MOH and MOEBP on important policy and/or implementation issues given MOEBP’s lead role in strategic planning for GOK. 51 The PIST would be co-located with the Core Coordination Team in MOH to ensure close coordination and to facilitate capacity development for project implementation and fiduciary functions in MOH. MOH has allocated premises of approximately 46 square meters in its new building in close proximity to the Department of Strategic Development and International Cooperation (DSDIC). However, to ensure integrity and coordination in financial management, the PIST financial management specialist would be located in Economics and Finance Department while still reporting to the Director, DSDIC. 52 The Health Policy Council would be established before July 1, 2008. 53 The Head of the National Bank and the Financial Supervision Agency are members by agreement. 54 Note that Terms of Reference for the EPC include inter alia “elaboration of concerted approaches to the development and implementation of social and economic policy of the state” and “elaboration of recommendations on fundamentally important issues of development in the economic and social sectors for Kazakhstan's medium- and long-term development.”

an advisory body for the country’s senior-most leadership including the Prime Minister and President; meets on a quarterly basis but can also convene ad hoc to address complex high-level policy issues that need immediate response; works primarily through the Ministry of Economy and Budget Planning as its de facto executive arm; and oversees a number of other government-wide reform programs which the Project supports (e.g. administrative reform and performance-based budgeting through Component A).

Exact procedures for both the internal and external coordination arrangements, division of functional responsibilities for project implementation between the Ministry of Health’s CCT and the local consultant team, training plan for both teams as well as for the HPC and EPC members will be outlined in the Project Operational Manual (POM). To ensure smooth implementation of the Project, the following three issues will receive special attention in the POM: (a) the level of fees of local consultants hired under the Project (this should be commensurate with Astana labor market conditions, approved by the Ministry of Health and acceptable to the World Bank); (b) the level of fees and reimbursable expenses for individual international consultants hired under the Project; and (c) arrangements for the quality, size and location of office premises for Project consultants, working groups etc. and the need for these to be established in accordance with Kazakh legislation.

Fiduciary Arrangements. Implementation responsibility for financial management and procurement functions under the project will be with the DSDIC. Due to MOH’s lack of familiarity with World Bank procedures for financial management and procurement, two local consultants will be hired to provide fiduciary support to the project, one for financial management and one for procurement. These consultants will be familiar with and experienced in the application of World Bank financial management and procurement procedures. A detailed specification of Project-related procurement and financial management functions, responsibilities, policies, and procedures will be included in the POM. The following action plan will also need to be executed prior to Project effectiveness:

Table 6.1 – Action Plan to Create Implementation Capacity Weakness Remedy/Action Responsibility By Limited experience with Bank FM consultant with relevant work experience MOH Before July 1,2008 operations and not adequate should be hired to assist DEF with the staffing at the Accounting unit of implementation of the project in accordance the DEF. with the WB guidelines

There is no official Manual that DEF should develop in cooperation with MOH Accomplished. FM could summarize all internal DSDIC of the MOH Project Operational section is acceptable orders and accounting policies and Manual that will describe all required internal to the Bank. procedures of the MOH controls and accounting policies for the project

The design of the accounting The current design should be reviewed in MOH Accomplished. software that is being implemented accordance with proposed project needs Consultant by MOH needs to be amended in introduced required accordance with proposed project project-related requirements amendments in MOH 1C system.

Monitoring and Evaluation. MOH will monitor and evaluate the progress/outcome of reforms supported by the Project in the context of monitoring the State Health Care Reform and Development Program. Responsibility for monitoring and evaluation in MOH rests with the Monitoring, Medical Statistics and Analysis Unit in the Department of Strategic Development and International Cooperation. Monitoring of Project implementation will be integrated with monitoring of the State Program and will be the

responsibility of this unit with support from PIST component coordinators and members of the CCT. Routine project monitoring and collection of administrative data will be supplemented by a number of surveys during Project implementation including out of pocket payment surveys, hospital budget surveys, provider surveys, user satisfaction surveys, drug price monitoring surveys, access to drugs surveys and drug quality surveys. To strengthen MOH’s long-term capabilities in monitoring and evaluation, staff of the Monitoring, Medical Statistics and Analysis Unit will receive intensive in-service and overseas training.

Reporting. The Deputy Minister in charge of DSDIC will convene a regular monthly meeting of the CCT and PIST to review project implementation. The Minutes of these meetings will be shared with the Minister of Health and circulated to all CCT and PIST members by the Director, DSDIC. The PIST Administrative Coordinator will prepare a weekly monitoring report for the Director, DSDIC. This will focus on implementation problems but not provide a detailed update of progress. The Administrative Coordinator will prepare a brief monthly progress report for the Director, DSDIC and the Deputy Minister in charge of DSDIC. Formal project implementation reports will be prepared on a six-monthly basis under the overall direction of the Director, DSDIC with the participation of all CCT and PIST members. This report will be shared with the Minister of Health, Health Policy Council, National Coordination Council for Protection of Population’s Health and Economic Policy Council. Activities requiring intersectoral coordination will also be reported to the HPC on an ad hoc basis, as would any high-level or urgent issues requiring the EPC’s attention and/or intervention. A detailed implementation plan will be prepared at the end of each calendar year for implementation the following calendar year. This will be based on the five-year implementation plan prepared prior to Project effectiveness. The Project’s procurement plan will be updated at the same time. All reports will be shared with the World Bank’s Astana office both in draft form and upon completion. All reporting arrangements will be summarized in detail in the POM.

Operational arrangements and documentation. A Project Operational Manual will guide implementation and serve as a road map to all participating health sector institutions. The POM, which will be adopted no later than project effectiveness, will detail all procedures required to successfully carry out the annual Project work-program. It will be based on existing procedures as far as appropriate and will define procurement, financial management, administrative and monitoring and evaluation mechanisms for the Project. It will also include sample reporting forms, model bidding and a sector-wide capacity building plan that illustrates, in a consolidated way, all training and/or capacity-building measures to be undertaking during the Project including those for procurement and financial management. The POM will be disseminated to health sector institutions and used as a training manual for those involved in budgeting and procurement functions.

Table 6.2 - Implementation Arrangements Health Sector Technology Transfer and Institutional Reform Project Implementation Arrangements Project Project Implementation Implementing Agency/Beneficiary Policy/Oversight/Steer Functions ing Functions Overall Project Deputy Minister CCT Head: Director of Ministry of Health of the Republic of supervising DSDIC DSDIC (through Core Kazakhstan (183 staff); Coordination Team members) + Administrative Coordinator (A) Component A: Health Financing and Management A1: Director of Department CCT member: Deputy Department of Economics and Finance Strengthening the of Economics and Director of DEF + (DEF/MOH) (20 staff); Department of Capacity for Finance Administrative Coordinator Strategic Development and International Health Policy and Cooperation (DSDIC/MOH) (20 staff); Strategy Health Policy Unit (to be established under Formulation the Project as per the Feasibility Study) (5 staff); Provider Payment Policy Unit (to be established under the Project as per the Feasibility Study) (2 staff) A2/A3: Director of DSDIC CCT member: Deputy Department of Strategic Development and Strengthening Director of DSDIC + International Cooperation (DSDIC/MOH) (20 Budgeting, Administrative staff); Department of Economics and Finance Planning and Coordinator (A) (DEF/MOH) (20 staff); Kazakh State Management; Medical Academy in Astana ( 470+ staff); Management Kazakhstan School of Public Health in Training and Almaty (70 staff); Investment Semipalatinsk State Medical Academy (380+ Planning staff); West Kazakhstan Semipalatinsk State Medical Academy (450+ staff) Component B: Health Care Quality Improvement B1: Accreditation: Chairman of Committee CCT member: Head of Unit Unit of Licensing, Accreditation, Modernizing on Control in Health of Methodology in Health Certification, and Legal Work (5 staff )and Standards for Services Area Services Area, CCHSA + Unit of Methodology in Health Services Area Health Facilities Component Coordinator (B) (4 staff) (CCHSA/MOH); Healthcare Development Institute (HDI) (55-60 staff); Independent Accreditation Agency (to be established under the Project as per the Feasibility Study in 2009 as per the Feasibility Study) (3 permanent staff) B2: Upgrading Chairman of Committee CCT member: Head of Unit Committee on Control in Health Services Clinical Practice on Control in Health of Methodology in Health Area (CCHSA/MOH) (25 staff); Department and Introducing Services Area Services Area, CCHSA + of Curative and Preventive Work HTA Component Coordinator (B) (DCPW/MOH) (20 staff); Healthcare Development Institute (HDI) (55-60 staff) B3: Reform of Chairman of Committee CCT member: CCHSA Committee on Control in Health Services Laboratories on Control in Health representative + Component Area (CCHSA/MOH) (25 staff); Department Services Area Coordinator (B) of Curative and Preventive Work (DCPW/MOH) (20 staff); Scientific and Methodological Centre for Laboratory Diagnostics Quality System Management, to be established under the Project in 2009 as per the Feasibility Study) (16 staff ) B4: Reform of Director of Department CCT member: DCPW Committee on Control in Health Services Blood Transfusion of Curative and representative + Component Area (CCHSA/MOH) ( 25 staff); Department System Preventive Work Coordinator (B) of Curative and Preventive Work (DCPW/MOH) (20 staff); Republican Blood Center (RBC) (250 staff)

Component C: Reform of Medical Education and Medical Science C1: Reform of Director of Department CCT member: Deputy Higher and Secondary Medical Education Undergraduate of Medical Education, Director of DMESHR + Unit and Postgraduate Education Unit and Continuing Science, and Human Component Coordinator (C) (DMESHR/MOH) (4 staff each ); Centre of Medical Resources New Educational Technologies, Monitoring Education and Evaluation of Medical Educational Reforms (to be established under the Project in 2009 as per the Feasibility Study) (12 staff); 5 Evidence-Based Medicine Centers (EBMCs, to be established under the Project in 2009 as per the Feasibility Study) (30 staff in total); National Centre for Assessment of Qualification Level, Certification and Licensing of Health Staff (to be established under the Project as per the Feasibility Study) C2: Reform of Director of Department CCT member: Deputy Science and New Technologies Unit (MOH) Medical Science of Medical Education, Director of Department + (5 staff); Science, and Human Component Coordinator (C) Independent Center of Educational and Resources Scientific Technologies (ICEST, to be established under the Project in 2009 as per the Feasibility Study) (15 staff) Component D: Health Information System Development Component D: Deputy Director of CCT member: Head of Information and Communication Health Information DSDIC Information and Technologies Unit (DSDIC/MOH) (4 staff); System Communication Technologies National Health Information Center (NHIC) Development Unit, DSDIC + Component (105 staff); 16 Oblast/city Medical Coordinator (D) Information Centers (OMICs) (~30 staff in each) Component E: Pharmaceutical Policy Reform Component E: Chairman of Pharmacy CCT member: Head of Division of Control over Drug Circulation Pharmaceutical Committee Division for Drug Circulation (Pharmacy Committee/MOH) (12 staff); Policy Reform Control, Pharmacy National Drug Agency (NDA, to be Committee + Component established under the Project in 2009 as per Coordinator (EF) the Feasibility Study) (25-30 staff ) Component F: Food Safety and WTO Accession Component F: Chairman of Committee CCT member: Head of Division of Sanitation Control and Sanitary Food Safety and of State Sanitary and Division of Sanitation Control and Epidemiologic Regulation (MOH) (12 WTO Accession Epidemiological and Sanitary and staff); Coordinating Centre on Food Safety ( Surveillance Epidemiological Regulation, to be established under the Project in 2008 as SSESC+ Component per the Feasibility Study) (4-5 staff); Coordinator (EF) Information Sub-Center on Sanitary and Phytosanitary measures (to be established under the Project in 2008 as per the Feasibility Study) (20 staff) Component G: Project Management Component G: Director of DSDIC CCT member: Deputy Project Director of DSDIC + Office Management Manager + FM Consultant + Procurement Consultant

Figure 6.1 – Organizational Structure of Ministry of Health

Annex 7: Financial Management and Disbursement Arrangements KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Executive Summary

In February 2007, financial management (FM) arrangements for the proposed Health Sector Institutional Reform and Technology Transfer Project were assessed to determine whether the financial management arrangements of the implementing agency, the Department of Economics and Finance (DEF) of the Ministry of Health of the Republic of Kazakhstan, were acceptable to the Bank.

It is expected that financial management functions will be handled by DEF with additional support from a local consultant working exclusively on the Project’s accounts. Although overall responsibility for the flow of funds, accounting, reporting and auditing under the Project will rest with DEF, the FM consultant will be responsible for all-day-to day technical financial management activities such as liaising with the WB on FM issues, maintaining accounting records in the system, submission of required financial reports to the Bank and relevant government agencies, making sure that reliable internal control framework as described in the POM is in place and preparation of detailed annual budgets. While the systems of DEF were adequate for budgeting and accounting under local legislation requirements, DEF were not familiar with the Bank’s fiduciary requirements regarding financial management, disbursement and audit. The assessment therefore concluded that FM arrangements need to be improved in order to meet the Bank’s minimum requirements.

1C-based accounting software has been designed taking into account proposed project requirements. In particular, the software should be capable of differentiating Project related accounting transactions and generating Project financial reports. DEF has prepared the FM sections of a Project Operational Manual (POM) on the basis of MOF instructions on accounting in budgetary entities and internal orders that regulate document processing and internal controls at MOH. DEF will recruit a Financial Management consultant to be located in the DEF offices to assist with Project implementation. The roles and responsibilities of the consultant and current DEF staff to be involved in the Project implementation are described in the POM. Implementation of these action points was reviewed by the Bank at the beginning of November 2007. The review concluded that the implementation of the action plan was satisfactory and that the current Financial Management arrangements are acceptable to the Bank.

As of the date of this report, the MOH does not have any overdue audit. The annual audited Project financial statements will be provided to the Bank within six months of the end of each fiscal year and also at the Closing of the Project.

A Country Financial Accountability Assessment (CFAA) for Kazakhstan was completed in September 2002. The CFAA concluded that Kazakhstan has several strengths, including an educated work force, strong accounting skills, and commitment to reform. However, the CFAA also concluded that the country’s fiduciary environment is weak and the risk to public funds is high. The findings included, among other things, intransparent Government spending, a weak management information system and internal controls, and a low capacity of External Audit function. Kazakhstan has undertaken several reforms in the past few years, including budget reforms, accounting and audit regulations and treasury modernization. However, weaknesses in internal controls at the budgetary entities and the low capacity of external audit function mentioned in the CFAA still need to be addressed in the future.

The overall risk for financial management of the proposed Project is substantial before mitigation measures due to the lack of MOH staffs’ previous experience in Bank FM procedures, inadequate documented internal control framework and an inadequate accounting system for the Project. The

financial management residual risk rating was upgraded to moderate after appropriate actions have been implemented.

To further mitigate the possible high risk to public funds, the following mitigation measures are recommended: (a) ensure there is maximum independence of the Project implementation team for operational decision making; (b) the POM will describe all essential internal controls, and there will be strict adherence to the POM by all Project staff; (c) appropriate complaints-handling mechanism, with all complaints from bidders, observers, or other parties should be promptly attended to by the Government and forwarded to the Bank for information; (d) there will be intensive Bank’s supervision. The Bank will visit a selected number of participating regional units annually, including site visits to inspect the assets.

Country Issues

A Country Financial Accountability Assessment (CFAA) for Kazakhstan was completed in September 2002. The CFAA concluded that Kazakhstan has several strengths, including an educated work force, strong accounting skills, and commitment to reform. However, the CFAA also concluded that the country’s fiduciary environment is weak and the risk to public funds is high. The findings included, among other things, not transparent Government spending, weak management information system and internal controls, and a low capacity of External Audit function. Kazakhstan has undertaken several reforms in the past few years, including budget reforms, accounting and audit regulations and treasury modernization. However, weaknesses in information management systems and internal controls at the budgetary entities and the low capacity of external audit function mentioned in the CFAA still need to be addressed in the future.

The budget formulation process, which starts in April for the next calendar year is very strict and there are almost no chances for budgetary entities to submit amendments to the original budget at a later stage, when required. Bank financed projects in Kazakhstan are being implemented by Government agencies as a result of the Government decision to abolish all PIUs in 2003. The majority of Government agencies implementing Bank-financed projects employ external consultants, who are responsible for day-to-day activities of the projects. External consultants with the relevant past experience and educational background are essential to mitigate the risks associated with low staff capacity at Government agencies and the slow pace of project implementation. Except for one implementing agency with no external consultants and weak FM arrangements, overall FM arrangements for the majority of Bank projects in Kazakhstan are adequate. However, FM ratings for most of these have been downgraded to “Unsatisfactory” because of a more than four months delay in submission of project audit reports. It should be noted that in Kazakhstan, the responsibility for selection and on-time submission of audit reports rests with the MOF and not with the implementing agencies.

Internal audits are not a common practice and their development in line with international best practices will help the Government to minimize the risks associated with the misuse of budgetary funds. While government authorities allocating significant human and financial resources for the improvement of PFM areas, Internal Audit function development has not been a priority for the government during last several years.

Risk Assessment and Mitigation The overall financial management risk for the Project is substantial before mitigation measures. The table below summarizes the financial management assessment and risk ratings of this Project together with risk mitigation measures:

Financial Level FM Risk Risk mitigation measures incorporated into Project Design. Risk rating Condition Management Rating after or not Assessment before mitigation mitigatio measures n measures Inherent Risk Country S The risk to public funds is high in KZ ( CFAA 2002). S N level However, government has undertaken several PFM reform initiatives that should result in more transparent PFM environment in the country. The average time required for project start up is very long in KZ and this need to be managed by intensive consultations with government officials. Entity S Project will be implemented by MOH. DEF of MOH will M Y (FM Level be responsible for FM arrangements of the proposed Project. FM consultant to be recruited will assist DEF in consultant to implementing Project according to Bank procedures. be recruited Staffing of project team to be agreed with IBRD. before July 1, 2008) Project S Department of Strategic Development and International M N Level Cooperation (DSDIC) of MOH will be responsible for implementation of the project. Local and International consultants with appropriate working experience in similar projects will help to mitigate the risks associated with limited previous experience in bank financed project implementation. Additionally, annual independent audit will review transactions and issue independent audit opinions on financial statements of the project and assess effectiveness of internal controls of the project. Overall S Control Risk Budgeting S Budgeting process is documented in budget code. All M N budgetary entities follow budget code procedures. Budget preparation is monitored by Ministry of Economy and Budget Planning. Almost no chances to introduce changes to approved annual budgets. Project budgets will be agreed with the Bank before it is submitted to the government in order to minimize the need for amendments during budget implementation. Full country system will be used for budgeting and budget execution monitoring purposes. Accounting S DEF has completed the process of implementing 1C M Y (System to based accounting software. But 1C based system was not be ready capable of recording project related transactions before separately from other MOH transactions. Project required Negotiations) amendments into the system design have been completed DONE by consultants. Internal S MOH internal orders and procedures and MOF M Y (POM to Controls instructions on accounting regulate the internal control be ready environment of the Ministry. However, there was no before single document summarizing all internal controls Negotiations) practiced at the ministry. Satisfactory FM sections of DONE Project Operational Manual have been developed by external consultant. Funds Flow M Designated account will be opened by MOH for IBRD M N

Financial Level FM Risk Risk mitigation measures incorporated into Project Design. Risk rating Condition Management Rating after or not Assessment before mitigation mitigatio measures n measures funds. Transaction based disbursement method will be used. Single Treasury account will be used for counterpart funding. No additional mitigation measures are required. Financial M DEF accounting system will be capable of generating M N Reporting project financial reports when the accounting software is implemented taking into account proposed project needs. Auditing S MOF is responsible for appointment of auditors. Audit M N reports were delayed for all KZ projects due to inflexible government procurement procedures that need to be followed for selection of auditors in KZ. It is expected that the MOF will apply WB procurement guidelines for the selection of auditor from Jan1, 2008 according to amendments introduced to public procurement law. Overall S M N

Strengths

One strength of MOH’s DEF is its overall control over accounting transactions: regular reconciliations of account balances with the Treasury ensure that financial reports are accurate. In addition the MOH budget formulation process, which is in accordance with the Kazakhstan Budget Code, is reliable.

Weaknesses and Action Plan

The lack of available staff capacity to handle project financial management issues; the lack of a manual summarizing internal controls and accounting policies and procedures; and the lack of a fully adequate accounting system for project record keeping were main weaknesses of MOH. The above mentioned weaknesses have been addressed under the below action plan:

Weakness Remedy/Action Responsibility By Limited experience with Bank FM consultant with relevant work MOH Before July 1, 2008 operations and not adequate experience should be hired to assist DEF staffing at the Accounting unit of with the implementation of the project in the DEF. accordance with the WB guidelines

There is no official Manual that DEF should develop in cooperation with MOH Before Negotiations. Draft could summarize all internal DSDIC a Project Operational Manual POM including a orders and accounting policies and that will describe all required internal Financial Management procedures of the MOH controls and accounting policies for the section has been project developed.

The design of the accounting The current design should be reviewed in MOH Before Negotiations. software that is being implemented accordance with proposed project needs Accounting software has by MOH needs to be amended in been adapted. accordance with proposed project requirements

Implementing entity Overall responsibility of the Project is vested with the MOH through DSDIC. DEF will be responsible for overall supervision of financial management arrangements under the Project. A financial management consultant will be recruited to assist DEF in technical FM aspects of the Project and he/she will be responsible for all day-to-day technical financial management activities such as liaising with IBRD on financial management issues, maintaining accounting records in the system, submission of required financial reports to the Bank and relevant government agencies, making sure that reliable internal control framework as described in the POM is in place and preparation of detailed annual budgets. DEF has 4 subunits: accounting, finance, a unit for planning of budgetary programs and unit for budgetary and non-budgetary activities. DEF is managed by the Head of the Department and the Deputy Head.

DEF has 20 positions in all four units but no free resources that can be involved in Project implementation. However management of DEF will be involved in Project implementation to supervise the financial management consultant. It was agreed that any changes to the structure and staffing in the implementing agency will require agreement with IBRD to minimize possible implications related with interventions by MOH staff into Project implementation. The substantial risk associated with implementing entity is reduced to moderate after mitigation measures incorporated into Project design.

Budgeting According to existing budget formulation procedures, all donor-financed grants and Projects need to be included in the Government budget to be approved by Government and parliament. Budgets can be revised during the year although there is a limited possibility to include amendments related to Bank- financed projects. The MOF treasury system does not process payments, including replenishment applications for Designated Accounts and direct payments, for Project expenditure categories that are not approved as a part of the Government budget. Therefore, it is very critical that the relevant departments of MOH oversee the budget formulation activities to make sure that budgets submitted to Government are accurate. The budgeting process is handled by planning budgetary programs unit of the DEF. MOH- consolidated budgets are agreed with relevant Government agencies. Project budgets will be part of consolidated budget of MOH and Project budget details will be prepared with the assistance of DSDIC. The risk associated with planning and budgeting after implementation of agreed mitigation measures is assessed as moderate.

Accounting system

Accounts and records for the Project will be maintained by the implementing agency which will operate and maintain a financial management system (FMS) capable of generating Interim Unaudited Financial Reports (IFR, formerly FMR) in accordance with formats agreed with the World Bank. The MOH Chief Accountant will be responsible for supervision of overall Project financial management activities, including maintenance of books and accounts for the Project, preparation and dissemination of financial statements and IFR, and timely audits of the Project. He/she will be supported by a financial management consultant responsible for day-to-day financial management technical activities. Project accounting transactions will be part of overall financial transactions of MOH for budget execution purposes although appropriate chart of accounts and accounting systems will be used to differentiate transactions specific for the Project and generate required Project reports. The implementing agency will maintain appropriate financial records and reports in accordance with existing government financial regulations and standards acceptable to IBRD. The MOH uses 1C Based accounting system and cash accounting method. Project- required amendments to the current 1C based accounting system of MOH had been introduced by

external consultants. Project-related transactions will be given unique codes to differentiate them from other transactions of the MOH and generate IBRD-required Project financial reports.

The major accounting policies to be applied for Project accounting are as follows: - cash accounting will be the basis for recording transactions; - reporting should be done in US dollars (reporting currency); - consolidated Interim Un-audited Financial Statements should be prepared for all components, including all donors funds - all counterpart funds should be reflected in the financial reports;

The fixed assets register of the MOH will be designed to make sure that project related fixed assets are identified for Project reporting. The substantial risk associated with the accounting system is reduced to moderate after mitigation measures incorporated into Project design.

Internal Controls and Internal Audit

DEF has maintained an effective internal control system developed in accordance with MOF instructions to ensure that budget expenditures are properly authorized, supporting documents are maintained, accounts are reconciled periodically and project assets, including cash, are safeguarded. The MOH issues separate orders and procedures to regulate specific area of the activities. However, there was no single Manual that would combine all existing orders and procedures. DEF, with the assistance of external consultants, has developed specific procedures for the Project in accordance with local legislation requirements and WB guidelines. The Bank team reviewed them and concluded that they were satisfactory to the Bank. These will be included in the Project Operational Manual. The DEF accounting unit follows MOF Treasury department procedures on reconciliation of account balances of MOH with treasury records. All budget categories’ actual spending and remaining budget balances are reconciled with treasury records twice a month. The same procedures are expected to be applied to Project bank accounts and budget categories.

To mitigate the possible high risk to public funds, the following mitigation measures are agreed: (a) ensure maximum independence of the Project implementation team for operational decision making; (b) the POM is to describe all essential internal controls, and strict adherence will be required from all project staff to the POM; (c) appropriate complaints handling mechanism, with all complaints from bidders, observers, or other parties to be promptly attended to by the Government and forwarded to the Bank for information; (d) there will be intensive Bank supervision; the Bank will visit a selected number of participating regional units annually, including site visits to inspect the assets.

The Internal Control and Public Procurement Committee (ICPPC) of MOF is responsible for the internal audit function within MoF committees although it conducts a regular review of financial operations of the line ministries, including MOH. Establishment of Internal audit function for MOH is not expected in the near future.

The risk associated with internal controls and internal audit is considered as substantial before mitigation measures and moderate after implementation of agreed mitigation measures.

Financial Reporting

For Project monitoring purposes, quarterly interim un-audited financial reports (IFRs) (previously called financial monitoring reports) will be required. IFRs will include: (a) Project Sources and Uses of Funds, (b) Uses of Funds by Project Activity, (c) Special Account/Local Bank Account Statements, (d) Physical progress report, and (e) Procurement report. Sample IFRs were found to be acceptable to the Bank. These

financial reports will be submitted to the Bank within 45 days of the end of each quarter. The first quarterly IFRs will be submitted after the end of the first full quarter following the initial disbursement. The formats of the annual financial statements and the IFRs are incorporated in the Project Operational Manual (POM). The accounting software to be used by the Project team has the capacity to prepare IFRs incorporating all components, sub-components and expenditure categories, as may be appropriate.

Disbursement and Funds Flow Arrangements

The Borrower will establish a Designated Account in a commercial bank, acceptable to IBRD. Disbursements from the IBRD Loan Account will follow the transaction-based method, i.e., traditional Bank procedures: Statements of Expenditure (SOEs), Direct Payments, Special Commitments. For certain payments, above the Minimum Application Size as specified in the Disbursement Letter, the Borrower will submit withdrawal applications to the Bank for payments to suppliers and consultants directly from the Loan Account. The DEF Director will ensure completeness and accuracy of all withdrawal applications and will append her/his signature as part of the internal control procedures additionally to MoF representative or MOH official signature. Government co-financing funds will be used via the Treasury at the Ministry of Finance (MoF). Payment orders will be prepared by implementing agency after checking invoices for accuracy and completeness. Signed by project management payment orders then submitted to Treasury for final processing and transfer of funds to suppliers.

The following diagram illustrates the funds flow arrangements.

MOF, WB Treasury

4 2 3 3 5 1

Supplier of MoH. DA, goods and Commercial services. 7 Bank

1) MoH prepares withdrawal application (for IBRD funds) for advance, direct payment or replenishment or Payment order (for counterpart funds) to pay to suppliers of services and goods; 2) The MOF, Treasury checks WA and PO for consistency with Project budget and local legislation requirements and signs WA (for IBRD funds) or Payment order( for counterpart funds); 3) MoH sends WA to the WB (For IBRD funds); 4) The MOF Treasury transfers directly to supplier (for counterpart funds); 5) WB transfers funds to Commercial Bank (Advance or Replenishment application);

6) WB transfers funds directly to supplier (Direct Payment); and IBRD funds transferred to suppliers from DA on the basis of payment orders signed by MoH authorized personnel.

All disbursements will be made on the basis of full documentation for (a) contracts for goods costing more than the equivalent of US$100,000 each; (b) contracts for works costing more than the equivalent of US$100,000 each; and (c) services under contracts of more than the equivalent of US$100,000 for each consulting firm and more than the equivalent of US$50,000 each for individual consultants. Disbursements below these thresholds will be made according to certified Statement of Expenditure (SOEs). This documentation will be retained by the implementing agency for at least one year after receipt by the IBRD of the audit report for the year in which the last disbursement was made or for such a period as required by local legislation. Disbursements for expenditures above the SOE thresholds will be made against presentation of full documentation relating to those expenditures. There is no plan to move to periodic disbursements.

Financial Audits

The Accounts Committee (AC) of the RK conducts an external audit of MOH financial operations. The objective of the AC external audit is to check whether budgeted expenditures are used for the intended purposes. The scope and objective of AC audits do not meet Bank requirements and Bank-financed projects will be audited by independent private auditors acceptable to the Bank.

The MOF is responsible for selection and appointment of auditors for the projects included in the list of priority projects of Government and it is expected that the proposed Project will be included in that list.

There will be annual audits of the Project financial statements, covering all aspects of the Project. The audits will be performed by independent auditors acceptable to the Bank, and in accordance with International Standards on Auditing (ISA), and the Bank’s guidelines on auditing as stated in the guidelines: Annual Financial Reporting and Auditing for World Bank-financed Activities (June 2003). The auditors' TOR will be prepared by MOF and cleared by the Bank before the engagement of the auditor. They will include both the audit of financial transactions, an assessment of the internal control, funds flow mechanisms, and the reasonableness of the accounting, reporting and internal controls in respect of Project Funds. The annual audit report will consist of a single opinion on the financial statements of the project, incorporating the Project accounts, including Designated Account Reconciliation, and SOE Withdrawal Schedule; as well as a Management Letter. The audit reports will be submitted to the Bank not later than six months after the end of the fiscal year to which they relate. The cost of the audit will be financed by MoF although it will be eligible for financing from the Loan account, if required. The Borrower will provide the auditor with full access to project-related documents and records, and with the information required for the purpose of the audit. Sample TORs for Project audit are included in the Project Operational Manual.

The audit reports for the Kazakhstan portfolio were delayed due to issues with the appointment of an auditor. The MoF could not appoint an auditor on-time, partly because of local public procurement requirements, which should be applied for the selection of auditor. In addition, the MOF itself started the selection process very late. However, amendments introduced to “Public Procurement Law”, which will be effective from January 1, 2008, will permit the MOF to apply WB procurement guidelines that should help accelerate the process of selection for 2007 audit. The Bank team will work closely with the MoF and agree to measures, including a regular update on the status of the selection, to make sure that the auditor is appointed by the end of April each year.

Audit Reports Required Audit Report Due Date 1 Continuing Entity Financial Statements N/A 2 Project Specific Financial Statements June 30 each year for previous (including Special Opinions, SOE, calendar year Designated Account, other) 3 Operational audit N/A

The substantial risk associated with financial audit is reduced to moderate after mitigation measures incorporated into Project design.

Impact of Procurement Arrangements

Procurement risk is substantial for this Project. The Procurement team recommended additional measures to mitigate this risk. There will be joint procurement and FM supervisions to review operations of the Project team. FM supervision will concentrate on the a number of post review contracts selected by the procurement team and check appropriateness of the source documents, timeliness of the invoice processing and the level of segregation of duties within the Project team.

Financial Conditions

None.

Financial Covenants The Borrower will maintain a financial management system acceptable to the Bank. The Project financial statements, SOEs and Special Account will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited statements and audit report will be provided to the Bank within six months of the end of each fiscal year. Interim un-audited financial reports will be submitted to the Bank within 45 days of the end of each quarter.

Supervision Plan

The reports of the progress of the Project implementation will be monitored in detail during supervision missions. The IFRs will be reviewed on a regular basis by the field-based FMS and the results or issues followed up during supervision missions. Annual audited Project financial statements and management letters will be reviewed and issues identified will be followed up with implementing agency.

The FM supervision missions will include a review of the Project’s financial management and disbursement arrangements (and may include a review of a sample of SOEs and movements on the Designated accounts for each funding source) to ensure compliance with the Bank's minimum requirements. In addition, FM supervision will focus on the effectiveness of internal control framework of the Project and accuracy of accounting record keeping. FM supervisions will be conducted every six months at the beginning of the Project implementation and frequency of them may be reduced subject to satisfactory performance of finance team.

Annex 8: Procurement Arrangements KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

A. General

Procurement for the proposed project will be carried out in accordance with the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. For each contract to be financed by the Loan the procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between MOH and the Bank in the Procurement Plan.

Procurement of Goods and Works: Goods to be procured under this project will include items such as computer equipment and software. For the procurement of goods and works, the International Competitive Bidding (ICB) and Shopping methods will be used. National Competitive Bidding (NCB) will also be used for the procurement of works. For ICB, the Bank’s Standard Bidding Documents for will be used; and for NCB for works, bidding documents satisfactory to the Bank will be applied.

Selection of Consultants: The Project will finance national and international consultants, both individuals and firms to fulfill different technical assistance needs. For Quality and Cost based Selection (QCBS) short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Selection of individual consultants will require comparison of at least three qualified candidates interested and available to undertake the assignment.

Operating Costs The project will provide finance covering operational cost including travel expenses. MOH will prepare an annual budget for operating cost to be agreed with the Bank before implementation.

Training/Study Tours. Training, including study tours, will be carried out according to training plan that will be prepared by MOH annually and submitted to the Bank for no-objection prior to implementation. The institutions for training/study tours will be selected on the basis of an analysis of the most suitable program of training offered by the institutions, availability of services, and duration of training and reasonableness of the cost.

B. Assessment of MOH’s capacity to implement procurement

An assessment of the capacity of MOH to implement procurement under the project was conducted by Naushad A. Khan in early February 2007. The main responsibility for project coordination and implementation activities, especially procurement, will rest with the Department of Strategic Development and International Cooperation (DSDIC). This Department is headed by a Director who reports to the First Vice-Minister. The DSDIC will coordinate implementation activity with the other MOH departments, and discharge fiduciary responsibilities, including procurement, financial management, auditing and reporting for all components of the project. In discharging its procurement responsibilities under the proposed project, the DSDIC will collaborate with the State Procurement Unit (SPU) in the Organizational and Legal Affairs Department. Since, however, the SPU has just enough existing capacity to conduct procurement of health goods with the budgetary allocations, and little experience in international procurement, the DSDIC will have a team of procurement consultants, including a national consultant with adequate experience in international procurement and with the working knowledge of written and spoken English, and an international consultant experienced in IT

procurement, to help it discharge its procurement responsibilities under the project. The assurances of MOH will be sought to appoint the national procurement consultant before loan negotiations. A summary of the assessment, including procurement risks to project and the recommendations for the mitigation of these risks is given below.

The project may face the following potential risks during implementation which may result in project implementation delays:

(i) Given the current public procurement environment, there may be lack of transparency in the procurement processes to be conducted at the national level, such as Shopping, in accordance with the provisions of the public procurement law. (ii) Government officials, who will be involved in project procurement through Tender Committees may not be familiar with the international procurement procedures; (iii) Staff appointed to Tender Committees may not be competent; (iv) Limited capacity of MOH in conducting the international bidding process for procurement of goods and in consultant selection process; (v) Limited capacity of MOH in preparation of the technical specifications for procurement of the different types of equipment; (vi) Limited capacity of MOH in preparation of the terms of references for consultancy services; and (vii) Contract administration procedures may not be adequate to ensure efficient and timely contract performance.

Recommendations for Mitigation of Risks

Publication of the results of the bidding processes. MOH will allocate a part of their respective websites for posting information on contract awards, including name of each bidder who submitted the bid, bid prices as read out at public opening, name and evaluated prices of each bid that was evaluated, name of bidders who were rejected and the reasons for rejection, the name of the winning bidder and the price it offered as well as duration and summary of the scope of the contract award. All contracts awarded through direct contracting (irrespective of the amount) shall be listed on the website. Information on the contracts awarded as a result of an ICB and results of selection of consultants firms for contracts exceeding US$100,000 will also need to be posted on the World Bank web-site through submitting the information to the World Bank Office in Astana.

Action Plan to Build MOH Capacity:

• The Bank delivered in July 2007 a procurement workshop in Astana in which the staff of the MOH have participated; and a workshop for tender committees in Bishkek in October 2007 in which more MOH staff who are expected to be members of tender committees participated. Staff of different relevant departments of MOH should participate in any such seminars and workshops to be held in the future to familiarize them with the procurement requirements under the project.

• MOH will be requested to submit to the Bank for its review information on the qualifications and experience of tender committee members.

• Based on the initial procurement plan, MOH will identify the skills mix that would be required for preparing technical specifications for different contract packages and terms of reference for consultant assignments and, in consultation with the Bank team, make arrangements to fulfill these needs through the use of its existing staff or consultants.

• MOH should appoint a consultant experienced in international procurement by negotiations. This consultant should be made responsible for implementation of procurement and coordination of procurement activities between the department having overall responsibility for project implementation and coordination and other MOH departments.

• Given the large amount of information technology procurement, it appears that the services of a consultant experienced in the procurement of information technology will also be required.

• MOH will prepare and submit to the Bank before Negotiations a Procurement Manual including the necessary details on procurement procedures and division of responsibilities among the responsible departments and units during the procurement process and subsequent contract administration.

Anti-Corruption Measures

MOH will take the following steps in order to ensure that loan proceeds are used economically and for the purpose intended:

• In addition to the publication of tender notices and contract award information as required by the Bank Procurement and Consultant Guidelines, publish in the national press, the public procurement bulletin, and on MOH website all tenders and contract award information. For this purpose, MOH will modify its website as necessary. • Based on the applicable law, prepare a brief document on ethical standards to be followed by MOH staff and to make this document available to all departments in hard copy and on the website. • Require each staff involved in procurement, including each member of a tender committee, to certify in writing that his or her involvement does not create any conflict of interest, i.e., relationship with a supplier or consultant, etc. • Put in place the necessary mechanisms to ensure that suppliers and contractors are paid according to their contract terms without any delays. • To bring to the Bank notice each and every complaint received from any supplier or consultant relating to the procurement process, and to dispose of these complaints promptly. • To maintain up-to-date project records and to make these available to Bank staff, auditors, etc.

C. Procurement Plan

MOH has developed a procurement plan for project implementation which provides the basis for the procurement methods. For determining the procurement method for each contract and whether a contract is subject to prior or ex-post review by the Bank, MOH will use the thresholds indicated in the table in Section F below. This plan will be agreed between MOH and the project team by the negotiations and should be available in the project’s database and in the Bank’s external website. The procurement plan will be updated in agreement with the project team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The contracts expected to be procured during the first 18 months of the project and subject to prior review are listed in the tables below.

D. Frequency of Procurement Supervision

Bank staff will carry out procurement supervision twice a year.

E. Details of the Procurement Arrangements

1. Goods

(a) List of contract packages expected to be procured during the first 18 months of the project:

1 2 3 4 5 6 7 8

Ref. Contract Estimated Procurement PQ Domestic Review Expected No. (Description) Cost Method Preference by Bid-Opening (US$’000) (yes/no) Bank Date (Prior / Post)

Office IT Equipment and

1 Standard Software (Several 1,151.9 ICB n/a No PR 03-Jun-08 Lots)

Office Furniture for the Division

of PharmacoEconomic Studies 2 122.7 n/a Yes PR MOH, Healthcare Dev Inst, 5 ICB 01-Jul-08

EBM Centers

Specialized Software for 3 138.4 n/a No PR Division of Pharmacoeconomics ICB 07-Jul-08

4 25-Jul-08 IT & office equipment 470.5 ICB n/a No PR

15-Aug-08 5 Office furniture 187.4 ICB n/a Yes PR

6 IT Equipment for HMIS 108,290.5 ICB n/a No PR 15-Sep-08

Equipment for Training Rooms 1-Oct-08 7 (Health Management Training) 119.8 n/a No

ICB PR

06-Oct-08 8 Goods for EBM Center 3,455.5 ICB n/a Yes PR

Establishment of scientific 06-Nov-08 9 center for laboratory diagnostics 1,570.4 ICB n/a No PR

quality

17-Nov-08 10 Medical equipment 1,532.6 ICB n/a No PR

8-Feb-09 11 Database software 115.3 ICB n/a No PR

2. Consulting Services

(a) List of consulting contracts (including twinning relationships) expected to be processed during the first 18 months of the project:

1 2 3 4 5 6 Expected Ref. Estimated Review Description of Assignment Selection Proposals No. Cost by Bank Method Submission (US$'000) (Prior / Post) Date

Twinning Arrangement for 4,609.7 QCBS PR 27-Mar-08 Accreditation 1

Twinning Arrangement for Health 3,072.3 QCBS PR 1-Apr-08 2 Finance Capacity Building

Twinning Arrangement for

Strengthening Health Purchasing 465.5 QCBS PR 21-Apr-08

Functions in the KZ Health Sector 3

In-country training: NHA training

course, Capacity building internal

control/audit, capacity building on 701.1 QCBS PR 8-May-08

treasury system and provider 4 autonomy

Twinning Arrangement for Health 1,242.6 19-May-08 5 QCBS PR Management Capacity Development

Twinning Arrangement for Investment Planning in the Health 10,661.7 26-May-08 6 Sector QCBS PR

Accreditation System Improvement

(accreditation system assessment, 1,644.3 QCBS PR 29-May-08 trainings and establishment of the

7 Accreditation Agency)

Health Standardization System and 10,337.1 QCBS PR 9-Jun-08 Capacity Building 8

Twinning Arrangement for 1,759.6 QCBS PR 16-Jun-08 Laboratory Sector Reform 9

Workshops for regional lab 458.2 QCBS PR 23-Jun-08 10 specialists

Training abroad: training on

laboratory service quality 957.1 QCBS PR 1-Jul-08 management system, Training of

11 laboratory diagnostics specialists

Twinning Arrangement for Blood 10,113.3 QCBS PR 4-Jul-08 Transfusion System Reform 12

QCBS PR

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1 2 3 4 5 6 Expected Ref. Estimated Review Description of Assignment Selection Proposals No. Cost by Bank Method Submission (US$'000) (Prior / Post) Date Twinning Arrangement for 710.7 7-Jul-08 13 Improvement of Medical Education

Trainings on GOSO-2007, and OSCE 215.9 QCBS PR 14-Jul-08 14 Exam.

Twinning Arrangement for Medical

Science Management and Research 1,247.4 QCBS PR 21-Jul-08 15 Prioritization

Twinning Arrangement on Project

Management Issues, HMIS Creation, 16,558.1 QCBS PR 29-Jul-08 16 HMIS Deployment, Institutional

Basis for Stable HMIS Operation

Twinning Arrangement for Medical 486.2 QCBS PR 11-Aug-08 Science Financing Mechanisms 17

Twinning Arrangement for Better

access to efficiently procured 446.4 QCBS PR 18-Aug-08

medicines 18

Twinning Arrangement for Improved 215.2 QCBS PR 25-Aug-08 Drug Quality 19

Twinning Arrangement for harmonization of standards, Improvement of food safety control

system, Establishment of an 342.5 QCBS PR 8-Sep-08 information system on food safety

20 monitoring, Human resources capacity building in food safety issues

Training of trainers on food safety,

Courses on food safety for staff,

Courses on food safety,

Training/Workshop on Codex 290.5 QCBS PR 12-Sep-08

Alimentarius standards, and HACCP

system, Training of leaders of public 21 organizations

Twinning Arrangement for Rational Drug Use and National Drug Policy 858.2 QCBS PR 30-Sep-08 22 and Monitoring Tools

Training on Medical Science Management and Research 450.6 QCBS PR 6-Oct-08 23 Prioritization

Provider & User Satisfaction Survey 233.2 QCBS PR 23-Oct-08 24

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1 2 3 4 5 6 Expected Ref. Estimated Review Description of Assignment Selection Proposals No. Cost by Bank Method Submission (US$'000) (Prior / Post) Date

25 Training and Study Tours 1,461.4 QCBS PR 28-Oct-08

Twinning Arrangement for Strengthening SES and Food Safety 395.9 QCBS PR 6-Nov-08 26 Laboratory Service

Twinning Arrangement for

Development of Communication 113.2 QCBS PR 24-Nov-08 Strategy on Food Safety and its 27 Implementation

Twinning Arrangement for Independent Evaluation of the 250.2 QCBS PR 1-Dec-08 28 Tender for Master Plans

Logistics for Regional Workshops 571.7 10-Dec-08 29 and Conferences on Accreditation FB PR

Establishment of scientific center for 1,570.4 QCBS PR 5-Jan-09 30 laboratory diagnostics quality

Surveys on Drug Price Monitoring & 313.8 FB PR 16-Jan-09 31 on Access to Drugs

In-country training: On-the-job

health management training, 1,263.5 QCBS PR 10-Mar-09 32 Advanced health management

training

Design of the Information Campaign 117.3 QCBS PR 20-Mar-09 33 for Doctors and Patients

896.3 FB PR 21-Mar-09 34 Household surveys

Implementation of the Information 521.8 QCBS PR 9-Mar-10 35 Campaign

(b) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

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F. Thresholds for procurement methods and prior, ex-post reviews. The following thresholds will be applied:

Contract Value Expenditure Procurement Contracts Subject to Prior Review Threshold Category Method (US$’000) (US$’000) Goods >= 100 ICB All ICB contracts <100 Shopping The first contract Works >=3,000 ICB All ICB contracts <3,000 NCB The first contract <100 Shopping The first contract Consultant Services >=100 QCBS*, QBS, • >=100 & all SSS FBS, LCS • All TOR <100 CQS • QBS/FBS/LCS to be used when NA SSS needed NA IC • >=50 & all SSS • All TOR Notes: * Shortlist may compose entirely of national consultants for assignments of less than US$100,000 equivalent per contract.

ICB – International Competitive Bidding NCB – National Competitive Bidding QCBS – Quality and Cost Based Selection QBS – Quality Based Selection FBS – Fixed Budget Selection LCS – Least Cost Selection CQS – Selection Based on Consultants’’ Qualifications SSS – Single Source Selection IC – Individual Consultants

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Annex 9: Economic and Financial Analysis KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Macroeconomic Context. Kazakhstan has experienced rapid economic growth over the past four years. Within this period average GDP growth exceeded 9 percent per annum in real terms. The international reserves of the National Bank of Kazakhstan and funds accumulated in the National Fund of the Republic of Kazakhstan by the end of 2006 reached US$33 billion. The average annual increase in real income during 2003-2005 was 12.1 percent; in the same period, unemployment decreased from 8.8 to 8.1 percent of the population. Inflation has been moderate at 6.4 to 7.6 percent according to official statistics.

Health Expenditure. Public spending on health increased from 1.9 percent of GDP in 2000 to 2.5 percent of GDP in 2005 (see Figure 9.1), or from US$23 per capita to US$98 according to Ministry of Health data. The State Health Care Reform and Development Program 2005-2010 envisages a gradual increase to 4% by 2010. These data are only for public spending and do not capture out-of-pocket payments for health care services and pharmaceuticals. As summarized in Annex 1, the disease profile is now dominated by non-communicable diseases such as cancer, circulatory and respiratory diseases.

Figure 9.1: State Expenditures on Health Care (in billions of tenge and as percent of GDP)

200 3 180 185.5 2.4 2.5 160 2.5 2.1 140 2 1.9 1.9 131.2 2 120

100 1.5 % 89.8 80 bln. tenge 1 60 62.3 71.1 40 54.3 0.5 20 0 0 2000 2001 2002 2003 2004 2005

State expenditures on healthcare, bln. tenge State expenditures on healthcare, % to GDP

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Project Activities and Expected Benefits. These can be summarized as follows:

Project Activity Expected Benefit Strengthening planning, budgeting and Improved efficiency and effectiveness of health service delivery and better purchasing functions allocation of budget funds for inputs and programs, e.g. for subsidized pharmaceuticals

Support for MOH restructuring plans by Economies of scope and scale in the delivery of health services; cost savings on reducing excess capacity, adding capacity in overhead items such as utilities; and reordering of service provision to improve areas of need and deploying existing capacity efficiency and patient care, e.g. through the use of outpatient procedures and more efficiently and effectively through reduced lengths of stay evidence-based master-planning and the use of performance-based payment systems

Establishment of an accreditation system Early detection, better treatment and fewer complications for basic medical and with international standards and use of hospital care evidence-based clinical practice guidelines for 50 core diseases

Reform of the Blood Transfusion Service Safer blood and blood products available for faster, more effective treatment

Unified Health Information System Improved efficiency and effectiveness of healthcare management and service introduction delivery by providing managers, healthcare providers and others with real-time information and tools for patient care and facility management

Pharmaceutical policy reform Improved access and equity of pharmaceutical use; improved efficiency in pharmaceutical procurement; improved quality of pharmaceutical products; reduced complications/ill-health due to counterfeit and/or substandard drugs

Improved food safety and support for WTO Fewer food-related diseases; improved access to international markets by accession Kazakh producers; improved access to Kazakhstan market by international producers; greater choice and lower food prices for consumers

Economic Analysis: Methods and Assumptions. Key indicators were identified and direct/indirect benefits from Project implementation estimated at three analytical levels: the health sector, the government sector and the economy/society as a whole. Impact was estimated using changes in mortality and morbidity rates using Healthy Years of Life Gained (HYLG), i.e. the difference between healthy years lost with and without intervention (healthy years lost is the sum of years lost through premature deaths, disability before death, chronic disability and acute illness) and from cost savings as a result of five potential impacts: (a) Savings in the current expenditure of hospitals stemming from restructuring and the shift to more cost-effective services (e.g. from in-patient care to primary/outpatient care); (b) Healthcare facility mergers, reducing costs of staff and utilities; (c) Hospital expenditure savings from reductions in average cost and length of stay for inpatient care; (d) Consumer-level savings from free or subsidized medicine or the purchase of less expensive pharmaceuticals; and (e) Improved productivity as a result of less hospitalization and more work days on the job, on average. The first three types of saving will, in part, be reallocated to primary health care. On average, outpatient services are assumed to be 30 percent less than the same services provided on an inpatient basis due to savings in utilities and other overhead costs.

Intangible benefits will include increased patient trust, reduced suffering of individuals and family members, more time spent with family, greater incentives to improve quality of services etc. These are not quantifiable and are not incorporated in the present analysis.

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The information on which the economic analysis is based was derived from various sources including National Health Statistics and World Bank documents on similar projects in other countries. Key assumptions in the model include the following:

population increase to 18 million by 2024;55 inflation in the range of 7 -10 percent; GDP growth in 2007-2009 of 8.6, 8.9 and 9 percent respectively according to the Midterm Fiscal Framework of the Government for 2007-2009, and 6.6 percent per year in the remaining period; average salary growth of 20 percent per annum in nominal terms, reflecting the 2004-2007 average; average baseline spending on pharmaceuticals of 5.7 percent of average monthly salary;56 baseline for disease-related deaths from MOH data on deaths by age groups (excludes 23 percent of deaths due to accidents, injuries and poisoning).

Expected Project impacts include:

admissions per capita reduced by 10 percent; average length of stay per hospital admission decreased by 10 percent; operational cost of hospitals reduced by 20 percent; pharmaceutical costs decrease by 1 percent per annum; and percentage of pharmacies providing free/subsidized medicines increases by 15 percent a year.

These are “intermediate outcomes of system performance. Overall morbidity and mortality are outcomes that change only slowly and the early years of project implementation will see no change in morbidity and mortality rates. Even for systemic impacts, the time horizon for analysis is 10 years given that these impacts will take time to fully manifest. Three discount rates are used in the analysis and sensitivity study: 4 percent rate as the rate of risk-free government bonds, 7 percent as the rate of deposits guaranteed by the state, and 10 percent as the rate of deposits at savings account in the commercial banks. The concept of discounting is applicable to HYLG as well, since the value of healthy life today is greater than the value of healthy life in the future.

Cost-Effectiveness Analysis: Results

The cumulative saving of hospitals on current expenditures and from reduced bed-days is estimated to reach US$350.3 and US$343.6 million respectively by the end of the project.

55 National Statistics Agency 56 National Expertise Center estimate.

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Figure 9.2: Projected Current Expenditures of State Hospitals with/without Project

90,000 77,055 80,000 70,050 70,000 63,681 52,629 57,892 60,000 50,000 56,793 58,718 59,229 40,000 52,629 55,405 30,000 Million tenge Million 20,000 10,000 0 12345 Years from start of the project Current expenditures without project Current expenditures with project

Figure 9.3: Cost of Bed-Days in Public Hospitals with/without Project

120,000 95,448 100,000 90,964 77,511 81,996 86,480 80,000

78,836 78,819 80,213 79,223 60,000 77,511

mln. tenge mln. 40,000

20,000

0 2008 2009 2010 2011 2012

Cost of bed-days without project Cost of bed-days with the project

Consumer savings to free and subsidized medicines are estimated at US$112.6 million in total (Figure 4). Increases in average cost of subsidies received by pharmacy or an extension of the list of subsidized drugs will result in even larger savings.

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Figure 9.4: Total Expenditures on Medicines with/without Project

115,000 110,000 106,143 105,000 100,000 95,000 101,650 90,000 86,831 85,000 80,000 75,000 70,933 83,459

mln. tenge mln. 70,000 65,000 57,849 60,000 68,504 55,000 50,000 56,211 2008 2009 2010 2011 2012 years

Total expenditures without project Total expenditures with project

The HYLG accumulated with the project are presented in the Table 9.1.

Table 9.1: Healthy Years of Life Gained with Project

Years Morbidity Years Mortality Years Total HYLG 2008 0,0 0,0 0,0 2009 797,2 14 166,7 14 963,8 2010 996,5 17 708,3 18 704,8 2011 1 295,4 23 020,8 24 316,2 2012 1 694,0 30 104,1 31 798,1 2013 1 594,3 28 333,3 29 927,7 2014 1 096,1 19 479,2 20 575,3 2015 896,8 15 937,5 16 834,3 2016 797,2 14 166,7 14 963,8 2017 697,5 12 395,8 13 093,4 Total 9 865,0 175 312,4 185 177,4 Discounted at 4 percent 7 145,1 126 976,6 134 121,7 Discounted at 7 percent 6 760,9 120 148,5 126 909,4 Discounted at 10 percent 5 831,9 103 639,8 109 471,7 Percent of total 5,3 94,7 100,0 Cost-effectiveness ($/HYLG) $16.00

Fiscal Impact Analysis. Fiscal benefits will accrue in terms of revenues to the budget coming from additional personal income taxes and social taxes, resulting from HYLG. The results, presented in the table below, indicate positive NPV of the project equal to 25 409 million tenge, with an internal rate of return of 31,3 percent The “breakeven” or payback period is five years.

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Table 9.2: Fiscal Sustainability of Project

Additional Additional Social Projected Income Taxes Taxes through Project Cost Monthly through HYLG HYLG (mln. Net Flow (mln. Pay-back (mln. USD) Salary (USD) (mln. USD) USD) USD) NPV (7%) IRR Period 33.5 525.5 0 0 -33.5 91.4 650.8 10.7 14.7 -66.0 87.8 794.6 16.9 22.4 -48.5 37.8 961.5 27.4 35.2 24.8 34.0 1,163.4 44.4 55.7 66.1 11.5 1.407.7 51.5 63.4 103.4 1,703.3 43.5 52.8 96.2 2,061.0 43.6 52.2 95.8 2,493.8 47.3 56.2 103.5 3,017.5 50.5 59.5 110.0 298.0 335.8 412.0 451.8 234.3 31.4% 5,64y

Sensitivity Analysis. The sensitivity analysis considers two alternative scenarios. The optimistic scenario reflects higher achievements against target indicators and a lower discount rate. The pessimistic scenario assumes a moderate decrease in mortality and morbidity and a higher discount rate at 10 percent.

Table 9.3: Sensitivity Analysis Indicators Optimistic Scenario Base Scenario Pessimistic Scenario Discount Greater Decrease in (Discount rate Moderate Decrease in Discount Rate at rate at 4% Mortality and at 7%) Mortality and 10% Morbidity Morbidity NPV (mln. USD) 309.3 310.8 234.3 154.5 173.7 IRR 38,70% 31,31% 23,60% HYLG 215 457 185 177 154 896

The sensitivity analysis shows that the pessimistic scenario with moderate progress will still result in positive NPV with IRR 23.6 percent and a yield of 154 896 HYLG.

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Annex 10: Safeguard Policy Issues KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

There are no safeguard policy issues of note.

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Annex 11: Project Preparation and Supervision KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Planned Actual PCN review September 28, 2006 October 10, 2006 Initial PID to PIC October 3, 2006 October 17, 2006 Initial ISDS to PIC October 3, 2006 October 19, 2006 Appraisal October 17, 2007 November 15, 2007 Negotiations October 22, 2007 December 4-5, 2007 Board/RVP approval December 11, 2007 January 15, 2008 Planned date of effectiveness July 1, 2008 Planned date of mid-term review January 5, 2011 Planned closing date June 30, 2013

Key institutions responsible for preparation of the project: Ministry of Health, Republic of Kazakhstan

Bank staff and consultants who worked on the project included:

Name Title Unit Peyvand Khaleghian Team Leader; Senior Health ECSHD Specialist, Country Sector Coordinator Dorothee Eckertz Operations Officer ECSHD Baktybek Zhumadil Operations Analyst ECSHD Dominic S. Haazen Lead Health Policy Specialist ECSHD John C. Langenbrunner Sr. Economist MNSHD Jan Bultman Lead Health Specialist ECSHD Tamer Samah Rabie Public Health Specialist ECSHD Naushad A. Khan Lead Procurement Specialist ECSPS Norpulat Daniyarov Financial Management Specialist ECSPS Rekha Menon Senior Economist ECSHD Asel Sargaldakova Health Specialist ECSHD Safinaz El Tahir Ahmed Young Professional ECSHD Rianna Lisa Mohammed Young Professional ECSHD Lindsay Sales Health Management Consultant ECSHD Graham Dukes Pharmaceuticals Consultant ECSHD Ainoura Alzhanova Program Assistant ECCKZ Gabriel Francis Program Assistant ECSHD Karthika Radhakrishnan-Nair Program Assistant ECSHD Olga Fleshler Program Assistant ECCKZ Anara Tokusheva Program Assistant ECCU8

Bank funds expended to date on project preparation: 1. Bank resources: US$146,880 2. GOK resources through JERP: US$450,000 3. Trust funds: Nil 4. Total: US$596,880

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$232,653 of which US$50,000 from GOK through JERP 2. Estimated annual supervision cost: US$200,000

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Annex 12: Documents in the Project File KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Document Title Author Date Health Information Systems in Kazakhstan: Standards Development and Implementation AAM Consulting Oct 4, 2007 Plan (Assessment report, Implementation Concept, Implementation Plan, Final Presentation to MOH) Project Information Document (Appraisal Stage) World Bank Health Team Sep 24, 2007 Integrated Safeguards Datasheet – Appraisal Stage World Bank Health Team Sep 24, 2007 Consolidated Implementation Plan Ministry of Health, RK Sep 24, 2007 Feasibility Study, Health Sector Institutional Reform and Technology Transfer Project Ministry of Health, RK Sep 17, 2007 Letter to Kussainov re Health Project FS Annette Dixon Aug 3, 2007 ISQua review of Kazakhstan’s Draft Health Facility Accreditation Standards Barbara Donaldson Jul 31, 2007 Report on development of a risk-adjusted geographic allocation formula for health Edward Frid Jun 18, 2007 Project Operational Manual Lindsay Sales Jun 16, 2007 Hardware needs assessment consolidated (under Comp D) Local consultants May 30, 2007 Legal Report on Treasury Modernization and the Health Sector Sergei Shevchuk May 18, 2007 Pre-Appraisal Mission Aide Mémoire World Bank Health Team May 16, 2007 Pre-Appraisal Mission announcement letter S. Shatalov May 3, 2007 Terms of Reference for Year 1 assignments Ministry of Health, RK Apr-Sep 2007 Pre-Appraisal Mission Aide Mémoire World Bank Health Team Mar 3, 2007 Pharmaceutical Reform in Kazakhstan: report on a planning mission to Kazakhstan Graham Dukes Mar 3, 2007 (Annexes: (i) The future structure of pharmaceutical sector management in Kazakhstan ; (ii) The pharmaceutical sector: summary of current proposals) Letter to Minister Dernovoy on Institutional Issues in the State Health Care Reform S. Shatalov Feb16, 2007 Program Global Experiences in Health Finance Reform (PPT) Jack Langenbrunner Feb 10, 2007 Health Technology Assessment Critical Path Analysis (PPT) Jan Bultman Feb 2, 2007 Pharmaceutical Sector Reform Critical Path Analysis (PPT) Graham Dukes Dec 29, 2006 Consultancy Report: Means of promoting further development of the national Graham Dukes Dec 27, 2006 pharmaceutical industry to build market share and exports and to secure a profitable future (for Kazyna) Health Project Preparation Mission –II Aide Mémoire World Bank Health Team Dec 18, 2006 Annex 1 : Kazakhstan Consolidated HSIRTTP Business Plan (PPT) Annex 2 : HMIS Report Annex 3 : Letter to DPM Massimov on HMIS of 10/23/06 Annex 4 : Draft TORs for HMIS international experts Annex 5 : RK HMIS Part I: Assessment of Current Approach and Program Annex 6 :- The Pharmaceutical Sector: Provisional Findings and Recommendations Annex 7 : Consolidation of food safety systems (PPT) Food Safety Critical Path Analysis (PPT) World Bank Health Team Dec 8, 2006 Study of the Impact of the Treasury System on the Implementation of Health Financing Kanat Yermekbayev Nov 22, 2006 Reforms and the State Health Care Reform and Development Program 2005-2010 Project Preparation Mission-II Aide Mémoire World Bank Health Team Nov 17, 2006 Integrated Safeguards Data Sheet World Bank Health Team Oct 19, 2006 Project Concept Note World Bank Health Team Oct 5, 2007 Project Information Document World Bank Health Team Oct 5, 2006 Draft Project Synopsis (Project Preparation Summary) World Bank Health Team Sep 12, 2006 Three and five decades of health insurance reform in the Netherlands and Germany. Jan Bultman July 21, 2006 Lessons for Kazakhstan? (PPT) Health Management Information Systems in Kazakhstan: Assessment Report (Part I) and Dominic Haazen, Dennis August 23, Alternative Program (Part II) Streveler and Peter Kerrison 2005

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Annex 13: Statement of Loans and Credits KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P078301 2006 FORESTRY 30.00 0.00 0.00 0.00 0.00 30.00 0.00 0.00 P095155 2006 N-S ELEC TRANSM 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 P049721 2005 AGRIC COMPETITIVENESS 24.00 0.00 0.00 0.00 0.00 24.00 3.70 0.00 P058015 2005 AG POST PRIV ASSIST (APL #2) 35.00 0.00 0.00 0.00 0.00 35.00 3.50 0.00 P059803 2003 NURA RIVER CLEAN-UP 40.39 0.00 0.00 0.00 0.00 39.19 10.30 0.00 P071525 2003 DRYLANDS MGMT (GEF) 0.00 0.00 0.00 5.27 0.00 2.70 0.13 0.00 P046045 2001 SYR DARYA CONTROL N. ARAL SEA 64.50 0.00 0.00 0.00 0.00 7.87 5.87 0.00 P065414 2000 ELEC TRANS REHAB 140.00 0.00 0.00 0.00 0.00 36.68 36.68 0.00 P008499 1999 ROAD TRANSPT RESTRUCT 100.00 0.00 0.00 0.00 0.00 6.81 6.81 1.01 P008507 1997 UZEN OIL FIELD REHAB 109.00 0.00 0.00 0.00 0.00 21.08 21.08 1.38 Total: 642.89 0.00 0.00 5.27 0.00 303.33 88.07 2.39

KAZAKHSTAN STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

Total portfolio: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2001 Kazkommertsbk 2 0.02 0.00 0.00 0.00 Total pending commitment: 0.02 0.00 0.00 0.00

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Annex 14: Country at a Glance KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

Europe & Lower- POVERTY and SOCIAL Central middle- Development diamond* Kazakhstan Asia income 2005 Population, mid-year (millions) 15.1 473 2,475 Life expectancy GNI per capita (Atlas method, US$) 2,930 4,113 1,918 GNI (Atlas method, US$ billions) 44.4 1,945 4,747

Average annual growth, 1999-05 Population (%) 0.2 0.0 1.0 GNI Gross Labor force (%) 1. 2 0 . 6 1. 4 per primary M ost recent estimate (latest year available, 1999-05) capita enrollment Poverty (% of population below national poverty line) ...... Urban population (% of total population) 57 64 50 Life expectancy at birth (years) 65 69 70 Infant mortality (per 1,000 live births) 63 28 33 Child malnutrition (% of children under 5) 4512 Access to improved water source Access to an improved water source (% of population) 86 92 82 Literacy (% of population age 15+) 10 0 9 7 8 9 Gross primary enrollment (% of school-age population) 10 9 10 4 114 Kazakhstan M a l e 110 10 5 115 Lower-middle-income group Female 109 102 113

KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios* GDP (US$ billions) .. 20.4 43.2 56.1 Gross capital formation/GDP .. 23.3 26.3 27.5 Trade Exports of goods and services/GDP .. 39.0 52.2 54.5 Gross domestic savings/GDP .. 18.7 35.0 36.6 Gross national savings/GDP .. 18.2 27.5 26.6

Current account balance/GDP .. -1.0 1.1 -0.9 Domestic Capital Interest payments/GDP .. 0.5 1.9 .. savings formation Total debt/GDP .. 18.4 74.9 .. Total debt service/exports .. 3.9 38.0 .. Present value of debt/GDP .. .. 70.6 .. Present value of debt/exports .. .. 132.1 .. Indebtedness 1985-95 1995-05 2004 2005 2005-09 (average annual growth) GDP -9.2 6.8 9.6 9.4 8.5 Kazakhstan GDP per capita -8.6 7.3 8.8 8.4 8.2 Lower-middle-income group Exports of goods and services -7.6 5.9 10.9 1.4 9.4

STRUCTURE of the ECONOMY 1985 1995 2004 2005 Growth of capital and GDP (%) (% of GDP) Agriculture .. 12.9 7.6 6.8 60 Industry .. 32.0 37.6 39.5 40 M anufacturing .. 15.3 14.2 14.6 20 Services .. 55.1 54.8 53.7 0 Household final consumption expenditure .. 67.7 53.3 52.0 00 01 02 03 04 05 General gov't final consumption expenditure .. 13.6 11.6 11.4 GCF GDP Imports of goods and services .. 43.5 43.5 45.4

1985-95 1995-05 2004 2005 Growth of exports and imports (%) (average annual growth) Agriculture -8.7 2.6 -0.1 7.3 30

Industry .. 8.6 11.2 10.3 20 M anufacturing .. 7.0 8.9 10.3 Services .. 6.5 10.8 10.4 10

Household final consumption expenditure -13.0 5.0 9.2 11.7 0 00 01 02 03 04 05 General gov't final consumption expenditure -6.4 3.2 10.6 11.8 -10 Gross capital formation -29.2 9.6 6.3 17.7 Exports Imports Imports of goods and services -20.3 3.4 14.8 13.3

Note: 2005 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

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Kazakhstan

PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Inflation (%) Domestic prices (% change) 20 Consumer prices .. 176.2 6.9 7.6 15 Implicit GDP deflator .. 160.9 16.1 16.1 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue .. 17.9 23.4 27.7 00 01 02 03 04 05 Current budget balance .. -7.4 7.2 11.4 GDP deflator CPI Overall surplus/deficit .. -6.7 1.7 5.4

TRADE 1985 1995 2004 2005 Export and import levels (US$ mill.) (US$ millions)

Total exports (fob) .. 5,440 20,603 28,301 30,000 Fuel and oil products .. 1,306 12,902 19,525 Ferro us metals .. 1,062 2,187 2,325 20,000 M anufactures .. 1,235 1,983 2,644 T o t a l i m p o r t s ( c i f ) . . 5 , 3 2 6 13 , 8 18 17 , 9 7 9 Food .. 309 666 910 10 , 0 0 0 Fuel and energy .. 938 1,693 2,062 Capital go o ds .. 1,094 5,481 7,609 0 99 00 01 02 03 04 05 Export price index (2000=100) .. 69 163 220 Import price index (2000=100) .. 80 180 207 Export s Imports Terms of trade (2000=100) .. 87 90 106

BALANCE of PAYM ENTS 1985 1995 2004 2005 Current account balance to GDP (%) (US$ millions) Exports of goods and services .. 5,975 22,602 30,552 5 Imports of goods and services .. 6,102 18,844 25,445 Resource balance .. -127 3,758 5,106 0 Net income .. -146 -2,815 -5,180 99 00 01 02 03 04 05 Net current transfers .. 59 -488 -412 Current account balance .. -213 455 -486 -5 Financing items (net) .. 370 3,544 -1,459 Changes in net reserves .. -157 -3,999 1,945 -10 Memo: Reserves including gold (US$ millions) .. 1,653 9,277 7,070 Conversion rate (DEC, local/US$) .. 49.8 136.0 132.9

EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed .. 3,750 32,310 .. IB RD .. 295 1,275 599 A: 1,275 G: 3,573 IDA .. 0 0 0 D: 491 E: 971 Total debt service .. 235 8,774 .. I B R D . . 14 13 1 7 12 IDA .. 0 0 0 Composition of net resource flows Official grants .. 11 24 .. Official credito rs .. 395 56 .. Private creditors .. 240 8,177 .. Foreign direct investment (net inflows) .. 964 4,104 .. Portfolio equity (net inflows) .. 0 -14 .. F: World Bank program 26,000 Commitments .. 283 0 .. A - IBRD E - Bilateral Disbursements .. 107 60 37 B - IDA D - Other multilateral F - Private P rincipal repayments .. 0 87 658 C - IM F G - Short-term Net flows .. 107 -27 -621 Interest payments .. 14 44 54 Net transfers .. 93 -72 -675

Note: This table was produced from the Development Economics LDB database. 8/13/06

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Annex 15: Maps KAZAKHSTAN: Health Sector Technology Transfer and Institutional Reform

IBRD 33425

116

55°N 50°E 55°E 60°E 65°E To 70°E 75°E To 80°E 85°E Tyumen‘ Novosibirsk

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F E D E R A T I O N Tobyl KAZAKHSTANKAZAKHSTAN

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40°N SELECTED CITIES AND TOWNS

To OBLAST CAPITALS TURKMENISTANTURKMENISTAN Bukhoro To Dushanbe GALASY (CITIES WITH TAJIKISTANTA J I K I S TA N REGIONAL STATUS) This map was produced by NATIONAL CAPITAL KAZAKHSTAN the Map Design Unit of The World Bank. The boundaries, RIVERS

0 100 200 300 Kilometers colors, denominations and IBRD 33425R1 any other information shown MAIN ROADS JANUARY 2007 on this map do not imply, on the part of The World Bank RAILROADS 0 100 200 Miles Group, any judgment on the legal status of any territory, OBLAST BOUNDARIES AFGHANISTANAFGHANISTAN or any endorsement or INTERNATIONAL BOUNDARIES 50°E 55°E 60°E 65°E 70°E acceptance of such boundaries.