Project Name. PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: Health Sector Enhancement Project Additional Financing

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: Health Sector Enhancement Project Additional Financing Region EUROPE AND CENTRAL ASIA Sector Health (100%) Project ID P Borrower(s) BOSNIA AND HERZEGOVINA Implementing Agency FBiH Ministry of Health Titova 9 Sarajevo, Federation of Bosnia and Herzegovina Bosnia and Herzegovina Attention: Mrs. Vildana Doder Phone: Fax: hsep@fmoh.gov.ba RS Ministry of Health and Social Welfare Trg Republike Srpske 1 Banja Luka, Republic of Srpska Bosnia and Herzegovina Attention: Mr. Gordan Jelic Phone: Fax: g.jelic@pcu.mzsz.vladars.net Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 16, 2011 Date of Appraisal February 12, 2011 Authorization Date of Board Approval March 22, Country and Sector Background Political and Socioeconomic Context Bosnia and Herzegovina (BiH) reached an important milestone in June 2008 with the signing of a Stabilization and Association Agreement (SAA) with the European Union (EU). However, the institutional and political environment continues to slow the development of institutional infrastructure supportive of a market economy and EU integration. The Dayton Peace Agreement in 1995 was praised for ending the worst conflict on European soil since World War II, but it left the country with a complicated institutional structure which has been exploited to increase political obstruction and gridlock. The Dayton Peace Agreement, signed in 1995, created a complex governance structure comprising a limited State level Government and two largely autonomous Entities: the Federation of Bosnia and Herzegovina (the Federation) and Republika Srpska (RS). An autonomous Brcko District was added to the existing structure in The lure of EU integration in BiH is not yet as compelling as it was in the New EU Member States (NMS). Though most BiH citizens continue to support

2 integration with the EU, the complex constitutional structure under Dayton allows the representatives of the three major ethnic groups to continue to pursue ethno-nationalist goals. Unlocking the constitutional reform process is vital to a more efficient state, economic growth and social cohesion. Repeated attempts to introduce a new constitutional framework failed because of persistent and opposing views on the role of the State and the degree of autonomy of the Entities. During recent years, BH enjoyed relatively strong economic growth. Between 2004 and 2008, the BH economy grew at an average annual rate of 6 percent in real terms. Growth peaked in 2007 at around 7 percent. Although economic activity started to weaken with the onset of the financial crisis, GDP growth was still relatively strong in 2008, at 5.4 percent. Both private investment and consumption saw strong growth, and export growth averaged 25 percent per annum over Significant progress on structural reform has helped BiH s growth performance. The signing of the Stabilization and Association Agreement further liberalized trade with the EU, paved the way for more EU funds and provided a clear road map for reform. Several important challenges remain as agreed under the 2007 Platform for Action. Key future challenges include improving the structure of public expenditures, boosting the efficiency of government programs, strengthening the business environment, and finalizing privatization processes, particularly in the Federation. As expected in a small open economy, the global economic crisis spread to BiH in 2009, reversing some of the effects of strong growth and putting at risk macroeconomic stability and important economic reforms. The economic crisis renders these urgent reforms more difficult because of falling revenues and fewer prospects for major privatization. GDP growth was accompanied by modest poverty reduction. Data from the Household Budget Surveys (HBS) indicate that headcount poverty fell from 18 percent in 2004 to 14 percent in Rural poverty, despite falling more rapidly, remained almost twice as high as urban poverty. Educational attainment and labor market status were major correlates of poverty. Inequality remained low and stable. The global financial crisis continues to threaten recent gains in household living standards. The rate of poverty reduction, for example, may decelerate or even stall as the economy slows under the global crisis. Key issues in the health sector The burden of disease in BiH is high. With a rapidly ageing population, the levels of tobacco and alcohol consumption, pollution and road accidents, the burden of disease will continue to increase. Although action is needed to better control communicable diseases, BiH main public health challenge is to control a major non-communicable disease NCD epidemic. The historic organization and financing of the health sector makes it unable to cope with the additional burden and emerging needs. Over the past several years, both Entities have initiated wide-ranging reforms in the health sector aimed at increasing sector efficiency, strengthening financial sustainability, and improving quality of care. However, weaknesses remain in efficiency, equity, and quality of health services, calling for deeper reforms. The major sector issues are summarized below. Financial Sustainability. Public sector expenditures on health amount to about 14 percent of general government expenditures (higher than New Member States and closer higher income EU averages). In addition, it is estimated that about 42% of total health expenditures are private expenditures which are not allocated effectively, as much of it is paid directly for pharmaceuticals, accessing private practitioners in lieu of going through the public system and informal out of pocket payments for specialists and inpatient services. The high cost of the health care system is a reflection of inefficient

3 resource allocation, driven by an over extended and highly fragmented provider network and a provider payment system which fails to instill incentives for efficiency improvements and consolidation at the provider level. Inefficient Service Delivery. Technical assessments of both Entities health care systems point to the imbalance mix of primary, secondary and tertiary levels of care and facilities, shortages of materials and equipment, uneven knowledge of evidence-based medical protocols and specialist physicians dominated health care system that does not utilize the potential of other health professionals to enhance quality and promote cost effectiveness. Limited Institutional Capacity and Institutional Fragmentation. Fragmentation and the ensuing duplication are exacerbated by the fact that the respective roles and responsibilities among various institutions within a given Entity or a given canton remain not well defined. This fragmentation results from the Dayton Agreement which stipulates that responsibility for health care organization, financing, and delivery should be entirely delegated to the two Entities. Unequal access to health care. Although the health insurance schemes are meant to provide universal coverage and access to health services, high unemployment, a large informal sector, and tax evasion results in high contribution burden to formal sector while a significant share of the population still remains uncovered. 2. Objectives The proposed revised objectives of the Project are to (i) expand and enhance the family medicine model of primary health care; (ii) build management capacity in the sector; and (iii) strengthen the policy making process through the development and implementation of a system for monitoring and evaluating sector performance. 3. Rationale for Bank Involvement The Bank has acquired considerable cross-sectoral knowledge of the country through implementation of adjustment and investment operations and economic sector work. The Bank is well placed to build upon this knowledge base in the proposed operation, which would draw on evidence and lessons learned in the country, region and sub-region, and international best practices. The Bank has been a partner of the Government since the Dayton Peace Agreement. The Government regards the Bank as an important partner to help leverage additional funds from other bilateral and international agencies. The Project is consistent with the Country Partnership Strategy update agreed with the Government of BiH in April Project Description The Project has two parts. Part A is implemented by the Federation Ministry of Health and Part B is implemented by the Republika Srpska Ministry of Health and Social Welfare. A. The Federation: i. Primary health care restructuring through (a) the provision of formal education and re-training of medical doctors and nurses; (b) academic development of FM educators; (c) reconstruction and

4 provision of equipment for FM offices; (d) carrying out of a pilot of performance-based contracts through the health insurance system with FM teams; (e) support to the Institute of Public Health to develop, monitor and verify compliance with preventive program implementation of pilot FM teams; (f) support for uniformity of information standards and development of the information system infrastructure for primary health care; and (g) communication support. ii. Improved health sector management capacity through strengthening the Health Management Centers (HMCs) in the Institutes of Public Health for the provision of training to existing health managers. iii. Support for health policy formulation and Project management through facilitating monitoring and evaluation of the health sector performance, facilitating policy dialogue, as well as the financing of Innovation Grants for the delivery of priority public health services, and Project support. B. Republika Sprska: i. Primary health care restructuring through (a) the provision of formal education and re-training of medical doctors and nurses; (b) the construction, reconstruction and provision of equipment for FM offices; (c) the development of clinical guidelines; (d) accreditation of FM teams; and (e) the evaluation of pilot referral system. ii. Improved health sector management capacity through (a) training of current health managers; (b) change management training of FM teams and health center managers; (c) academic development of trainers in health management; and (d) provision of strengthening and support to the Health Management Centers (HMCs) in the Institutes of Public Health focused on upgrading the management skills of existing health managers in both entities. iii. Support for health policy formulation and Project management through facilitating monitoring and evaluation of the health sector performance, facilitating policy dialogue, and Project support. 5. Financing Source: Original (U$m) AF (U$m) BORROWER/RECIPIENT Municipalities International Development Association (IDA) Council of Europe Development Bank Subtotals TOTAL (Original and AF) Implementation The project is implemented by the project organization unit of the Federation Ministry of Health supported as necessary by contracted technical assistance, particularly in areas specific to Bank fiduciary management; and the specialized Project Coordination Unit within the RS Ministry of Health and Social Welfare which is used by the Ministry for coordinating all externally financed health and social welfare operations.

5 7. Sustainability Strong commitment by the Entity level and local authorities and their strong involvement in the design of the project argue well for ownership and increases the chance for sustainability of activities. The Family Medicine component would support activities addressing rationalization of existing health centers and human resources, which are expected to realize some savings in existing operating costs, which will be redeployed to sustain new investment in higher quality ambulantas and other facilities with more efficient space utilization. The whole approach of family medicine aims at redistribution of PHC staff and, therefore, improves sustainability. Close involvement of the Health Insurance Funds and of the Public Health Institutes in project implementation are essential to ensure that these types of requirements for redistribution of resources are planned carefully and implemented to achieve sustainable improvement. 8. Lessons Learned from Past Operations in the Country/Sector The project design builds on key lessons learned from analytical work, Bank-financed health projects in BIH and other ECA countries, and international best practices. IDA has gained considerable experience with project implementation in BIH as well as throughout the region. Some of the main lessons are clear, including: (i) health sector reform is a lengthy, politicized process and expectations for the reform process have been too optimistic for both the Bank and the client countries; (ii) institutional aspects of reform are as important as technically proficient strategies; (iii) greater attention needs to be paid to the political economy of the reform through marketing reforms to lawmakers, the medical community and the public; (iv) simple projects with relatively uncomplicated implementation arrangements are more likely to succeed; and (v) adequate resources need to be committed for the Bank to be able to guide project implementation. Successful reform of Primary Health Care has been shown to involve coordinated and comprehensive interventions across a number of dimensions: (i) training, (ii) professional development, (iii) organization and ownership of service delivery, (iv) financing and related incentives for staff, and (v) legislation and regulation governing standards and norms. The project design includes all five areas. 9. Safeguard Policies (including public consultation) The scaled up Project will trigger the Bank s Environmental Safeguard Policy Due to the nature of the works to be supported through the Project including significant rehabilitation and reconstruction of facilities within existing building footprints, an upgrade of the Project Environmental Rating from Category C to Category B is proposed. It is expected the project will not generate any large scale and significant environmental and social impacts. The construction of new health care centers will be done on the available municipal lands that are not being used in any manner and thus will not imply any of involuntary resettlement issues. The criteria for selecting these sites and the prohibition against resettlement will be set out in the legal documents between the Bank and the Bosnian authorities. Environmental Management Plans of both entities, addressing the mitigation measures related to the construction and medical waste management, have been developed, reviewed by the Bank team s environmental and safeguard specialists, disseminated and discussed in-country, and have been disclosed via the Bank's Public Information Center prior to Appraisal. 10. List of Factual Technical Documents 11. Contact point

6 Contact: Kari L. Hurt Title: Senior Operations Officer Tel: (202) Fax: (202) For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: