PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB4270 Health Transformation and Social Security Reform Project.

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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.: AB4270 Health Transformation and Social Security Reform Project Region EUROPE AND CENTRAL ASIA Sector Health (70%); Other social services (30%) Project ID P Borrower(s) REPUBLIC OF TURKEY Republic of Turkey, Under-secretariat of Treasury Inonu Bulvari 36 Emek Turkey Tel: Fax: Implementing Agency Social Security Institution Tuna Caddesi No: 7, Kizilay Turkey Tel: (90-312) Fax: (90-312) Ministry of Health Ataturk Bulvari No: 65 Kizilay Turkey Tel: (90-312) Fax: (90-312) Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared November 12, 2008 Date of Appraisal December 1, 2008 Authorization Date of Board Approval March 31, Country and Sector Background Due to the recent downturns in the global economic environment and its potential negative implications for the Turkish macroeconomic environment, sound fiscal policy has become even more important for the period of the proposed project (July 2009-July 2013). In this period, developments in health expenditures will be a key determinant for fiscal sustainability since public expenditures on health already constitute a significant portion of general government spending (around 13 percent in 2007). Therefore, expenditure management in social security and health sectors becomes a priority in order to maintain fiscal space Turkey s Gross Domestic Product (GDP) per capita is the lowest among OECD countries, and is about mid-range as compared to other Middle-income Countries (MICs). 1 Since 2002, Turkey has been 1 Other MICs in this case includes the following countries: Argentina, Brazil, Chile, China, Czech Republic, Hungary, Indonesia, India, Mexico, Slovak Republic, Thailand and Uruguay.

2 experiencing strong growth driven in part by the government s commitment to sound economic policies and a lenient international economic environment. Output increased more than a third in this period the strongest growth performance among OECD members. Annual GDP growth (based on the recently revised GDP estimates) averaged 6.8 percent in the period GDP reached US$ billion, and GDP per capita reached US$ 9,333 in The World Bank s growth forecast for Turkey in 2008 is in the 3-4 percent range and growth in 2009 is expected to be similar, but is subject to a high degree of uncertainty given global conditions. The main question facing Turkey is whether capital inflows can be maintained to avoid a disorderly unwinding of foreign exchange exposure, which lies mostly in the corporate sector. Key to understanding how global conditions could play out in Turkey is a detailed understanding of vulnerabilities in the public sector, the private sector, and the financial sector. While the performance of the Turkish health sector has improved considerably in the last few years, including during the implementation of the Government s Health Transformation Program, there are key challenges facing the health sector. The main challenge is to continue to improve health outcomes in Turkey which ensuring fiscal sustainability of the sector. Since 2003, the World Bank has been financing the Government s Health Transformation program, which is supported by the Health Transition Project. The proposed project supports Phase II implementation of the HTP. Objectives The overall Program objective is to improve the governance, user and provider satisfaction and long-term sustainability of the health sector in Turkey. The specific objectives of this second phase of the APL (Health Transformation and Social Security Reform Project) would be achieved through: (i) providing assistance for institution building of the Ministry of Health and the Social Security Institute and enhancing the efforts of these institutions to design and manage the proposed program of change and achieve the intended outcomes, and (ii) piloting output-based financing for non-communicable diseases (NCD) prevention and control. 2. Rationale for Bank Involvement The Bank has been active in the health sector in Turkey for the last two decades. It has financed four lending operations as well as provided analytical and advisory services, especially on health insurance reform. Major health reforms are included in the programmatic Development Policy Loan series (Programmatic Public Sector Development Loan or PPDPL). From the GoT s perspective, the Bank s global knowledge and technical experience in health reforms and institutional development makes it an important partner for the implementation of the Health Transformation Program. Monitoring and evaluation of these reforms and increasing results-orientation in the public sectors, as well as the health sector, is increasingly considered by the GoT as instrumental for sustainability and here too, the Government is looking towards the Bank for technical support. From all these perspectives, the Bank is uniquely positioned to contribute to Phase II implementation of the HTP. The proposed project is consistent with the new Country partnership Strategy which supports Turkey s Ninth Development Plan ( ). 3. Description Lending instrument The total loan amount is US$166 million. The Bank s investment lending support for the implementation of the Health Transformation Program would be a second-phase adaptable program investment loan (APL) to be implemented over a period of five years.

3 4. Financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 166 Total Implementation (a) Partnership arrangements (if applicable) There is no parallel or co-financing from other international agencies. Nevertheless, close coordination has been maintained during project preparation with relevant agencies working on the health sector in Turkey (EU, WHO, UNICEF). The Bank jointly financed with WHO, technical assistance for the development of the MoH Strategic Plan, and has maintained coordination with UNICEF on family medicine and primary health care. (b) Institutional and implementation arrangements The proposed project will be individually implemented by the MoH and SSI. The Project Management Support Unit (PMSU) of the MoH and the Project Implementation Unit (PIU) established under Phase I of the APL will continue with their functions of coordination. Line Departments of MoH and SSI will be responsible for project implementation and day-t-day project activities such as drafting consultant terms of reference (TORs), selecting consultants and signing contracts. This arrangement was initiated during the restructuring of the Health Transition Project and has worked well. Line departments have built their capacity in project management and feel a sense of ownership and responsibility vis-à-vis the Bank finance project. The MoH PMSU has played a key role is supporting capacity building in the management of Bank projects and coordinating vis-à-vis the Bank, including managing the fiduciary dimensions of the project. The budget for the project (both counterpart financing and World Bank financing) will be included in the annual budgets of the MoH and SSI. Two Special Accounts (SA) for the project will be established at the Central Bank of Turkey and the MoH PMSU and the SSI PIU will be responsible for managing the account. The MoH and SSI will be responsible for managing counterpart financing. The proposed operation supports the MoH s five year strategic plan and is fully aligned with the Ministry s annual planning and budgeting process. Each year (around July), MoH will share with the Bank an annual plan and budget for implementation of the project. During the July mission, the progress to date and achievements during the previous year will be reviewed and any major concerns or development on the policy front will be discussed with the Bank and alternative scenarios discussed and agreed. In September, a short Bank mission will review final agreements with the MoH. The choice of July is guided by the fact that the Ministry of Finance normally issues its budget circular in May and line ministries produce their draft annual budget by end July. Between July and September this budget is discussed and by end-october it is officially submitted. The MoH is not expected to produce a five year procurement plan for the project but rather an annual procurement plan to accompany the budget and implementation plan.

4 For SSI, a more traditional project implementation mode is adopted and SSI is expected to produce an ex-ante five year implementation plan and procurement plan, which can be flexibly reviewed during implementation support missions and adapted as needed. 6. Sustainability There are two aspects to sustainability financial and institutional. Institutional sustainability of the reforms supported through the proposed operation depends on the passage of enabling legislation as well as the effectiveness of capacity building interventions. There is always a risk in Turkey that relevant laws such as the MoH restructuring law and the hospital autonomy law will not be passed and these reforms will not be implemented. However, one of the lessons learned from Phase I implementation of the HTP is that the MoH has managed to successfully implement reforms and generate impact on the ground despite the difficult environment for passing laws. For example, the Social Security and Universal Health Insurance Law was adopted by the National Assembly in 2006, although since then it has been subject to constitutional court challenges. Again, these challenges were addressed and overcome and the Law will be implemented, albeit with some modifications on the pension side. Financial sustainability is a concern since an actuarial analysis of the implementation of universal health insurance in Turkey shows that in the absence of appropriate cost management measures, expenditures on UHI are expected to grow rapidly, generating fiscal sustainability and fiscal space concerns for the GoT. To address these concerns, strong SSI capacity in the health financing functions of revenue raising, risk pooling and strategic purchasing is a must. A major objective of the proposed operation is to build this capacity. 7. Lessons Learned from Past Operations in the Sector The proposed operation takes into account the main lessons learnt from past operations in the health sector in Turkey, the findings from a recent review of the HTP (OECD-World Bank Review of the Health Sector: Turkey) as well as information from global good practices in health reforms. The main lessons learned and incorporated into project design are follows: (a) While the Health Transformation Program has improved health sector performance, challenges remain: The HTP in many ways reflects good practice in the development and implementation of a major health reform program. While it is too early to evaluate the impacts of the HTP on all aspects of health status, financial protection and consumer satisfaction, the preliminary indications from the available data suggest important progress in all three areas. (b) Results-based Financing as a Way to Improve Health Sector Performance: The proposed operation has a strong focus on results-based financing. It will support an output-based financing component that will help the MoH pilot test a positive incentive based payment system for family doctors and community health centers, support the MoH pilot test an expansion of the current performance-based payment for hospitals to include clinical indicators and support capacity building in implementing a performance-based budget. These interventions are buttressed by rigorous impact evaluations to allow learning before scaling-up the interventions. (c) Delinking project implementation from the passage of laws: One key lesson learned in the health sector as well as from the implementation of other investment projects in Turkey is to limit linkages between investment operations and legislative reforms, with these reforms mainly supported though policy dialogue, analytical and advisory services and development policy lending.

5 (d) Strong Government Ownership is Necessary: The current Health Transition Project has enjoyed very strong Government ownership since it became effective, and in fact by linking the project entirely to the Government s Health Transformation program this ownership was guaranteed. (e) Flexibility in Design and Implementation: One of the lessons learned from the implementation of the Health Transition Project is the importance of flexibility in project design and implementation. (f) The need for a realistic and client-drive Results Framework: Previous Bank projects in Turkey were rated unsatisfactory for development outcomes. This was due to multiple reasons, including poor identification and tracking of a realistic set of project outcome indicators. The Results Framework for the Health Transition was restructured to make it more realistic and achievable during the project time frame. Safeguard Policies (including public consultation) 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 ] List of Factual Technical Documents Concept Note OECD-WB Health Report School of public Health Preliminary Report on Output-Based Financing for Public Health and Preventive Health Care by George Purvis Contact point Contact: Sarbani Chakraborty Title: Sr. Health Specialist schakraborty1@worldbank.org Location: Sofia, Bulgaria For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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