FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Human Development Sector Unit Southeast Europe Department Europe and Central Asia Region Document of The World Bank FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 16.5 MILLION (US$25.5 MILLION EQUIVALENT) TO THE REPUBLIC OF KOSOVO FOR A KOSOVO HEALTH PROJECT (P147402) April 10, 2014 Report No: XK 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.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective: February 2014) Currency Unit = US$ SDR 1 = US$1.54 Euro 1 = US$1.37 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ANC BDMS BPHS CA CBK CS CPS CQS DALYs DC DPs ECA EU FM GDP GOK HFA HI/ HIF HIFIS HIL HMIS HNP HQ IBRD ICB IDA IDF IFRs IMF IMR IPF IPH IRR IT LuxDev KFMIS MCH MoF Ante Natal Clinic Budget Development Management System Basic Package of Health Services Credit Agreement Central Bank of Kosovo Consultancy Services Country Partnership Strategy Consultants Qualification Disability Adjusted Life Years Direct Contracting Development Partners Europe and Central Asia European Union Financial Management Gross Domestic Product Government of Kosovo Health Financing Agency Health Insurance/ Health Insurance Fund Health Information Fund Information System Health Insurance Law Health Management Information System Health, Nutrition and Population Headquarters International Bank for Reconstruction and Development International Competitive Bidding International Development Association Institutional Development Fund Interim Financial Reports International Monetary Fund Infant Mortality Rate Investment Project Financing National Institute of Public Health Internal Rate of Return Information Technology Luxembourg Development Cooperation Kosovo Financial Management Information System Maternal and Child Health Ministry of Finance

3 MoH MLGA MoPA MoU MTBF MTEF M&E NCDs NPV QCBS PCU PDO PEFA PIFC PFM PHC PEMTAG POM PPA OP OOP QoC RPA SAA SDC SEE SI SMC STA TVM U5MR UN UNICEF VAT VC WB WHO Ministry of Health Ministry of Local Government and Administration Ministry of Public Administration Memorandum of Understanding Medium Term Budget Framework Medium Term Expenditure Framework Monitoring and Evaluation Non Communicable Diseases Net Present Value Quality and Cost Based Selection Project Coordination Unit Project Development Objective Public Expenditure and Finance Assessment Public Internal Financial Control Public Financial Management Primary Health Care Public Expenditure Management Technical Assistance Project Project Operational Manual Project Preparation Advance Out patient Out of Pocket Quality of Care Regional Procurement Adviser Stabilization and Association Agreement Swiss Development Cooperation South Eastern Europe Sanitary Inspectorate Senior Management Committee Single Treasury Account Time Value of Money Under Five Mortality Rate United Nations United Nations Children s Fund Value Added Tax Video Conference World Bank World Health Organization Regional Vice President: Country Director: Sector Director (Acting): Sector Manager: Task Team Leader: Laura Tuck Ellen A. Goldstein Alberto Rodriguez Daniel Dulitzky Aneesa Arur

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5 REPUBLIC OF KOSOVO Kosovo Health Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT...1 A. Country Context... 1 B. Sectoral and Institutional Context... 1 C. Higher Level Objectives to which the Project Contributes... 5 II. PROJECT DEVELOPMENT OBJECTIVE(S)...6 A. PDO... 6 B. Project Beneficiaries... 6 C. PDO Level Results Indicators... 6 III. PROJECT DESCRIPTION...7 A. Project Components... 7 B. Project Financing C. Project Cost and Financing D. Lessons Learned and Reflected in the Project Design IV. IMPLEMENTATION...11 A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. KEY RISKS AND MITIGATION MEASURES...14 A. Risk Ratings Summary Table B. Overall Risk Rating Explanation VI. APPRAISAL SUMMARY...14 A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social (including Safeguards)... 17

6 F. Environment (including Safeguards) Annex 1: Results Framework and Monitoring...19 Annex 2: Detailed Project Description...25 Annex 3: Implementation Arrangements...35 Annex 4: Operational Risk Assessment Framework (ORAF)...50 Annex 5: Implementation Support Plan...55 Annex 6: Economic and Fiscal Analysis...58 Map IBRD 37048R

7 PAD DATA SHEET Kosovo Kosovo Health Project (P147402) PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSH1 Report No.: PAD849 Basic Information Project ID EA Category Team Leader P C - Not Required Aneesa Arur Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 14-May Oct-2019 Expected Effectiveness Date Expected Closing Date 30-Oct Oct-2019 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Daniel Dulitzky Alberto Rodriguez Ellen A. Goldstein Laura Tuck Borrower: Republic of Kosovo Responsible Agency: Ministry of Health Contact: Health Care Commissioning Agency Telephone No.: Title: Arsim.Qavdarbasha@rks-gov.net Project Financing Data(in USD Million) [ ] Loan [ ] Grant [ ] Guarantee [ X ] Credit [ ] IDA Grant [ ] Other Total Project Cost: Total Bank Financing: Financing Gap: 0.00

8 Financing Source Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) Total Expected Disbursements (in USD Million) Fiscal Year Annual Cumulati ve Proposed Development Objective(s) To contribute to improving financial protection from health spending for the poor and quality of care for priority maternal and child health and non communicable disease services. Components Component Name Cost (USD Millions) Improving financial protection and quality of care Strengthening primary care Project management 1.80 Sector Board Health, Nutrition and Population Institutional Data Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Co-benefits % Health and other social services Health 100 Total 100 Mitigation Co-benefits % I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Human development Health system performance 100 Total 100

9 ... Policy Compliance Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 Legal Covenants Name Recurrent Due Date Frequency Project Steering Committee (SC) X CONTINUOUS Description of Covenant The Recipient shall, not later than 60 days after effectiveness of the Project, set up and maintain throughout implementation of the Project, a Project Steering Committee with a composition of staff, mandate, terms of reference and resources satisfactory to the Association. Name Recurrent Due Date Frequency Senior Management Committee (SMC) X CONTINUOUS Description of Covenant The Recipient shall maintain throughout implementation of the Project, the SMC, with the composition comprising among others directors of the relevant departments in the MoH with terms of reference and resources satisfactory to the Association. Name Recurrent Due Date Frequency Performance Agreements X CONTINUOUS Description of Covenant X X X X X X X X X X

10 . In implementing Part B of the Project, the Recipient shall ensure that MoH enters into an agreement ( Performance Agreement ) with each Participating Municipality, satisfactory to the Association. Name Recurrent Due Date Frequency Independent Technical Audit X Yearly Description of Covenant The Recipient shall carry out through MoH on an annual basis Independent Technical Audits; provide reports of Independent Technical Audits to the Association and promptly implement any recommendations resulting from the Association s review of said reports as the Association may request from time to time. Name Recurrent Due Date Frequency Annual Work Plan and Budget X Yearly Description of Covenant The Recipient shall through MoH prepare and furnish to the Association not later than November 15 of each Fiscal Year during the implementation of the Project, an Annual Work Plan and Budget containing all activities proposed to be included in the Project during the following Fiscal Year and a proposed financing plan for expenditures required for such activities. Name Recurrent Due Date Frequency Memorandum of Understanding Description of Covenant 30-Dec-2014 In implementing Part B of the Project, the Recipient shall, not later than 60 days after the effectiveness of the Project, ensure that MoH enters into a Memorandum of Understanding (MoU) with MoF, satisfactory to the Association to outline the obligation of each agency with respect to the Capitation Payments scheme. Name Recurrent Due Date Frequency Capitation Performance Payments Manual Adoption Description of Covenant X CONTINUOUS The Recipient shall not abrogate, amend, suspend, terminate, waive or otherwise fail to enforce the Capitation Performance Payments Manual and MoU or any provisions thereof without the Association s prior approval in writing. Conditions Source Of Fund Name Type IDA Project Coordination Unit (PCU) Effectiveness Description of Condition The Recipient has established a Project Coordination Unit and recruited staff with qualifications and experience under terms of reference, and with resources satisfactory to the Association. Source Of Fund Name Type IDA Project Operational Manual Effectiveness Description of Condition

11 The Recipient has prepared and adopted, in form and manner a Project Operational Manual satisfactory to the Association. Source Of Fund Name Type IDA Capitation Performance Payments Manual Disbursement Description of Condition No withdrawal shall be made under Category 2 (Capitation Payments under Component 2 of the Project) unless the Recipient has prepared and adopted a Capitation Performance Payments Manual satisfactory to the Association. Source Of Fund Name Type IDA Description of Condition Performance Agreement with Participating Municipalities Disbursement No withdrawal shall be made under Category 2 (Capitation Payments under Component 2 of the Project) unless the Recipient through the MoH has: (i) prepared and adopted developed a Capitation Performance Payments Manual satisfactory to the Association; and (ii) entered into a Performance Agreement, satisfactory to the Association with the respective Participating Municipality. Bank Staff Team Composition Name Title Specialization Unit Johanne Angers Kashmira Daruwalla Senior Operations Officer Senior Procurement Specialist Institutional Arrangements Procurement Annie A. Milanzi Information Specialist Project Document Processes Nightingale Rukuba- Ngaiza ECSH1 ECSO2 ECSHD Senior Counsel Legal Counsel LEGLE Jose C. Janeiro Senior Finance Officer Disbursement Arrangements CTRLA Zlatan Sabic E T Consultant Information Technology ECSH1 Andreas Seiter Senior Health Specialist Pharmaceutical sector HDNHE Bekim Imeri Social Scientist Safeguards ECSSO Aneesa Arur Public Health Spec. Task Team Leader ECSH1 Flora Kelmendi Jonida Myftiu Senior Operations Officer Financial Management Specialist Operations Financial Management ECSH2 ECSO3 Kate Mandeville Young Professional Public Health and M&E ECSH1 Marvin Ploetz Junior Professional Associate Health Economist ECSH1

12 . Non Bank Staff Name Title Office Phone City Locations Country First Administrative Division Location Planned Actual Comments

13 I. STRATEGIC CONTEXT A. Country Context 1. Kosovo remains one of the poorest countries in Europe although there have been considerable gains in poverty reduction thanks to sustained economic growth. The Republic of Kosovo has experienced five consecutive years of economic expansion, growing 4.5 percent per year on average since The headcount poverty rate in Kosovo fell from 45.1 percent in 2006 to 29.7 percent in 2011, but remains high. The low estimated employment rate of only 25.5 percent and the high unemployment rate of above 30.9 percent have contributed to poverty and income insecurity. 2. Kosovo has managed to maintain healthy public finances, but legislative and financing constraints limit the scope for expansionary fiscal policies. Fiscal deficits in 2011 and 2012 were 1.9 and 2.7 percent of GDP, respectively, leaving Kosovo with a public debt-to- GDP ratio of 9 percent. Kosovo s euroized economy is better positioned than most countries in the region and the maximum public debt-to-gdp ratio is fixed at 40 percent by law. In 2012, Kosovo secured support from the International Monetary Fund (IMF) for a 20-month, 107- million Stand-By Arrangement. Still, Kosovo s unresolved status issue remains a key barrier to achieving political integration and socioeconomic development. However, the EU has determined that there are no legal obstacles for Kosovo to open negotiations for a Stabilization and Association Agreement (SAA), making Kosovo a potential candidate for EU membership. B. Sectoral and Institutional Context 3. Kosovo has some of the worst health outcomes in Europe; Maternal and Child Health, respiratory conditions and circulatory diseases are key health priorities. Life expectancy at birth in Kosovo is 70.2 years 1, which is 10 years lower than the European Union (EU) average of 80.2 years. The latest available estimates suggest an Infant Mortality Rate (IMR) of 9-11 per 1,000 live births 2. These IMR levels are double the EU IMR of 4.1 per 1, Moreover, these figures are based on routine reporting and there is a high likelihood that they are under-estimates 4. Perinatal and respiratory conditions including Tuberculosis are among the top causes of mortality across the population as a whole 5 while perinatal causes, respiratory conditions and diarrhea account for the main causes of infant mortality 6. As is the case with other 1 World Development Indicators National Institute of Public Health of Kosovo, International country comparisons suggest that Kosovo performs better than countries at its income level in terms of infant and maternal mortality. However, since these figures are based on routinely reported data which are likely under-estimates of mortality, the extent to which Kosovo outperforms its income comparators is not clear. 4 By comparison, UNICEF, for instance, estimates an IMR of per 1,000 live births and a U5MR of 69 per 1,000 live births, although these are based on older data UNICEF, downloaded from Reliable and recent survey data from neighboring Albania (Albania DHS 2011) indicates considerably higher IMR and U5MR in Albania, which is likely to have similar or better mortality levels. 5 National Institute of Public Health of Kosovo UNICEF, downloaded from 1

14 countries in the region, Non Communicable Diseases (NCDs) are an emerging priority and circulatory disease is already a major cause of morbidity and mortality Emerging epidemiologic patterns indicate that preventing and managing risk factors for NCDs at the primary care level will be critical to improve health outcomes and financial sustainability of the Kosovar health system. Although data on service delivery for NCDs in Kosovo is limited, data from the ECA region suggest highly probable gaps in the delivery of population-based services to prevent and manage risk factors for NCDs like cardiovascular disease. Improving health results for key risk factors like hypertension and high cholesterol in Kosovo will likely require expanded coverage of health education, counseling and testing services at primary care combined with improved financial access to anti-hypertensive drugs and statins. Experience in the region, and elsewhere, also highlights the importance of strengthening primary care and its gatekeeping role in the context of health insurance. 5. Total health expenditure and the health share of the government budget in Kosovo are low relative to regional and GDP per capita comparators, indicating the need to increase public spending on health. The Government of Kosovo s spending on health was 2.6 percent of GDP in and health accounted for approximately 9 percent of total government spending in These are below the average for South Eastern Europe (SEE) and the EU average, which in 2011 were approximately 13 percent of general government spending and 5 percent of GDP, and among the lowest in Europe. Furthermore, analyses show that in 2011 health spending in Kosovo was below global averages for per capita GDP comparators indicating that there is a strong case for increasing public spending. 6. Partly as a result of limited public spending on health, Out of Pocket (OOP) spending is high and contributes to impoverishment. OOP spending at the point of service accounted for about 40 percent of total spending on health in According to the WHO, countries with OOP shares below percent of total health spending are typically able to assure financial protection from health expenditures for their populations, which suggests that Kosovo fails to meet the WHO s macro criterion for financial protection. The high OOP spending contributes to impoverishment in Kosovo with an estimated 7 percent increase in the poverty headcount associated with health OOP payments Drugs account for a large share of OOP spending, and making them more affordable is essential to improve quality of care and health outcomes. Public spending on pharmaceuticals is very low approximately US$16 per capita per year in The implications of a limited budget are compounded by weak procurement systems. As a consequence outpatients visiting public health facilities typically leave with a prescription for drugs that are then purchased at a private pharmacy and paid for in cash. This results in high OOP spending on drugs and supplies which account for 85 percent of OOP spending. 7 National Institute of Public Health of Kosovo Ministry of Economy and Finance, Republic of Kosovo. 9 Estimates based on Household Budget Survey Estimates based on the Household Budget Survey In comparison, Turkey, which has fairly good coverage for pharmaceuticals, spent roughly US$110 per capita per person in

15 8. Shortages in drugs and supplies at health facilities simultaneously increase OOP spending, depress use through poor perceived quality of care and result in poor outcomes for those who do use care. Essential medicines, especially injectables, are lacking in the Primary Health Care (PHC) sector. At the tertiary level, as well, only 20 percent of medicines were available Drugs and supplies are not the only constraint to improving quality- improving provider practices will be essential to improve outcomes; this will require better incentives, skills and other quality improvement interventions. In general coverage for essential MCH services is relatively high but gaps in quality of care for those who receive services remain a constraint to improving health outcomes. To illustrate, although coverage for Ante Natal Care (ANC) is quite high with over 77 percent of pregnant women receiving 4 or more ANC visits, only about a fifth received ANC in the first trimester 13. Over a third of women who got ANC did not undergo basic examinations and check-ups. Communication and counseling on danger signs and healthy behaviors was especially weak. Less than half of ANC clients were informed about problems during pregnancy or counseled on using preventive medication. While clinical guidelines and protocols for many conditions have been developed, adherence tends to be poor with limited quality oversight or support, and poorly functioning referral systems. Furthermore, provider knowledge and skills may be an important underlying concern. With the deterioration of the situation in Kosovo during the 1990s the quality of education suffered as education was provided through a parallel system, and this had an impact on the quality of medical training as well. 10. Fragmented responsibilities for primary and secondary care combined with line item budgets do not offer adequate incentives to improve quality of primary care services and expand coverage of cost-effective preventive care services. The Ministry of Health (MoH) is responsible for hospital care in Kosovo, while Municipalities are responsible for primary care service delivery and receive a capitation-based grant for service delivery from the Ministry of Finance (MoF). This fragmentation in responsibilities and financing makes oversight of primary care services by the MoH difficult in the absence of appropriate incentive structures and coordination mechanisms. Provider payments from Municipalities to primary care facilities are based on line item budgets, and do not offer strong incentives to focus on improving quality of care or to expand cost-effective preventive services that could lower hospital costs. 11. The proposed mandatory health insurance scheme could improve financial protection, particularly for the poor, and raise additional revenues to increase public spending on health. The MoH has begun a comprehensive health sector reform to address these concerns. The cornerstone for these reforms is the introduction of a mandatory health insurance system. A Health Insurance Law (HIL) that provides the legal basis and overarching design for the proposed mandatory health insurance system was passed by Parliament on April 10, An autonomous Health Insurance Fund (HIF), to be created under the HIL, will be responsible for implementing the mandatory health insurance system including collecting insurance revenues, purchasing services and monitoring and oversight of service delivery. An agency within the MoH, the Health Financing Agency (HFA), is currently responsible for purchasing health 12 UNICEF Maternal and Child Health in Kosovo: A way forward. 13 UNICEF Quality of Ante Natal Care now and then. 3

16 services. The HFA within the MoH will initially be responsible for implementing health insurance functions and will transition into the HIF which will take on the responsibility of implementing mandatory health insurance from the MoH under the Health Insurance Law. As presented to Parliament for ratification, the HIL introduces a mandatory health insurance scheme which will cover a Basic Package of Health Services (BPHS) at primary care facilities and hospitals. Insurance premiums will be defined as a payroll tax set at 7 percent split equally between employer and employee for public sector employees and formal private sector employees 14. Family members of insured individuals in the formal sector will be automatically covered. All other non-exempt individuals will be required to pay a flat amount monthly premium of The HIL also includes robust protections for the poor and vulnerable groups. The poor, identified through one of the best-functioning administrative systems in the region, will be exempt from premiums and any cost-sharing. Furthermore, within the BPHS a sub-set of services, including emergency care, services for uninsured children and essential public health services are guaranteed to all. Depending on levels of enrollment among individuals employed in the informal sector and their families, the estimated additional net i.e., after the additional costs of implementing health insurance revenues per year are projected to be in the range of 31 million to 71 million in the first year of premium collection The MoH plans to introduce an outpatient (OP) drug benefit as part of the mandatory health insurance scheme to reduce OOP spending on drugs among the insured. Currently, the majority of outpatient drugs prescribed to patients in primary care have to be purchased in a private pharmacy and paid for by patients in cash as public sector facilities have stock-outs. By contrast, the supply chain to private pharmacies appears to be robust: 4-5 major wholesalers supply most retail pharmacies which are well-stocked and serve patients who are unable to get the drugs from public facilities. The proposed OP drug benefit will enable patients with a prescription from public sector facilities to obtain drugs included in the OP drug benefit package from contracted private pharmacies. The future HIF will reimburse contracted pharmacies for covered drugs at a pre-negotiated rate. The OP benefit is expected to considerably expand access to drugs among the insured, and specifically among the poor. The poor, who are exempt from premiums and other cost-sharing contributions for health services, will gain access to OP benefit package drugs with no copayments, while the non-exempt will be subject to copayments to be set by the HIF. Copayment policies will regulate the demand for drugs, and will take into account potential net benefits from lowering or eliminating copayments for high public health impact drugs, such as anti-hypertensives or statins to manage NCD risk factors. Under the HIL, the proposed OP drug benefit will be funded through health insurance net revenues and drugs included in the package will be expanded as insurance revenues expand. The OP drug benefit will be introduced in a phased manner, starting with an initial publicly funded pilot. 13. The mandatory health insurance reform also creates an opportunity to improve quality and expand coverage of priority primary care services if the right incentives are 14 Operationalized in the draft HIL presented to Parliament as individuals working in Value Added Tax (VAT)-registered private sector firms with an annual turnover of 50,000 euros or more. 15 These estimates are net of administration costs for the HIF and both the premiums for exempted groups and public sector employees. The estimate varies widely depending on the final parameters of the mandatory health insurance scheme, including contribution rates, exemption categories and administration costs. Initially, administrative costs for the health insurance scheme are expected to be relatively low as the Health Insurance Fund will continue to pay contracted health facilities based on line item budgets and gradually make the transition to activity-based payment mechanisms. 4

17 created through performance-based purchasing mechanisms. The success of the mandatory health insurance reform depends critically on well-functioning primary care services both to improve enrollment among individuals who work in the informal sector, and to assure the financial sustainability of the health insurance system. Recognizing this concern, the HIL also enables the HIF to enter into performance contracts for primary care, which would be funded through net health insurance revenues. These performance contracts are a tool to incentivize improvements in quality of care and coverage for priority primary care services. Since primary care services will continue to be funded through the Specific Health Grant from the MoF to Municipalities, performance contracts could give the HIF leverage over service delivery and outcomes at the primary care level. While creating the right incentives is essential, investments to improve provider capacity to respond to these incentives through training, implementation of clinical guidelines and pathways, and information systems support will be a key link in the chain to better health outcomes. 14. The proposed reforms have the potential to transform the health sector in Kosovo and address the main health sector constraints to improving financial protection and health outcomes. Experience from other countries indicates, however, that implementing these reforms successfully will require considerable institutional capacity and investments in systems to support implementation along with strong health sector oversight and monitoring. C. Higher Level Objectives to which the Project Contributes 15. The main objectives of the Country Partnership Strategy (CPS) (Report No XK) of May 1, 2012, are to support Kosovo to: (i) accelerate broad-based economic growth and employment generation; and (ii) improve environmental management. The CPS recognizes health as a priority citing the low health outcomes in Kosovo, and highlights the need for major investments in quality of basic health care services. The Project is not, however, included in the list of proposed lending in the CPS due to constraints in the lending envelope for Kosovo at the time of the CPS. However, IDA resources became available subsequently to support a health sector project in FY14, and the Project directly addresses the health concerns identified in the CPS. 16. The Project is also directly aligned to the Government s health sector reform strategy and will support the implementation of the Government s reform agenda. This reform agenda is farreaching and the mandatory health insurance reform proposed has the potential to transform the Kosovar health sector by raising more revenues for the health sector and presents an opportunity for purchasing reforms to improve both quality of care and the efficiency with which the limited resources are used. Legislative changes to facilitate these reforms are at an advanced stage. The Health Law, which was passed in December 2012, enables the implementation of the planned performance purchasing reforms, and a Health Insurance Law, which provides the legal framework for a mandatory health insurance scheme, was passed by Parliament on April 10,

18 II. PROJECT DEVELOPMENT OBJECTIVE(S) A. PDO 17. The proposed Project Development Objective (PDO) is to contribute to improving financial protection from health spending for the poor and quality of care for priority maternal and child health and non communicable disease services. B. Project Beneficiaries 18. The Project s main beneficiaries would be the population of Kosovo who will benefit from: (i) increased financial protection from health care expenses; and (ii) improvements in the quality of primary health care and hospital services. It is anticipated that the poor in Kosovo, identified through proxy means testing, will be a specific beneficiary group for the Project since the HIL is expected to exempt the poor from health insurance contributions and any cost-sharing for health care or drugs covered under the HIL. Women and children will also benefit from the Project as the MoH plans to prioritize improvements in quality of care for MCH services. Special attention will be given to reach underserved populations, including the Roma, through capitationbased performance payments to improve primary care service delivery in areas with Roma populations. Health sector stakeholders would also benefit from capacity building and other support provided under the Project. These stakeholders include: Municipalities, health facilities and providers at these facilities. Finally, the private pharmaceutical sector could also benefit from the Project as public spending on drugs could increase. 19. Gender. The Kosovo Health Project is gender-sensitive and addresses many genderrelated aspects of health care, including maternal and reproductive health services for women at the primary care and hospital levels. Performance incentives to improve primary care service delivery will motivate improvements in quality and coverage for MCH services for women. The Project will support improvements in quality for MCH services across levels of care, in line with the MoH s priorities, and will also fund equipment to provide improved MCH services. In addition, the Project will strengthen results monitoring by the purchasing agency initially the HFA and subsequently the future HIF. These results indicators for purchasing will be disaggregated by gender. C. PDO Level Results Indicators 20. The PDO indicators are as follows: Percentage of the poor who are enrolled in mandatory health insurance; Outpatient drug benefit scheme established and functional based on pre-defined operational criteria; and Percentage of participating municipalities where at least 75 percent of the agreed quality targets were achieved in the preceding one year. 6

19 III. PROJECT DESCRIPTION A. Project Components The Project will include the following three components: Component 1: Improving financial protection and quality of care (US$11.2 million equivalent) 21. This component will build institutional capacity to implement health sector reforms to improve financial protection and quality of care. It will finance capacity building and goods, services, training, and equipment to support the design and implementation of effective reforms, communications to manage the reforms, monitoring and evaluation of the reforms and upgrades of health information systems, including capacity building activities. Sub-component 1.1: Improving financial protection (US$4.8 million equivalent) 22. The main policy tool through which the proposed Project seeks to improve financial protection is the introduction of mandatory health insurance. The HIL provides the legal basis and overarching policy direction to the proposed mandatory health insurance system. Under the HIL, an autonomous HIF will be in charge of implementing mandatory health insurance on behalf of the state. Before the HIF is established and functional, the HFA in the MoH will be responsible for implementing mandatory health insurance during a transition period. The activities proposed under this sub-component will support the HFA in the MoH, and, once established, the HIF, to develop and implement critical functions and systems for the mandatory health insurance scheme. 23. This will include the following activities: (i) Support to finalize policy, regulation, and operational systems design; (ii) Building capacity to implement mandatory health insurance through training of HIF, HFA, University Clinical and Hospital Services staff and facility staff, twinning arrangements with well-functioning HIFs, study tours and secondments of experienced HIF personnel to the HIF in Kosovo. The capacity building plan will be developed in tandem with the plan for the expansion of the scheme; (iii) Investments into information systems to support the implementation of mandatory health insurance, including the purchase of Diagnosis Related Groups (DRG) software; (iv) Support to the MoH to develop design parameters for an outpatient drug benefit system, including parameters for contracting outpatient pharmacies, and to build capacity to establish and implement a benefit management system; and (v) Support to the MoH to design and implement communications activities to inform the public about their rights and responsibilities under the reform and gather public feedback. Communications activities will also include support to design and develop communications activities for health sector stakeholders, including MoH and health facility staff. Sub-component 1.2: Improving Quality of Care (US$6.4 million equivalent) This sub-component includes three main sets of activities to improve quality of care across the health system. 7

20 24. Improving Quality of Care (QoC). This sub-component of the proposed Project will finance investments in priority MCH equipment for primary care facilities and hospitals, and the development of a maintenance system for existing equipment at primary care facilities and hospitals. In addition, it will also support training of key actors to implement the National Quality of Care Strategy with a specific focus on training for Quality Coordinators, who are current focal points for implementing quality of care initiatives at the primary care and hospital level. Directors of Health and Social Welfare, who have responsibilities for primary care in municipal government, will also be given training in managing performance agreements. This subcomponent will also support quality-related training for the newly created Professional Service Line administrative units. The Professional Service Line administrative units are advisory bodies within the University Clinical and Hospital Services responsible for making recommendations on quality-related issues and for improving the integration of health services across levels of care. 25. Strategic purchasing of primary care services. Activities in this area seek to improve access to and quality of priority services at the primary care level, including MCH and NCD services by building the capacity of the HFA, and its successor, the HIF, to enter into performance agreements to purchase improvements in primary care services with Municipalities. It is anticipated that performance incentives created through these performance agreements will incentivize facility staff to improve physical access to incentivized services and increase quality of care. Activities under this sub-component will support the MoH and HFA/ HIF to design, and build capacity to implement performance purchasing agreements with Municipalities including training for HFA, Municipality and health facility staff. This sub-component will also finance an annual independent technical audit to be implemented by a firm to verify the number of beneficiaries, whether the targets in the performance agreements have been achieved and whether payments made under the performance agreements were calculated correctly. 26. Cross-cutting investments in Information Systems. The Project will finance the following investments in information systems to improve QoC: (i) Development of an E- health Development Framework to provide a long-term framework for policy making, regulation, data quality management, implementation management and operations of information systems in health care in Kosovo; (ii) Development and implementation of data analytics and reporting systems for the Institute of Public Health (IPH) so that timely analyses of health sector data are available for decision making and oversight in Kosovo. This will include the development of a reform scorecard and the generation of periodic performance reports for health facilities; and (iii) Support to develop and implement an e-prescription system with modules for health facilities, HIF and pharmacies to provide accurate and timely information on the prescription and dispensing of drugs and medical supplies. Component 2: Strengthening primary care (US$12.5 million equivalent) 27. This component seeks to improve access to and quality of priority services at the primary care level, including MCH and NCD services, and therefore, to contribute to enhancing the sustainability of the mandatory health insurance reforms and improving population health outcomes. The component will finance capitation payments linked to performance. It is anticipated that these capitation payments conditioned on performance will strengthen incentives to improve access to and the quality of priority primary care services. Within the MoH, the HFA 8

21 will be responsible for managing the capitation payments. Once the HFA transitions its functions to the HIF, the HIF will be responsible for managing capitation payments and will take over the HFA s role in the institutional arrangements related to the implementation of this component. Ultimately, it is envisaged that these payments will be financed through health insurance net revenues via performance agreements between the HIF and Municipalities, or directly between the HIF and primary care facilities. The Project may finance a proportion of these capitation payments up to the end of Project, with Project financing tapering off by year 3 as the revenues mobilized by the HIF increase and can be channeled to purchasing primary care services strategically. This component would cover all Municipalities in Kosovo, although implementation will be phased and Municipality participation may be voluntary. 28. The capitation payment linked to performance will cover only incremental expenditures required to improve access to and quality of primary care services, and has been determined to be an initial average amount of 2.4 per capita by the MoH 16. As this is an average cost, it may be adjusted for the specific circumstances of individual Municipalities (for instance, remote areas would require more per capita resources) by the HFA in negotiations with individual Municipalities. 29. The MoH will enter into a Memorandum of Understanding (MoU) with the MoF outlining the responsibilities of each with reference to capitation-based performance payments. The MoH will enter into annual renewable performance agreements with Municipalities, and, once established, the HIF. Within the MoH, the HFA will be responsible for managing capitation payments linked to performance made to Municipalities. The HFA will also agree with each participating Municipality on annual performance goals for each of the indicators to ensure that progress is achieved each year. For every performance indicator, an annual target will be defined in the performance agreement. Two distinct mechanisms will be implemented to verify the number of participants receiving services and the achievement of the performance goals. On one end, the MoH, through the HFA, will monitor and evaluate the services delivered by the Municipalities as part of its essential public health functions and report the application of incentives and, if relevant, sanctions. This will be done on a rolling basis throughout the fiscal year. In parallel, the Project will finance (through Component 1) annual independent technical audit, carried out by a firm, which will validate the number of beneficiaries receiving services, the achievement of the performance targets, and whether capitation-based performance payments made to Municipalities were calculated correctly. A capitation performance payments manual, which will outline the standard operating procedures for implementing this component, will be developed under sub-component 1.2. This manual will be a disbursement condition for funds under this component. 30. Implementation of component 2 will be phased to learn lessons and fine tune design and implementation arrangements before expanding. As far as possible, the phasing will mirror the 16 The MoH and Municipalities calculated that the cost of providing primary care services financed through the Specific Health Grant, i.e., excluding the cost of drugs, would be 62.8 million (total) or per capita in 2015 and projected to increase to 65.9 million (in total) or per capita in However, the resources that are available to support delivery of this package of services are calculated to be per capita in 2015 and 27.4 per capita in The proposed average capitation-based performance payment amount of 2.4 per person (i.e., approximately US$ 3.3 per person) are average per capita costs of delivering a sub-set of priority primary health care services to MoH standards of quality. 9

22 expansion of the new provider Health Information System (HIS) under sub-component 1.2, which will facilitate performance reporting by facilities and Municipalities. Initial implementation will be in Pristina Municipality and three other Municipalities from the Prizren Region which are pilot sites for the new HIS. At the end of one year of implementation, the experience will be assessed and scaled up to cover other participating Municipalities over time. Component 3: Project management (US$1.8 million equivalent) 31. This component will support the strengthening of the capacity of the MoH to carry out the technical and administrative management of the Project, including the financing of audits, equipment and operating costs. B. Project Financing 32. The proposed Project will take the form of an Investment Project Financing (IPF) implemented over a five-year period. The IPF instrument is appropriate for the proposed operation because it will finance reforms and capacity building as well as direct investments that are critical to further implement health sector reforms, such as investments in information solutions. The Project will address key priorities for the improvement of the health sector, but Project funds will cover only a small part of total health sector investment needs and account for a very small proportion (annually on average around 1.68 percent) 17 of health sector revenues estimated as a combination of general budget revenues and net additional revenues from the mandatory health insurance system. However, Project funds will be catalytic since they will support institutional capacity building to implement transformative health sector reforms, including mandatory health insurance which is expected to generate additional resources for the health sector. C. Project Cost and Financing Table 1: Project Costs by Component (In US$ million equivalent) Project Components Project Cost IDA Financing % Financing 1. Improving financial protection and quality of care 1.1 Improving financial protection 1.2 Improving quality of care % 2. Strengthening primary care % 3. Project management % Total Project Costs Total Financing Required Average yearly Project funds (US$ 5.1 Million for 5 years) as a percentage of the general budget revenues of the MoH according to the proposed budget 2014 plus specific health grants for municipalities plus the expected baseline gross revenues under the new mandatory health insurance scheme in its first year of premium collection, assumed to be 2015 in the analysis. 10

23 D. Lessons Learned and Reflected in the Project Design 33. The Project incorporates lessons from health system reforms in the region, and from recent research. The ECA Regional Health Report, Getting Better: Improving Health System Outcomes in Europe and Central Asia, analyzes the long-term diverging trend in health outcomes between ECA countries and the EU-15 to identify key policy ingredients to close this gap. These include: (i) Strengthening public health and primary care interventions to achieve the cardiovascular revolution that has improved health outcomes in the EU-15 in recent years; and (ii) Improving financial protection, and ensuring a more efficient use of resources. Projectsupported interventions directly incorporate both of these elements. 34. Project implementation uses country systems to the extent possible to minimize fragmentation in financing, and minimize administrative burden. Project financing is incorporated into the public budget and funds for the capitation-based performance payments will flow through the Kosovo Financial Management System. This reflects international best practice in development assistance. 35. The Project also incorporates lessons learned from the health sector component of the Economic Policy and Public Expenditure Management Technical Assistance Project (PEMTAG- P078674). The PEMTAG project included a US$1.26 million health sector reforms component which aimed to shift spending towards primary care and to improve mechanisms to allocate health care resources. Although most of the planned outputs of this component were completed, outcome targets were met only partially mainly because of a combination of limited ownership, slow procurement, limited capacity in the MoH and the lack of a functional HMIS. While these challenges remain, some of them are no longer a major concern. Support for the introduction of health insurance is high in the MoH, and is likely to remain high even with a leadership change as support for the reform extends across the political spectrum in Kosovo. Support for purchasing reforms is also likely to remain high since it will improve the sustainability of the health insurance system. A state of the art HMIS is being developed with support from a Development Partner. The Project design includes a strong emphasis on capacity building among critical technical agencies to address capacity constraints. The MoH has started with the recruitment of key expertise to initiate procurements and facilitate speedy implementation, although capacity remains a concern. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 36. The Project will be implemented over a period of five years. The MoH will be responsible for the technical implementation of the proposed Project, and will have fiduciary responsibility for the Project through its PCU. The HFA, a unit with the MoH, will act as a key counterpart for the technical implementation of activities related to mandatory health insurance and purchasing reforms. Once the HIF is established and becomes functional, the HIF will take over purchasing and insurance-related functions performed by the HFA and become the key counterpart to the MoH on the technical implementation of activities related to mandatory health insurance and purchasing reforms. The National Institute of Public Health (IPH), an institute 11