FOR OFFICIAL USE ONLY

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 26.7 MILLION (US$41 MILLION EQUIVALENT) AND Report No: KE PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF US$20 MILLION FROM THE MULTI DONOR TRUST FUND FOR HEALTH RESULTS INNOVATION AND RESTRUCTURING TO THE REPUBLIC OF KENYA FOR A HEALTH SECTOR SUPPORT PROJECT December 3, 2013 Health, Nutrition and Population Unit (AFTHE) Eastern Africa 2 (AFCE2) Africa Region 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 November 21, 2013) Currency Unit = Kenyan Shilling K.Sh.86.1 = US$1.0 US$ = SDR FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing AFCE2 World Bank Office: Nairobi Eastern Africa 2 AFTHE Health Nutrition and Population, Eastern and Southern Africa AIDS Acquired Immunodeficiency Syndrome AIE Authorization to Incur Expenditure APHIA AIDS, Population and Health Integrated Assistance CBK Central Bank of Kenya CDD Community Driven Development CDH County Departments of Health CHC County Health Committee CIDP County Integrated Development Plan CMU County Management Unit CPS Country Partnership Strategy CRW Crisis Response Window DANIDA Danish International Development Agency DfID U.K. Department for International Development DHIS District Health Information System DHMT District Health Management Team EAC East African Community EACC Ethics and Anti-Corruption Commission EMMS Essential Medicines and Medical Supplies ERS External Resources Sections FBOs Faith Based Organizations FM Financial Management FY Fiscal Year GAC Governance and Anti-Corruption GAVI Global Alliance for Vaccines and Immunization GFATM Global Fund to fight HIV/AIDS, Tuberculosis and Malaria GoK Government of Kenya GDP Gross Domestic Product HFMC Health Facility Management Committee HIV Human Immunodeficiency Virus ii

3 HMIS Health Management Information System HRH Human Resources for Health HRITF Health Results Innovation Trust Fund HSSF Health Sector Services Fund IAD Internal Audit Department IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IFMIS Integrated Financial Management Information System IFR Interim Financial Report IIFRA Integrated Independent Fiduciary Review Agency IPSAS International Public Sector Accounting Standards JFA Joint Financing Agreement KACC Kenya Anti-Corruption Commission KDHS Kenya Demographic Health Survey KEMSA Kenya Medical Supplies Authority KENAO Kenya National Audit Office KEPH Kenya Essential Package for Health KHSSP Kenya Health Sector Support Project KIPPRA Kenya Institute for Public Policy and Research KSG-eDLi Kenya School of Government e-learning and Development Institute K.Sh. Kenya Shilling M&E Monitoring and Evaluation MDG Millennium Development Goals MoH Ministry of Health MoMS Ministry of Medical Services MoPHS Ministry of Public Health and Sanitation MTP Medium Term Plan NHIF National Hospital Insurance Fund PAC Principal Accounts Controller PE Printed Estimates PEFA Public Expenditure and Financial Accountability PETS Public Expenditure Tracking Survey PDO Project Development Objective PFM Public Finance Management PS Principal Secretary RBF Results Based Financing SAI Supreme Audit Institution SCoA Standard Chart of Accounts SOE Statements of Expenditure SWAp Sector Wide Approach TCIP Transparency and Communications Infrastructure Project TSA Treasury Single Account TTL Task Team Leader UNICEF United Nations Children s Fund USAID United States Agency for International Development iii

4 UCS VMPP WBG WBI Use of Country Systems Vulnerable and Marginalized People s Plan World Bank Group World Bank Institute Vice President: Country Director: Acting Sector Director: Sector Manager: Task Team Leader: Makhtar Diop Diarietou Gaye Tawhid Nawaz Olusoji O. Adeyi Gandham N.V. Ramana iv

5 KENYA HEALTH SECTOR SUPPORT PROJECT CONTENTS Additional Financing Data Sheet... vi I. Introduction...1 II. Background and Rationale for Additional Financing...2 III. Proposed Changes...7 IV. Appraisal Summary...14 Annex 1. Revised Results Framework...18 Annex 2. Operational Risk Assessment Framework (ORAF)...28 Annex 3. Detailed Description of Modified or New Project Activities...33 Annex 4. Revised Estimate of Project Costs...41 Annex 5. Revised Implementation Arrangements and Support...44 Annex 6. Summary of Original Project Performance...57 v

6

7 . ADDITIONAL FINANCING DATA SHEET Kenya Kenya Health Sector Support Project - Additional Financing ( P ) AFRICA AFTHE Basic Information Parent Parent Project ID: P Original EA Category: B Partial Assessment Current Closing March 31, 2015 Current EA Category: B Partial Assessment Date: Project ID: Regional Vice President: P Makhtar Diop Country Director: Diarietou Gaye Basic Information Additional Financing (AF) Additional Financing Type (from AUS): Scale Up Proposed EA Category: B - Partial Assessment Expected Effectiveness Date: March 31, 2014 Sector Director: Tawhid Nawaz Expected Closing Date: December 31, 2016 Sector Manager: Olusoji O. Adeyi Report No: PAD725 Team Leader: Gandham N.V. Ramana Borrower Organization Name Contact Title Telephone Ministry of Finance Dr. Kamau Thugge Principal Secretary +254(20) ps@treasury.go.ke Key Dates Project Ln/Cr/TF Status P IDA P IDA Project Financing Data Parent ( Health Sector Support-P ) Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date Effective 29-Jun Jul Sep Mar Mar-2015 Effective 20-Dec Feb May Mar Mar-2015 P TF Closed 28-Jan Feb May Feb Jun-2013 vi

8 Disbursements Project Ln/Cr/TF Status Curren cy Origina l Revise d Cancell ed Disburse d Undisburse d P IDA Effective USD P IDA Effective USD P TF Closed USD % Disbursed Project Financing Data - Additional Financing Kenya Health Sector Support Project - Additional Financing ( P ) [ ] Loan [X] Grant [ ] Other [X] Credit [ ] Guarantee Total Project Cost: US$61.00 million Financing Gap: 0.00 Total Bank Financing: US$41.00 million Financing Source Additional Financing (AF) Amount (US $m) BORROWER/RECIPIENT 0.00 International Development Association (IDA) Multi Donor Trust Fund for Health Results Innovation (HRITF) Total Policy Waivers Does the project depart from the CAS in content or in other significant respects? Explanation No Does the project require any policy waiver(s)? Explanation No Team Composition Bank Staff Name Title Specialization Unit Gibwa A. Kajubi Senior Social Senior Social AFTCS Development Specialist Development Specialist Rekha Menon Sector Leader Sector Leader AFTHD Eva K. Ngegba Program Assistant Program Assistant AFTHE Wachuka W. Ikua Senior Operations Officer Senior Operations Officer AFTHE Gandham N.V. Ramana Lead Health Specialist Team Lead AFTHE vii

9 Nyambura Githagui Lead Social Development Specialist Lead Social Development Specialist AFTCS Yi-Kyoung Lee Senior Health Specialist Senior Health Specialist AFTHE Henry Amena Amuguni Sr Financial Management Specialist Sr Financial Management Specialist AFTME Joel Buku Munyori Senior Procurement Senior Procurement AFTPE Specialist Specialist Joyce Cheruto Bett Team Assistant Team Assistant AFCE2 Hope Nanshemeza Team Assistant Team Assistant AFCE2 Non Bank Staff Name Title Office Phone City Yvonne Machira Nairobi Isabel Waiyaki Consultant Locations Country Kenya First Administrative Division Location Planned Actual Comments Institutional Data Parent ( Health Sector Support-P ) Sector Board Health, Nutrition and Population Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Cobenefits % Health and other social Health 94 services Public Administration, Law, Public administration- 6 and Justice Health Mitigation Cobenefits % Total 100 Themes Theme (Maximum 5 and total % must equal 100) viii

10 Major theme Theme % Human development Other communicable diseases 33 Human development Health system performance 17 Human development Child health 17 Human development HIV/AIDS 17 Human development Population and reproductive health 16 Total 100 Additional Financing Kenya Health Sector Support Project - Additional Financing ( P ) Sector Board Health, Nutrition and Population Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Co-benefits % Mitigation Co-benefits % Health and other social services Health 100 Total 100 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 40 Human development Other human development 20 Human development Child Health 20 Human development Population and Reproductive Health 20 Total 100 ix

11 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit to scale up the Republic of Kenya Health Sector Support Project (KHSSP: P IDA Credits 4771-KE and 5034-KE). The IDA Credit of US$41 million equivalent will be complemented by a grant of US$20 million from the Multi Donor Trust Fund for Health Results Innovation (MDTFHRI). In addition, this Project Paper seeks approval of the Executive Directors of a restructuring comprising of: (i) revision of the Project Development Objective (PDO); (ii) modification of the project components and scope of work; (iii) revision of the results framework to measure the outcomes associated with the revised PDO and scope of work; (iv) adjustment to the implementation arrangements; and (v) extension of the project closing date from March 31, 2015 to December 31, The proposed additional credit along with the HRITF grant would help to finance the cost of the scale up activities and subsequent restructuring of the project to effectively respond to changes in the Kenyan health system due to ongoing devolution, scale-up Results Based Financing (RBF) to further enhance the impact of the project and join government s efforts towards achieving universal health coverage specifically targeting the poor. The original project is well performing and the recent mid-term review rates the progress towards development objectives and implementation satisfactory. 3. The restructuring will align the implementation arrangements of the project with the devolved health system whereby the 47 recently created counties will be responsible for delivering essential health services, and the national government for policy making and technical oversight for achieving the national objectives using new instruments such as conditional grants to counties. In addition to scaling-up the RBF, which was successfully piloted under the original project, the Additional Financing (AF) will support government policies to improve access to primary health care services with priority focus on maternal health (Millennium Development Goal (MDG) 5 by eliminating payment at the point of service delivery and scaling up introduction of health insurance subsidies for the poor working in coordination with the social protection sector. The International Finance Corporation (IFC) will be providing technical support to strengthen provider network in rural areas by supporting initiatives to improve service quality improvement and franchising private sector. 4. Partnership arrangements. Several partners are showing interest to support Kenyan government s effort to achieve universal health coverage. The Japanese Government has shown interest in co-financing the innovations proposed under the AF. The HRITF is supported by the United Kingdom Department for International Development (DfID) and Norwegian Government. The AIDS, Population and Health Integrated Assistance plus (APHIA plus) program of the United States Government is currently piloting RBF in Western Kenya and keen to join IDA in assessing its impact to inform their support for further scale-up. The Global Alliance for Vaccines and Immunization (GAVI) and Global Fund to fight HIV/AIDS, Tuberculosis and Malaria (GFATM) are also showing keen interest in joining RBF. The Danish International Development Agency (DANIDA), which has been co-financing the Health Sector Services Fund (HSSF) grants is keen to work directly with counties and will be reviewing its support. 1

12 II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING A. Country Context 5. Kenya s economy continues to stabilize gradually, but it still remains vulnerable to internal and external shocks. Kenya s economy is still operating below its potential. However, given the domestic and global environment, the growth rate of 4.6 percent achieved in 2012 is considered satisfactory and Kenya s poverty level is estimated to have declined from 47 percent in This will be confirmed by the new household survey. After a peaceful election and transition in 2013, growth is projected to rise to 5.7 percent in 2013 and 6.0 percent in 2014, supported by lower interest rates and higher investment growth. B. Sector Policy and Strategy 6. After a period of stagnant and even deteriorating health indicators in the 1990s, Kenya has started to make progress. The Kenya Demographic Health Survey (KDHS 2008/09) shows remarkable declines in infant and under-five mortality from 77 to 52 and from 115 to 74 per 1,000 live births during the period from 2003 to Successful vertical health programs such as immunization, tuberculosis, malaria and HIV/AIDS are believed to have contributed to these gains in addition to the overall improvements due to sustained economic growth and poverty reduction. Despite these notable improvements in child health, the prevalence of stunting has not changed significantly over the past few years, with over a third of Kenyan children stunted. 2 The maternal mortality ratio remained stubbornly high (around 530 per 100,000 live births 3 ), and achievement of MDG 5 remains out of reach. With child mortality getting increasingly concentrated in the neonatal period, further acceleration of child mortality reduction to achieve MDG 4 is closely linked to improvements in care during pregnancy and childbirth. In contrast, Kenya is most likely to achieve MDG 6 with its sustained efforts to prevent and control HIV/AIDS, malaria and tuberculosis. However, health inequities - both geographic and economic - continue to remain. 7. Health services in Kenya are provided by a wide range of players consisting of public, faith based, private not for profit, and private for profit sectors. About 40 percent of services are estimated to be provided by the private sector, and public health services at primary care facilities are utilized by the poor. Women and children in many remote areas rely particularly on services provided by the faith based organizations. 8. During the past few years the government has made serious efforts to improve service delivery and strengthen governance in the health sector. The key reforms include improved procurement and phased introduction of the pull system of supply to all public health facilities. Drawing rights established for each health facility now determine the quantity of orders they place depending on their specific needs. Based on the findings of the Public Expenditure 1 World Bank Kenya Economic Update Kenya Demographic Health Survey Trends in Maternal Mortality Estimates developed by WHO, UNICEF, UNFPA and The World Bank

13 Tracking surveys and building on pilots supported by DANIDA in the coastal region, a direct facility cash transfer program called Health Sector Services Fund (HSSF) has been introduced which is now covering over 3000 public primary facilities. The initial lessons from the HSSF suggest improvements in facility management and involvement of local communities in decisions related to improving service delivery. 9. Kenya still needs to develop a comprehensive health financing strategy to ensure financial protection for the poor and sustainable financing. The total health expenditure in Kenya in absolute value increased by nearly 50 percent from US$1,046 million in 2001/02 to US$1,620 million in 2009/10. During the same period, per capita expenditure increased from US$34 to US$42, which is more than the minimum levels recommended by the Commission for Macro Economics and Health for delivering the essential health package. While per capita spending is high, the government health expenditures as a percentage of total government expenditures declined from 8.0 percent in 2001/02 to 4.6 percent in 2009/10. The contribution from private sector, including households out-of-pocket spending, has decreased from a high of 54 percent to 37 percent, while contribution by donors has more than doubled, from 16 percent to 35 percent during the same period. However, a significant part of external financing still remains off-budget targeting few diseases. 10. Kenya s health financing architecture is changing with the devolution. Nearly two thirds of the Government of Kenya (GoK) historical health budget has been devolved to counties in FY as a part of the equitable share. Counties will have total freedom to allocate funds across all sectors based on their identified priorities. The constitution also envisaged conditional grants to counties from the national level to support priority national initiatives. Thus, the devolution provides a unique opportunity to address some of the challenges faced by the health sector in improving accountability by bringing administration as well as resources closer to people. However, there will be some initial challenges which need to be addressed complemented by appropriate capacity building to effectively deliver quality essential health services. C. Contribution to Higher Level Objectives 11. The proposed AF is fully consistent with the Country Partnership Strategy (CPS) which aims to support government efforts to: (i) unleash Kenya s growth potential; and (ii) ensure that growth contributes to reduced inequality and social exclusion, including increasing access to basic essential health services for the poor. PDOs are consistent with the focus of the CPS. The proposed AF supports government s efforts to target the poor and focus on results that contribute to the achievement of MDGs that Kenya is lagging behind. Currently, a new CPS is under preparation and initial indications suggest that it should have strong emphasis on supporting devolution with focus on improving services for the poor. 12. The AF is fully consistent with the Bank's Africa Regional Strategy, which aims to enhance governance and public sector capacity to improve systems for delivery of basic health services. Finally, by supporting government s effort to eliminate payment at point of service delivery for essential health services and introducing financial protection for the poor through health insurance subsidies, the AF is well aligned with the new World Bank strategy of promoting shared prosperity. 3

14 D. The Original Project Background and Performance 13. The KHSSP, the original project approved by the Board of Executive Directors on June 29, 2010 for an amount of SDR 66.2 million (US$100 million equivalent), became effective on September 30, It was followed on December 20, 2011 by a first AF of SDR 35.9 million (US$56.8 million equivalent) under the IDA Crisis Response Window (IDA CRW) to provide emergency nutrition response to drought-affected populations and further enhance support for ongoing reforms. 14. The original PDOs are to: (i) improve the delivery of essential health services for Kenyans, especially for the poor; and (ii) improve the effectiveness of planning, financing and procurement of pharmaceuticals and medical supplies. The HSSF component of the KHSSP is co-financed by DANIDA through its Health Sector Support Program III. At the time of the first AF the first PDO was revised to include drought affected populations. 15. The PDOs were to be achieved through two mutually complementing components. The first component supports effective and transparent implementation of the Kenya Essential Package for Health through HSSF grants and performance strengthening while the second component supports improved availability of essential health commodities and supply chain management reform. Detailed activities under each sub component implementation arrangements and proposed changes are summarized in Annex The progress towards achievement of the PDO and implementation of the KHSSP has been consistently rated satisfactory. The project has met, or is on track to meet its targets, as detailed in the recent mid-term review. Out of the seven PDO level indicators, four have exceeded the targets set for 2013 and two indicators have almost been achieved. The district health management information data of Ministry of Health (MoH) suggests that during FY , 39.5million individuals directly benefited from the project and over half of them (21.3 million) were females. During this period, the value fill rate of the facilities under the pull system of supply 4 was around 88 percent, and 85 percent of the facilities receiving the HSSF grants have met the core financial management requirements. The MoH nutrition surveillance data suggests that nearly two thirds of the children admitted with severe acute malnutrition have recovered. The number of children fully immunized, however, remains stagnant around 1.2 million; 5 especially the coverage in the North Eastern region remains lower than the envisaged target due to frequent disruption of services. Detailed updates on program performance are provided in Annex As of November 2013, 96.9 percent of Credit (4771-KE) has been disbursed. About 24.5 percent of the additional financing provided under IDA CRW number 5034-KE has been disbursed, and nearly two thirds (65%) of the US$40 million allocated for Essential Medicines 4 The pull system is an ordering mechanism which makes the facilities responsible for their orders based on their needs i.e. demand driven. In the past the system was operated as a push system by which the Ministry of Health determined the quantity to be received by each facility i.e. supply driven. 5 The health management information system is being upgraded to a web based program (DHIS 2) and currently reporting rates are around 80%. 4

15 and Medical Supplies (EMMS) has been committed by the Kenya Medical Supplies Authority (KEMSA). 18. All covenants under the Financing Agreements have been complied with. All external audits and interim financial reports have been submitted and accepted by the Bank, and there are no qualified external audits. The MoH is currently reviewing the findings of recently shared interim report of the risk based internal audit. E. Rationale for Additional Financing 19. The proposed AF and restructuring of the ongoing operation will help to better align IDA s support to Kenya s devolved health system with enhanced focus on results. It will also support the Government s commitment to improve access to quality health services for women and children in rural areas with a focus on the poor. 20. Kenya s new constitution (August 2010) provides an overarching framework for a more comprehensive rights-based approach towards health care. The constitution promulgated after the original project became effective devolves power and accountability to deliver essential health services to 47 counties. The national government will be providing the broader policy direction. New county and national governments were elected during early 2013, and the transition process which was originally envisaged by the constitution to take three years has been fast-tracked. This requires restructuring of the project to effectively respond to the devolved health system while supporting achievement of the national objectives and ongoing reforms. 21. Providing universal health coverage received priority attention by the new Kenyan government. The President, as a part of the first 100-day agenda of the Government, announced abolition of user fee at primary health care facilities and free maternal health services at all public facilities. The national government has also provided resources for implementing these two reforms in FY budget. The devolved health system and the new government s high commitment to improve access to basic health care and achieve MDGs provide an excellent window for the development partners to join government s efforts by adjusting their ongoing support and provide better targeted attention that is relevant and responsive to the current needs and aspirations of Kenyans. 22. The KHSSP remains an important vehicle for supporting the new reforms and building systems. The KHSSP is a government led operation supporting the key reforms started in the health sector to provide direct cash transfers to primary health facilities to improve quality of care and local decision making, and introduce pull system of supplying essential medicines and medical supplies. These ongoing reforms now need to be better aligned with the evolving changes in the health system and shifting emphasis on results and quality of care while ensuring improvements in service delivery to poor and underserved populations. 23. The MoH wants to scale-up the RBF initiative, which was successfully piloted in Samburu County under the KHSSP with support from the knowledge and learning grant under the HRITF. The most recent validation of this pilot started in November 2011 has shown the following: 5

16 There was increased utilization of family planning, antenatal care, delivery, immunization and child welfare services; There were also improvements in the average clinical quality scores for all the key output indicators. In addition, the average cross-cutting quality score improved from 63 percent to over 90 percent for most facilities; and The RBF helped in improving the District Health Information System (DHIS) through validation. 24. Encouraged by the positive results and improved retention of the health staff in hard to reach areas, the MoH is scaling up this initiative to arid and semi-arid counties. The HRITF donors approved a grant of US$20 million to support this important initiative. Other partners are also showing interest in supporting RBF scale-up. 25. To enhance equitable access to health care, the MoH is also keen to introduce health insurance subsidies for the poor. This has always been part of the project, but could not be started due to time taken to finalize the institutional and governance issues. Currently, a technical working group constituted by the MoH is finalizing the protocol and implementation arrangements for the first phase of this initiative in partnership with key stakeholders under the guidance of the MoH. 26. The county health systems need support for sustained capacity development in evidence based planning, budgeting, program management and monitoring and evaluation. This should be done through competency based training offered by institutions based in the country which are effectively networked offering standardized curriculum. Similarly, the national government also requires technical support for effectively performing its new normative functions and roles covering areas such as design of conditional grants to counties. 27. The two main options considered are to provide AF or to prepare a new operation. Considering the need to sustain the progress made during the past two years and avoid disruptions in service delivery, it is proposed to provide AF that builds on lessons learnt from ongoing reforms and uses the constitutional provision of conditional grants to counties that enhance mutual accountability. Further, the institutional strengthening and impact assessment of the RBF and health insurance subsidies for the poor will inform government to come up with an appropriate follow-on operation. 6

17 III. PROPOSED CHANGES Summary of Proposed Changes The PDO will be modified to provide better focus on improving utilization of health services by women and children rather than the entire population as advised during the concept review. Change in Implementing Agency Yes [ X ] No [ ] Change in Project's Development Objectives Yes [ X ] No [ ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ X ] No [ ] Change in Loan Closing Date(s) Yes [ X ] No [ ] Cancellations Proposed Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ X ] No [ ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ X ] No [ ] Change in Financial Management Yes [ X ] No [ ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ X ] No [ ] Other Change(s) Yes [ ] No [ X ] Project s Development Objectives Original PDO Development Objective/Results The original project's development objectives are to: (i) improve the delivery of essential health services for Kenyans, especially the poor; and (ii) improve the effectiveness of planning, financing, and procurement of pharmaceuticals and medical supplies. Change in Project's Development Objectives Explanation: The proposed change in the first PDO will ensure better focus on improving delivery and utilization of health services by women and children. This will be better aligned with the project support and government's commitment to make progress towards MDGs. No changes are proposed in the second PDO P 7

18 Proposed New PDO - Additional Financing (AF) To improve (i) the delivery of quality essential health and nutrition services and utilization by women and children especially among the poor and drought affected populations; and (ii) the effectiveness of planning, financing, and procurement of pharmaceutical and medical supplies. Change in Results Framework Explanation: PHHCRF The proposed changes will include new PDO level indicators: (i) Number of women receiving free delivery services meeting the quality norms at public health facilities; and (ii) Number of poor households receiving health insurance subsidies. PDO level indicators (i.e., (i) HSSF facilities meeting core financial management requirements; and (ii) Fiduciary irregularities reported from HSSF and KEMSA acted upon (during previous quarter)), will be dropped. In addition, revisions are proposed in some of the existing PDO and intermediate indicators. The proposed changes will better align the results framework with the revised PDO and reflect recent changes in health system under the ongoing devolution where newly established counties will be responsible for delivering essential health services. The MoH, which is responsible for the project implementation, will have a broader role in policy setting and providing technical oversight to achieve national objectives. Compliance PHHHCompl Covenants - Additional Financing ( Kenya Health Sector Support Project - Additional Financing - P ) Source of Funds Finance Agreement Reference Description of Covenants Date Due Recurrent Frequency Action IDA Article V The Co-financing Agreement has been executed and delivered and all conditions precedent to its effectiveness, or to the right of the Recipient to make withdrawals under it (other than the effectiveness of this Agreement), have been fulfilled. The MoH, through the Directorate of Policy, Planning and Healthcare Financing, shall have the 31-Mar New IDA Schedule 2, Section I.A.1. CONTINU OUS New 8

19 overall responsibility for management and implementation of the Project. The Recipient shall maintain, until the completion of the Project: (a) the Joint Interagency Coordinating Committee (JICC) at the Cabinet Secretary level; (b) the Health Sector Coordination Committee (HSCC) at Principal Secretary level; and (c) the HSCC-Steering Committee at director level, all with membership and terms of reference satisfactory to the Association. IDA Schedule 2, Section I.A2. CONTINU OUS New IDA Schedule 2, Section II.A.2. The Recipient shall, no later than December 31, 2015, prepare and submit to the Association a midterm report for the Second Additional Credit; and review it with the Association, on or about the date one (1) month after its transmittal to the Association, and thereafter take all measures required to ensure the efficient implementation of the Project and the achievement of its objectives. 31-Dec New IDA Schedule 2, Section II.B.3. The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09(b) of the General Conditions. Each Yearly New 9

20 audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than ten (10) months after the end of such period. Covenants - Parent ( Health Sector Support - P ) Ln/Cr/ TF IDA IDA IDA Finance Agreement Reference Section III E. 2. Section I D. Schedule 2, Section I.D.1 PHHCAFPPrj Description of Covenants Date Due Status Recurrent Frequency Action MOPHS & MOMS would have recruited an independent integrated fiduciary implementation review agent under terms of reference acceptable to IDA by Dec. 31, 2010, now being amended to March 31, No later than April 30 each year, commencing on April 30, 2011, Health SWAp Secretariat shall prepare and furnish to IDA through the PS MOPHS & MOMS for IDA's review, an annual work prog & budget No later than February 28 in each year, the Recipient shall prepare, through the Directorate of Policy, Planning and Healthcare Financing, and furnish to the Association, for the Association s review and approval, an annual work program (including related 30-Jun After delay complied with Complied with Complied with Yearly Yearly Marked for Deletion Revised Proposed 10

21 budget) endorsed by the HSCC, of activities proposed to be carried out under the Project during the following fiscal year. IDA Section II A. 2. A Mid-Term Review would be carried out by December 31, Dec Partially complied with No Change IDA Section III E. 1. All training activities shall be carried out on the basis of plans and budgets submitted annually by MOMS & MOPHS for prior written approval of IDA. Complied with Yearly Revised IDA The Recipient shall ensure that all Training activities shall be carried out on the basis of plans and budgets Section V.1 submitted annually by the Recipient for the prior written approval of the Association. Complied with Yearly Proposed Finance Loan Closing Date - Additional Financing ( Kenya Health Sector Support Project - Additional Financing - P ) Source of Funds IDA Health Results Innovation Trust Fund HRITF Grant Proposed Additional Financing Loan Closing Date 31-Dec Dec-2016 Loan Closing Date(s) - Parent ( Health Sector Support - P ) Explanation: PHHCLCD The extension of the Project closing date will enable implementation of proposed RBF scale-up and Phase I of the health insurance subsidies for the poor. This will also give adequate time to complete the impact evaluation to inform decisions on further scale-up of RBF and insurance subsidies for the poor. Ln/Cr/TF Status Original Closing Date Current Closing Date Proposed Closing Date Previous Closing Date(s) IDA Effective 31-Mar Mar Dec Mar

22 IDA Effective 31-Mar Mar Dec Mar-2015 TF Closed 11-Feb Jun Jun-2013 Allocations - Additional Financing ( Kenya Health Sector Support Project - Additional Financing - P ) Sourc e of Fund IDA Curre ncy SDR Category of Expenditure Goods, services, Training and Operating Costs for Subprojects under Part A.1(a) through (g) of the Project, and for Part A.2.(a) (i) of the Project HISP Subsidies for the poor under Part A.2(b) (i) Goods, Consultants Services and Training under Part A.2 (c) and (e) Allocation Proposed Disbursement % (Type Total) Proposed Total: TF US$ Goods, services, Training and Operating Costs for Subprojects under Part A.1(a) through (g) of the Project, and for Part A.2.(a) (i) of the Project TF US$ HISP Subsidies for the poor under Part A.2(b) (i) Total: Change to Components and Cost Explanation: Components The proposed changes are for scaling up activities under Component one. The sub component on Financing HSSF will be provided additional US$11 million from the IDA credit. In addition, US$14 million grant from the HRITF is proposed to scale-up of RBF to 20 counties in arid and semi-arid regions and support recent government's policy to provide free maternity care in all public health facilities following the RBF model. The sub-component on Enhancing Sector Governance and Stewardship will be provided additional US$30 million from the IDA credit and US$6 million from the HRITF to support: (i) Phase I of health insurance subsidies for the poor (US$14 million from the IDA credit and US$6 million from the HRITF); and (ii) urgent capacity building needs for managing devolved health systems specifically targeting counties, facility in-charges and facility management committees (US$16 million from the IDA credit). A comprehensive impact evaluation will assess RBF and health insurance subsidies 12

23 to support informed decision making to national and county governments on further scale-up. The IFC will be providing technical assistance for the health insurance subsidies to the poor by supporting initiatives to improve quality of care and promoting networks of franchised service providers. The Kenya School of Government will take lead on capacity building and will be supported by the World Bank Institute (WBI) through its e-learning modules and south-south learning initiatives. Two new PDO level indicators (number of women receiving free delivery services and number of poor households receiving health insurance subsidies) are proposed to reflect these changes. Under component two the KEMSA will continue to take the lead and will create the buffer stock as envisaged under the original project. However, the ongoing reform to introduce pull system of supply will depend on County Governments' willingness to procure commodities from KEMSA as the funds for EMMS are now devolved to Counties. Therefore, changes are proposed in the PDO and intermediate results indicators to reflect the new arrangements. Current Component Name Effective and transparent implementation of the Kenya Essential Package for Health (KEPH) through HSSF grants and performance strengthening. Availability of essential health commodities and supply chain management reform Proposed Component Name Effective and transparent implementation of the Kenya Essential Package for Health (KEPH) through HSSF grants and performance strengthening. Availability of essential health commodities and supply chain management reform Current Cost (US$M) Proposed Cost (US$M) Action Revised Revised Total: Change in Implementing Agency Explanation: Other Change(s) The project was being implemented by the Ministry of Public Health and Sanitation which is merged with the Ministry of Medical Services into MoH, which will now have the overall responsibility for implementation. Change in Institutional Arrangements Explanation: 13

24 With the ongoing devolution, the counties will be responsible for delivering essential health services while the national MoH will be responsible for policy formulation, regulation and broader technical oversight. The two Ministries previously responsible for health have now been merged into one and organizational structure has been changed. The newly created Directorate for Policy, Planning and Healthcare Financing will now take the lead on health financing reforms and hence will have the overall responsibility for the project. The IFC will be providing technical assistance for the health insurance subsidies to the poor by supporting initiatives to improve quality of care and promoting networks of franchised service providers. The Kenya School of Government will take lead on capacity building and will be supported by the WBI through its e- learning modules and south-south learning initiatives Change in Financial Management Explanation: The financial management arrangements are updated to ensure that the ongoing direct cash transfers to health facilities will be complemented by specific role envisaged to be played by the counties such as approving the annual operational plans of facilities located in the county, verifying performance, and reporting results as well as consolidated statements of expenditure. These arrangements will be further revised based on the GoK Public Finance Regulations and implementation experiences. Change in Implementation Schedule Explanation: The closing date will be extended to December 31, This will enable full implementation of RBF and health insurance subsidies as planned and completion of the impact assessment to inform future policies on scale-up. IV. Appraisal Summary Economic and Financial Analysis Explanation: PHHASEFA The economic and financial analysis of the original project continues to apply to the AF. Government intervention in the health sector is strongly justified on the grounds of equity, positive externalities and public goods. The government is uniquely placed to provide public goods which are non-excludable and non-rival such as building county health system for effective delivery of health services, regulations of quality of care including medicines, and monitoring and evaluation to ensure informed decision making to improve population level outcomes. Without government intervention, the private sector will not be able to provide for such public goods. Out of pocket payments lead to financial difficulties and push some households into poverty. It is estimated that health care payments push 1.5% of households in Kenya into poverty. Further, empirical 14

25 research shows that 40.5% of households that could not access health care mentioned financial difficulties as the principal reason and this share was higher among the poor compared to non-poor households (51.9% and 32.8% respectively) 6. Payments at the point of service delivery are known to be inequitable and inefficient. The proposed health insurance subsidies under the additional financing will therefore have significant impact on improving access to the poor as well as providing financial protection and potentially improving efficiency and quality of health services. By improving human capital and preventing households from falling into poverty, such targeted subsidies for the poor can contribute to eradicating poverty and boosting shared prosperity. The recent Public Expenditure Tracking and Service Delivery Indicators Study (2013) has shown that Kenyan health providers have high levels of knowledge (around 80%) regarding diagnosis and treatment of common illnesses. But only about half of those who have such knowledge apply it in practice. This highlights the importance of appropriate rewards and sanctions in improving delivery of quality healthcare services. The proposed scale-up of the RBF builds on the experiences from a successful pilot that has shown improved provider availability and increased clinical quality (up to 30%) for essential maternal and child health services such as antenatal care, skilled care at child birth, immunization, growth monitoring, family planning and HIV counseling and testing which are known to be highly cost effective. Thus, the roll out of RBF in underserved arid and non-arid counties of Kenya will contribute to improved access to cost effective and better quality health services. Technical Analysis Explanation: PHHASTA The proposed AF responds to transformational change taking place in Kenya's Health Sector as well as new roles and responsibilities of the two levels of government in the devolved health system. Shifting emphasis on results that are evidence based will help Kenya accelerate progress towards the achievement of maternal and child health MDGs. This will also enable the National Government to perform its oversight function and start using new instruments such as conditional grants to counties. Health insurance subsidies for the poor will help Kenya enhance equity and make progress towards the achievement of universal coverage for which the government has demonstrated a strong commitment and many partners are keen to support. The Phase I will help to test the institutional arrangements and implementation challenges for a nation-wide scale-up. The AF builds complementarity of the broader World Bank Group. For example, targeting of the poor receiving the health insurance subsidies will be based on existing Social Protection database, enhancing quality of care in a step-wise fashion and promoting the growth of networks of private providers will be led by the IFC and capacity building of counties will be supported by the WBI working closely with Kenyan Institutions which ensures better sustainability. The implementation arrangements for conditional grants were agreed during appraisal and the MoH has clarified that the RBF coordination team will be housed under the Directorate of Policy Planning and Healthcare Financing within the MoH and a technical working group for RBF will be established under the Interagency Coordination Committee for Health 6 An empirical model of access to health care, health care expenditures and impoverishment in Kenya: learning from past reforms and lessons for the future. Ke Xu, Chris James, Guy Carrin and Stephen Muchiri, WHO,

26 Financing. The final drafts of operational manuals for free maternity care and RBF were shared with the Bank team. The technical working group for health insurance subsidies for the poor is currently reviewing the cost data shared by the National Hospital Insurance Fund (NHIF) and draft the memorandum of understanding between NHIF and MoH was shared. Social Analysis Explanation: PHHASSA The proposed AF will have strong focus on improving financial access to health care for the indigent population and enhancing the delivery of health services for mothers and children. The Vulnerable and Marginalized People's Plan (VMPP) disclosed at the MoH website has identified potential areas for improving access and use of essential health services by such communities. A check-list has been developed by the MoH to support counties in the implementation of VMPP as counties will now be responsible for delivery of essential health services. A social accountability pilot has been successfully implemented in nine locations of the country representing socio-political dimensions of Kenya. Three aspects of social accountability such as participation, disclosure of information and complaints redress, were given priority. Further, some of the social accountability initiatives are now being scaled-up. The recent public expenditure tracking and service delivery indicators survey has shown that 98 percent of primary health facilities have management committees and nearly 60 percent of them were elected. Three quarters of the facilities were sharing financial information with the public. A majority of users included in the Citizen's Report Card exercise undertaken by Family Care International in two counties said that overall quality of service, waiting time, cleanliness and state of the health centers had improved compared to previous year. Environmental Analysis Explanation: The Project does not support any new constructions. However, delivery of health services for women and children will result in generation of health care wastes. The project envisaged supporting the implementation of national health care waste management plan in five locations. The initial assessment took longer than originally envisaged time and with the ongoing devolution, the counties will now be responsible for delivering essential health services and managing the health care wastes to avoid risks to health staff and general population. Currently, the MoH is following-up in these five counties to implement the plan. The RBF uses compliance with national health care waste management guidelines as one of the cross cutting quality indicators to improve practices of the providers. The experiences of the pilot in Samburu have shown the RBF approach improved provider behaviors. With the new roles and responsibilities of two levels of government in a devolved health system, such approach appears more relevant for sustained improvements in health care waste management for the Kenyan context. The project is supporting scaling-up of RBF to 20 counties while other partners will be supporting the same in some more counties. Risk Explanation: P The ongoing devolution aims to enhance sector governance and improve accountability of providers to citizens. However, till the county health systems are fully institutionalized and funds flow and reporting 16

27 arrangements are in place, there are high risks of disruption in the delivery of essential health services, which are now devolved. While the constitution has envisaged the devolution to be completed over a period of three years, due to political considerations, this process has been fast tracked. Health being one of the major sectors being devolved, one third of the equitable share allocated to counties actually came from this sector. However, counties were not aware that they have to budget for the activities transferred to them resulting in a crisis and some interim arrangements have been made by the Transition Authority and MoH to pay salaries for the staff and provide essential medicines for the first six months. The proposed arrangements for IDA funds flow to the counties using the conditional grants need to be revisited after GoK guidelines are finalized and agreed by all stakeholders, especially counties. Further, the MoH is currently going through a major reorganization to ensure that it effectively plays the new role envisaged by the constitution. This will have an impact on existing sector coordination arrangements and oversight for the partner supported operations till adequate institutional arrangements are put in place and staff get familiarized with the specific requirements of different partners. Despite these risks, the current environment in Kenya provides a unique window of opportunity to support political commitment shown by the government to achieve universal health coverage and improve delivery of quality health services for the poor. The AF will shift emphasis to results by scaling up RBF and use existing institutions to provide focused attention to the poor who are most vulnerable to health risks. Further, the proposed capacity building will help institutional development to manage devolution. 17

28 ANNEX 1. REVISED RESULTS FRAMEWORK Project Name: Team Leader: Product Line: Kenya Health Sector Support Project - Additional Financing (P144197) Gandham N.V. Ramana IBRD/IDA Requesting Unit: Responsible Unit: Country: Kenya Approval FY: 2014 Region: Parent Project ID:. AFRICA P Project Development Objectives Original Project Development Objective - Parent: Lending Instrument: Parent Project Name: Project Stage: Additional Financing Status: DRAFT AFCE2 Created by: Hope Nanshemeza on 05-Aug-2013 AFTHE Modified by: Gandham N.V. Ramana on 26-Oct-2013 Investment Project Financing Health Sector Support (P074091) The original project's development objectives are to: (i) improve the delivery of essential health services for Kenyans, especially the poor; and (ii) improve the effectiveness of planning, financing and procurement of pharmaceuticals and medical supplies. Proposed Project Development Objective - Additional Financing (AF): To improve (i) the delivery of quality essential health and nutrition services and utilization by women and children especially among the poor and drought affected populations; and (ii) the effectiveness of planning, financing, and procurement of pharmaceutical and medical supplies. Results Core sector indicators are considered: Yes. Results reporting level: Project Level 18

29 Project Development Objective Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target Revised Direct project beneficiaries Number Value Date 05-Jul Feb Dec-2016 Comment Source: Health Management Information System (HMIS) reports Source: Based on 12 months HMIS data of FY The new HMIS is still being established and these data needs to be carefully checked Date for end target changed. Despite achieving the target, the utilization is expected to go down during the early phase of devolution. No Change Female beneficiaries Percentage Value Revised Beneficiaries from drought affected areas Sub Type Supplemental Number Value Sub Type Date 05-Jul Feb Dec-2016 Breakdown Comment Source: HMIS Source: DHIS Source: DHIS Cumulative target value Revised Children immunized (number) Number Value Date 05-Jul Feb Dec-2016 Comment Source: HIMS Children under 1 year fully immunized. Source: DHIS report covering FY Due to introduction of End target date changed 19

30 Revised Marked for Deletion Value fill rate of orders for commodities for Primary Health Care facilities received by KEMSA either from counties or facilities HSSF facilities meeting the core financial management requirements of the fund. new program, the reporting rates were only 65%. Percentage Value Date 05-Jul Feb Dec-2016 Comment Source: KEMSA - Enterprise Resource Planning (ERP) Reports Source: KEMSA ERP Reports. The low value fill rate is due to transition and this is now picking up with supplies being reached at KEMSA warehouses. Percentage Value Indicator revised to align with the devolved health system where counties will have resources and flexibility to place orders. Date 05-Jul Feb Mar-2015 Comment Source: Quarterly reports of Independent Integrated Fiduciary Review Agency (IIFRA) Percentage of facilities receiving Source: IIFRA reports. The HSSF funds are released to 774 health centers and 2389 dispensaries which constitute 97% of eligible government health facilities (3229). Not relevant in the devolved health system. 20

31 HSSF funds. Marked for Deletion Marked for Deletion Fiduciary irregularities reported from HSSF and KEMSA acted upon (during the previous quarter) Level 2 and 3 HSSF facilities displaying information as per GoK guidelines Percentage Value Date 05-Jul Feb Mar-2015 Comment Source: MoH based on IIFRA reports and KEMSA complaints database Source: SWAp Secretariat and KEMSA complaints database. MoH acted on 27 complaints and KEMSA on 8 complaints received. Percentage Value Counties will now be responsible for this function which is difficult to monitor from the National level. However, the IIFRA will inform any irregularity in use of funds to county authorities for action which will be monitored by MoH through intergovernmental forum. Date 05-Jul Mar-2015 Comment Source: Project data, DHMT facility supervision report. Information to be obtained from the new supervision checklist The government has removed user fee and the emphasis will shift from performance reporting and verification. 21

32 Revised New New New Severely malnourished children under five receiving treatment recovered Share of planned procurement from EMMS pool completed by KEMSA in the financial year as per GoK guidelines Women receiving free delivery services meeting the quality norms at public health facilities Poor households receiving health insurance subsidies Percentage Value Date 12-Feb Dec-2016 Comment Source: Nutrition Monitoring Reports Source: Nutrition Monitoring Reports Percentage Value Date for end target changed. Date 25-Oct Dec-2016 Comment Source: KEMSA ERP Reports This is to measure effectiveness of procurement Number Value Date 31-Jul Dec-2016 Comment Source: Verified HMIS. The HMIS data requires to be validated before confirming with results. Number Value Date 31-Dec Dec-2016 Comment Source: NHIF reports. The health 22

33 insurance subsidy for the poor program will start with about households and will be scaled-up subsequently. Intermediate Results Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target Revised Marked for Deletion People with access to a basic package of health, nutrition, or reproductive health services (number) Facilities receiving HSSF Funds within 15 days of the beginning of the quarter (percent). Number Value Date 05-Jul Feb Dec-2016 Comment Source: Administrative Reports of HSSF. Estimated population in catchment areas of facilities (levels 2 & 3) benefiting from HSSF. Source: Administrative reports of HSSF. Based on the catchment population covered by the facilities receiving HSSF. Percentage Value Date for end target changed Date 05-Jul Feb Mar-2015 Comment Source: HMIS Reports of Source: HSSF Secretariat No longer relevant as this will be 23

34 HSSF Secretariat Even though funds are being released every quarter, there are still delays. linked to counties sending requests for HSSF releases to MoH and account for funds and performance. Revised Revised Facility management committees having quarterly meetings with minutes of meetings (levels 2 and 3) (percent) Health personnel receiving training (number) Percentage Value Date 05-Jul Feb Dec-2016 Comment Source: The IIFRA reports provide this data based on the sample facilities visited. Level 2=27% (2004). Source: Reports of the IIFRA. Number Value End target date changed. Counties will be responsible for this function. Date 05-Jul Feb Dec-2016 Comment Source: Project data/hssf Secretariat. Number of staff receiving new or refresher training in preceding 18 months. Source: Project data/hssf Secretariat. Number of health staff trained in HSSF and commodity management at facility level. Scope includes the health facility management committee members. In addition, target and date for end target revised. 24

35 Marked for Deletion Level 2 and 3 facilities meeting staffing norms (percent). Percentage Value Date 05-Jul Mar-2015 Comment Source: HIS and HRH database. Level 2 = 3% Level 3 = 34% Staffing at levels 2 & 3 facilities will be the responsibility of counties. Revised Revised Level 2-3 facilities implementing results based financing initiatives (number) Beneficiaries receiving supplementary feeding in the drought affected areas. (Moderately malnourished children under five and moderately malnourished Number Value Date 05-Jul Feb Dec-2016 Comment Source: HMIS and HRH database. Indicator defined as: number of level 2-3 health facilities receiving bonus payments based on the RBF initiative. Source: HMIS Currently 26 facilities in Samburu are implementing PBF which is being expanded to 3 more counties. End target value and date revised. Number Value Date 31-Dec Jun Dec-2016 Comment Source: MoH Nutrition Reports and Source: MoH Nutrition Reports and UNICEF End target date changed 25

36 Marked for Deletion Marked for Deletion pregnant and lactating women) Performance contract between KEMSA and MoMS, and a client service agreement between KEMSA and MoPHS, established and monitored on a quarterly basis (yes/no). Facilities under pull system sending their orders during the previous quarter UNICEF Text Value No Draft contract being revised in the light of devolution of health system and integration of Ministries of Health Yes Date 05-Jul Mar Mar-2015 Comment Source: Project data/project M&E Officer/SWAp Secretariat. Indicator defined as: Four quarterly reports submitted timely every year. Source: Project data/project M&E Officer/SWAp Secretariat. Percentage Value Under the new dispensation the responsibility for placing orders for medicines will be with counties and not MoH. Date 30-Nov Feb Mar-2015 Comment Source: KEMSA database Source: KEMSA database. The process is still evolving. The counties now have the overall responsibility and they can either directly order or 26

37 Marked for Deletion Timely reimbursement to KEMSA documented claims by Ministries of Health (Percent) Percentage Value advise facilities to order. Date 30-Nov Jun Mar-2015 Comment Source: SWAp Secretariat Done for all four quarters of FY No longer relevant as MoH no longer hold these funds. New Counties placing orders for Essential Medicines and Medical Supplies with KEMSA Number Value Date 25-Oct Dec-2016 Comment Source : KEMSA Reports 27

38 . ANNEX 2. OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) Kenya: Kenya Health Sector Support Project - Additional Financing (P144197). Project Stakeholder Risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: The key stakeholders include users of health services, county and national governments and development partners. Inability of the partners and government of Kenya to effectively coordinate their support to counties and devolved health system may result in disruption of services as well as duplication of activities and wastage of precious resources. Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Risk Description: Risk Management: The implementation of HSSF in devolved setting and scaling-up of RBF and Free Maternity care involves a major change in the way that the primary health care services are provided. There will be limitation of institutional capacities of implementing agencies, especially at the county level due to political considerations in selection. Also, MoH needs to be better prepared to play its new role. Such unavoidable teething problems of devolution may adversely affect the achievement of PDO on delivering essential health services to women and children. Some recent measures taken by the MoH will ensure that there will be no disruption of services during FY The intergovernmental health consultative forum that meets every quarter will help to promptly resolve coordination issues and operational bottlenecks. The Ministry of Devolution will facilitate such coordination and the Health Sector Coordination Committee is expected to provide policy direction and strategic oversight to the sector. The Coordination Committee has representation of nongovernment organization and private sector. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Quarterly Recently an intergovernmental health consultative forum has been established to facilitate dialogue between the MoH and the counties. This will be the main mechanism for exchanging views and agreeing on implementation arrangements which are aligned with the functional assignment of activities under the sector. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Risk Management: The MoH is now being reorganized to effectively play its new roles and responsibilities. The newly established Directorate of Policy Planning and Health care Financing is expected to provide leadership for all health financing reforms including RBF, Free Maternity Care and HISP. Once these institutional mechanisms are in place, the project 28

39 There are also capacity risks associated with the management of the supply chain. will be providing appropriate capacity building support in partnership with IFC and WBI. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Governance Rating Substantial Risk Description: Risk Management: The changes in the roles and responsibilities of MoH and counties in policy making and delivering essential health services under the New Constitution may also affect the project governance arrangements. The implementation of the governance action plan (oversight by independent steering committee, access to information, citizen's monitoring and KEMSA reforms) may slow down. The ongoing social accountability measures such as active role Risk Management: The Project will support ongoing efforts by MoH and its development partners to build capacity of county health systems. The focus will be county health teams, facility incharges and management committees to effectively play their respective roles in implementation, validation and oversight. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Risk Management: It is also proposed to support creation of strategic program management units at counties with expertise in health economics, program management, financial management, procurement and monitoring & evaluation. A pool of technical experts will be contracted by MoH to provide hands on support to counties during the transition phase. The support for these initiatives will be demand based and subject to receiving specific requests from the counties. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Shifting to RBF approach in a way helps to shift the emphasis on results and focus energies of both levels of government in achieving results and their verification. The scope of work for the IIFRA will be revised to ensure regular debriefing to counties after the quarterly review. The quarterly meetings of the Intergovernmental Forum for Health will provide a platform dialogue and resolve any governance and integrity issues. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation 29

40 by facility management committees in providing oversight and disclosure of financial information may get adversely affected. The counties may not act on recommendations from the IIFRA. Consequently, there could be risks of misallocations, leakages and physical losses. Risk Management: The project will not support decentralized procurement of pharmaceuticals. KEMSA will be responsible for procurement of Essential Medicines and Medical Supplies following the Bank s International Competitive Bidding procedures. The KEMSA Board has been reconstituted and is focusing on effective implementation of the recommendations made by the task force report on KEMSA reforms. KEMSA is now exploring the option of inviting counties to participate in the Board meetings till its law is amended to ensure their direct participation. Independent Integrated fiduciary and performance review agency will continue to monitor and report on the decentralized activities to counties. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Risk Management: The ongoing social accountability initiatives will be continued focusing on the themes of participation, transparency and effective complaints redress. Based on the lessons from the social accountability pilot in nine locations, the MoH has prepared a comprehensive operational manual and will engage with the counties to implement. The releases of HSSF grants continue to be widely disclosed in newspapers and health facility management committees are taking charge of planning, implementation and reporting on their respective activities and finances. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Project Risks Design Rating Moderate Risk Description: Risk Management: The new organogram for the MoH proposes creation of a new Directorate for Policy 30

41 Due to the ongoing changes in the MoH appropriate institutional arrangements need to be agreed for the sector coordination. Counties may not be willing to accept conditional grants from MoH and may insist on passing funds through county treasuries. Planning and Healthcare Financing which will have the mandate for sector coordination and implementation of the health financing reforms. The institutional arrangements for coordination was agreed with the client during appraisal and reflected in the legal agreements. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Completed Preparation 31-Oct-2013 Risk Management: The Bank team is providing technical assistance to the MoH and the Treasury to develop guidelines for conditional cash transfers. These guidelines will be extensively discussed with counties and other key intergovernmental agencies such as Commission for Implementation of Constitution, County Revenue Allocation Authority, and Transition Authority etc. to ensure ownership and address stakeholder concerns. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Implementation Social and Environmental Rating Moderate Risk Description: Risk Management: The vulnerable and marginalized groups may be excluded or may not optimally benefit from the improved health and nutrition services. The implementation of the health care waste management plan may be further delayed. Program and Donor Rating Substantial Risk Description: Risk Management: While partners still have strong commitment to support the health sector in Kenya, there are concerns about the implications of new institutional arrangements and effectively coordinating their support under the devolved health system. The MoH has disclosed the Vulnerable and Marginalized People s Plan and comments were received from wide ranging stakeholders including media. A check list has been prepared by the MoH which will be used to assist counties in the implementation. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Yearly The National Treasury is now developing a framework for engagement with development partners as well as the medium term expenditure framework which will provide the basis for partner support. The partners are also in the process of either developing or fine tuning their support responding to this framework and set some guiding principles for engaging with counties. Also, the Secretariat for Development Partners in Health, Kenya has been facilitating coordination among different partners engaged in the sector. 31

42 Delivery Monitoring and Sustainability Rating Moderate Risk Description: Risk Management: Monitoring the implementation and timely reporting of the results could be constrained due to capacity constraints and inadequate supportive supervision by counties. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation The proposed scaling-up of RBF may address this concern as payments will be linked to verified performance. Similar arrangement is also proposed for the county health teams for reimbursing the costs of supportive supervision which will be subject to undertaking avisit to the facility to verify the performance using the new supervision checklist and uploading the information in the HMIS. In addition, periodic surveys and an impact assessment are proposed to assess the contribution of new reforms in improving access to essential health services for women and children. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation Yearly Other (Optional) Risk Description: Rating Risk Management: Resp: Status: Stage: Recurrent: Due Date: Frequency: Overall Risk Overall Implementation Risk: Rating Substantial Risk Description: The ongoing devolution will have an immediate impact on the delivery of essential services as systems and procedures for planning, funds flow and implementation are still evolving. While there will be longer term benefits from the proposed institutional development and capacity building, there is need for some priority actions over the interim period (which may not be optimal solutions) to ensure that the recent gains made by Kenya in the health sector are not lost. 32

43 ANNEX 3. DETAILED DESCRIPTION OF MODIFIED OR NEW PROJECT ACTIVITIES 1. A summary of the new and modified activities under the Additional Financing is presented in the table below. A more detailed summary of these activities is given after the table. Project Development Objective Key Components and sub components Original & First AF (CRW) To improve: (i) the delivery of essential health services in Recipient s territory, especially for the poor and the droughtaffected populations; and (ii) the effectiveness of planning, financing and procurement of pharmaceuticals and medical supplies. The PDO were to be achieved through two mutually complementing components: Component I: Effective and transparent implementation of Kenya Essential Package of Health Services (KEPH) 1. The provision of Health Sector Services Fund (HSSF) grants to Beneficiaries to carry out specific development projects designed to ensure the delivery of basic quality health services in an equitable and efficient manner at Level 1, Level 2 and Level 3 (US$33.6 million). Such projects to include: (a) employment of workers, including clerks and guards, and the maintenance, improvement and repairs of facilities; (b) carrying out of outreach work to improve the health of local communities and build awareness among such communities on ways to take charge of improving their own health; (c) capacity building of Beneficiaries, especially in the management of health services; and (d) strengthening the capacity of faith based organizations and private sector health service providers, Proposed Changes To improve (i) the delivery of quality essential health and nutrition services and utilization by women and children especially among the poor and drought affected populations; and (ii) the effectiveness of planning, financing, and procurement of pharmaceuticals and medical supplies. The existing components are still relevant to the Project Component 1: Effective and transparent implementation of KEPH (No change) 1. The provision of HSSF grants to Beneficiaries to carry out specific development projects, including those linked to performance, designed to ensure the delivery of basic quality health services in an equitable and efficient manner at Level 1, Level 2 and Level 3 (US$58.6 million). Such projects to include (a) No change (b) No change (c) provision of free quality maternity services (d) incentives to the health staff linked to performance (e) capacity building of Beneficiaries, especially in the management of health services (No change); (f) strengthening the capacity of faith based organizations and private sector health service providers, including for the coordination of their activities (No change); and 33

44 including for the coordination of their activities. (g) carrying out of innovative activities to improve publicprivate partnerships in counties. 2. Carrying out of a program of activities to strengthen the governance and stewardship capacity of MOMS and MOPHS at the national, provincial and district levels to enhance service delivery (US$12.3 million). Such program to cover, inter alia: 2. Carrying out of a program of activities to strengthen the governance and stewardship capacity of MoH at the national level and health teams at county level to enhance service delivery (US$48.3 million). Such program to cover, inter alia: (a) (i) strengthening the implementation of HSSF; and (ii) the acquisition of vehicles. (b) strengthening KEPH through carrying out of: (i) the phased implementation of financing reforms in the health sector; and (ii) selective pilot activities, studies, capacity building, and monitoring and evaluation; (c) strengthening the KEPH referral system through: (i) capacity building for District hospitals; (ii) establishment of about five model sites for primary health care support; and (iii) evaluation and exchange of experiences among stakeholders; (d) strengthening the Recipient s system of environmental standards through adoption and implementation of appropriate waste management policies and practices; and (e) strengthening the SWAp Secretariat (a) (i) strengthening the implementation of HSSF; and (ii) the acquisition of vehicles (No Change). (b) strengthening KEPH through the carrying out of: (i) a phased implementation of financing reforms in the health sector, including the provision of Health Insurance Subsidies to the Poor (HISP) in a transparent and efficient manner; and (ii) selective successful pilot health activities, studies, capacity building, and monitoring and evaluation; (c) building the capacity of county health systems through the provision of technical assistance, Training and goods. (d) No change (e) strengthening the Recipient s Directorate of Policy Planning and Healthcare Financing and County Departments of Health including creation of strategic planning and management units. 3. Supply and distribution of nutrition supplements (US$12.8 million) to manage severe and moderate acute malnutrition among children under five years of age and moderately malnourished pregnant and lactating 3. No change 34

45 women in drought affected districts. 4. Supply and distribution of Blanket Supplementary Foods to children under five years of age and pregnant and lactating women in drought affected districts 4. Supporting innovative approaches to improve nutritional status of children under five years of age, and pregnant and lactating women. Component II. Essential health commodities and reform of procurement and supply chain management Carrying out of a program to improve the availability of EMMS to enhance the quality of care provided by the public health system, such program to include measures to strengthen, inter alia: Component II. Essential health commodities and reform of procurement and supply chain management (No change) 1. KEMSA, in the key functions of procuring, warehousing and distributing EMMS through: (a) the acquisition of EMMS; and (b) the provision of related KEMSA Operating Costs (US$48 million under original project and US$44 million under first additional financing); and 2. MOMS and MOPHS, in procurement planning and financing of EMMS (US$6.1 million). 1. KEMSA s governance and transparency in the key functions of procuring, warehousing and distributing EMMS. KEMSA will complete the planned procurement to fully establish the buffer stocks. Appropriate governance structures will be created to ensure transparent use of this buffer stock/fund available at KEMSA will be responsive to counties 2. MoH and County Departments of Health in procurement planning and financing of EMMS (US$6.1 million). Implementation arrangements The project is implemented by Ministry of Public Health and Sanitation working closely with the Ministry of Medical Services. The Secretariat for the Sector Wide Program and Secretariat for the Health Sector Services Fund are responsible for the day to day implementation of the first component while the KEMSA is responsible for procurement of EMMS under component two. The recent changes in the health sector architecture with the integration of two Ministries into one National Ministry of Health (MoH) and devolution of health system require changes in existing implementation arrangements. The newly created Directorate of Policy, Planning and Health Care Financing in the MoH will now have the overall responsibility for implementing health financing reforms including the KHSSP. The Directorate will have a dedicated coordination unit responsible for day to day oversight. Under the devolved health system, the 47 35

46 counties will be responsible for delivering the KEPH. Therefore, the HSSF implementation arrangements will be modified to transfer funds as Conditional Grants under the oversight of counties. The process will start with counties approving facility plans and including them in the integrated development plan of the county reflecting funds received from all sources in their budgets. The counties will also compile and provide one consolidated report to the MoH for the HSSF conditional grants. Similarly, the GoK funds for supply of EMMS have been devolved to counties which need to maintain the allocations while KEMSA has to demonstrate its ability to respond to requests received ensuring transparency and responsiveness. Covenants Schedule 2 Section 1 A. In order to assist the Recipient in the implementation of the Project, the Recipient shall maintain, until the completion of the Project: (a) the JICC at the ministerial level; (b) the HSCC at Permanent Secretary level; and (c) the HSCC-Steering Committee at director level, all with membership and terms of reference satisfactory to the Association. Schedule 2 Section I A1. The MoH, through the Directorate of Policy, Planning and Healthcare Financing, shall have the overall responsibility for management and implementation of the Project Schedule 2 Section I A2. The Recipient shall maintain, until the completion of the Project: (a) the Joint Interagency Coordinating Committee (JICC) at the Cabinet Secretary level; (b) the Health Sector Coordination Committee (HSCC) at Principal Secretary level; and (c) the HSCC-Steering Committee at director level, all with membership and terms of reference satisfactory to the Association Schedule 2, Section I D. No later than April 30 in each year, the Recipient shall prepare, through the Directorate of Policy, Planning and Healthcare Financing, and furnish to the Association, for the Association s review and approval, an annual work program (including related budget) endorsed by the HSCC, of activities proposed to be carried out under the Project during the following fiscal year, such program to include Sub-projects proposed to be Schedule 2, Section I D. No later than February 28 in each year, the Recipient shall prepare, through the Directorate of Policy, Planning and Healthcare Financing, and furnish to the Association, for the Association s review and approval, an annual work program (including related budget) endorsed by the HSCC, of activities proposed to be carried out under the Project during the following fiscal year, such program to include Sub-projects proposed to be financed through HSSF Grants, any 36

47 financed through HSSF Grants, any VMG Plan required for such activities and prepared pursuant to the provisions of Section I.F of this Schedule, and the amount of financing required for said HSSF Grants and for Training and Operating Costs. VMG Plan required for such activities and prepared pursuant to the provisions of Section I.F of this Schedule, and the amount of financing required for said HSSF Grants and for Training and Operating Costs. Schedule 2, Section II A 2. The Recipient shall, no later than December 31, 2012, prepare and submit to the Association a mid-term report of such scope and in such detail as the Association shall reasonably request, documenting progress achieved in the carrying out of the Project during the period preceding the date of the mid-term report, taking into account the monitoring and evaluation activities performed pursuant to paragraph 1 of this Part A, and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (b) review with the Association the mid-term report, on or about the date one (1) month after its transmittal to the Association, and thereafter take all measures required to ensure the efficient implementation of the Project and the achievement of its objectives, based on the conclusions and recommendations of the mid-term report and the Association s views on the matter. Schedule 2, Section II B3. The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09(b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than six (6) months after the end of such period. Schedule 2, Section II A 2. The Recipient shall, no later than December 31, 2015, prepare and submit to the Association a mid-term report for the Second Additional Credit, of such scope and in such detail as the Association shall reasonably request, documenting progress achieved in the carrying out of the Project during the period preceding the date of the mid-term report, taking into account the monitoring and evaluation activities performed pursuant to paragraph 1 of this Part A, and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (b) review with the Association the midterm report, on or about the date one (1) month after its transmittal to the Association, and thereafter take all measures required to ensure the efficient implementation of the Project and the achievement of its objectives, based on the conclusions and recommendations of the mid-term report and the Association s views on the matter. Schedule 2, Section II B3. The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09(b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than ten (10) months after the end of such period. Detailed description of new and modified activities proposed 37

48 2. The proposed Additional Financing from IDA (US$41.0 million) and the HRITF (US$20.0 million) together with the restructuring of ongoing KHSSP would support Component 1 which primarily focuses on delivering the Kenya Essential Package of Health Services. Specifically, the Additional Financing will support: (i) scale-up of Results Based Financing (RBF) to improve delivery of quality health services for women and children in rural areas with strong focus on results; (ii) Phase I of the health insurance subsidies for the poor to support government s commitment to reduce inequities in access to health care and achieve universal health coverage; and (iii) capacity building of counties to develop sustainable institutions to effectively manage the devolved health system. Sub-component no. 1: Scale-up of Results Based Financing to improve delivery of quality health services for women and children in rural areas (Total additional financing: US$25 million; IDA credit - US$11 million and HRITF grant - US$14 million) 3. This subcomponent would support scaling up of the successfully piloted RBF program to 20 counties located in arid and semi-arid regions of the country. It will also support the implementation of the President s initiative to provide free maternity services nationwide with emphasis on quality of care and independent verification and continuing ongoing nutrition interventions in drought prone areas. All these interventions will be implemented through the existing HSSF pool that provides direct cash transfers to health facilities. 4. The main challenge will be in ensuring a well-defined and decisive role for the counties in this initiative, especially in playing a strong oversight and management function that includes approving annual plans, budgeting, and issuing authorization to make payments to facilities. The counties also need to play a prominent role in reporting verified results as well as accounting for the use of funds released. Initially these initiatives will be limited to the public sector. However, considering the role of Faith Based Organizations (FBOs) in service delivery in northern Kenya and increasing growth of networks of private providers in rural areas, the MoH is exploring options for inclusion of non-government players. The MoH has recently finalized a protocol for involvement of FBOs in the RBF which needs to be discussed and agreed with counties and other stakeholders. The Bank is in the process of providing technical assistance to MoH under the public private partnerships initiative to develop proposals for private sector participation in these national priorities. These arrangements for conditional grants were finalized during appraisal. Sub-component no. 2.a: Supporting the Health Insurance Subsidies to the Poor (HISP) to reduce inequities in access to health care (Total additional financing: US$20 million; IDA credit - US$14 million and HRITF grant - US$6 million) 5. The second subcomponent will support the Phase I of the Universal Health Coverage by providing health insurance subsidies to the poor. This will be initially implemented through the National Hospital Insurance Fund (NHIF), which has the mandate for 38

49 providing social health insurance in Kenya and has the largest coverage (around 20 percent of the population). Subsequently, the other options including the role of private players will be explored. A technical working group has been constituted by MoH which developed a detailed operational manual for the HISP. The Phase I will cover about 17,000 households (around 300 poor households in each of the 47 counties), and selected beneficiaries will be provided a comprehensive benefit package that includes both outpatient care provided on capitation basis and in-patient care on a fee for service basis. The design of the scheme is informed by the ongoing civil servants scheme. The poor will be identified from the existing database maintained by the Social Protection Secretariat and utilization of health services (both outpatient and inpatient), will be closely monitored by NHIF using standard protocols. The NHIF is currently reviewing the cost estimates of the scheme based on the experiences of the civil servants scheme to ensure an optimal benefit package which will be financially sustainable when the program is rolled out nation-wide. 6. The strategic review undertaken by IFC has identified the need to improve governance and enhance efficiency of NHIF. The MoH has constituted a task force to recommend immediate and medium term actions to reform NHIF addressing the weaknesses identified by the strategic review. The Government is now acting on the recommendations of the taskforce. As an interim measure to ensure accountability, the financial management arrangements for Phase I will be ring-fenced with strong oversight by the MoH which will be supported by a steering committee consisting of experts and development partners. A welldefined memorandum of understanding will be signed between MoH and NHIF which will clearly state roles and responsibilities of each agency including formats for information sharing. All information related to the program will be kept in public domain. Sub-component no. 2.b: Capacity building of counties to develop sustainable institutions to effectively manage the devolved health system (Total additional financing: US$16 million from the IDA credit) 7. The third subcomponent will join the ongoing efforts of the MoH to build capacity of county health systems working with the Kenya School of Government and other academic institutions within Kenya with technical assistance from international universities and the WBI. The focus will be on systematically building core competencies of County Departments of Health (CDH) in health systems development and management. In addition, the capacity building will also focus on facility in-charges and facility management committee members. It is also proposed to support creation of strategic program management units at counties with expertise in health economics, program management, financial management, procurement and monitoring & evaluation. A pool of technical experts will be contracted by MoH to provide hands on support to counties during the transition phase. The support for these initiatives will be demand based and subject to receiving specific requests from the counties. 8. It is also proposed to build capacities at county level to identify priority issues and test locally relevant solutions such as improving childhood nutrition using an integrated approach. The MoH will support building capacities of counties to address the high levels of stunting with focus on first 1,000 days by testing multi-sectoral approaches to address key 39

50 determinants of undernutrition. This will start with a limited number of counties and subsequently scaled up. 9. A comprehensive capacity building plan will be developed through a consultative process based on needs identified by counties. The Kenya School of Government will be taking the lead role in this process and will also support the MoH and counties in the implementation by networking with institutions within Kenya and partnership with reputed international university networks. The WBI will provide advice on networking of academic institutions and researchers based on similar initiatives undertaken in People s Republic of China. The proposed courses will include short and medium term certificate programs with strong emphasis on competency building and transformation of trainees to effective managers. 40

51 ANNEX 4. REVISED ESTIMATE OF PROJECT COSTS By Disbursement Category: IDA Credit (SDR) Category Amount of the Original Credit Allocated (Expressed in SDR) Amount of the First Additional Credit Allocated (Expressed in SDR) Amount of the Second Additional Credit Allocated (Expressed in SDR) Percentage of Expenditure to be Financed (Inclusive of Taxes) (1) HSSF: (a) Goods, services, Training and Operating Costs required for Subprojects under Part A.1(a) through (g) of the Project, and for Part A.2(a) (i) of the Project (b) Vehicles under Part A.2(a) (ii) of the Project 19,100,000 2,400, ,200,000 0 Such percentage as the Association shall determine and communicate to the Recipient in its Annual Confirmation for the relevant Annual Work Program 100% (2) EMMS: (a) Goods under Part B.1(a) of the Project (b) KEMSA Operating Costs under Part B.1(b)(ii) of the Project 29,100,000 2,700,000 25,200,000 2,600, % 100% (3) Goods, Consultants services, Training and Operating Costs under Parts A. 2(b), (c), (d) and (e) of the Project, and Part B.2 of the Project 12,200, % (4) Goods, service and Operating Costs under Parts A.3 and A.4 of the Project 0 8,100, % (5) Refund of Preparation Advance 700, Amount payable pursuant to Section 2.07 of the General Conditions (6) HISP under Part A.2(b) (i) 0 0 9,100,000 70% (7) Goods, consultants ,400, % services and Training under Part A.2 (c) and (e) TOTAL AMOUNT 66,200,000 35,900,000 26,700,000 41

52 By Disbursement Category: Multi-donor Trust Fund for Health Results Innovation (US$) (1) HSSF: Category (a) Goods, services, Training and Operating Costs required for Subprojects under Part A.1(a) through (g) of the Project, and for Part A.2.(a) (i) of the Project Amount of HRITF Grant Allocated (expressed in US$) 14,000,000 Percentage of Expenditure to be Financed (Inclusive of Taxes) Such percentage as the World Bank shall determine and communicate to the Recipient in its Annual Confirmation for the relevant Annual Work Program (b) Vehicles under Part A.2(a) (ii) of the Project 0 (2) EMMS: (b) Goods under Part B1.(a) of the Project (b) KEMSA Operating Costs under Part B1.(b) of the Project (3) Goods, Consultants services, Training and Operating Costs under Parts A 2.(b), (c), (d) and (e) of the Project, and Part B.2 of the Project 0 0 (4) Goods, service and Operating Costs under Parts 0 A.3 and A.4 of the Project (5) Refund of Preparation Advance 0 (6) HISP Subsidies for the poor 6,000,000 30% under Part A.2(b) (i) (7) Goods, Consultants services 0 and Training under Part A.2 (c) and (e) TOTAL AMOUNT 20,000,000 42

53 By Component (US$) Sub-Component Original AF1 AF2 Total IDA CRW IDA HRITF 1 (i) HSSF including scaling-up of RBF 33,600,000 11,000,000 14,000,000 58,600,000 (ii) Governance and stewardship including 12,285, ,285,000 a. scaling up of HISP and 14,000,000 6,000,000 20,000,000 b. county capacity building 16,000, ,000,000 (iii) Supply of Nutrition commodities 2. (i) Essential Medicines and Medical Supplies including support for establishment of supplementary services at KEMSA (ii) Warehousing and distribution (iii) Procurement reforms and systems strengthening 12,800, ,800,000 44,000,000 40,000, ,000,000 4,000,000 4,000, ,000,000 6,115, ,115,000 Total 100,000,000 56,800,000 41,000,000 20,000, ,800,000 43

54 Annex 5. Revised Implementation Arrangements and Support 1. Changes in the implementation arrangements for the Project are due to the new roles and responsibilities of national MoH and counties envisaged by the constitution. Institutional Arrangements 2. The existing institutional arrangements will continue for the AF with appropriate modifications to ensure specific role for counties in decision making and accounting for the conditional grants provided by the national government. The Phase I of the health insurance subsidies for the poor will be implemented through the NHIF, under the direct oversight of the MoH with a dedicated financial management arrangement. The MoH will have a memorandum of understanding with the NHIF clarifying the roles and responsibilities describing the financial management arrangements and reporting requirements. The World Bank s financial management team has assessed the NHIF and agreed to the proposed financial arrangements. No new procurement is proposed under the additional financing and KEMSA and UNICEF will complete the ongoing procurement, hence, the procurement arrangements for the project will remain the same. Implementation arrangements 3. The MoH will continue to have the overall responsibility for implementation and the newly created Directorate of policy, planning and healthcare financing will now take lead on health financing reforms and will have overall responsibility for the Project. A dedicated team will be facilitating the day to day coordination for RBF and health insurance subsidies for the poor. The NHIF will be responsible for rolling out the health insurance subsidies under the oversight of the MoH and there will be a memorandum of understanding between the NHIF and MoH to clearly define the roles and reporting responsibilities. 4. The Recipient shall maintain, until the completion of the Project: (a) the Joint Interagency Coordinating Committee (JICC) at the Cabinet Secretary level; (b) the Health Sector Coordination Committee (HSCC) at Principal Secretary level; and (c) the HSCC-Steering Committee at director level, all with membership and terms of reference satisfactory to the Association. Procurement 5. Procurement arrangements will remain largely the same under the proposed AF with the MoH and KEMSA taking lead at the national and facility level procurement following the HSSF guidelines. However, the latest version of the Procurement and Consultant Guidelines dated January 2011 will apply to all new contracts under the AF including any new contracts that are associated with activities funded under the original project but initiated after the approval of the AF 44

55 Monitoring and Evaluation 6. There will be strong evaluation activity built around the proposed new sub components and activities and this will specifically include external verification for RBF initiatives as well as quality of free maternity care and an impact evaluation study supported through the HRITF grant. In addition, regular independent verification will be undertaken by the Integrated Independent Fiduciary Review Agency (IIFRA) and will be included in the scope of the quarterly IIFRA reports. 7. Results framework. The results framework will be slightly adjusted to reflect the following changes: (i) adding new indicators to include women receiving quality free maternity services; (ii) poor families receiving health insurance subsidies; and (iii) staff from the county health teams that have received competency based training in managing devolved health system. Some of the current performance indicators are modified to better respond to the devolved health system. 8. The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions and on the basis of indicators acceptable to the Association. Each Project Report shall cover one calendar semester, and shall be furnished to the Association not later than three (3) months after the end of the period covered by such report. 9. The Recipient shall, no later than December 31, 2015, prepare and submit to the Association a mid-term report for the Second Additional Credit, of such scope and in such detail as the Association shall reasonably request, documenting progress achieved in the carrying out of the Project during the period preceding the date of the mid-term report, taking into account the monitoring and evaluation activities performed pursuant to paragraph 1 of this Part A, and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (b) review with the Association the mid-term report, on or about the date one (1) month after its transmittal to the Association, and thereafter take all measures required to ensure the efficient implementation of the Project and the achievement of its objectives, based on the conclusions and recommendations of the mid-term report and the Association s views on the matter. Safeguards 10. The original project triggered OP 4.01 on Environmental Assessment and OP 4.10 on indigenous people s policy and the AF will not change the safeguards categorization, which is Category B. No new safeguards policies are triggered and no exceptions to Bank policies are required. The original project has produced a health care waste management plan which was publicly disclosed in February This plan is applicable to the AF with no revisions needed. After an initial delay, there has been good progress on the development and disclosure of Vulnerable and Marginalized People s Plan (VMPP) based on consultations, and the baseline assessment of the health care waste management has been completed. The implementation of the VMPP along with the health care waste management plan will start in March 2014 in consultation with counties which are now responsible for delivery of essential health services. 45

56 Financial Management A. Introduction 11. The Bank s financial management (FM) team conducted an FM assessment of the Kenya health sector at the national and county levels in October 2013 with a view to obtaining reasonable assurance that the additional resources proposed under the Kenya Health Sector Support Project (KHSSP) are used efficiently and effectively for intended purposes while ensuring accountability. 12. The FM assessment took into account the fiduciary implications of the devolved health system with county governments responsible for the delivery of essential health care services including health facilities at levels 1-3 which are currently being supported by the HSSF. At the national level, the assessment covered the MoH, the NHIF and KEMSA. At the sub national level, on-site reviews were carried out in 14 counties 7 out of the 47 counties with adequate representation of geo-political regions of Kenya. 13. The FM assessment was carried out in accordance with the FM Practices Manual issued by the FM Sector Board on November 3, The Assessment is also in accordance with the FM Manual for World Bank-Financed Investment Operations issued by the FM Sector Board on March 1, B. Executive Summary 14. The assessment concludes that the proposed FM arrangements, with progressive use of county FM structures and continuous capacity strengthening, are sufficiently robust and adequate to manage the program funds. The KHSSP has set aside funds to be utilized for county level capacity building and strengthening of fiduciary institutions. The county government came into being in March 2013 after the general elections and the FM structures are still at an early stage of development. Being one of the most devolved sectors, the health sector can play critical role in strengthening and use of county government FM systems over the long run. However, the sector may face some challenges during initial phase of the transition as the FM structures are being set up and the systems are settling down. The initial FM risk rating is assessed as substantial but the Program design has incorporated robust mitigation and capacity strengthening measures and the residual FM risk is assessed as moderate. 15. The recent institutional changes in the health sector have impacted the FM arrangements for KHSSP. The two ministries in the health sector merged into one MoH and the delivery of essential health services including those at levels 1-3 facilities receiving HSSF grants has been devolved to the county governments. Further, the new Government has abolished user fees at the primary health care facilities, introduced free maternity care at the public health facilities and 7 The counties visited were Bungoma, Busia, Kakamega, Vihiga, Mombasa, Kilifi, Kwale, Lamu, Uasin Gishu, Kisumu, Nyamira, Elgeyo Marakwet, Kericho and Siaya. 46

57 initiated actions to achieve universal health care with the introduction of health insurance subsidies for the poor. 16. The Bank s additional financing is expected to finance the following key activities: (i) continuing Health Sector Services Fund (HSSF) direct cash transfers to primary care health facilities (health centers and dispensaries) which will include compensation for the elimination of user fees at the point of service delivery; (ii) introducing output-based free maternity care reimbursements linked to deliveries conducted by facilities; (iii) scaling-up of results-based financing (RBF) to twenty counties in arid and semi-arid parts of the country; (iv) supporting first phase of the Health Insurance Subsidy for the Poor (HISP) through the NHIF; and (v) continuing funding for supportive supervision to strengthen oversight role of county and subcounty level health teams using structured verification and reporting mechanism. 17. The MoH will have the overall implementation responsibility including fiduciary accountability for the KHSSP. The MoH will be responsible for disbursement and accounting of KHSSP funds including resources transferred to counties as conditional grants. The FM arrangements for the KHSSP are based on county FM systems which mirror the National FM systems of GoK. The counties will have control over the planning, budgeting (HSSF funds factored under county budget as conditional grants from MoH to counties), and calling for funds, accounting, internal controls, and financial reporting. 18. The GoK Standard Chart of Accounts (SCoA) is being revised to accommodate the proposed budgeting for conditional grants at two levels of government, first as transfers at MoH level and second as revenues at county/health facilities level. The funds flow arrangements retain the direct disbursement approach to beneficiary health facilities (health centers and dispensaries), while giving counties power to issue Authority to Incur Expenditures (AIEs) for these funds. The additional financing also proposes to support institutional strengthening of counties, NHIF and KEMSA. 19. Oversight for all health program activities and overall fiduciary monitoring of program funds at county level will be done by the County Department of Health (CDH) under the oversight of the County Executive for Health (Minister). The financial reports for HSSF including free maternity care from health facilities will be channeled through the CDH which will forward them to the county treasury after verifying compliance with the approved plans. The County Treasury would capture the expenditures directly into IFMIS on the basis of the expenditures returns (SOEs) received from the health facilities which will be consolidated by MoH and shared with the World Bank. The CDH will conduct regular reviews of the health facilities via on-site reviews to ensure proper management of the program funds in line with the guidelines. 20. The MoH would support all 47 counties in the setting up of the External Resources Sections (ERS) as recommended in the Kenya Use of Country Systems (UCS) report issued in April The accounting capacity of the counties will be enhanced by the existing 157 program accountants supporting the program through the CHC and the County Treasury. These 157 accountants will be integrated into the county ERS. 47

58 21. It is noted that the National Treasury is still in the process of developing the GoK Financial Guidelines and Regulations. The Health SWAp FM manual would be revised once these GoK Financial Guidelines and Regulations are gazetted in order to harmonize the Program FM arrangement to GoK Public Finance Management (PFM) systems. 22. The NHIF will be responsible for the implementation of the HISP and will maintain a segregated bank account for the HISP funds into which the premiums for the poor will be deposited by the MoH. Payment of claims will be made by NHIF from this account. NHIF will maintain separate accounting records for the HISP and provide monthly utilization and financial reports to the MoH. The Bank will receive quarterly reports of the HISP as part of the Interim Financial Report (IFR) reporting. NHIF will prepare separate annual financial statements which will be audited by KENAO. 23. All other FM and disbursement arrangements under the Health SWAp would remain the same, with the current Designated Accounts and Project Accounts, continuing project structures under the Health SWAp and the HSSF Secretariat, KEMSA EMMS component. 24. The Office of the Auditor General, Kenya National Audit Office (KENAO) will continue to be responsible for the external audit. In addition to audits of MoH, KEMSA and NHIF. KENAO will be auditing all 47 counties and conduct risk-based rolling audits at the health facilities level. The KHSSP funds would be used to strengthen the capacity of KENAO at the county level and the KENAO would have the option of out-sourcing the audit of the county and health facilities level to private auditors in line with the Public Audit Act using TORs agreed with the Bank. In order to provide KENAO with adequate time to audit the 47 counties and the health facilities, the World Bank will increase the period for submission of audit report and management letter from 6 months to 10 months; i.e. April 30 instead of December 31. This takes effect from the financial year ending June 30, The quarterly reviews by the Independent Integrated Fiduciary Review Agency (IIFRA) will continue and the Bank FM team will continue with the periodic FM supervision/in-depth reviews. The social accountability mechanisms have been enhanced including, strengthening capacity of the health facilities management committees participated by communities at health center and dispensary levels providing oversight, public reporting of disbursement summaries to counties (published in national newspapers) and complaints handling. 26. The KHSSP will provide support for strengthening the capacity of the county FM arrangements across the board including annual capacity building training. The participants will include the County Treasury Finance and Accounting staff, the county program accountants, the KENAO county auditors, the county internal auditors and the health facilities fiduciary teams. The funds would also be used to acquire any equipment or software that may be deemed as necessary to enhance the capacity of the counties as well as GoK agencies involved in FM arrangements of the devolved entities. The institutional strengthening will also cover NHIF and KEMSA. The Kenya School of Government e-learning and Development Institute (KSG-eDLi) has been identified to conduct these training events in its 5 campuses across the country. 48

59 C. County level issues 27. The successive Public Expenditure and Financial Accountability (PEFA) assessments suggest that Kenya has made progress in major FM reform areas, including: (i) establishment of the Office of Controller of Budget which has been active in providing the necessary budget execution oversight; (ii) enactment of a new PFM law (Public Finance Management Act 2012); (iii) on-going development of the PFM Guidelines and Regulations to operationalize the PFM law; (iv) strengthening of the Supreme Audit Institution - the Auditor General KENAO; (v) progressive adoption of International Public Sector Accounting Standards (IPSAS) and commitment to setting up of the National Accounting Standards Board; (vi) the re-launch of the implementation of the re-engineered IFMIS to address past FM concerns/weaknesses and rollout to county level; and (vi) aligning the on-going public financial management reforms with the new Constitution 2010 which has devolved significant FM functions to the 47 County Governments. 28. Reforms in the Judiciary including the appointment of a new Chief Justice and the creation of the Supreme Court are intended to address past governance concerns and weaknesses. In addition, the Ethics and Anti-Corruption Commission (EACC) has also been entrenched in the new constitution 2010 and the body is expected to be more robust in the fight against corruption than its predecessor, the Kenya Anti-Corruption Commission (KACC). 29. The major challenge facing the health sector is strengthening of county level FM arrangements ensuring that the proposed arrangements as part of the county government operation are aligned with the Constitution and relevant devolution laws. The transition from the current Health SWAp arrangements to the devolved arrangement would be done gradually as the County Treasury capacity is enhanced. D. Conclusions 30. The conclusion of the FM assessment is that the Health sector has adequate FM capacity at national and county level to implement the additional financing. The financial management arrangements have an overall residual risk rating of moderate, which satisfies the Bank s minimum requirements under OP/BP10, and therefore is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by IDA. E. FM Risk Assessment a. Budgeting 31. The MoH has developed planning and budgeting arrangements for the Health Program which incorporates a clearly defined role for health facilities work-plans and county level budgeting. These budgeting arrangements are acceptable to the World Bank. Under the new Constitutional dispensation, the health centers, dispensaries and former district hospitals now belong to the respective county governments which will be responsible for delivering essential health services. 49

60 32. By February 28 in each year, the MoH, through the Directorate of Policy, Planning and Healthcare Financing, will prepare and provide an annual work program (including related budget) endorsed by the HSCC, of activities proposed to be carried out under the Project during the following fiscal year, including Sub-projects proposed to be financed through HSSF Grants any VMG Plan required for such activities. 33. This budgeting for financing of health services at levels 1-3 (community, dispensary and health center) would be done in the form of conditional grants by the MoH to the 47 counties. The accountability and audit of the funds would be done at the relevant county and health facilities level where the expenditures take place and not at MoH headquarters. Nevertheless, MoH will be responsible for following up on the accountabilities at county and health facilities level and reporting to the Bank. 34. At the national level, the HSSF will be captured in the line ministry as a single transfer line item (conditional grant) to the counties, with the Principal Secretary (PS) as the accounting officer and budget holder. The funds would be reflected as revenue at the county government budget where actual expenditures will be captured. MoH has developed the chart of accounts (extracted from the GoK SCOA) which will support the proposed conditional grant arrangements. The budget process would commence with the relevant health facilities preparing annual work-plans and quarterly budgets which will be approved by the health facility management committee as is the case currently. These work plans would be submitted to the County Department of Health (CDH) for review and approval. This would be done in line with the eligibility criteria developed by MoH. On approval of the health facilities work-plans by CDHs, these work plans would be captured in the County Integrated Development Plan (CIDP) and consequently form part of the county government budget approved by the County Assembly. The figure below summarizes these arrangements diagrammatically. b. Funds Flow and Disbursement Management 35. For the additional IDA financing, the designated dollar accounts would remain at Treasury as is the case now. The Kenya Shillings (Kshs) main project account remains under the line ministry at Central Bank of Kenya (CBK) and will be controlled by the MoH. The detailed funds flow chart is presented at the end. 36. For the beneficiary health facilities, funds will be transferred directly from the MoH project account in CBK to the beneficiary facility bank accounts. However, the County Government will be involved in triggering the transfer of funds to the beneficiary facility bank accounts in line with the eligibility criteria agreed with the MoH. The County Government will also own the list of eligible beneficiaries in the county. The MoH will circulate detailed disbursement schedules together with the CBK transfer advice, to relevant County Governments ahead of the actual disbursement of funds. Application for funds from the Bank will be done by the implementing ministry, MoH and External Resources Department, Treasury as is currently the case. 37. In the first quarter of every financial year (July-September), the equivalent of two-quarter allocation of funds will be released to the health facility bank accounts based on the approved 50

61 facility work-plans which should be in line with the eligibility criteria. Thereafter, quarterly releases will be released to facilities based on detailed lists from the counties after satisfying themselves on the accountability over the previous advances and after verifying agreed/approved facility performance indicators. 38. For the HISP, a segregated project bank account will be opened by NHIF in financial institution acceptable to the World Bank. The MoH will deposit funds in 2 tranches equivalent to the premiums required to finance the insurance claims. NHIF make payment for the out-patient capitation and the in-patient claims from this account. NHIF will provide monthly, quarterly (IFR) and annual financial statements (together with detailed county and health facility schedules) to MoH for sharing with the Bank. NHIF will be subject to quarterly review by IIFRA and annual audit by KENAO. National Treasury Mutual fiduciary consultations Advises on budget MoH Receives facility list from County and advises County how much to budget for national health resources Facility List County Government Includes facility work-plans in CIDP. Sends facility list to MoH Work-Plans Issues annual AIE and supervises County Department of Health Reviews and approves facility workplan and budget Work-Plans Health Facility Prepares work-plan and budget, and submits to County Health Department c. Accounting System 39. A detailed FM Guidelines manual has been developed and implemented under the KHSSP which are being revised in line with the devolved arrangements. The Health Program has adequate accounting capacity at MoH, KEMSA and at all the 47 counties. The MoH and KEMSA have qualified accountants dedicated to the program. The Program has also hired and trained 157 county-level Program accountants. This number is deemed adequate to support the health facilities at the 47 counties. The salaries of these accountants are paid from Program funds. Before devolution took place, the county Program accountants were reporting directly to the HSSF Secretariat in Nairobi. The county-level Program accountants use the Navision accounting software and have been issued with computers. 51