Public Disclosure Authorized Mr. Andreas Kuhn Head of Division, External Resources Division International Committee of the Red Cross 19 Avenue de la Paix, 1202 Geneva, Switzerland CONFORMED COPY March 1, 2002 Public Disclosure Authorized Public Disclosure Authorized Re: Development and Piloting of a Financing Model and Delivery Strategy for the Basic Health Services Pilot Project Kraljevo Municipality/Dom Zdravlja DGF Grant No. TF 022607 (PCF Reference No. 198). Dear Mr. Kuhn: I am writing on behalf of the International Bank for Reconstruction and Development (the Bank) to indicate the Bank s agreement to make a grant out of Fiscal Year (FY) 2002 Development Grant Facility (DGF) in an amount not exceeding ninety-seven thousand nine hundred United States dollars (US$97,900) (the Grant) to the International Committee of the Red Cross (the Recipient) for the benefit of the Federal Republic of Yugoslavia (the Beneficiary). The Grant is made under the terms and conditions set forth or referred to in the Annex I to this Letter Agreement, in response to the Recipients request for financial assistance in connection with the Basic Health Services Pilot Project in Kraljevo Municipality, Republic of Serbia (the Project), the objectives and description of which are set forth in the Project Description (Annex II). The Recipient represents, by confirming its agreement below, that it is authorized to contract and withdraw the Grant for the said purposes and on the said terms and conditions. Please confirm your agreement with the foregoing, on behalf of Recipient, by signing, dating and returning to us the enclosed copy of this Letter Agreement. Upon receipt by the Bank of the copy of this Letter Agreement countersigned by you, this Letter Agreement will become effective as of the date of the last countersignature. Sincerely, Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Christiaan J. Poortman Country Director and Regional Coordinator for South East Europe Europe and Central Asia
AGREED: INTERNATIONAL COMMITTEE OF THE RED CROSS By: Andreas Kuhn Authorized Representative Date: March 4, 2002 Annex I Purposes, Terms and Conditions of the Grant 1. Purposes and Activities 1.1. The purpose of the Grant is to provide support in the implementation of a sub-component that is Development and Testing of the Basic Health Services Package of a Basic Health Services Pilot Project in Kraljevo Municipality/Dom Zdravlja (the Project). The activities for which the Grant is given are as follows: (a) provision of consultant services to conduct baseline surveys necessary to prioritize basic health services in the Republic of Serbia; (b) package; provision of technical assistance to define, pilot and evaluate basic health services (c) provision of technical assistance to develop treatment guidelines and standard procedures for primary health care; and (d) process. provision of training to provide knowledge of health financing concepts and reform 2. Execution of the Activities 2.1. The Recipient shall: (a) carry out the Project with due diligence and efficiency in accordance with the provisions of the Project description (Annex II); (b) furnish all information covering the Activities of the Project and the use of the proceeds of the Grant, as the Bank shall reasonably request; (c) from time to time exchange views with the Bank s representatives on the progress and results of the Activities of the Project; and (d) take all necessary measures required to enable the Bank to visit the territory of the Beneficiary for purposes related to the Grant. 2.2. The Recipient shall take all reasonable steps to ensure that all expenditures financed out of the proceeds of the Grant will be used exclusively for the purposes of the Project. 2.3. The Recipient shall ensure that: (i) the goods and services to be financed out of the proceeds of the Grant shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods, and, in case of services, of their quality and the competence of the parties rendering them; and (ii) such goods and services shall be used exclusively in the carrying out of the Grant activities Activities.
3. Payment of Grant 3.1. The Bank will disburse the Grant to the Recipient upon receipt of a signed copy of this Letter Agreement. The Grant will be deposited by the Bank, in United States dollars, to the following bank account of the Recipient: UBS SA - P.O. BOX 2600 / CH-1211 GENEVA 2, SWITZERLAND CODE SWIFT: UBSWCHZH12A DOLLARS US (USD) Account Number 240-C0129986.4 3.2. The expenditures for the following items may be financed out of the proceeds of the Grant and shall be used exclusively in the carrying out of the Activities: Item (1) Consultants services, including studies Amount of the Grant Allocated (in United States dollars) 82,300 (technical assistance for establishing baseline data, $6,000; technical assistance for modeling and piloting, $61,800, ICRC local consultant, $14,500) % of Expenditures to be Financed 100 % (2) Training and seminars, including travel 9,600 100 % (3) Goods 3,000 100% (4) Operating costs 3,000 TOTAL 97,900 100% 3.3. Notwithstanding the provisions of paragraph 3.2. above, the Grant shall not be used for: (a) payments for commitments made in connection with the Project prior to the effective date of this Letter Agreement; and (b) the purposes of any payments to persons or entities, or any import of goods, if this payment or import, to the Bank s knowledge, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations. 4. Use of Funds, Accounts and Audit 4.1. (a) The Recipient shall exercise the same care in the administration of the Grant as it exercises in the administration of its own funds, having due regard to economy and efficiency and the
need to uphold the highest standards of integrity in the administration of public funds; (b) In the event that any grant funds remain uncommitted by January 31, 2003, such funds shall be returned to the Bank, or used as per the prior written agreement of the Bank; (c) The Recipient shall maintain separate records and ledger accounts in respect of the Grant and disbursements therefrom; and (d) Not later than three (3) months after the end of any fiscal year of the Recipient in which Grant funds are expended, Recipient shall: (i) provide the Bank with a statement of account showing the use of the Grant funds; and (ii) provide the Bank with a copy of its externally audited financial statements for such year, together with the opinion of the external auditors on such statements. 5. Reports 5.1. (a) The Recipient shall maintain regular contact with the Bank and provide the Bank with quarterly progress reports in a form and substance satisfactory to the Bank on the status of the Grant activities. (b) Not later than July 31, 2003, the Recipient shall submit to the Bank a report summarizing the activities financed by the Grant and assessing the results achieved by the activities compared to their objectives. (c) The Recipient shall ensure that goods purchased under the Grant including office equipment shall be transferred to the Beneficiary and remain within the territory of the Beneficiary, within the Health Insurance Fund. (d) The Recipient s contact in the Bank regarding the Grant shall be Laura Rose, Europe and Central Asia Region (ECSHD), whose address is 1818 H Street, N.W. Washington, D.C. 20433, and whose telephone is (1 202) 473-8715. 6. Settlement of Disputes 6.1. The Bank and the Recipient will use their best efforts to settle amicably any dispute, controversy, or claim arising out of or relating to this Letter Agreement. Where the Bank and the Recipient wish to seek an amicable settlement through conciliation, the conciliation will take place in accordance with the UNCITRAL Conciliation Rules. Any such dispute which is not settled by agreement of the parties thereto, will be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force. The number of arbitrators will be three. The place of arbitration will be Washington, D.C., U.S.A. In the event of a conflict between the UNCITRAL Arbitration Rules and the terms of this Letter Agreement, the terms of this Letter Agreement will govern.
Annex II Development and Piloting of a Financing Model and Delivery Strategy For the Basic Health Services Pilot Project in Kraljevo Municipality/Dom Zdravlja Project description Objective The requested Post Conflict Grant would support implementation of a sub-component of a pilot project. The pilot project is the Basic Health Services Pilot Project in Kraljevo Municipality, Republic of Serbia (Tot. Pop. 152,000) and the sub-component is Development and Testing of the Basic Health Services Package. The larger project - known as the Basic Health Services Pilot Project or BHSPP, is financed by the International Committee of the Red Cross (ICRC) and began in July 2001. The three year project will address priority public health programs in Kraljevo with a special emphasis in meeting the needs of nearly 25,000 Internally Displaced Persons (IDPs) and 7,000 other vulnerable people (i.e. Refugees and Social Cases). The objectives of the BHSPP are to: (1) improve local management capacity; (2) develop a sustainable primary health care system and basic health care services package based on cost-effective interventions, priority programs and an equitable public health insurance model with specific emphasis on meeting the needs of IDPs and vulnerable groups (VGs) using funding from the public health sector through existing mechanisms finance a basic health care package of cost effective interventions; and (3) reduce the burden of diseases among the target beneficiaries (IDPs and vulnerable goups) and the municipal population. The BHSPP will work with the dom zdravlja in Kraljevo and provide additional funding to existing primary health care resources to allow the Regional Health Insurance Fund (RHIF) to develop and pilot a more comprehensive primary health care benefit package. One of the consequences of the conflict has been a cohort of refugees and IDPs who have no source of insurance contributions but for whom the Health Insurance Fund is still responsible for covering services. While the state is in theory responsible for these contributions, this rarely happens. Average HIF payments for health in FRY in the year 2000 were approximately $40 per capita versus an average of $ 38 for Kraljevo municipality alone excluding the IDP and Refugee population. When this population is included the per capita expenditure decreases to $28.5. The ICRC contribution through the regional HIF is estimated at minimum $6.5 (maximum $10) per/capita per/annum of registered beneficiaries, This will bring Kraljevo close to the national average (but still below). Therefore, approximately 40 percent of the total ICRC s contribution to the project is in the form of cash to help cover this financing gap and ensure more equitable service coverage for IDPs and VGs This is clearly a short term solution and negotiations are on-going at the national level as part of the Bank s adjustment dialogue to ensure that these groups are covered.. Rather than providing services directly, the funds will be disbursed through the Regional Health Insurance Fund. Financing from the PCG would be used to identify the content of the basic health services package and develop treatment guidelines and standards for services included in the package. The PCG would also be used to identify different provider payment methods for services in the package (e.g., capitation, graduated co-payments, performance based contracting, etc.). Once the package and payment
methods are developed, they will be piloted in Kraljevo at different ambulantas. The PCG would support supervision of this pilot as well as an evaluation. The project will be conducted in a highly participatory manner in order to get buy-in of major stakeholders. More specifically, the PCG would finance training, in order to better allow counterparts to participate in the reform process; baseline surveys to collect data necessary to prioritise services of the package, particularly services for vulnerable groups; local and foreign assistance to develop the package and different payment methods; working groups to supervise the projects implementation, and an evaluation of the pilot interventions. A small amount of the grant would also be used to supply the RHIF with a computer and basic office equipment. The pilot could be a test case for primary health care financing model that could be used by the Republican Health Insurance Fund in other regions. The municipality level is considered the smallest administrative unit that can be utilized to model a basic health care delivery and financing package/strategy that could later to be taken to scale (if successful) in other parts of Serbia. Note that the pilot not focus on revenue generation or attempt to pool risk in any type of real insurance scheme. The means to improve revenue collection for the health sector will need to be considered at the national level. BACKGROUND During the year 2000 the Federal Republic of Yugoslavia (FRY) has entered a post-conflict phase. Over the last decade a complex humanitarian emergency has been building in the FRY. Today some 13% of the population of FRY directly depends on humanitarian assistance. When looking at causes of death, the picture is clearly one of a developed and transitional country with high levels of heart disease, strokes, and cancer. Smoking is estimated to cause 30% of the mortality in Serbia. Poor nutrition is another major risk factor. A high annual incidence of tuberculosis (39 per 100,000 population) indicates a need to continue to be vigilant about infectious diseases as well, particularly given the living situation of the most vulnerable population such as Internally Displaced Population and Refugees and the affordability of drugs. The government ability to provide for the basic health care needs of the population has steadily eroded. In 1990 state spending for health in Serbia was about US$200 per capita per year. This declined to US$ 40 in 1999. According to the Ministry of Health, 57% of expenditures go for salaries, 15% for drugs, 10% for medical consumables and equipment maintenance and 18% on food and utilities. Already the Republican Health Fund in Serbia has outstanding debts estimated at 100 Million US$, the major portion of which is owed to the pharmaceutical industry. Debt and decay have a direct impact on the quality of health service delivery, health outcomes and accessibility of services. Findings show that ten years without any capital investment or adequate level of funding for recurrent costs have resulted in a chronic shortage of essential drugs and consumables and more than 60% of the medical equipment being out of order while the one third still in working condition is mostly obsolete. Basic services such as water and heating need to be repaired in many places but most important it is the lack of management and organizational resources that contribute the most to a state of apathy de motivation and paralysis and a lack of resource mobilization in the public health sector. This has generated a greater shift to private and grey provision of health care services. Which in turn is having the most detrimental impact on the most vulnerable among them the IDPs.
The gap between priority health needs and capacity of the basic health services to meet those needs has been further increased in the last decade because of the shift towards more and more centralization and over specialization of health services. This should be seen against a background of poor accountability and a lack of delegated authority and ownership at the local level. Although health indicators remain strong relative to other countries in the region, these successes are at risk as decays over the last decade accumulate and the requirements to maintain a firm budget will continue to limit and even reduce in the mid term, public spending on health (as a % of GDP). Available information indicates that in terms of actual health status and outcomes, FRY is a country on the edge barely maintaining what were amongst the best health indicators in Eastern Europe ten years ago. Some minor declines in health status have been reported recently, and although not well documented, are of concern given the other conditions in the health sector and experiences in other countries in the region where health status has deteriorated significantly. Relevance Health care financing is one of the main topics on the policy agenda between the Bank and the Government. Health expenditures are a major source of the central budget debt. At the same time, increasing out of pocket expenditures are making health care unaffordable for some people. A substantial amount of analytical work is expected to be completed during FY03 including a Public Expenditure Review, Poverty Assessment, and Health Financing Study. The financing pilot would provide some early operational experience for the Bank to draw upon as it assists FRY with larger health sector reform issues. Specifically, the pilot is expected to make the following direct contributions to the Bank s program over the next year: Provide information on municipal health expenditures and flow of funds through the regional health fund that can be used in the PEIR; Develop and test a household survey on health care utilization and out of pocket health expenditures from which a national household survey could be developed and implemented. These data would be an important input into the PEIR, poverty assessment, as well as overall assessment of health financing alternatives; Define and cost a basic benefit package of primary health care services. This information would be an important input into broader discussions of what services the Government can afford to finance with public financing; Develop and test provider payment methodologies, including new contractual forms, in order to improve the efficiency and transparency of the delivery system. Develop training program in financial management for regional health insurance fund and dom zdravja The Bank also recognizes the need for a rapid response to the needs of a country emerging from conflict. This is critical to enable and reinforce rehabilitation of basic social services (i.e. health services) and to build a foundation for sustainable development. This project is one of the first health development projects to begin in FRY since the Government changed.