Document of The World Bank

Report No: 27521

IMPLEMENTATION COMPLETION REPORT(TF-20376 SCL-44080)

ON A

LOAN

IN THE AMOUNT OF US$11.46 MILLION

TO THE

LATVIA

FOR A HEALTH REFORM PROJECT

June 8, 2004

ECSHDECCO9

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 2003)

Currency Unit = (LVL) LVL 1.0 = US$ 1.8681US$ 1.00 = LVL0.5353

FISCAL YEARJanuary – December

ABBREVIATIONS AND ACRONYMSAPL Adaptable Program Lending ATLS Acute Trauma Life Support CAPA Computer Assisted Political Analysis CEE Central and Eastern Europe CHIP Consolidated Health Investment ProgramCMC Catastrophe Medical CentreCVD Cardio-Vascular Diseases DRG Diagnosis Related Group ECA Europe and Central Asia EA Emergency Assistance EU European Union GOL Government of Latvia GP General Practitioner LDP Letter of Development Policy MOE Ministry of EconomyMOF Ministry of FinanceMOW Ministry of WelfarePAD Project Appraisal DocumentPCU Project Coordination UnitPHC Primary Health CarePHRD Population and Human Resources Development (Japanese Grant)PIP Project Implementation PlanRSF Regional Sickness FundSAL Structural Adjustment LoanSCHIA State Compulsory Health Insurance AgencySHC Secondary Health CareSIDA Swedish International Development AgencyTB Tuberculosis

Vice President: Shigeo KatsuCountry Director Roger GraweSector Manager Armin Fidler

Task Team Leader/Task Manager: Dominic S. Haazen

LATVIAHEALTH REFORM PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 65. Major Factors Affecting Implementation and Outcome 146. Sustainability 167. Bank and Borrower Performance 178. Lessons Learned 199. Partner Comments 2010. Additional Information 21Annex 1. Key Performance Indicators/Log Frame Matrix 22Annex 2. Project Costs and Financing 24Annex 3. Economic Costs and Benefits 27Annex 4. Bank Inputs 28Annex 5. Ratings for Achievement of Objectives/Outputs of Components 30Annex 6. Ratings of Bank and Borrower Performance 31Annex 7. List of Supporting Documents 32Annex 8. Executive Summary and Conclusions and Recommendationsof InDevelop Uppsala Evaluation Report

33

Project ID: P058520 Project Name: HealthTeam Leader: Dominic S. Haazen TL Unit: ECSHDICR Type: Core ICR Report Date: June 15, 2004

1. Project DataName: Health L/C/TF Number: TF-20376; SCL-44080

Country/Department: LATVIA Region: Europe and Central Asia Region

Sector/subsector: Health (54%); Compulsory health finance (36%); Central government administration (10%)

Theme: Health system performance (P); Law reform (S); Other communicable diseases (S); Injuries and non-communicable diseases (S)

KEY DATES Original Revised/ActualPCD: 05/18/1998 Effective: 01/01/1999 03/23/1999

Appraisal: 08/20/1998 MTR: 03/26/2001Approval: 11/12/1998 Closing: 12/31/2001 02/27/2004

Borrower/Implementing Agency: GOVERNMENT OF LATVIA /MINISTRY OF WELFAREOther Partners: SWEDISH INTERNATIONAL DEVELOPMENT AGENCY and STATE

COMPULSORY HEALTH INSURANCE AGENCY

STAFF Current At AppraisalVice President: Shigeo Katsu Johannes LinnCountry Director: Roger W. Grawe Basil KavalskySector Manager: Armin Fidler Chris LovelaceTeam Leader at ICR: Dominic S. HaazenICR Primary Author: Dominic S. Haazen; Sati Achath

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

The Latvia Health Reform Project sought to support the Government of Latvia (GOL) to implement a long-term health services restructuring strategy, based on an agreed Letter of Development Program which addressed key health policy issues, and using an Adaptable Program Lending (APL). The development objective for Phase I of the APL (US$17.6 million project; Loan US$12.0 million) was to create a framework for a modem and effective health care system, including policy reforms, institution building and skills development for the health financing system, health investment policy, primary health care reform, hospital restructuring and effective public health programs Phase II would provide support to a Consolidated Health Investment Program (CHIP) by directly financing investments to implement health services restructuring, in accordance with the Master Plans.. The project aimed to achieve a sustainable performance-oriented health system where health care providers are rewarded for quality and efficiency; each patient has his/her own primary health care doctor of his/her choice; health insurance coverage ensures access to affordable and effective health care; and continuous progress is made with regard to priority health status targets. Progress towards this purpose was expected to contribute to the improved welfare of the Latvian population as measured by gains in health status and public satisfaction with the national health system.

The objective was clearly stated, important to the country’s social development, and realistic in scale and scope. It was also timely and appropriate for the situation in Latvia at the time of project preparation, considering the country’s need for the improvement of the health system in light of deteriorating health indicators, lack of effective public health policies, ineffective health care delivery system, inefficient management of health expenditures, and lack of transparency. Moreover, aside from the knowledge base, the capacity of implementing such changes was quite limited. The focus of Phase I on capacity building, planning and the limited piloting of interventions was well founded. However, one problem created by this approach was that, it appeared to those outside the system that very little was happening, and excessive amounts were being spent on technical assistance, instead of “real reform”. This proved to be a problem for the government going into the October 2002 elections.

The project was consistent with the Bank's Latvia’s Country Assistance Strategy (CAS), discussed by the Board on May 19, 1998 (Report No. 17706-LV). The CAS outlined five areas for the Bank support to Latvia: economic management; private sector development; support to reshape the State's role; development of sub-national government capacity; and provision of improved social services, including health care. According to the CAS, an improved health care system will be a means to improve the welfare of the Latvian people through improved health status and satisfaction with the national health care system. In addition, the project was expected to: (i) act as catalyst and leverage for some long-term policy strategies; (ii) secure funding for some critical investments to ensure sustainability and credibility of the health care reform; and (iii) mobilize and consolidate donor support.

The project was also in line with the government strategy to address the main sector issues, which was defined in: (i) "Strategy for Health Care Development in Latvia" adopted by the Cabinet of Ministers on September 24, 1996; and in (ii) the government regulations on implementing health reforms passed during 1997, including Health Care Law, Physicians Practice Law and a number of Cabinet health financing regulations.

The project took into account lessons learned from other health projects in the Europe and Central Asia (ECA) region which showed that: (a) health sector reform is a lengthy, politicized process and expectations for the reform process have been too optimistic for both the World Bank and the client countries; (b)

- 2 -

institutional aspects of reform are as important as technically proficient strategies; (c) greater attention needs to be paid to the political economy of the reform through marketing reforms to lawmakers, the medical community and the public; (d) projects have been too complex; and (e) adequate resources need to be committed for supervision of projects.

The project envisioned the following benefits that justified the implementation of this project on its own merits:

Society at large: (i) Improved access to a comprehensive range of secondary health care for allacute illnesses at the multi-specialty emergency centers as proposed in the Secondary Health Care (SHC) development strategy; (ii) Improved quality of care and outcomes due to concentration of specialties and expertise in multi-specialty emergency centers with better understanding of health care reform, patients' rights and obligations; (iii) Information and incentives for healthy lifestyle choices; (iv) Positive externalities from public health legislation to reduce tobacco use, and improve revenue; (v) Improved efficiency of health care spending to allow for more efficient use of scarce public financing to purchase more care for a monetary unit; and (vi) "single pipe" funding and need adjusted regional allocation to reduce cross-regional inequities in terms of available resources.

Population at risk (exposed to risk factors): (i) Secondary prevention programs implemented by PHC providers; (ii) TB programs that would disproportionately benefit poorer segments of population where the disease is more prevalent; (iii) Improved support for depressed and suicidal citizens; (iv) Reduced exposure to environmental tobacco smoke; and (v) Reduced risk of alcohol-induced traffic fatalities.

In addition, the project also took into account the expected benefits to health policy decision makers and opinion leaders; State Compulsory Health Insurance Agency (SCHIA) and Regional Sickness Funds; Medical Academy, Association of General Practitioners (GP), Center for Professional Medical Education, Center for Health Promotion; and General Practitioners

The project had some complexities and risks, although these were recognized from the outset and mitigation strategies were developed. Probably the key element that was not adequately planned for was the changes in mind-set that some of the interventions required, such as the development of the health care master plans and the consolidated health investment strategy. Fluctuating borrower commitment also played a role, although once this issue was addressed implementation progressed quite quickly. There was remarkably little desire on the part of the Borrower to deviate from the original development objectives or implementation program during the course of the project. Some deviations, such as replacing the outpatient center in Daugavpils with eight GP practices due to funding limitations, were agreed to without significant problems. Both the Bank and the Borrower recognized that due to cost over-runs in other civil works activities, there was not enough funding remaining for the outpateint center. The alternative preserved the essence of the development objective by promoting increased access to GP services in an under-serviced area. In this respect, it may have been better than the original concept.

3.2 Revised Objective:

The objectives were not revised

3.3 Original Components:

The project consisted of the following four components:

- 3 -

Component I: Implementation of Health Care Financing Reforms: (US$8.3 million: 47% of the total project cost)

This component was to include the following activities: (i) improving the effectiveness of the budget process; (ii) developing payment models for health care providers and contracting system; (iii) strengthening institutional capacity of health insurance funds by providing training in general management as well as in technical functions of health insurance; (iv) developing medical and financial audit capacity; (v) developing client relations; (vi) providing appropriate premises for the SCHIA; and (vii) establishing an initial country-wide health financing management information system.

Component II: Development and Restructuring of Health Care Services. (US$8.1 million: 46% of the total project cost)

Planned activities included: (i) supporting the Ministry of Welfare (MOW) to develop a consolidated health investment and capital financing policy; (ii) developing effective capability in the MOW, State Compulsory Health Insurance Agency (SCHIA) and Regional Sickness Funds (RSFs) to undertake health service planning, (iii) setting investment priorities and monitor the investment program; (iv) developing health technology assessment capacity in the Health Statistics and Medical Technologies Agency; (v) developing an agreed methodology and training in investment project appraisal; (vi) supporting development of regional and national health services master plans, an associated Consolidated Health Investment Program (CHIP) and capital financing plan; (vii) supporting a pilot hospital restructuring project; (viii) developing a standard legal framework for public hospitals; (ix) training hospital managers; (x) developing capacity for training and retraining of primary health care providers and support pilot Primary Health Care (PHC) projects; (xi) developing capacity for surveillance of non-communicable diseases and related risk factors; (xii) supporting operational public health research, developing a national public health report and priorities; and (xiii) supporting pilot health promotion and disease prevention programs.

Component III: Implementation of Health Reform Communications Strategy: (US$0.6 million: 4% of the total project cost)

This component involved: (i) strengthening the capacity of the MOW to design; and (ii) implementing health policy communication strategies.

Component IV: Project Management: (US$0.5 million: 3% of the total project cost)

The component included: (i) strengthening the PCU of the MOW; and (ii) supporting development of the Project Implementation Plan (PIP) for the Phase II of the APL.

3.4 Revised Components:

N/A

3.5 Quality at Entry:

Satisfactory. The ICR deems the quality at entry to be satisfactory and the project as well conceived. As mentioned in the earlier section, the project objectives were consistent with the country assistance strategy and the government priorities and met the critical needs of Latvia’s health sector. During preparation of the project, lessons learned from other earlier projects in the health sector in Latvia were considered and

- 4 -

incorporated into the project design. In addition, the project design recognized and took into account the following major risk factors which could affect project implementation:

• Government will not remain committed to reform. To mitigate this risk, senior civil servants who participated in the design of the program and the project were expected to stay on after the 1999 elections. The APL instrument was also expected to provide opportunity and flexibility for continuous policy dialogue and establish clear triggers for continuation of the program.

• Key stakeholders do not accept reform concept. In order to minimize this risk, efforts were to be made to ensure that public and stakeholder communications strategy would develop and maintain a constituency which would support reform. • Public communications strategies are not effective in educating public on reform initiatives and choices. For mitigating this risk, regular public opinion studies were to be conducted to assess effectiveness of reform communication function and make adjustments.

• Local governments will not reach consensus on regional health services restructuring plans. This risk was to be reduced by technically well grounded plans developed by the project, special consensus building efforts and leverage with APL Phase II funds.

• Ministry of Finance and Ministry of Economy will not support proposed changes in health investment strategy. By the involvement of Ministry of Finance (MOF) and Ministry of Economy (MOE) representatives in the working process, this risk was aimed to be mitigated.

Extensive stakeholder consultations and the participatory process in project preparation substantially contributed to the quality and readiness at entry. For example, during project preparation, Latvian experts carried out a stakeholder analysis with regard to the proposed health care reform program and planned stakeholder consultation and participation strategy. The analysis used Computer Assisted Political Analysis (CAPA) methodology to describe the political dimensions of policy decisions and design effective strategies for influencing policies' feasibility. The analysis organized descriptive information on policy content, key stakeholders (position, power, networks and coalitions), policy consequences, interests of stakeholders, opportunities and obstacles for change.

The design proved to be remarkably durable during the course of implementation, and in hindsight many of the interventions are probably even more important than originally anticipated. For example, the Master Plans and CHIP approaches are crucial inputs to accessing European Union (EU) structural funds and any other investments, such as the Public Investment Program.

The project emphasized capacity building and developing an adequate communications strategy. An APL was expected to allow for management of complex policy issues through a phased approach allowing for less complex design for each phase and better monitoring of progress.

However, quality of entry could have been further enhanced in four areas: (a) less ambitious project design; (b) more realistic timelines and implementation targets -- in retrospect, the two and half year implementation period was far too optimistic; (c) more realistic costing of civil works and goods -- many of these costs were grossly under-estimated, leading to reallocation issues during implementation; and (d) more initial capacity building for project implementation, especially for the PCU, and also for the MOW and SCHIA staff

- 5 -

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

Satisfactory. The project succeeded in achieving its specific objectives and laid a good basis for Latvia in continuing with health reforms and undertaking needed investments. The project also succeeded in fulfilling the triggers needed for the Phase II under the APL. The major outcomes and achievements of the project are as follows:

Trigger Indicators:

There were ten trigger indicators for the project, each of which was met prior to Phase II appraisal:

• 90% of health services funded through a single pipe financing mechanism by FY2001.

In 2002, the target of 90 percent “single pipe” financing was reached, which was two years later than originally planned. However, while both the expected increase in revenue for 1999 and the agreed allocation from income tax revenue were provided, the 10 percent share of state basic budget revenue was not reached until 2002. Despite the LVL 20 million increase in 2002, the total of income tax and state basic budget revenue was still almost LVL 10 million below the level anticipated in the Letter of Development Policy (LDP) and the PAD for Phase 1. The cumulative difference since 1998 of over LVL 49 million is roughly equivalent to the current arrears of the hospitals in Latvia. For the supervision of health care, and monitoring of public health, the budget revenue for 2003 was LVL 197.82 million, and for 2004 it was LVL 230.33 million. Budget expenditure for 2003 was LVL 202.84 million, and for 2004 it was LVL 230.33 million. According to the Ministry of Finance formula (including administrative costs), budget expenditure (including the Bank Loan) for 2003 was LVL 203,64 million, and for 2004 it was LVL 231.09 million.

• DRG/PVQ payment model for hospital services and per capita PHC financing model developed

Revised payment systems for hospital and general practitioners have been introduced, and both have been evaluated by independent consultants. In the case of the hospital payment system, the current approach is a combination of a case-based payment by diagnosis group (64 groups), a per diem payment, and an additional payment for specific surgical and medical interventions. A formal system of prospective payment based on Diagnostic Related Groups (DRG) has been in development and a recent consultant’s report recommended the use of the Nordic DRG approach. This has been accepted by the SCHIA and MOH.

• 30% of the population registered with certified GPs to be funded through capitated primary health care contracts for FY2001

A capitation system for general practitioners was introduced for all GPs outside of Riga, and the approach was changed several times over the last several years. In July, 2002, a modified capitation system was implemented on a pilot basis for the 33 percent of the population residing in Riga. Therefore, over 80 percent of the population is currently registered with capitated, certified GPs. In 2003, the Government indicated that it wished to implement a single capitation system across the country, leading to a significant amount of concern and discussion from both groups of GPs, who each prefer their current approach.

- 6 -

• MIS for SCHIF, including Regional Funds, Branch Offices, target hospitals and PHC providers has been procured and is ready for country-wide roll- out.

This system is currently in operation, although adjustments are being made through the warranty period. Implementation is currently under way, and the system is technically ready to process all information on state-paid health services. Currently elements of the "old" system are interfacing with the new, as new modules are successively integrated.

• Government-approved CHIP (Consolidated Health Investment Program), consistent with State Health Care Master Plan and standard hospital legal framework, prepared according to agreed methodology.

The guidelines for CHIP were developed and applied in the development of the 2003 Public Investment Program submission. This included the use of the Health Statistics and Medical Technology Agency to ensure that proposals were sound from a health technology point of view, and were consistent with the Master Plans and Ministry priorities. Master plans were developed for all regions of the country (the target was five regions) and a consolidated plan for all of Latvia has been developed. These plans call for improving primary and emergency care services to allow over 70 hospitals to be closed or converted to long-term care or community health centers.

• Primary health care pilots implemented and evaluation report issued by the government.

With regard to the pilot projects, the hospitals in Kraslava and Daugavpils were renovated and the children’s division was refurbished and moved from a separate site. GP offices in Daugavpils (1 common practice for 8 GPs), Kraslava (4), Dagda (2) and Indra (1) were renovated and equipped. The government decided to improve one common practive, where 8 GPs provide services for patients in another area of the Daugavpils city (Jauna Forstate) so that primary care services would be provided for patients who live in this neighborhood. The out-patient department of regional rehabilitation center was established in children’s health center (previously children’s polyclinic). The in-patient department of regional rehabilitation center was established in premises of Daugavpils city hospital as originally planned. An evaluation of the pilot projects (both qualitative and quantitative) was completed at the end of May 2002, and updated early in 2004. It showed the following results in the pilot areas:

1/3 increase in proportion of people registered with GP’s to 93 percent (target 80 percent)l14% increase in per capita utilization of primary care services (steady over last 2 years)l2 percent increase in the average length of stay at Daugavpils hospital (owing to the merging of lthe tuberculosis and infectious disease hospitals), and 4 percent decline in Kraslava (target 30 percent)24 and 7 percent reductions in emergency medical services calls (target 30 percent)lthe changing hospital structures due to amalgamation and accounting system changes makes lthe overall financial evaluation of the pilot projects difficult, but it is worth noting that Daugavpils hospital, which underwent the largest restructuring went from a 15 percent budget deficit in 2001 to a break-even position in 2003.the heating costs of the Kraslava hospital, which underwent the energy efficiency limprovements, decreased by 57 percent between 1999 and 2003, with an NPV and rate of return in line with original estimates. the overall level of support for general practice increased among medical professionals (from lmore than 70 percent with positive impressions, compared to just over 20 percent in the 2002

- 7 -

survey), but declined among the general population (30 percent vs. 55 percent).

• Regional health services master plans developed for at least five health regions.

Eight regional master plans were developed. To ensure national consistency, they were consolidated into a State Master Plan and now form the basis for very essential decisions such as health care system optimization, investment needs for improving of health care services accessibility and quality, as well as EU structural fund submissions. Although not originally envisioned as being part of the master planning process, PHC have been included in the regional master plans.

• Public health strategy with targets in priority areas issued.

The Public Health Strategy was approved and represents a critical reference document for the development of the health system in Latvia. Specific strategies were also developed in a number of areas (mother and child health, HIV/AIDS, mental health, cardiac health), which provide integrated approaches to prevention and treatment covering all areas of the health system (public health, primary, secondary, tertiary and emergency care). This fundamental change in the approach to addressing health issues is a major accomplishment that is not commonly achieved in the region. The various initiatives were also well linked and integrated. The CHIP program provides the foundation for future development, and the Master Plans and Public Health Strategy provide key support and guidance. The specific strategies are based on these three elements and cover the entire health system and beyond as necessary to achieve their objectives. • The Government has submitted to the Parliament draft legislation proposing a schedule for gradual increase s of taxes and duties on tobacco products to EU levels.

With the intention of providing the underpinning to the projected legislation, background work on a tobacco economics study was completed during late 2000/early 2001. Since this was a cross-ministerial subject, and a subject for which the MOW direct responsibility is limited, an inter- Ministerial group chaired by the ministry of Finance was established in mid- 2001. Progress is slow, since powerful local business interests are reported to be against any such reform. Further, one of the conditions for accession to the EU is a similar requirement. Latvia is trying to negotiate a waiver of this requirement, which is itself an indication of the strength of forces against these reforms. (to update)

• Regular and coordinated health behavior surveys conducted.

Health behavior surveys were started in 1998 using the FINBALT survey model. Initial experience was encouraging and a similar FINBALT survey was conducted in 2000, with a third survey conducted in March 2002. Data are being used in the communications component, sector planning and implementation, including sub- nationally with some assistance provided to local offices. Health behavior surveys were started in 1998 using the FINBALT survey model. Initial experience was encouraging and a similar FINBALT survey was conducted in 2000. Raw data from the FINBALT surveys are made available by the contractor and the Ministry of Welfare has the capability and expertise to undertake more detailed analyses. [Note: the FINBALT Health Monitor is a collaborative system for monitoring health behavior in Estonia, Finland, Latvia and Lithuania. Research into health behavior is a way to gain information about the public's attitudes toward health, about the distribution of risk factors and about the public's readiness to change. This type of survey has taken place annually in Finland since 1978. Estonia joined in 1990, Lithuania in 1994, and Latvia in 1998.]

4.2 Outputs by components:

- 8 -

Component A: Health Financing Reform Component

A.1 Strengthening Health Financing.

As discussed in Section 4.1, substantial progress was made in the areas of single pipe financing, payment models, and GP registration.

A.2 Strengthening Institutional Capacity of Health Insurance Funds.

Renovation of SCHIA building was completed on April 1, 2000 – because the MOW decided to restore a historical building to its initial state, the cost significantly exceeded what was budgeted and the Bank was reluctant to proceed. The MOW decided to continue using their own funds.

Training for the SCHIA and RSFs personnel. A comprehensive training program was implemented, aimed at building the management capacity of five key institutions involved in the reform, , including SCHIA and sickness fund staff. The program comprised 8 courses targeted for 25-30 participants per course, and a core group of 6 senior managers.

Development of financial and medical audit systems. A system for internal audit has been established within the government structure and is being used, though not fully developed. This is an ongoing process involving all Ministries and ministerial Agencies. An Audit and Control Department has been established within HCISA, responsible for audit of contracting, financing, management, targeting and other processes. Training in financial and accounting management has been carried out under the project. International consultants were contracted to assist in the development of financial and medical audit systems.

Development and implementation of the public relations programs. HCISA created a Public Relations Division which actively participated in planning the public information campaigns, coordination of surveys of public and provider satisfaction, and other public information and monitoring activities.

A.3 Implementation of Management Information System.

See Section 4.1 for a discussion of progress on the MIS trigger indicator. In addition, MIS training was provided to two systems administrators at HCISA. Training of end users has been mostly done in the form of planning activities, due to the delay in implementation. A study visit to Sweden was also carried out, to observe large public organizations with tailor-made applications for health care and law enforcement organizations. The Head of Information Technology and MIS Project Manager participated.

The performance of the Health Financing Component and its sub-components as follows:

(Sub)-Component RatingA.1 Health Care Financing Policy Satisfactory

A.2 SCHIA Development Satisfactory A.3 Management Information Systems SatisfactoryHealth Financing Component Satisfactory

- 9 -

Component B. Health Care Services

B.1 Investment Policy Development.

Investment planning, approval and control approaches, principles and procedures were compiled for the development of Health Care Reform and Consolidated Health Investment Program for 2002- 2007. In addition, an Investment Manual was prepared and distributed to SCHIA, HSMTA, Regional sickness funds, health care policy makers, hospitals and other interested parties

B.2 Support to Primary Health Care Reform.

Renovations were completed for the PHC pilot practices and the necessary medical equipment was delivered. An inspection commission that included representatives from the corresponding local governments and regional sickness funds, inspected all these practices and drew up the deeds of conveyance. Finally, the evaluation of pilot project and four PHC training practices located in Latgale region was prepared, fulfilling the trigger indicator.

The University of Latvia made up five groups of internists and pediatricians with 50 students in each. In addition, 70 training physicians completed their studies at University of Latvia by November 30, 2002. Finally, the education of 240 public health nurses finished in September 2002. A total of 16 clinical practice guidelines were prepared, issued and distributed to general practitioners. An evaluation of the use of the guidelines was completed. The Family Health Education Center was provided with computers to assist in the GP Training.

Guidelines for General Practitioners Sixteen clinical Guidelines for General Practitioners were prepared and were distributed in 2002. Their main purpose is quality improvement and enhancement of the knowledge of newly-qualified GPs. The guidelines cover management of common diagnoses, symptoms, and risk factors frequently seen in primary care. Guidelines were distributed in mid-2002 and an assessment was carried out in early 2003.

Training of GPs: A total of 250 PHC physicians were trained through the project. Seventy GP physician trainers have been trained and are entitled to train GP residents assigned to their practice. Twenty such ‘training practices’ have been established.

Training of public health nurses: Training of public health nurses was conducted by the Centre of Professional Medical Education. Facilities of the Centre were renovated and training began in mid-January 2001.

B.3 Hospital Restructuring Program.

Training of hospital management staff was done with support from the Government funds. Tutors from different health care institutions involved in this training. Training coordinated and supported by the School of Public Health of Latvia.

Training in emergency assistance (EA): In total 170 EA teams, including physicians, nurses and physician assistants, have been trained and 60 additional teams will need to be trained. Ambulance services to deploy EA teams are established at 70 location points.

Elaboration of the Regional and State Healthcare Development Plans (Masterplans). One state and eight

- 10 -

regional healthcare development plans (master plans) were developed in co-operation with foreign and local consultants.

Strengthening of the Emergency Medical Care System. Repair work was completed for the training division of Disaster Medicine Centre; training was accomplished, including Acute Trauma Life Support (ATLS), Acute Cardiac Life Support (ACLS), Emergency Care Management, Emergency Vehicle Operator Training; computers and lay figures for provision of the training process were purchased and raining programmes for emergency care training wee developed. Re- training of existing medical professionals into Emergency Care specialists has also been completed.

B.4 & B.5 Pilot Project in Latgale.

See section 4.1 discussion on relevant trigger indicator.

B.6 Assessment of public health conditions and improvement of monitoring.

The Health Promotion Center (HPC) and the Health Statistics and Medical Technology Agency (HSMTA) produced a substantial body of data on the public health situation, including routine statistics, behavioural data, epidemiological, and health systems data. These surveys and routine reports are now institutionalised and self-financed.

HPC has performed bi-annual health surveys in 1998, 2000 and 2002 (FINBALT), aimed at public attitudes toward health, risk factors and the prevalence of health problems. The Ministry of Welfare financed the 2002 FINBALT survey, and funding is committed to carry out the survey again in 2004. Latvia participated in the Global Youth Tobacco Survey in 2002, and in the WHO World Health Survey in 2003. A survey on breastfeeding promotion was conducted in 2002. Data from these surveys have been used to guide health promotion plans and interventions, training, and for policy and strategy use by Ministry of Health.

HSMTA has produced comprehensive statistical reports on public health, and disseminated the reports widely to providers, managers and policy makers e.g.:

- Yearbook of Health Care Statistics- Semi annual Health Care Statistics- Maternal and Infant Health Care Statistics- Statistical overview on Health and Health Care

Development of prevention programs for priority public health issues.

In the area of public health, a Center of Excellence for Management of Multiple Drug Resistant TB was established, serving national training needs. Public information campaigns on cardiovascular disease were carried out. Studies were completed on alcohol economics, cervical cancer screening and the economics of tobacco taxation. A Health Promotion Infrastructure Scheme, including a possible financing model was developed and is currently in the process of implementation.

Implementation of the Public Relations Campaign

One continuous campaign was implemented rather than the originally planned six campaigns, based on strategic and professional assessment. The campaign was launched in November 2000 and continued through May 2002. Communications media included four nationally televised TV spots, booklets

- 11 -

distributed by mail to all households, information posted in health ca e institutions, a supplement in the main newspaper, numerous topical articles in the press, and a World Health Day event. Messages were tested using focus groups before finalising and disseminating. Five main topics were addressed:

(i) The health care system and health reform(ii) Access to health services(iii) Advantages and differences between GP and specialist physicians(iv) The hospital optimisation process and master planning(v) Public health

The performance of the Development of Health Care Services Component and its sub-components is rated as follows:

(Sub)-Component RatingB.1 Investment Policy Development Policy Satisfactory

B.2 Support to Primary Health Care Reform Satisfactory B.3 Hospital Restructuring Program Satisfactory B.4 & B.5 Pilot Project in Latgale Satisfactory B.6 Public Health Highly SatisfactoryDevelopment of Health Care Services Component Satisfactory

Component C: Health Reform Communications Strategy

This component played a key role in the preparation for Phase II, by coordinating the social assessment activities and providing the results of both the ongoing surveys and the evaluation of the public information campaign as key inputs into the design of Phase II. It completed all of the planned activities, including a number of extremely useful public opinion polls, which aided project implementation, preparation of Phase II and ongoing management of the MOW. For example, a public information campaign was initiated in October, 2001, focusing on the health care system and health reform, access to medical services, the role of the GP and advantages of using GP’s, the hospital optimization process and master planning, and public health. In addition, stakeholder meetings were held on a number of topics, including improvements in the capitation model and hospital restructuring. A special supplement was also done in the main Latvian and Russian language newspapers to provide more information on both primary health care and the master planning process.

A public opinion survey was also conducted in May, 2002, to assess the impact of the public information campaign to date and assess the general public perceptions regarding the health reform process. Two documents were prepared: (i) the long-term Communication strategy; and (ii) the activity plan for implementation of the Communication strategy.

Overall, this Component is rated as Satisfactory.

Component D: Project Management

Project management began with a significant learning curve, and it took a fair period of time before capacity was developed. Just before the mid-term review, however, much attention was focused on this, with the result that both the effectiveness and the capacity of the PMU had increased. After the October

- 12 -

2002 election, significant staffing reductions were made to the PMU, and implementation shifted into simply completing the remaining activities, rather than actively planning to get the maximum benefit out of the available resources.

Overall, this Component is rated as Satisfactory.

4.3 Net Present Value/Economic rate of return:

N/A

4.4 Financial rate of return:

N/A

4.5 Institutional development impact:

The project resulted in a substantial institutional development impact.

National level: The project increased significantly the capacity of the Ministry of Health, and the SCHIA to plan and manage the health system. Specific attention was focused on health planning and health investment project preparation and analysis. Administrative staff of all levels of health care system have been trained in health management.

The project also assisted the overall health sector reform and strengthened the national capacity for managing three of the main systems in the health care – (PHC), Emergency Medical Services (EMS) and Hospital Services rationalization. A national Public Health Strategy and an Action Plan for the period 2001-2006 were also drafted.

SCHIA has been well established and is operating in an effective manner. Annual financial statements show that the administrative costs of the Agency (including regional funds) are less than two percent of total expenditure, which is very favorable by international standards.

Municipal level: The project strengthened the local governments’ capacity to implement the health reform at their level, by providing training in analyzing their health services and planning for the restructuring of the health care in all regions of the country. The Health Promotion coordinators in some municipalities have been established with a great deal of cooperation between the Health Promotion Centre, municipalities and Sickness Funds.

Institutional capacity of HCISA and RSF was strengthened by the project. Capacity development in these agencies came primarily through involvement in developing instruments and systems required for the health sector reform. Working together with numerous international and national consultants, many HCISA staff benefited from hands-on training. HCISA participated in developing the National Health Care Master Plan, and working groups from RSFs and HCISA branches developed Regional Health Care Master Plans. Likewise, the development of the capitation-based payment system for PHC, the Consolidated Health Investment Program, and MIS development, all have conveyed substantial increase in institutional capacity. Regarding MIS, inter-agency working groups were formed for eleven sub-systems, staff were trained in software applications, and computers were provided by the project to HCISA, its branches, and 50 in-patient institutions.

- 13 -

In addition, through the various communications and public information campaigns financed or otherwise supported through the project, the people of Latvia gained a better understanding of health issues, and were encouraged to focus more on personal responsibility for their own health. For example, the latest Finbalt survey of health related behaviors indicated that a higher percentage of respondents had measured their blood pressure in the last year, and that more respondents are vaccinated against tick-born encephalitis and diphtheria. Further a majority of smokers are either in the process to quit smoking or at least wish to quit smoking and the number of respondents who have concerns over the harmful effects of smoking has increased between 1998 and 2002. Dietary habits have also improved, especially among those in rural areas, where the amount of animal fats have been cut in half since 2000. Despite this progress, high risk health behavior is often identified among males, smoking prevalence and alcohol consumption are both still very high. Only 1/3 of the population has enough physical activity, with 40.8% of the adult Latvian population being overweight or obese. These data indicate that progress has been made, but that further work is needed through sustained and ongoing attention to health promotion issues.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

(i) Donor coordination under the project was an example of good cooperation and coordination. The project received funding from the Bank and Swedish International Development Agency (SIDA), and bilateral support from CDC and other organizations. SIDA agreed to a common set of implementation rules.

(ii) Political turbulence. Although there was some political turbulence during the implementation period, these did not have a marked impact on the actual pace of implementation. However, senior ministry management attention to ensure effective implementation did increase in the year or so prior to the October, 2002, election.

(iii) Task complexity. There was some delay in implementation resulting from the number, complexity and variation of the tasks included in the project activities.

5.2 Factors generally subject to government control:

(i) Frequent changes of governments in Latvia was a factor influencing the progress of the project, but impossible to control. The most recent change of the government brought in a completely new view of the basic principles in reforming health system in Latvia, which for some time even stopped the project, especially affecting the preparation of the second phase of the APL. There was reluctance from the government to make several serious policy decisions.

(ii) Rivalries between medical school and post-graduate education faculty. Because of rivalries between these two medical institutes, there was a delay by the government for selecting the site for retraining of family doctors. This held up the accelerated re-training of physicians and capacity strengthening of a department of family medicine.

(iii) Delay in selecting an institution for management training program. There was a delay on the part of government in selecting an institution for development of a management training program for health sector managers because of their internal need for a perceived competition among training providers, and due to the lack of selection criteria. This was holding up training program development and training of health

- 14 -

sector managers that was needed for more economic and business-minded decision making under health financing environment in the proposed Phase lI of the APL.

(iv) Management Information System. The development of the management information system involved great deal of delay, because of factors both within and outside the control of the MOW/SCHIA. Shortly after the start of project implementation, a government-wide review of information technology (IT) activity was conducted by the Ministry of Transport. This process delayed the finalization of the MIS tender documents by approximately 12 months. The lack of technical capacity within the MOW and SCHIA, as well as initial problems with the input from international consultants, also delayed the development of the tender documents, and the subsequent tendering process. However, the PMU, together with a Bank IT procurement specialist and the assistance of competent local and international consultants were eventually able to complete the MIS tender and implementation.

(v) Health Service Master-plans. Work on regional health services master-plans was stalled due to difficulty in attracting bidders for foreign TA assignment on master-plan methodology.

(vi) Development of healthcare service payment models and contract systems. Completion of these activities was delayed as the initial task requiring the involvement of consultants was restructured several times according to the World Bank’s instructions and finally combined with several other tasks under the component.

(vii) Development of investment policy. The realisation of all sub-component tasks started after a delay of about 12 months. This was caused by the splitting of one task into separate contracts, complicated and time-consuming procurement procedures and organizing of repeated procurement cycles.

(viii) Primary Healthcare reform. During the project planning exercise the majority of activities were planned to start in January 1999. Due to lack of training of planners and lack of information on WB tender and no-objection procedures, there arose a necessity to re-plan the timetable of activities, and consequently, all activities were delayed by six months.

(ix) Strengthening PHC institutional capacity. Works related to this activity were delayed since the preparation of renovation specifications were not included into initial plans.

(x) Strengthening of the Emergency Medical Care System. There was a delay in the ATLS training, which was caused due to limited financial resources since the development of ATLS training program was not included in the State Investment Program for 1998.

5.3 Factors generally subject to implementing agency control:

In the beginning stage of project, implementation was delayed due to several reasons, such as: lack of project management capacity and staffing problems; poor quality of documents submitted to the Bank for reviews and no-objections in terms of English, clarity of content, and structure; and poor communications with prospective consultants.

5.4 Costs and financing:

The total cost of the project was US$20.40 million compared with the PAD estimate of US$17.6 million. The difference was primarily due to the higher costs for civil works and the Management Information System, which were financed from the Government’s own sources. The Bank financed US$11.46 million

- 15 -

(56.0%), the Government contributed US$7.00 million equivalent in local costs (34.4%); and the co-financier financed US$ 1.94 million (9.4%).

6. Sustainability

6.1 Rationale for sustainability rating:

Likely. The sustainability of the project is rated as likely. For several of the components and activities, such as health financing, the interventions supported by the project have become part of the ongoing operations of the health insurance agency and the ministry. Strong commitment and capacity in implementing institutions (MoH, HCISA) bode well for sustaining the reforms, although technical assistance and financial support will be required in the near future for specific areas such as MIS, DRG system, public relations and promotion, and quality assurance.

For the MIS, stronger political support from Ministry of Health is needed, in addition to public relations support, training, and intensified supervision. Sustainability of capacity development for health communication strategy is weak due to several factors such as: (i) contracting out and weak integration of the work into the regular activities of the Division; (ii) by design the activity was a campaign, not an ongoing process; hence the "long-term" strategy was implemented on a relatively short term; and (iii) personnel and leadership changes, restructuring, and the decision not to pursue Phase II of the loan resulted in loss of institutional memory and momentum. The political decision not to continue with Phase II of the project can create losses in the institution building and skill development that have been achieved in Phase I of the project.

For others, such as the implementation of the master plans and the use of the CHIP methodology, sustainability depends on long-term government commitments to making the tough decisions that must be made in this area. The Ministry is pursuing the utilization of EU structural funds as an avenue for obtaining the necessary investment funding to implement the rationalization strategies.

Sector financing remains the greatest risk to the ongoing development of the sector. The low level of public financing for health care must be addressed if support for the reform process is to be maintained, and public approval enhanced.

The Bank has discussed options with the Government of Latvia for continued involvement to enhance the sustainability and impact of the reform process. These discussions have includeded proceeding with Phase II, developing a Technical Assistance loan package, to be financed either as a stand-alone operation or through the PSAL II DDO funds (which are already available), and continued policy dialogue and Bank provided TA. With the recent change in Government, all three of these options are currently being pursued by the Ministry of Health, in consultation with the Ministry of Finance. As of June 15, 2004, no firm response from the MOF has been received. In terms of Bank provided TA, reviews were recently completed for the Director of the SCHIA of the current financing formula and options for a methodology to determine the content of the benefit package.

6.2 Transition arrangement to regular operations:

The project investments were directly linked to regular operation of the system. Transition to the new systems of primary health care, EMS and health insurance has already been implemented and the systems are now in regular operating mode. The investments made and the activities are part of the reform in the health care and are ensured with ongoing funding from MOH and SCHIA budgets.

- 16 -

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory. The identification process focused on critical gaps and opportunities for interventions in the health sector. The project’s consistency with the government’s development priorities and the Bank’s country assistance strategy were assured. In addition, the Bank also covered in-depth sociological aspects while designing the project. With a harmonious team of a good skill mix, it brought in state-of-the-art expertise into project design, providing for flexibility and responsiveness to local needs.

During preparation and appraisal, the Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. In addition, during the appraisal, the Bank assessed the project's risks and benefits. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. Extensive stakeholder consultation was highly productive, and initiated a process of ownership that proved invaluable at the implementation stage.

7.2 Supervision:

Satisfactory. The Bank's performance during the implementation of the project was satisfactory. Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored. Over the five years of project implementation, there were seven supervision missions. The Bank’s client relationship was very cordial and productive. Review teams included specialists in public health, information systems, financial management, operations, disbursement, and procurement. External consultants were used for specific aspects of project components. Aide-Memoires were regularly prepared and transmitted, flagging outstanding issues and underscoring benchmarks for actions. These alerted the government and the implementing agencies to problems with project execution and facilitated remedies in a timely manner, in conformity with Bank procedures. The Project Status Reports (PSRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation. Whenever delays in implementation occurred, the Bank’s task team was able to define concrete steps and timetable for putting the project back on track and pace. The Bank paid sufficient attention to the project’s likely development impact. The quality of advice, and the follow-up on agreed actions were adequate. Loan covenants and remedies were enforced effectively.

With the decentralization of Bank functions to the Resident Mission in Latvia, the Bank could provide quick response and follow-up. The staff also showed flexibility in suggesting needed modifications in implementation. They worked closely with the government and the implementing agency, and provided them with extensive assistance including technical advice.

7.3 Overall Bank performance:

Satisfactory. Overall, the Bank performance was satisfactory during project preparation, appraisal and implementation.

Borrower7.4 Preparation:

- 17 -

Satisfactory. The Borrower's performance in the preparation of the project was satisfactory. The Borrower displayed the required level of commitment to the objectives of the project and covered the adequacy of design and all major aspects, such as, technical, financial, economic, institutional, environmental and sociological factors, including stakeholder commitment. The government officials and staff of the implementing agencies both at the central and state levels worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm.

Government commitment to the policy program and the project was demonstrated through policy dialogue with the Bank, including several policy steps taken under the Structural Adjustment Program. Key policies have been agreed in the Letter of Development Program and the policy matrix which was the basis for the activities of the project. A series of government regulations launched the key reform activities January 1, 1998. Organization of the project preparation process included most top civil servants in respective policy areas.

7.5 Government implementation performance:

Satisfactory. The government implementation performance was satisfactory. It consistently maintained its commitment throughout the implementation. MOW, which was responsible for the overall implementation of the project, consisted of senior policy makers and experienced managers. They were very responsive to take corrective implementation measures, and were effective in dealing with outstanding operational issues. Appropriate levels of review and approval were usually in place; financial accountability and follow-up was observed, and expenditures were duly authorized before they were incurred; and documentation was maintained properly for periodic review. The project did not suffer from any counterpart funding problems, as GOL took timely corrective measures and made appropriate budget provisions.

Despite the initial slowdown, MOW managed to form a capable implementation unit able to face the complex implementation tasks of the project. Regular reports and data on project management, procurement, disbursements, and financial status were made available to the Bank. The audit reports were also duly provided.

The Mid-term Review (MTR) process was handled very smoothly, both in terms of the organization and the content. Specific requests for information or follow-up were handled quickly and efficiently. The management of the MOW was quite engaged in both the management issues of the ongoing project, and the MTR specifically.

The government showed ownership of the project and good will and capacity to advance the objectives. Project implementation was on track, and project objective was achieved. Even with the change in government, the commitment to successfully complete the remaining project activities was affirmed and pursued.

7.6 Implementing Agency:

Satisfactory. The commitment to the project and its objectives by the implementing agencies was very strong, taking into account political changes, changes of the government structure and the change of key personnel in the Ministry of Health.

The PCU was very well organized and effective in dealing with procurement, disbursement, progress reports, and in maintaining proper records of the project. They were receptive to Bank advice, and highly

- 18 -

collaborative with respect to meeting demanding benchmarks and deadlines. The PCU regularly updated the State Investment Project document, and based on this document it prepared the project procurement plans. Poor response to advertised tenders and insufficient documentation of the expected activities were among the problems. The project management unit gradually became more proficient at writing reference, providing technical specifications and identifying vendors and firms, thereby easing the procurement process.

The project financial accounting was performed consistently and in accordance with International Accounting Standards. PCU regularly prepared project financial plans and ensured execution of payments for rendered goods and services.

7.7 Overall Borrower performance:

Satisfactory. The Borrower was pro-active and results-oriented in project preparation and implementation, through the involved government agencies and the implementing agency. Based on all aspects of implementation, the Borrower performance is rated Satisfactory.

8. Lessons Learned

Policy-Level.

It is important for the Bank to make the Borrower understand the value-added of the Bank’s linvolvement in Latvia, over and above financing a project.

Alignment of the project and government policy, and continuity in reform objectives are critical for the lsuccess of the project

Confidence and communication among PCU, the management of implementing agency and the Bank lteam are critical for project’s success

Transparency, decentralization and open discussions are essential for making important decisions lrelated to the project

Project design during implementation should have some flexibilityl

There is work to be done, even beyond the interventions included in the project, in explicitly targeting lmeasures to ensure accessibility to health services and in better explaining the health reforms to both health care personnel and the general public.

Implementation

It is important to ensure that the working groups are adequately staffed and take primary responsibility lfor the technical content of the various project components. Project management staff should play supportive roles, with respect to procurement, financial and other management issues.

Procurement

In a transition economy, the Bank should explain clearly to the Borrower the relevance and significance lof the Bank’s procurement rules and procedures.

- 19 -

There is a need for accurate costing of procurement activities ex ante, and accurate preparation of ltender documents, particularly in the case of construction works. In order to avoid considerable increase in quantity and the cost of the construction the tender should consist of working and validated designs. Likewise, it is important that the Terms of Reference of the consultants are precise and clear.

The inclusion of procurement specialists with specific expertise in management information systems lwas critical to the successful IT bidding process and subsequent implementation.

Project Management

There is a need for well trained, prepared and highly motivated staff with clearly defined lresponsibilities to make managerial decisions. Management matrices, which were developed and refined just prior to the mid-term review, proved to be very useful in ensuring that responsibilities were well understood.

State–of-the-art computer system for financial management and management of the Project proved limportant for good management.

Maintenance of accurate documentation filing and archiving system is important for good project lmanagement.

The combination of foreign and local TA had a positive impact on capacity building in the Ministry land other implementation agencies.

9. Partner Comments

(a) Borrower/implementing agency:

The PMU has commented extensively on the draft ICR, and these comments have been incorporated into the text of the document. In terms of substantive comments on the project itself, an independent evaluation of the project has been commissioned by the Ministry, and this report has been endorsed by Ministry management. The executive summary of this report, as well as the section on conclusions and recommendations, is reproduced in Annex 8.

(b) Cofinanciers:

The draft ICR was sent to SIDA, and Mr. Max Inverin of SIDA responded with the following comment:

"Thank you for a informative and well written final report. I am grateful that you have taken the time to explain the financial deviation. Also I sincerely hope that phase II will gain political support in Latvia since I share your belief that such a continuation is necessary."

(c) Other partners (NGOs/private sector):

10. Additional Information

A. The Bank’s ICR Team consisted of the following members:

- 20 -

Dominic Haazen (Task Team Leader)Sati Achath (Consultant)Lilita Sparane (Projects Assistant)

B. List of Task Team Leaders of the project in chronological order:

(i) Loiuse Fox(ii) Lorriane Hawkins(iii) Toomas Palu (iv) Dominic Haazen

C. Denomination

The original loan was denominated in German Marks, with an amount of DEM 21,715,000. With the introduction of the EURO, this amount changed to EUR 11,102,703.20.

- 21 -

Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Create a framework for a modern and effective health care system, including policy reforms, institution building and skills development for the health financing system.

90% of health services funded through a single pipe financing mechanism by FY 2001.

Fully met. The Approved budget for 2002 was 89.9% Since 2004 the health care special budget was closed down and these calculations were not made.

DRG/PVQ payment model for hospital services and per capita PHC financing model developed.

Fully functioning capitation and DRG payment systems exist, although refinements are needed.

Standard hospital legal framework, conducive to efficient delivery and investment in highest value projects established.

Required legislation was enacted but further refinements are needed.

Public health strategy with targets in priority areas issued.

Strategy was published in the spring of 2002. Action plan for implementation of Public Health Strategy accepted by the Cabinet of Ministers on February 2004.

Regional health services master plans approved at regional level. Master plans adopted by Government and

regional authorities. Initial implementation is through EU structural funds. MOH plans to use Public investment program and all possible financing resources for this, and have started discussions with MoF about possible options. .

Government-approved CHIP, consistent with SHC master plans, prepared according to agreed methodology.

CHIP operational. MOH is preparing priorities for Public investment program for 2005 –2009 with are for implementation of master plan.

At least 80% of provider contracts satisfy yearly quality control audits and are renewed.

Not measured

80 percent of population covered.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

1. Improved national health insurance system in place at central and regional levels (funded from tax receipts)

1.1 SCHIA and RSF run effective population registries, 30% of population registered with certified GPs

80 percent of population registered with certified GP's.

1.2 Annual report of health insurance performance issued to all key stakeholders

SCHIA annual reports for 1999 and 2000, 2001 and 2002 completed, report for 2003 being finalized

1.3 Medical and financial audit system operational throughout the system by year 2001

Internal audit units established in health care institutions based on Law of Internal Audit.

1.4 Improved client satisfaction with the health insurance system

Less than 30 percent of providers feel that the current reform agenda would substantively improve health care. For the general public, just 45 percent felt that health services were accessible to them, down from 58 percent a year earlier.

2. Policy framework developed and institutions established prior to Phase II health investments, health services restructuring program developed and pilot tested.

2.1 Investment project appraisal manual produced and disseminated

Done, draft CHIP for period of 2003-2007, including Phase 2 activities, was prepared and submitted to Ministry of Economy on 3/1/2002 Public investment program for period 2005 – 2009 in developing process. Investments in health sector were not made in 2003.

- 22 -

2.2 Guidelines for investment planning, approval and monitoring procedures accepted by stakeholders

Done, see above.

2.3 Development plans for HSMTA and SCHIA Investment Unit, specifying roles, accountabilities, approach and methodology

Done, HSMTA review included in CHIP methodology

2.4 Financing mechanisms ensure similar institutions face similar cost of capital for similar investments

Transition strategy developed, legislative amendments required to implement fully Current Shortage of money means that the price for health care service can not cover capital costs or depreciation

2.5 Family doctor training capacity at various levels improved

Largely completed, with both training and re-training programs established. Internists and pediatricians trained as GP. Lack of human resources in each of medical specialties

2.6 Hospital restructuring program piloted and evaluated by 2001

Latgale pilot projects completed, evaluation is completed.

2.7 Secondary care managers and emergency care personnel trained

2.8 National disease prevention programs and policies developed by 2001

EMS personnel and hospital managers trained.

Public Health strategy and Action Plan approved. Some special programs like AIDS prevention approved. Tobacco convention will be signed.

3. Capacity to design and implement effective communication strategies strengthened at national level.

4. Phase I well managed and systems in place for management of Phase II.

3.1 Baseline public opinion survey conducted by December 1, 1999

3.2 Role, responsibility and authority of Public Relations Unit approved by January 1, 1999

3.3 National health reform communication strategies designed and approved by February 28, 1999

3.4 Six sustained communications campaigns implemented by 2001

4.1 Project management matrix developed and agreed by stakeholders

4.2 Adequately staffed and equipped project management office maintained

4.3 Annual training plan prepared by February, 1999

4.4 Periodic stakeholder assessments of satisfaction with project procedures administered & follow up workshops conducted, with first by June 1999

4.5 PIP for Phase II developed by September, 2000

Completed in November, 2000.

Completed. Unit was further strengthened in May, 2001

Activity plan accepted in August, 2000 PR unit in Ministry of Health established. Mass media regularly receive all information on activities in health sector.

Campaign began October, 2001, survey to review effectiveness to be done in May, 2002. Campaign on patients' rights was implemented over December 1999 - March 2000

Completed in March, 2001

Done on an ongoing basis

Staff training needs reviewed as needed

Stakeholder assessment done for MTR (March 2001), with follow-up based on findings

Not yet due, as previous Government decided not to proceed with Phase II.

1 End of project

- 23 -

Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionA. 1. Strengthen Health Financing Policy 0.79 0.71 89.872. Strengthen Management of Health Insurance Funds 1.92 1.72 89.583. Strengthen MIS of Health Insurance Funds 4.62 6.10 132.25B. Financing Reform1. Investment Policy Development

0.86 1.35 156.98

2. Support Primary Health Care Reform 2.35 1.99 85.533. Support to Hospital Restructuring Program 2.78 5.16 186.334. Support to Public Health Reform 1.33 1.44 108.27C. Implementation of Health Reform Communication Sttrategy

0.55 0.76 138.18

D.Project Management and Coordination 0.46 1.06 230.43Front-End Financing Fee 0.12 0.12 100Total Financing

Total Baseline Cost 15.78 20.41 Physical Contingencies 1.27 Price Contingencies 0.57

Total Project Costs 17.62 20.41Total Financing Required 17.62 20.41

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 1.60 0.00 1.10 2.70(0.00) (1.30) (0.00) (0.00) (1.30)

2. Goods 4.60 0.00 1.70 0.30 6.60(3.90) (0.00) (1.20) (0.00) (5.10)

3. Services 0.00 0.00 5.80 2.00 7.80(0.00) (0.00) (5.50) (0.00) (5.50)

4. Miscellaneous 0.00 0.00 0.00 0.50 0.50(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 4.60 1.60 7.50 3.90 17.60(3.90) (1.30) (6.70) (0.00) (11.90)

- 24 -

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 1.78 0.00 1.63 3.41(0.00) (1.60) (0.00) (0.00) (1.60)

2. Goods 4.30 0.15 1.42 1.62 7.49(3.70) (0.00) (0.61) (0.00) (4.31)

3. Services 0.00 0.00 5.99 3.50 9.49(0.00) (0.00) (5.55) (0.00) (5.55)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 4.30 1.93 7.41 6.75 20.39(3.70) (1.60) (6.16) (0.00) (11.46)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.A1. Strengthen Health Financing Policy

0.59 0.27 0.44 0.07 0.20 74.6 74.1

A2. Strengthen Management of Health Insurance Funds

0.35 1.63 0.22 0.01 1.71 0.64 2.9 104.9 290.9

A3. Strengthen MIS of Health Insurance Funds

3.54 0.72 0.97 4.20 1.26 0.19 118.6 175.0 19.6

B1. Investment Policy Development

0.60 0.16 0.17 0.66 0.50 0.05 110.0 312.5 29.4

B2. Support Primary Health Care Reform

2.41 0.17 1.74 0.20 72.2 117.6

B3. Support to Hospital Restructuring Program

2.62 0.54 2.92 2.24 111.5 414.8

B4. Support to Public Health Reform

1.15 0.28 0.83 0.47 0.13 72.2 167.9

C. Implementation of Health Reform Communication Strategy

0.53 0.08 0.53 0.19 0.04 100.0 237.5

D. Project Management and Coordination

0.09 0.05 0.01 0.36 0.69 11.1 720.0

- 25 -

Front-End Financing Fee 0.12 0.12 100.0Total Financing 12.00 3.63 11.46 7.00 1.94 95.5 192.8

- 26 -

Annex 3. Economic Costs and Benefits

N/A

- 27 -

Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Supervision

11/05/1999 5 TEAM LEADER (1); OPERATIONS OFFICER (1); HEALTH SPECIALIST (2); HEALTH ECONOMIST (1)

S S

06/09/2000 8 PROGRAM TEAM LEADER (1); OPERATIONS OFFICER (1); HEALTH SPECIALIST (1); SR. HEALTH SPECILIST (1); COMMUNICATIONS SPECIAL (1); WB RIGA OFFICE CHIEF (1); TEAM ASSISTANT (1); PUBLIC HEALTH SPECIALI (1)

U S

03/26/2001 5 PTL (1); PROCUREMENT (1); IT SPECIALIST (DC) (1); COMMUNICATIONS SPEC. (1); PROJECT ASSISTANT (1)

S S

01/31/2002 7 PTL (1); HEALTH SPECIALIST (1); LEAD HEALTH SPECIALIST (1); TEAM MEMBER (1); CONSULTANT (1); TEAM ASSISTANT (1); COMMUNICATIONS (1)

S S

01/31/2002 4 PTL (1); PROJECT ASSISTANT (1); COMMUNICATIONS SPEC. (1); SECTOR MANAGER (1)

S S

05/16/2003 3 PTL (1); PA (1); EXT (1) S S11/14/2003 4 TTL (1); PAS (1); PA (1);

COMMUNICATIONS (1)S S

ICRThere was no special ICR mission since the Task Manager was based at the Resident Mission

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

- 28 -

Supervision 79.4 325.9ICR 4.0 30.9Total 144.1 606.0

- 29 -

Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

- 30 -

Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

- 31 -

Annex 7. List of Supporting Documents

§ Aide Memoires, Back-to-Office Reports, and Project Status Reports.§ Project Appraisal Document, No. 18448-LV, October 18, 1998.§ Health Behaviour Among Latvian Population, 2000.- Kansanterveyslaitos – National Public Health Institute, Helsinki, Finland, 2001§ Public Health Analysis in Latvia 2001- Ministry of Welfare, Health Statistics and Medical Technology Agency, Riga, 2002§ Mental Health Care in Latvia 1991-2000, statistics yearbook.- MoW, Mental Health Care Center of Latvia, Riga§ Appraisal of the Payment System of Health care Diagnosis Related Groups (DRG): Report prepared

by the consultant Anders Wikman, MoW, 2001*§ National Health Care Development Plan (Master Plan).- MoW, Riga, 2001*§ CHIP: Consolidated Health Investment Program.- Riga, MoW, 2001*§ Strategy for Limiting the Spread of HIV/AIDS in Latvia (1999-2003).-Riga, MoW, 1999§ Creation of the Single-Pipe Financing.- Riga, MoW, 2001§ Approbation of the Capital Investment Financing and Budget Model: Report by EPOS Health

Consultants.- Riga, MoW, 2001*§ Quality Assurance in the Health Services. From Quality Control to Continuous Quality Improvement: Report by FTA for provision of appraisal quality of HC services and application of medical audit system.-

Riga, MoW, 2001*§ Medical Audit. Lessons from Experience: Report by FTA for provision of appraisal quality of HC

services and application of medical audit system.- Riga, MoW, 2001*§ Contracting and Financing. A TQM approach to contracting and financing: Report by FTA for provision

of appraisal quality of HC services and application of medical audit system.- Riga, MoW, 2001*§ About depreciation costs calculating prices for medical services.- Riga, MoW, 2001*§ State special health care budget resources allocation formula and system of rates. Regulations approved by CoM, Riga, 2002*§ On Changes to be Implemented in the Procedure for Organization and Financing of Outpatient Health Care: Report by Working group.- Riga, MoW, 2002*§ Public Health Strategy.- Riga, MoW, 2001*§ Operation and Development Strategy Of the State Agency “Public Health Agency” for the period

2002-2006: Appendix to the Letter of Public Health Agency.- Riga, MoW, 2002§ The financing procedure of the Agency.- Riga, MoW, 2001*§ Health Promotion Infrastructure.- Riga, MoW, 2002*§ Evaluation of a Pilot project “Optimisation of Infrastructure for Health Care System in Daugavpils and Kraslava regions” and four training PHC practices located in Latgale region.- Riga, BKG Business Consultants Group, MoW, 2002*§ Evaluation of Health Care Reform May – June 2002.- Baltic Institute of Social Sciences, Riga, MoW, 2002*

*Including electronic files

- 32 -

Additional Annex 8. [Executive Summary of InDevelop Uppsala Evaluation Report]

FINAL REPORT

LATVIAN HEALTH REFORM PROJECTPHASE I, 1999-2003

I. EXECUTIVE SUMMARY

The Latvian government committed itself to a new future for health care provision and financing through a major sector reform involving the transition from a centralised to a decentralised health system. The World Bank-financed Latvia Health Reform Project 1999-2003 was formulated through a process involving policy dialogue with World Bank dating back to 1994, analyses of the transitional health care system in Latvia in the mid-1990s, reviews of other European models, and extensive stakeholder consultations and technical support from World Bank (WB), European Union (EU) and other development partners.

Central to reformed system was the establishment of primary health care (PHC) as the front line and gate-keeper of health services, founded on a structure of locally-managed autonomous units. The cornerstone of the sector is the family physician or general practitioner (GP), a shift which has demanded rapid expansion of the GP profession, and a more health promotion-oriented PHC model. Rationalisation of secondary and tertiary services through reduction in hospital facilities and beds, development of multi-specialty centers, and creation of an emergency services network, is ongoing.

Health care financing has undergone a transition from a system in the mid-1990s based on health insurance and co-payments from patients at the primary care level, to one of capitation-based payment and patient fees administered through regional sickness funds. Financing of hospital care is under gradual transformation from a unit cost or "point" system to payment according to diagnosis related groups (DRG). Groups of related diseases that have similar cost/resource requirements. Private health services are a growing source of care for patients with ability to pay.

An ambitious program of policy reform, to establish the legal and regulatory basis for the health sector restructuring has made positive but uneven progress. Ongoing work in establishing the legal basis and relationships of regional sickness funds, municipal governments and service providers is one such crucial area of need. A fully-articulated primary health care policy, well-defined package of government-supported services, and clearly prioritised master plans are under on-going development.

Human and institutional capacity development initiatives have included the creation of permanent training institutions for general practice and public health nurses, management training at central, regional and municipal levels, a national emergency care training center, education of the public through mass information, and extensive informal training throughout the process of implementing the reforms. Key institutions involved in health services financing, health promotion and quality assurance have be strengthened through training, improvement of physical infrastructure, and technical assistance.

The array of initiatives which the Ministry and its partners have engaged in has been considerable. The project has produced a body of instruments, systems and guidelines to establish the framework of the reform, and has for the most part achieved its objectives. It could be fairly stated that planned initiatives exceeded the overstretched capacity of Ministry of Health and its partners, both in the scope of work and

- 33 -

available time. Resource utilization was efficient, however uncertain ongoing financing of the reform and the under-financing of the health care system in general are serious risks for the sustainability of the reform.

Political commitment to the reform process was established well before the Latvia Health Reform Project. This is amply demonstrated in the initiatives in the mid-1990s to test health financing models, create the Central Sickness Fund, introduce general practice as a medical specialty, and pilot test capitation-based financing. Aizsilniece I, Assessment of the Model for Primary Health Care Financing in Latvia (undated) Support in the enactment and approval of laws, regulations and policies approved at the level of the Cabinet of Ministers, has been forthcoming in key areas of the reform. Many reform instruments have however, been long pending approval, or have lacked sufficient support at lower levels to advance through the policy process. A key indicator of political commitment -- the proportion of GNP dedicated to health -- has remained relatively unchanged during the project period, and is lower than that of comparable countries.

The future of the reform process is primarily an issue of strengthening and thereafter maintaining political commitment. Competing pressures on the government budget, a focus on impending accession of Latvia into the EU, and economic and security issues, are currently eclipsing health as a major government priority. Technical development and capacity in the key institutions implementing the health reform appear to be sufficient to carry forward the change process in the future. However targeted financial support and technical assistance would be well invested for supporting unfinished areas of the reform agenda and strengthening weak components

The Government of Latvia (GoL) has opted to forgo a second phase of the World Bank loan project. A process is underway to identify areas of financial and technical need, based on the plans in the WB Phase II Project Appraisal Document (PAD) and to obtain support for the continued reform process from EU structural funds.

The report which follows was prepared by external consultants, who endeavoured to obtain an overview of a large and highly complex project. The work was carried out through a process of document review, interviews, brief field visits, and a small survey of project managers. Time did not permit delving into depth in the many issues which would benefit from further analysis. Chapters were authored by the individual consultants as follows: Components A1, A2, B1, B3, D – Bengt Stålhandske; Executive Summary, Introduction, Components A3, B2, B4-5, B6, C – Melinda Öjermark. Both authors contributed to the Conclusions and Recommendations.

According to the Terms of Reference for the assignment (Annex 2) the document comprises a Final Report of the project, and a survey of key managers, which parallels a survey carried out in the Midterm Review (MTR) report. It was agreed between the consultant team and Project Manager that report sections on financial management, expenditure, and procurement would be prepared by the Ministry of Health, and would be appended to this narrative report. Hence there is no analysis in this text of financial progress or financial management issues.

- 34 -

6. CONCLUSIONS AND RECOMMENDATIONS

The Latvia Health Reform Project fulfilled the objectives and achieved the results articulated in the Project Appraisal Document for Phase I to a degree sufficient to warrant the preparation of the PAD for Phase II. An evaluation of Phase I Activities was prepared by WB and is appended to the PAD for Phase II. Project Appraisal Document on a Proposed Loan in Support of the Second Phase of the Health Reform Program, Report No. 25088-LV, Addendum 2 to Annex 1 – Evaluation of Phase I Activities.

The Project Appraisal Document for Phase I of the health reform program cites lessons learned from other health reform projects in the Europe and Central Asia Region. These points are fully consistent with the experience of the Latvia Health Sector Reform Project:

- health sector reform is a lengthy, politicized process and expectations for the reform process have been too optimistic for both the World Bank and the client countries;- institutional aspects of reform are as important as technically proficient strategies; - greater attention needs to be paid to political economy of the reforms through marketing the reforms to lawmakers, the medical community and the public;- projects have been too complex;- adequate resources need to be committed for supervision of projects.

The above lessons learned were factored in to the design of the Latvia Health Reform Project, however their full mitigation goes beyond the bounds of project design. The concerns above have been echoed in numerous reports and studies, of the Latvia Health Reform Project, including WB supervisory missions.

The achievements of the project have been prodigious, and "the framework for a modern and effective health system" is largely in place. Most results have been met or partially met. Policy reform and behaviour change are process-oriented. They may be subject to ongoing change and do not conform to project timetables. As such, the project did a more than laudable job of tracking, documenting and analysing the change process. External factors, including staff loss due to political changes, shifting government priorities, and ministerial restructuring, all affected the project.

Section 5 of this report, details the achievements of all of the components and sub-components. Each section includes a summary of recommendations and conclusions. These constitute the main conclusions of the report, together with the list of indicators and results in Annex 1. For the sake of brevity, they are not repeated in this section. The following subsections address generic evaluation indicators and some selected issues for the future.

Effectiveness Timeliness of implementation and delivery of project outputs was variable, with delays primarily due to procurement and management inexperience, as documented in Section 5 of this report. These delays were compensated by extending the project by an additional two years. The project demonstrated improved effectiveness in procurement and increasingly responsive management as experience was gained. All activities funded have achieved their intended purpose, although some are ongoing at the close of project (e.g. MIS development, legal frameworks for hospitals, hospital optimisation, medical audit system, DRG-based payment in hospitals, etc.).

All intended beneficiaries of the project received the planned benefits, e.g. training, equipment, information, technical assistance, services and improved infrastructure. No comprehensive measurement has yet been

- 35 -

made of the benefits to end-users (e.g. realisation of incentives gained by service providers, patient satisfaction, quality of care). The latter should be included in future study of the impact of the reforms.

Validity of assumptions and risk assessments. Critical risks identified in the PAD were well-founded and the assigned ratings predicted accurately the areas of vulnerability of the project. Two areas which were rated as "substantial" risks have proven challenging, and risk minimization measures had limited effect. Project Appraisal Document, Latvia Health Reform Project Phase I, pp. 24-25.

Substantial risks Risk minimization / actualGovernment will not remain committed to reform

Senior civil servants involved in the project development left after the elections. Continuation triggers were fulfilled, however, the government did not opt to continue the loan project

Ministry of Finance will not accept proposed increase in tobacco tax

Tobacco economics study carried out and public communication strategies launched, to explain the public health argument; however MoF chose not levy the tax.

Efficiency. The project has benefited greatly by the high capacity and professional excellence of a core of senior managers and technical experts in MoH, MoW, HCISA, HPA and other partner institutions. Insufficient staff, competing work and inexperience were the main capacity constraints. Systems to plan, manage, monitor and assess the project were gradually developed. The PCU, under the supervision of the Ministry, and guided by the Steering Committee, was an appropriate and efficient project management structure. Monitoring, reporting and financial management were satisfactorily executed by the PCU. The project was managed with necessary flexibility to enable adjustments in planning and strategies, based on thorough assessment.

Impact. The necessary policy instruments and systems are in place to enable the Latvia Health Reform to operate according to the design envisioned in the PAD. The structure for delivery of primary health care has been transformed to a GP-based community health model, health financing through a single-pipe mechanism has been put in operation, 90 percent of the Latvian population are registered with GPs and receiving the PHC services through that mechanism. These are but a few illustrations of impact.

Sustainability. There is little doubt that the health reform process will continue in Latvia, even in the absence of a second phase of the WB loan. This is based on the strong ownership of the Latvian government, which initiated the reform process already in the early 1990s. Loss of momentum, with the cessation of loan financing, is however likely. The degree of future political support, and the position of health on the government policy agenda are unpredictable, although there appears to be wide concensus in the project that health is not a top priority for the present government. Strong commitment and capacity in implementing institutions (MoH, HCISA) bode well for sustaining the reforms, although technical assistance and financial support will be required in specific areas for some time to come (MIS, DRG system, public relations and promotion, quality assurance,etc.). The implementation of the health master plans and ongoing development and operation of the reforms require increased investment in the sector in the years to come. Financial sustainability is at risk, in the absence of a new loan phase. As stated in the PAD for Phase II, "Not proceeding with the next phase of this project would significantly reduce the effectiveness of the reforms supported under the first phase, and may leave key components of the reform agenda unfinished."

- 36 -

Selected areas of concern. Following is a list of some selected areas for ongoing concern. It is not comprehensive and the reader should refer to Conclusions and Recommendations following each chapter in Section 5 of this report.

Financing the sector. As stated in the WB evaluation of Phase I, the low level of public financing for health care must be addressed if support for the reform process is to be maintained, and public approval enhanced. The agreed allocation from the state basic budget revenue committed to Phase I in the PAD fell considerably short of target. Sector financing remains the greatest risk to the ongoing development of the sector.

Institutional capacity. HCISA is the central agency in implementing financing reforms, and is operating very effectively, as are its branches and regional sickness funds. The 90 percent "single pipe" financing result was reached, albeit two years behind schedule. During four years of testing and implementation, the capitation system for PHC providers has been revised and improved, and the two existing models being forged into a unified national model. The hospital financing model is still transitional, currently a case-based payment by diagnosis group, with the future intention of adopting the DRG approach. The remaining scope of work for the agency is daunting. Achieving full operation of the MIS, including training at all levels, is one of the greatest challenges and vulnerable areas for HCISA.

Marketing the reforms to politicians, health managers and providers and to the public needs greater investment and breadth. The benefit of wider political support could have facilitated the project, eased the policy process and secured a more certain future for the reforms. The public relations capacity built within the Ministry was not sustainable for a variety of reasons: personnel changes, a too-large measure of out-sourcing the work, and a lack of financing to maintain public information activities. The PAD for Phase II proposes "more proactive and vigorous public information and dissemination activities." Sustainable means, such as government-sponsored public service advertising should be found for long-term support.

Analysis of impacts of the reform needs more attention. Public and provider opinion was given a pre-eminent role in Phase I, as the barometer of perceived progress in the reform, and as the means of assessing project management. These, while useful for general trends, are limited in accuracy and scope. Additional, specific and in-depth analyses of the effects of the reform are needed using objective assessment tools. The need for deeper study of the implications of rapidly changing financing models, which have demonstrated unpredictable consequences, is one such example.

Legal and policy framework. In general terms the health financing aspect of the project has been successful in establishing structures and models for a modern health system. However, the roles and relationships between the provider structure and the purchaser must be clarified. Systems for restructuring of hospital services (masterplan) as well as advanced models for investments in the health sector (CHIP) have been developed and implementation has begun. However the lack of financial support to the sector and an unclear legal situation for the provider structure will inevitably limit the use of plans and models that are established.

- 37 -

- 38 -