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Document o f

The World Bank

FOR OFFICIAL USE ONLY

Report N o: 38149-AM

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 14.8 MILLION(US$22 MIL LI ON EQUIVALENT)

TO THE

REPUBLIC OF ARMENIA

FOR A

HEALTH SYSTEM MODERNIZATION PROJECT (APL2)IN SUPPORT OF THE SECOND PHASE OF THE HEALTH SECTOR REFORM PROGRAM

February 7,2007

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C U R R E N C Y E Q U I VA L E N T S

(Exchange Rate Effe ctiv e Februa ry 7,2007)

AAAACGA P LB B PB EEP

B M CC A SC D CC FA AC O CC PA RCISD H SD P LECAE M PEUFMFMDFMRG D P

GFATM

GOAH S M PH C W MHIACH I SHPIUH S PA

Currency Unit = Dram (AMD)3 5 9 . 6 A M D = U S $ 1

US$1 = SDR0.67

F I S C A LYEARJanuary 1 - December 31

ABBREVIATIONS AND A C R O N Y M S

Analyt ical and Advisory Act ivi t iesAnt i -Corm ption Guidel inesAdaptable Program Lend ingBasic B enef it PackageBusiness Environment and Enterprise

Performance SurveyBasic Medic al CollegeCou ntr y Assistance StrategyCenter fo r Disease Contro lCoun try Financial Accou ntabili ty AssessmentConst i tu t ion o f he Chamber o fControlCoun try Procurement Assessment Revi ewCommon wealth o f ndependent StatesDemographic Hea lth SurveyDevelopment Pol icy Len dingEurope and Central AsiaEnvironmental Management PlanEuropean Un ionFinancial ManagementFam ily Medicine DevelopmentFinancial Mon i toring ReportGross Domestic Product

GlobalFund against AID S, Tuberculosis andMalariaGovernmen t o fArmen iaHeal th System Modernization ProjectHeal th Care Waste ManagementHeal th Infor mat ion and Ana lyt ical CenterHeal th Inform at ion SystemHeal th Project Implementat ionUnitHe alt h Sector Performance Assessment

IDAIFAIFRIMFIMR

MarzMDGMMRM&EMOCMOFEMOHMOTAMTEFNHANIHN I SO O PPETSP H CP H R D

PPER

PRSCPRSPS A CS D RS H AS M UTA

International Development AssociationInternational Federation o fAccountantsInterim Un-audi ted Financial ReportsInternational MonetaryFundInfant Mortal i ty Rate

Administrativeunit in ArmeniaMi l l e nn ium Development GoalMaterna l Mor ta l i ty Rat ioMoni t oring and Evaluat ionM i n is t ry o fCultureMinistry o fFinance and EconomyMinistry o fHeal thMinistry o fTerri torial Affai rsMediu m-Te rm Expendi ture FrameworkNat ional H eal th AccountsNat iona l Inst i tu t e o fHeal thN ew ly Independent StateOut o fpocket paymentPublic Expenditure Trackin g SurveyPrimary Heal th CareJapan Polic y and Hum an ResourcesDevelopmentFundProgrammatic Public Expenditure Rev iew

Poverty Reduction Support CreditPove rty Redu ction Strategy PaperStructural Adjustment CreditStandardized D eath RateState Hea lth AgencyState Medica l Univers i tyTech nical Assistance

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FOR OFFICIAL USE ONLYARMENIA

Health System Modernization Project (APL2)

CONTENTSPage

A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 11

2 .3.

Cou ntry a nd sector issues.................................................................................................... 1

Rationale forIDA nvolvement.......................................................................................... 6Higher level objectives to w hic h the project contributes.................................................... 7

B . PROJECT DESCRIPTION ................................................................................................. 8Lending instrument ............................................................................................................. 8Program objectiveand phases ............................................................................................. 8

Project components........................................................................................................... 13

Alternatives considered and reasons for re jection............................................................ 16

1

2 .3.4 .5 .6.

. .

Project development objectiveand key indicators............................................................ 13

Lessons learned and reflectedin the project design......................................................... 14

C . IMPLEMENTATION ........................................................................................................ 161

2 .3.4 . Sustainability..................................................................................................................... 185.6.

Partnership arrangements.................................................................................................. 16Institution al and implementation arrangements................................................................ 17Moni to r ingand evaluationo foutcomes/results................................................................ 18

Crit icalr isks and possible controversial aspects............................................................... 19Cred it conditions and covenants....................................................................................... 2 1

. . .

D. APPRAISAL SUMMARY ................................................................................................. 23Economicand financial analyses...................................................................................... 23

3. Fiduciary........................................................................................................................... 244 Social 26

1

2 . Technical...........................................................................................................................24

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Annex 1: Country and Program Background ......................................................................... 29

Annex 2: Major Related Projects Financed by I D A and/or other Agencies ......................... 46Annex 3: Results Framework and Monitoring ........................................................................ 50

Appendix I etter of Development Policy ............................................................................... 40

Annex 4: Detailed Project Description ...................................................................................... 59Annex 5: Project Costs ............................................................................................................... 63

Annex 7: Financial Management and Disbursement Arrangements ..................................... 67Annex 8: Procurement Arrangements ...................................................................................... 76

Annex 6: Implementation Arrangements ................................................................................. 64

Annex 9: Economic and Financial Analysis ............................................................................. 81Annex 10: Safeguard Policy Issues: Environmental Management ........................................ 88Annex 11: Project Preparation and Supervision ..................................................................... 98Annex 12: Corruption Prevention Strategy and Measures ..................................................... 99Annex 13: Documents in the Project Fi le ............................................................................... 101Annex 14: Statement of Loans and Credits ............................................................................ 102Annex 15: Country at a Glance ............................................................................................... 104Annex 16: Maps ......................................................................................................................... 106MAP IBRD 33364

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ARMENIA

HE ALT H SYSTEM MO DE RN IZATIO N PROJECT (APL2)IN SUPPORT OF THE SECOND PHA SEOF TH E H EA LT H SECTOR R EF O R M P R O G R A M

PROJECT APPRAISAL D OCU MEN T

EUROPE AND C EN TR A L A S IA

ECSHD

Date: February 7,2007Country D irector:D-M Dowsett-Coirolo

Team Leader: Enis BangSectors: He alth (90%); Tertiary education

Themes: He alth system performance (P);Education forthe knowledge economy(S);Administrative and c iv il service refo rm(S)

Environ men tal screening category: PartialAssessment

Sector ManagerDirector: Armin H. Fidler (10%)

Project ID: P104467Lending Instrument: Adaptable Program Lending

[ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:For Loans/Credits/Others:Total IDA financing (US$m.): 22.00

Borrower:Minis t ryo fFinance and Economy1 Melik-AdamyanYerevanArmeniaT l 59 53 04

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Expected effectiveness date: June 30,2007Expected clos ing date: Decembe r3 1,2012Does the project depart fr omthe C A S in content or other sign ifican t respects?Re P A D A.3

Does the project require any exceptions fro mIDA policies?

[ ]Yes [XINO

Re PAD D. 7Ha ve these been approved by IDA management?I s approval for any po lic y exception sought fro mthe Board?Does the project includeany criticalr i sks ra ted substantial or high?Ref: PA D C.5

[ ]Yes [XINO[ ]Yes [XINO[ ]Yes [XINO

[X IYes [ ] N o.I

[ X I Ye s [ ] N ooes the project meetthe Regiona l criteria for readiness for impleme ntation?

Ref: PA D D. 7,Project development objectiveRe PA D B.2, Technical Annex 3The objective o f the Health Sector Reform Program remains unchanged: to improve the-organization o f the health care system in order to provide more accessible, quality andsustainable health care services to the population, in particular to the most vulnerable groups,and to better manage pub lic health threats. The objective o fthe Project i s to strengthen theMOHs capacity for more effective system governance, scalingup family medicine-basedprimary health care and upgrading selected healthcare service delivery networks in marzes topr ov ide m ore accessible, qua lity and sustainable hea lth care services to the population.

Project description Re PAD B.3.a, Technical Ann ex 4

Component A: Family Me dic ine Develop ment (estimated total cost US$4 .70 million ). Thiscomponent will continue supporting the strengthening o f institutional capacity to train well-qualified family physicians and nurses as first-line P HC providers and improve their physicaland material wo rkin g environment.

Component B: Hospital Network Optimization (estimated total cost US$20.77 million). This

component will support the implementation o fthe optimization plans in the remaining eightmarzes by upgradingthe facilities andrehrbishing them with modern medical, I T and healthcarewaste management equipment.

Compone nt C: Insti tuti ona l Strengthening (estimated total cost US$2.58 m illio n).Thiscomponent will help to strengthen MOHs capacity for policymaking, planning, regulation,h d l d i i d l i f ff i

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Component D: Project Management (estimated to tal cost US$1.57 m illion ).This component

Date d Covenant:0 By August 1, 2007, the Recipmt shall establish the Hospital Optimization and

Modernization Coordinating Committee to provide the framework for and to mon itor theimplementation o fComponent B o f he Project.

wi ll help to provide institutional support to theMOH through Hea lth Project Implem entationUnit (HPIU) which wil l be in charge o f implementing day-to-day project activities andmo nito ring and evaluation.

I

Please note that the amount o f AP L2 has increased fro m $11 m ill io n initially envisaged to $22m i l l i o nin order to expand the activities o n a larger scope.W hic h safeguard policies aretriggered, i f any? Re PA D 0 . 6 , Technical Annex 1 0The immediate impact o f he project activities onthe environment i s limited. The m ain physical

investments fo r the proposed project are rehabilitation and new construction o f amily medicinepractices in he ru ral commun ities aswell as reh abilitat ion andrefurbishment o f selected space inselected hospital networks in 8 marzes. Therefore, the environm ental category ratin g remainsBI', the safeguard screening category rat ing remains S3 as i t was under the APL1. As such,

the existing Environmental Management Pla n(EMP) remains valid, albe it subject to amendmentto new sites. T o date, compliance with the E M P has been satisfactory. Therefore, site-specificenvironmental screening for al l project-supported rehab ilitation o f PH C centers and hospitalswill be carried out as per the EMP. An environmental management framework has beenprepared and

pu bli cly disclosedin

Armeniain

December 2006.Significant, non-standard conditions,if any, for:Re PA D C. 7Boa rd presentation:NIA

Cond it ion o fCred it Effectiveness:

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A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Country Issues

1. GDP growth hasaveraged over 10 percent per annum ov er the past fi ve years, reaching 14 percentin 2005, and anestimated 13.4 percent in 2006. Prudent macroeconomic policies have maintained sustainable

external and intern al balances,kept inflation l o w and reduced Armeniasdebt burden. The fiscaldeficit has also remained low, and has been financed by non-inflationary sources. Arm enia isfully on track with i t s IMF Poverty Reductionand Grow th Facility(PRGF) Program.

Economic growth and macroeconomic management are strong.

2. With sustained high and broad-based economic growth , pove rty in Arm enia hascontinued to decline. Arm enia saw a significant reductionin overall poverty,with the proportiono f poor declining from 51 percentin 2001 to 30 percent in 2005. Gr ow th reduced extremepoverty even faster, from 16 percent in 2001 to below 5 percent in 2005. A recent household

survey also revealed strong declines in urban and rura l poverty, andin ncome inequality.

3. Arme nia continues t o make prog ress on the reform agenda, though challenges remain.Arm en ia has made strong progress towards an open economy, as evidenced by the improvementin i t s IDA Performance-Based Allocation (PBA) score. Nevertheless, challenges remain.Tho ugh wages have been increasing, unemployment remainshigh at one-third o f he labor force.Improvements are also needed, in ter al ia, in eliminating distortions associatedwith corruptionand building he human capital necessary for a compe titive know ledg e economy.

4. Arme nia has a strong an d comprehensive pove rty reduction strategy in place, and hasachieved or exceeded most targets that it had set for itselJ: The recent CAS progress reportrefers to Armenia having had a successful Poverty Reduction and Strategy Paper (PRSP)implementation, in which most o f the targets have been met or exceeded. Key achievementsincluded: i) tronger than anticipated economic growth and poverty reduction; ii)improvements in fisca l resources and policy, though tax and customs administrations continue torequire improvement; iii) ncreased spending in the social sectors and goo d progress in nitiatingsystemic social sector reforms- social spending in eal te rms i s higher than anticipated, thoughi tdid no t achieve PRSP targets as a percent o f GDP; and (iv) good progress in infrastructure andru ral development, a lthough further increasing priva te sector invo lvem ent and reducin g ru ralpoverty remain challenges. The government ispreparing a full PRSP update in mid-2007 withre f inepo lic y actions andrevised targets.

5. Arme nia also remains on ta rget to achieve most i fn o t a l l o it s Millenn ium Development

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communicab le diseases, ensurin g environmental sustaina bili ty an d imp lem ent ing Government 's

ant i -co mpt ion agenda.

Sector Issues

He alth outcomes

6. Arme nia compares favorab ly w ith countries o s im i la r l ev el o soc io -eco no m icdevelopment in terms o health outcomes. A steady downward trend in infant, under-f ive and

maternal mo rta lit y has been observed; between2000 and 2004, the Infant Mor ta l i ty Rate(IMR)and the Under-f ive Mo r ta l i t y Rate(USMR) f e l l from 15.6 and 19.8 to 12.3 and'13.6 per 1,000l i ve births, respectively.' During the same t ime span, the Mate rnal Mort al i t y Rat i o(MMR) f e l lf r om 52.5 to 16 per 100,000 l i ve bir ths .As a result , l i fe expectancy atbirth in 2004 was 70.3years for m e n (higher tha nin m os t o f he ECA countries) and76.4 years for wom en (Table 1).

Table 1 Armenia: He al th statusindic

L i f eexpectancy at

birth, inyears (LEO)Inf ant deaths per 1,000 l i vebirths (IMR)

Mat erna l deaths per 100,000 l ive bi r ths(MMR)SDR, diseases of circul atory system, al l ages per100,000SDR, ischemic heart disease, al l ages per 100,000SD R a ll causes, a ll ages, per 100,000SDR, diseases o f the resp iratory system, a ll agesper 100,000

SDR, selected smokin g related causes, a ll ages per100,000Tuberculosis incidenceper 100,000Clin ically diagnosed AI DS incidence per100,000Diabetes prevalence, in %Source: Wo rl d Health Organization(WHO): Heal th

tors in he international context (2003)Armenia Europe NMS CIS CSEC

73.1 74.1 74.3 66.9 68.911.5 9.0 6.6 14.5 19.819.7 15.6 6.0 31.8 51.5

714.9 479.4 452.7 821.4 741.5

387.3 222.7 176.1 433.8 362.31083.3 962.6 931.3 1431.2 1311.263.4 55.5 42.7 70.1 63.1

653.2 243.7 370.7 716.4 577.0

47.9 42.4 26.3 87.3 69.00.3 1.1 0.4 0.7 0.61 o n.a. 4.9 1.4 1.6

r All (HFA) database, 2005.Note: Europe: 52 countries in the WHO European Region. NMS: N e w Mem ber States-10 ne w memberst at es o f he European Un ion f ro m Ma y1, 2004. CIS 12 countr ies of the Commonweal th o f ndependentStates; CSEC: 25 countries in the WHO European Regio n with higher levels o f mor tality (Albania,

Armenia , Azer baijan, Belarus, Bosni a and Herzegovina, Bulgaria, Estonia, Georgia, Hungary, Kazakhstan,Kyrgyzstan, Latvia, Lithuania, Poland, Republic o f Moldova, Romania, Russian Federation, Serbia andMontenegro, Slovakia, Tajikistan,FYR Macedonia, Turkey, Turkmenistan, and Ukraine).

7. At the same t ime Armenia is also in the midst o an epidemiological transitioncharacterized w ith a decline in com municable diseases and an increase in the prevalence och ron ic diseases The leading causes o fpremature adult death under the ageo f 65 are in order of

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Co mmo nwea lth o f ndependent States (CIS), but a potentia l threat exists due to largenumber o f

migra nt workers in higher HIV prevalence countries such as Russia and Ukrain e. Tube rculosisprevalence rate at 98 per 100,000 p opu latio n remainshigher than the Eu ropea n average. In 2004,DOTS case detection a nd treatment success rates were 63 percen t and 77 percent respectively, as l igh t improvement over the pre vio us years. Overall, disease surveillance, pre ve ntio n andcontro l system i s s lowly improvingi t s capacity to better detect and manage the resurgence o fcom mun icable diseases as hnding levels increase.

He alth services utilization

8. Desp ite recent improvements, access to and use o health services rema in low, favor ingpolyclinics and hospitals over Primary Health Care (PHC) facilities. After a worrisomedownward trend in admission rates and outpatient visits during the 1990s, health servicesuti l izat ioni s again on the rise, although s t i l l l o w by EU standards and C I S average^. In v ie w o fthe increasing prevalence in the adult population, therei s a concern that the sick m ay postponeseeking care and use o f services as a result o f a ck o f esources, high out-of-pocket payments andlo w perceived qua lity o f care, especiallyin rural areas.4 In 2003, for instance, the percentage o findividuals whodid not seek care when ill o r injured was on average 70.5 percent, varyingbetween 62 percent for the top quintile and 78 percent for the lowest qu intile.As for the out-of-pocket (OOP) infor ma l payments, they are mo stly paidin hospitals; in 2001, about 72 percent o fthose who sought healthcare in a hospital and about 60 percent o f those w ho sought carein apolyclinic reported to have made informal payments averaging20,000ADM (approx. US$40)and 6,700ADM (approx. US$13), quitehigh figures with significant impov erishing effects o n thehousehold. In rural areas a higher p ro po r ti o n o f he sick make info rm al payments for outpatientservices whereas the reverse occurs in urb an areas for inpatie nt services. In both rura l andurbanareas, the propo rtion o f hose wh o ma ke OO P info rm al payments i s lowe r amongst the poorestquintile, ma inly because o f efraining fro m seeking care.On the other hand, however, the recentincrease in the public heal th spending i s having a posi t ive effect o n the use o fbo th inpatient andoutpatient services, especially forthe poor. Between 2002 and 2004, there has been a 28 percen tincrease in npatient admissions, but m uc h higher, 44 percent, amongst the poor and vulnerable.Sim ilarly, there hasbeen a notable increase in he use o f specialty services in polyclinics.

He alth system governance and organ ization

9. He alth system governance in Arme nia is increasingly becoming plu ralis tic anddecentralized, albe it with still a limited ro le for direct involvement by the pop ulation.Armeniahas a revamped Semashko healthcare system, characterized n o w with the redefini t ion o f he rolesand responsibilities o fthe Minis t ry o f Heal th (MOH) and increased invo lvement o f ocalandmu nicip al authorities. Previouslythe MOH was responsible for planning, regulation, financing

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and delive ry o f healthcare services. M or e recently,i t has increasingly been involved in policy

making5, defining bro ad strategies, planning and regulation while leavin g service delivery tolocal authorities and municipalities which now owns a large share of,and operates, mosthospitals and polyclinics.6 Moreover, payments to health care providers are no w managedby theState He alth Agenc y (SHA), a semi autonomous agencywithin the MOH working in closecooperation with the Ministry o f Finance and Economy (MOFE) on matters related to thedef in i tion o f and budget allocation for the state-funded programs and payment rates forproviders. Once the budgets are allocated to state programs and payments are made o n the basiso fcontracts with the SHA , hea lth facilities havethe autonomy to manage their o w n financialandhuman resources. In addition, they are free to sign contracts with private health insuranceagencies or charge patients directly for services not coveredby the state-funded Basic BenefitPackage (BBP). O n the other hand, the SHA is bou nd to contract a ll licens ing health facilities,neither o f hem havin g a rea l negotiating power.

Hea lth care in anc ing and expenditures

10. Despite recent budgetary increases in nominal terms, the healthcare system remainsunder-funded and its resources a re po orly po oled and ine quitably used. Taxes and mandatorysocial insurance contributions constitutethe ma in source o f tax revenues f or the Governmentthrough whic h budgetary obligations tothe hea lth sector is financed. This, however, constitutesonly a smallshare o f otal health expenditures (THE )in Armenia.7 In 2003, THE accounted for6.1 percent o f the GDP, and at present total pub lic expenditures o n health represents about 1.64percent o f the GDP, or 9.9 percent o f the total pub lic expenditures.* Ab out80 percent o f thepu bli c exp,enditures o n health are allocated throu ghthe SHA w hich acts as a single purchaser o fhealthcare services while the rest is spent by the MO H, most ly on procurement o fdrugs,vaccines and sanitary and epid emio logic services. Since 2006, the S H A budget i s beingallocated almost equallybetween inpatient care and primary heal th care services. The budget i sn o w being executed fully while a l l arrears have been reduced sign ificantly.

11. All health facilities are reimbursed on the basis o f a reimbursement ra te fo r the servicesincludedin the BBP, set joi nt lyby the M O FE , M O Hand SHA , although they arefree to chargepatients for those services that are not covered by the state funded programs. Prim ary health carephysicians are paid capitation-based salaries, calculated o n the basis of patients enrolled with thefam ily practitioner.As for specialists in polyclinics, they are paid a certain guaranteed, albeit

grossly inadequate (approx US$25per month) wage. Hospital-based specialists receive a salary

See for instance, Nat ional Heal th Pol icy o f he Republic o fArmenia, issuedby the MOH n 2004, although not yet

All health facili t iesin Ar me nia are n o w Joint Stock Companies (JSC),with marz authorities and municipalitiesoffic ially endorsedby the Government, no r ratifiedby the Parliament.

hold ing a large share o fhe s tocks o fhospitals and polyclinics respectively exceptin Yerevan w here the

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based on a contractual agreement with the hospital administration onan ind ivid ual basis, thus

var yin g fro m one specialist to another.Ph ysica l resources

12. Recent efforts to reduce excess capac ity h ave been successful, but they need to be scale dup. Compared with man y other countries o f he Former Soviet U ni on (FSU), Armenia has beenvery successful in reducing its hospital capacity and no n medical staffing, mainly throughclosure o f small ru ral hospitals, reduction o f bedsand attrition.' Under the first phase o f theAPL, more elaborate optimization and modernization o f hospitalsin Yerevan has begun,resulting in consolidation o f services, elimination o f duplicative departments and reduction o fsurface areas in selected inpatient care facilities and, subsequently, significant productivity andefficie ncy gains.'' A similar initiativei s no w underway, approvedby the Government, for theremainingten marzes.

H e a lt h w o r y o r c e

13. While Armenia is relat ively w ell endowed in terms o health professionals, the grad ualdecrease in the number o nurses, the relat ively higher number o specialists , a nd geographicd is tr ib u tio n o h ea lthcare w o rker s a re o co ncern . Not only is the physicidnurse ra t iosuboptimal for adequate prov isio n o f services,but also because o f he oversupply o f specialistsand the fact that a relative lyhigh percentage o f physicians (44 percent) workin hos pital settings,P H C services rem ain inadequately covered, esp eciallyin rural areas. The large-scale training o ffamily physicians w hic h began underthe f i r s t phase o f the Health Sector Modernization Project(HSMP) and will continue under the second phase i s aimed at addressing this issue by training atotal o f 1,650 family physicians and 1,650 fam ily nurses to provide P H C services, m ain lyin rural

areas.

14. Form al med ical education i s provided by the Yerevan State Medical University (SMU)which graduates about 400 physicians a year, down from 500 to800 in early 1990s. There alsoare four priva te med ical schoolsin Arm enia that are not recognizedby the State, catering mos tlyto foreigners. The Minis try o f Educat ion (MOE) andthe S M U intend to establish a formalregistration, licensingand accreditation system applicable to al l training facilities, regardless o ftheir stature, and reform the training curricula and state medical exams tobring their training

programs up to par with the European Un ion (EU) standards, with a request for IDA'S inancialand technical support throughthe proposed project.

First efforts resultedin a reduct ion of30% in hospital capacity and 15%in non-medical staffingwith an estimatedcost savings o f 12%.In 2004, Arm eni a had 388 acute care bedsper 100,000 pop ulation comp aredwith 822 in he

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Governmen t Strategy

15. In the Poverty Reduction Strategy Paper (Report No. 27133-AR), the Government aimsat, in te r a l i a , enhancing human development, and improving social safetynets and core pub licsector functions, i nc lud ing health. Increasing access ibility to essential health servicesi s a majorfocus o f the PRSP, recognizing the need for additional pub lic outlays12, increased efficienc yinthe use o f public resources and impro ved matern al and ch il d healthcare to achieve theMDGs. Inadditio n to increased pub lic spending and more op tima l intra-sectoral allocation o f fundsaccording to the healthcare needs o f he populationby better definition and prioritization o f hestate programs, the Government i s intent on pushing through the following reform agenda,focusing on: i) urther strengthening primary health care o n the basis o f he princip les o f amilymedicine; ii) eparating the purchasing function f rom service provis ionby strengthening theinstitutional capacity o f the SHA to become an active purchaser o f services with theaccompanying reforms in provider payment methods and hospital governance aimed atenhancing efficiencyand ensuring access to essential hea lth services parti cul arly fo r vulnerablegroups; and iii) caling up and completing optim ization o f the extensive health facilitiesnetwork in marzes.

2. Rationale for IDA involvement

16. This project has been prepared under the f ramework o fthe current Country AssistanceStrategy (CAS) (FY05-8), or more specifically,in accordance with the broad objectives o fPillar3 Reducing non-incom e poverty advocating for increasedspending in the social sectors andprogress in implementing systemic social sector reforms. The CAS progress report concludesthat the overall framework remains va lidand that no major shifts are needed in v iew o f theimpressive results, including those in the health sector, citing the observed sharp rise in theproportion o f sickin the lowest income quintile who obtain treatment, fro m22 percent in 2003 to46 percent in 2005. While a second phase operation was not envisaged during the same C A Speriod, there are two complementary reasons why IDA should scale up i t s involvement in ther ef or m o f he hea lth sector in Arm enia atthis time, withou t having a ll triggersf i l l y met.

17. First, the Government o f Armenia(GOA) has been successful in mplementing he healthsector reform agenda described in the letter o f development p olicy(LDP) that was submittedwhen the first phase o f he Health Sector R eform P rogram(HSRP) was being prepared (HS MP

APL1). Second, after only tw o years o f mplementation o f he first phase o fthe Program, theGOA has effec tively consolidated the large number o f hospitals in the c i ty o f Yerevan intonetworks resulting in considerable reduction in the number o f health facilities withoutanycompromise in access to and quality o f care. Indeed, bo th have improvedin he hos pital mergerssupported under the f i r s t phase. The Government no w intends to pursue HSRP in the t en othermarzes, and has already prepared an optimization plan for each, recently approved by the

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18. The reform o f the PHC is progressing equally wellwith the in t roduct ion o f fami lymedicine as both an organizational mode l and a mode o fpractice. Its impleme ntationi s right o ntrack in te rms o f ra in ing o f ami ly physic ians , refo rm o f he t rain ing curr icu lum, issuance o fheregu latory decrees for independent and group practices, enrollmento f patients and upgrading o ffacilities and medicalequipment. The advanced second phase will result in a major gain in ermso f t im e required to complete the transformation o f he PH C network tofamily medicine basedpractice.

19. Finally, the M O H a n d the SHA are gradually moving their attention to theappropriateness and q u al it y o fcare, now that access to care in terms o f availabil ity o f esourceshas become less o f a concern. The programs in the State Order, the basis for the allocation o fpu blic resources, i s being constantly fine-tuned toensure that the funds go where the needs are,and the SHA is in the process o f updating its information base and introdu cing a performance-based reimbursement and bonus system to make sure that money fo llow s the patient. O n theother hand, substantial technical work hasbeen carried ou t o n volunta ry insuranceand o n thedef in it iodref inement o fhe basic package o f services in view o f Governments concernwith thehigh p rop o r ti o n o fout-of-pocket expenditures. The lon g term v isio n remains unchanged: a hea lthcare system where the State wil l have the primary responsibility to cover essential services forthe populatio n and provide additional support tothe poor, indigent and vulnerable populationswhi le i t would a l low a g rowingmarket for for-profi t and not-for-profit voluntary healthinsurance schemes. IDAS support to strengthen the institutional base for effectivesystemgovernance i s thus deemed crucial to assist the government t o mak e its vis ion a rea lityin such awa y that the reformed healthcare system w ou ldbe equitable, efficientand fisc ally sustainable.

3. Hi gh er level objectives to wh ich the p roject contributes

20. Pillar3 objective o f he current CA S Reducing non-incom e poverty aims athelping thegovernment to impleme nt health sector re for m and increasei t spending in health, as well as inother s ocial sectors. The He alth Sector Support Program was designedand financed with a viewto support rationalization o f health facilities andthe introduction o f family medicine as anorganizational m odel for the provision o fP H C services (please see the LDP appended to Annex1). As a resul t the G O A h asbeen able to sign ifica ntly reduce overhead costs andthus allocate i t sscarce resources for the provisio n o f he essential services to the whole populat ion and o fa moregenerous benefit package to the poor.

21. These reform s are also underpinned by the Poverty Reduction Support Credit (PRSC)series, the pol icy mat r ix o f which ,under the goal o f controll ing heal thrisks, includes threecomplementary triggers, namely: i) dhering to the rationalization progra min the hos pital sectoras measured by target bed and physician ratios; ii) dopting policies to definethe scope o fpublicly-funded healthcare services and a regulatory framework for voluntary health insurance;

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and adequately budgeted in 2008. The second phase operation wil l provide the mu ch needed

technical and financ ial bac kup towardsthe achievement o f hese objectives.

22. Finally, the ongoing policy dialogue and analytical work throughthe ProgrammaticPublic Expenditure Re view(PPER) led the G O A to eliminateuser fees f or basic hea lth servicesas o f 2006, with the subsequent rise in their utilization amongthe poor. The tw o health modulesprepared as part o f the PPER and the background field surveys on PHC also led to theidentification o f infrastructure,equipment and training needs, reinforcing therefore the familymedicine based PH C refo rm supportedby the Project.

B. PROJECT DESCRIPTION

1. Lending instrument

23. This project i s the second phase o f a two-phase A daptable Len ding Prog ram (APL) tosupport Governments hea lth sector re for m prog ram describedin the updated LDP (Annex 1).The L D P makes explicit reference to accomplishments to date underthe f i r s tphase and h o w thesecond phase operation wil l expand the reach o f he PH C and o f hospital networks onthe basiso f the lessons learned under o f he APL1. The PAD o f he firs t phase indic ated that the secondphase o f he program could start beforethe en d o f the f i r s t phase subject to Armenias meetingthe trigger conditions. Hence, the preparation o f he second phase has been advanced in v ie w o fthe progress made in meeting, either partially or fully, a l l o f t he triggers, but perhaps equallyimportantly because o fGovernments now proven track record o f mplemen ting hospitalmergersand networks effective lyand i t s commitment to optimize health facilitiesin the marzes outsideYerevan on a much larger scope. The amount o f A P L2 has therefore been increased fromthe$1 1 m ill io n nitia lly envisaged to $22 mill ion. Onceh l l y mplem ented at the end o f wo phases,the Health Sector Refo rm Programwill have met i t s objective o fstreamlining, consolidatingandupgrading all the needed facilities, h l l y restructuring i t s P H C network, expanding its financialand hum an resource base, a dop ting sound payment mechanisms and imp rov ing free access toessential healthcare services fo r the majo rit y o f he population.

2. Program objective and phases

24. The development objective o fhe HSRP remains unchanged: to improvethe organization

o f he health care system in order t o pro vid e more accessible, qualit y and sustainable h ealth careservices to the population, in particular to the most vulnerable groups, and to better managepu bli c health threats.

The key performance indicators forthe who le prog ram also remain unchanged:

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e Improvementin the eff ic iency o f he a l location and use o fpub lic expenditures o nhealth through rationalizat ion o f nputs on thesupply side, that is fewer hospitalsand better quali ty o fcare as a result o f better trained PHC w or k force;Improvement in health-related MDGs, mainly in infant mortality, maternalmorta l i ty and preventionand control o f public he al th threats such as HI V /A ID Sand Tuberculosis w hi ch are amenable to health sector interventions; andIncreased transparency and performance in pub lic hospitals as a result o f thei nt rod u c tion o fbetter management and f iduc iary practices and performance-basedpayment mechanism (please see Ann ex 3 for m ore detailed information).

e

e

25. The program will continue supporting the GOA to: i) omplete the family medicinebased PHC reform that was launchedin 1996 so t o ensure that every Arm enian citizenand legalresident wil l have access to a qualified and well motivated family doctorand nurse o f h i s h erchoice; ii) onsolidate the hospital sector to min imiz e waste o f scarce resources and impro vequali ty o f care; and iii) trengthen GOAS competencies for effectivestewardship in p o l i c ymaking, regulation, oversightand public accountability ensure effectiveand targeted use o fpu blic resources in accordance with the health and healthcare needs o f he population, espe ciallythe poor.

26.the second phase:

Be lo w i s a recapitulation and assessment o f he degree o f achievement o f he triggers fo r

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* m a

* N N N

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>.-W

Y

88a

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3. Project development objective and key indicators

27. The development objective o f the PhaseI peration was to expand access to qualityprimary health care; improve the quality and efficiency o selected hospital networks: and layground work or effective health sector policy making and monitoring.

28. The development objective o fhe Phase I1 Project i s to strengthen the MOH's capacityfor m ore effective system governance, scalingup family medicine-based primary hea lth care andupgrading selected healthcare service delivery networksin marzes to provide more accessible,qua lity and sustainable hea lth care services to the pop ulation .

29.objective (please see Annex 3 for more detailed information):

The fol lowing key performance indicators wil l measure achievement o f the project

Populat ion isfully covered by qualified f am ily m edicine practices.0 Key health sector q ualityand efficiency indicators impr ovein ru ra l areas.0 A culture o f evidence-based impa ct assessment i s established through the

inst itut ionalizat ion o fkey health policy mon itoring documents- H S R P and NHA.

Public hospitals complete the transformation o f their governance structureand makeroutine use o f Supervisory Committees and independent auditing practices, for imp rov edmanagement, transparency, performance and efficienc y.A gradual increase in funding for, and utiliza tion of, prev entive services for the contro l o fNCDs (e.g., tobacco control, mamm ography,high bl oo d pressure, diabetes, pap smear,etc.

4. Project components

30. Component A: Family Medicine Development (estimated total cost US 4.70million). This component will continue supportingthe strengthening o f nstitutional capacity totrain well-qualif iedfamily physicians and nurses as first-line P H C providers and improvetheirwo rkin g environment.Under this component, the project wil l complete the planned (re)trainingo f 1650 physicians and an equal number o f nurses to ensure 100 ercent populatio n coveragebased on the ra tio o f about one team per 1700 to 2000 population.' In addition, about 50 ruralambulatories wil l be upgraded and outreach activities wi ll be conducted to ensure communi ty

participation.

31. Hospital Network Optimization (estimated total cost US 20.77million). This component wil l support the implementat ion o f the optimizat ionplans in theremaining eight marzes by upgrading selected hospitals and refurbishing them with m o d e mmedical, I T and health care waste management (HCWM) equipment. In addition, under this

Component B:

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32. Component C: Institutional Strengthening (estimated total cost US 2.58 million).This component will help t o strengthen MO Hs capac ity fo r p o l i cymaking, planning, regulation,human resources development and monitoring and evaluation for more effective systemgovernance and co n tro l o f NCDs . I t wil l also support strengthening the governance andmanagement structures o fhea lth care facilities and the o v er sig ht h n c t io n o fmarz administrativestructures. Support wil l also be made available t o strengthen SHA operations, imp rove costing o fpublicly financed services and reimbursement mechanisms.In addition, under this component,the S M Uwil l benefit from consultancy services to upgradei t s medical curriculum, im prove i tsteaching and training facilities and introduce new technologies for continuous m edica l education(CME).

33. Component D: Project Management (estimated total cost US 1.57 million). Thiscomponent wil l help to provide inst i tut ional support to the M O H through Health ProjectImplementat ion Unit (HPIU) which wil l b e in charge o f implementing day-to-day projectactivities and mo nitor ingand evaluation (M&E). The projectwil l finance annual financ ial auditsas well as training and operating costs o f he HPIU, including the costs o f coreand short-termstaff salaries, office related expenses and moni to r ingand evaluation o f project implementat ionand performance. Please see Annex 4 for detailed proje ct description.

5. Lessons learned and reflected in the project design

34. A review o f Banks experiencewith support to health sector development in t h e E C Aregion during the past 10 years revealed that investment in infrastructure shouldbe based onration alizatio n plans developedin a consensual manner with involvemen t o f all stakeholdersandexplici t poli t ica l support fromthe Government.

35. The project design also reflects key lessons learned from the rev iew o f health carereforms in the transitional CIS countries: i) he need to enhance allocative efficiency byreorganizing access to primary health care and introducing gate-keeper function to streamlinedirect access and referr al to hospitals; ii) he need t o invest in hum an resources in a strategicmanner with a view to reaching a balance in the mix and distribution o f health workforce; iii)rehabili tation o f heal th faci li t iesi s an essential ingredient in raising the quali ty o f healthcareservices; and (iv) the need to strengthen providers managerial capabilities and o f the

Government by improving public budget management practices and its supervisory andregulatory role.

36. In addition, the following lessons have been learned in designing and implementingsimilar reform-oriented projectsin the Region and f rom the f i r s t Primary Hea lth Developmentproject in Armenia:

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0 A concurrent development policylending (DPL) operation (e.g., PRSC) significantlyimproves p olic y dialogueand plays a catalytic rolein increased attention to mo nito ringand evaluation o fprojec t results and impact;

0 High quality analytical and advisory activities provid e the necessary eviden tial base formo re effective p olic y dialogueand project implementation;

0 Involveme nt o f local authorities,MOH and hospital management in bo th the technicaland politica l processes o f the preparation o f rationalizationplans facilitates consensusbuilding and thus s ignifica ntly increases ownershipand cooperation;

Coercive and punitive measures to prevent or e liminate info rm al payments are muc h lesseffective than those w ho ai m at increased transparency in financial reporting; pluralisticgovernance o fhealth fac ilitieswith the invo lvement o fpayers and consumers, in addit ionto service providers; lawsand regulations for consumer protectionand patient rights;unequivocal and simplified fee schedules and eligibility criteria fblly accessible topatients; and, above all, a gradual increase in providers income and payments throughincreased budg etary outlays, c omm ensurate with their education and training, workloadand performance;

Importance o f supply side interventions to reduce excess resource capacity, inconjunction with financing, payment, in-se rvice train ingand regulatory reform toimprove the practice environment;and

0 A built-in and rigorousM&E scheme relying on ind icators o fhigh content and pred ictivevalidi tyhelps generate evidence for objective assessment o fproje ct accomplishments.

37.way:

The design o f he proposed A P L2 incorporatesthe lessons learned above in he fo l lowing

Project preparation has been camed out with full cooperation by the MOH, MOFE,MOTA and local authorities, and with their substantial political commitmentandownership, as evident in the approval o f the hospital optimization plans by theGovernment.

Project design hinges o n the synergy with the pol ic y condi tionali tyand joint partnershipwith MOH and M O F Ein assessing the performance o fb o th D P L an dAPL operations;

The team has worked in close cooperation with M O H and M O F E in the design,implementat ion and report ing o f elated Adv isory and Analytical A ctivi t ies(AAA) (e g

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0 Emphasis on fiduciary transparency and pluralistic governance structures for hospitals

and policy and economic research for realistic fee setting based on re al costs to mitigatecorruptionand reduce inf orm al payments, an d

Arrangements for results mo nito ring havebeen careful lydesigned to reflect the intendedkey proje ct objectives and outcomes.

6. Alternatives considered and reasons for rejection

38. Ma inta in the or ig ina l t imetable , This alternative may appear to carry less risk f ro mIDAS perspective, but was rejected because o f he substantial risk fo r th e Bo rro wer o fdelayinginvestment until the end o f Phase I n terms o f los ing the mom entum gained in reachingagreement at marz leve l on significan tly reducing the excess capacity,thus setting back themode rnization process and jeopar dizing the m uc hneeded improvement in allocative efficiencyo f scarce resources. Indeed, encouraged by the results in Yerevan, the GOA has approved onNovember 2, 2006 the master pla n for the optimizat ion o f heal th faci li t iesin the remaining t e nmarzes. W h i l e the proceeds o f the o n -g o in g HS MP(APL1) will provide financial support fortw o o f he marzes, i t i s crucial that additional financing b e secured tobegin the implementat iono f he optimizationplans in all m a n e s at the same time so as to seize the momentum built in alland respond to high expectations for investmentin upgrading health facilities and training staffwh ile decommissioning obsoleteand surplus facilities and equipment.On the other hand, the risko f m o vi ng o nto the second phase without f i l l y meeting some triggers i s min imal given theimpressive achievements towards their fulfillmentin ust two years and the fact that there are n olegal or regulatory prerequisites lef t tobe enacted for full-scale investment.

39. Addit ion al financing. This alternative was f i r s t considered as preferable because o f therepeater nature o f he project witho ut any changein the development objective,but was droppedsubsequently as a result o f Operations Po licy and Countr y Services (OPCS) advice that: i) heprogrammatic (APL) nature o f he support to G O A S health sector reform does notlend i t s e l f oan additional financing operation because o fhe need for a thoro ugh assessment o f he progressto date in meeting the triggers; and ii) he size o f the planned investment for the proposedsecond phase (US$ 22 mil l ion) i s significantlyhigher than the total amount o f f inancingorigin ally envisioned forAPL2 (US$ 11 million).

C. IMPLEMENTATION

1. Partnership arrangements

40. During the second phase o f he HSMP, collaborat ionwil l continue with the USAID - ake y partner in helping the Government to scale-up the PHC refo rm in Armenia. The USAID-

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41. The WHO wil l also continue i t s support to the process o f ssuance o f a national healthpolicy, the institutionalization o fhe NHA, as w e ll as technica l assistance to the preparation o fsurvey instruments on major risk factors for NC Ds. TheDFID wil l support the restructuring theorganizational set-up o f the Ministry o f Health and programmatic healthbudgeting. B o thagencies partner with the World Bank in assisting the government to complement projectactivities under Component C. UNICEFwil l continue supporting the vaccination programinArmenia. The GTZand KfW support Governments national tuberculosis programby providingmedical equipment and Tuberculosis drugs. Finally, the UNDP i s involved in integratedcommunity-based development. Th e activities o f he last three agencies complement P H C relatedwork and techn ical assistance under Component A.

2. Institutional and implementation arrangements

42. The implementationarrangements under APL2 would be the same as for the ongoing A P L l for continuity inimplementation. They are also designed to ensure transparency in implementation and toencourage participatory approach to the imp lementation o f the p olitic ally sensitive ho spital

mod erniz ation process. The Government has designated the MOH as the responsible agency forthe project. The HPIU, the unit within the M O H w hich overseesthe implementation o fAPL1,wil l continue do so for APL2. During seven years o f i t s operation, includingthe f i r s t IDA-financed P H C Deve lopmen t Project,the H P I U has gained considerable experience and acquiredcapacity in proje ct m anagement. The Unit i s highly effective in overseeing day-to-day projectactivities and in being fully compliant with IDA fiduciary requirements. The HPIU wil l beresponsible for the fiduciary aspectso f the Project and wil l provide project administrationandcoordination support to the M O H departmentsand agencies that are responsible for project

activities (Please see Annex 6 for a description o f specific impleme ntation arrangements f orindi vidu al pro ject components).

The project wil l be implemented over a period o f five years.

43. An already functionin g Steering Comm ittee composed o f representatives fr om ke ystakeholders within and external to the M O Hwil l prov ide overa ll oversight and supervision forthe project. The Steering Com mittee comprises: i) inister o fHealth; ii) irst Deputy Ministero f Health; iii) irst Deputy Minister o f Finance and Economy; (iv) Firs t Deputy Minis ter o fJustice; (v) Deputy Minister o f he Temtorial Affairs;(vi) Deputy Minister o fHe alth responsible

o f economic and finan cial Issues; (vii) H e a d o f the Credit and Humanitarian AssistancePrograms Department o f the S taf f o f the Armenian Government; (viii) Head o f the Heal thEconomics and Accounting Department o f he Staff o f heMinistry o f Health; ( ix ) Head o ftheMedic al Care Provision Department o fthe Ministry o f Health; (x) Head o f he State Hygienicand Anti-Epidemic Inspectorateo f the Ministry o f Health; and (xi) Head o fthe HPIU. TheCommitteewill also provid e advice onthe terms o f eference for various assignments, participate

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Department and Unit Heads, representatives o f Fam ily Medicine Departments, H ead o f he SH A

and Head o f the HPIU. I t s compositionwil l be modified to include a representative from theMinistry o f Education and Sciencewhile issues related to higher med ical education (ComponentC) wil l be discussed. The Hospital Optimization and Modernization Coordinating Committee,will be established by August 1, 2007. I t s composition will reflect the focus on marzoptimization and therefore representatives from MOH, SHA,Ministry o f Territorial Affairs(MOTA)and local municipalitieswil l be the members o f his Committee.

ResponsiblePersonFinancialManager o f

the HPIU

45. The H P IUhas been responsible for the implementation o fhe earlier ID A-finan ced health

projects in Armenia and has already established a successful track record in effective andfid uc ial ly sound projec t management practices. Ho we ve r one action has been agreedwith H P I Uto further strengthen t s finan cial management capacity.

Completion Date

Prior to projectimplementation

Actio ns for capacitybuilding (not a credit condition)

Update the Financial Management Ma nual to includenew activities o fHS MP (APL2) aswell as clearly

definin g conflic t o f nterest and related part y transactions(real and apparent) and pro vid ing safeguards fo rriskmitigation. I

3. Mon itoring and evaluation o f outcomes/results

46. The MO H, in close coordination with the Health Information and Analytical Center(HIAC) o f the NationalInstitute o f H e al th NIH), wil l monitor and evaluate the progress andoutcomes o f he reforms, includ ing the development impact o fhe project. APLl has supportedH I A C in designing and carrying out an evaluation framework for the reform,and preparingH S P A reports. Project indicators (presentedin Annex 3: Results Framework and Monitoring)wi ll be mon itored through a comprehensive set o fmethods: analysis o fhea lth status and healthcare utiliz atio n indicators constructed f ro m rou tine administrative data; analysis o f data fromexisting surveys performed on an ongoing basis by the National Statistical Service (e.g.,Integrated Survey o fLiving Standards) or customized modules attached to such surveys; design,impleme ntation and analysis o f additional surveys o f health careusers and providers. Specialattention wi ll be given to the assessment o f equity issues related to hea lth and hea lth care; trendsin out-of pocket informa l payments and evaluation o f mpact o f health programs and policies onthe poor.

4. Sustainability

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Government and are no t likely to be reversed. There are a number o fkey actions wh ich s tillneedto be completed under APLl and under the proposed operation, includingthe upgrading o f hefacilities as outlinedin the o ptimizationplans, the training o f he family practice teams, and theimplementation o f he performance-based payment o fproviders. Once these elements are put inplace, the achievements o f he Program wo uldvery li ke ly rem ain sustainablein he long run.

48. The sustainability o fthe project also depends o n sustained levels o f additional recurrentcosts and the implied budgetary outlays as a result o f he investments ma de to upgrade healthfacilities and to train more health professionals. Th e sustainability o fhe PH C network is alreadyassured in terms o f sustained and ever increasing budgetary allocations and imp rov ed staffing.Thus far, the G O A has also been able to g radually increase its o verall hea lthbudget in ine withthe MTEF projections and provedwilling to provide additional funds where there was ademonstrated need. The on-going policy dialogue aspart o f the PRSC process wil l monitorGovernments budgeting and budget execution practices to ensure sustainable fin ancin g o f hehealth sector.

5. Critical risks an d possible contro versial aspects

Risk Risk Rating IRisk Mitigation MeasureHealth Sector ReformPoliticalwill toimplement theoptimization planswanes.

Inter-mini s e na1coordination becomesineffective.

rogramM

M

The GOA has already proven i t s commitment tothereform programby f i r s t enacting a decree inNovember 2003 regarding the consolidation o f24pub lic hospitalsin Yerevan into 10 hospital andpoly clin ic networks. Encouragedby the results inYerevan, the G O A has no w also approvedin

Novem ber 2006 the master plan for the optimizationo fhealth facilitiesin he remaining t e n marzes. GivenArmenias strong track record o fhigh level o fpo l icyand implem enta tion performance,timely processingand approval o f he proposed project can help thecentral and marz authorities to lo ckin he optimizationplans through continuous fl ow o f unds to upgraderura l health facilities.

M O Hand MOF E, the tw o ministries involvedinhealth financingin particular, have so far been able tooperate in close collabora tionwith the SHA in relationto m aking decisions o n publicinvestment in he healthsector and annual budgetary allocations in ine withthe mutu ally agreed uponMTEF. A s the project

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The government willlo t able to meet the\.ITEF targets fo rsustainable increasedkan c ing o f he hea lthsector.

Compliance with theapplicable safeguardpolicieswil l be low.

M

M

From Outputs to ObjectiveGovernment and localauthorities and staffshow reluctance toreviselamendoptimization plans.

Project too complex toimplement.

S

N

h e r he las t five years, Arm enias economy has grow n:onsiderablywith ever incre asing governmentrevenuesmd pub lic outlays f or social programs in clud ing health.DAs on-going fin ancia l support through the PRSC)perations and the poli cy dialogue throughthe on-goingmd planned PRSPs, PPER, the Pub lic Expenditureshac king Surveyand the HSPA wil l help G O A to:ontinuously assess fina ncing targets, bu dget ing andudg et execution and provide evidence o nwhether theunds are used in accordance to healthcare needs andhe shortcomings in financing for priorit y healthIrograms.There wil l not b e any change in he environmentalcategory, rated B, o r in the safeguard screeningcategory, rated 3 3 . As such, the existingEnvironmental Management Plan(EMP) in Annex 10remains valid, albe it subject to amendment to inclu denew sites. To date, com plian ce with the EMP has beensatisfactory. Therefore, site-specific environm entalscreening for a ll project-supported reha bilitation o fP H C centers and hospitals wil l be carried o ut as perthe EMP. In addition, projecthnds are made availableto finance architectural and waste materia lmanagement. Finally , an envir onm enta l managementframew ork was preparedand disclosed in December

2 0 0 6 . u ~

There i s a very high degree o f commitmentby localmarz authorities and hea lth workers as evidenced inthe f inalization o fhe mar2 optimizationplans whichhave been ratifiedby the GOA in Novem ber 2006.However, these plans need further refinement. Amap ping exercise wil l be carried out to support this

work. G O A providedfirm assurances that amendmentswill be made, when needed, o n the basis o f hemap ping exercise.W h i l ethe second phase wil l have the same projec tcomponents, there wil l be an a dditional sub-component on formal med ical education invo lvin gthe

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Weak strategicplanning o f hereforms, n o attentionto need fo r l inksbetween PH C andhos pital restructuring.Selected contractorsfa i l t o p rov ide qual i tyservices in ime.

M

M

Select ion o fhospitalsites and the scope o fthe fac ility upgradingbecome controversial.

Overall Risk Rat ing

M

M

Appropriate technical supportduring projectpreparation, continuous p o li cy engagementby the IDAteam.

HPIU employs i ts experience in procurement andcontract management obtained during theimplementat ion o fhe first he alth project.

Selection o fsites has already been completed by theGovernment-approved optimizationplans. M i n o rchanges m ay occur in the scope and extent o f aci l i tyupgrading, but no t to the extent to compromiseplansinte rna l coherence and integrity. Implementationwillbe moni to redunder PRCS 3.

Ris k Rat ing- H (High Risk), S (Substantial Risk), M (Modest Risk), N Negl igib le o r L o w Risk)

49. According to the recent Business Environment and Enterprise Performance Survey(BEEPS) report, about 30 percent o fbusinesses indica te that corru ption canbe an impediment todoin g business. Adequate mit igat ion measures are incorporatedin the project, and IDA staffwil lclosely monitor performanceduring implementation. These measures can be summarized as

fol lows: i) overnments m ov e towards e-procurement and use o f public websites todisseminate tenders and announce results; ii) he project will establish a fo rm al internal contro lframew ork describedin he Finance Managem ent Manual; iii) he mechanism o f f l o wo f undsagreed upo n with th e GO Awil l be enforced; (iv) the project fin ancia l statementswi ll be auditedby independent auditors and o n terms acceptable to IDA; (v) regular financial managementsupervision and procurement pr ior and post reviewswil l be conducted to mon itorand assess thecorruption risk; and(vi) the HPIU wil l develop new procedures to improve the quali ty o f ci vi lworks (for rehabil itat ion and construct ion o fnew family medicine centers), and increasecontractor accountability.

6. Credit conditions a nd covenants

50. Conditionso f Credit Effectiveness:

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5 1. Date d Covenant:

0 By August 1, 2007, the Recipient shall establish the Hospital Optimization andModernization Coordinating Committee to guide and monitor the implementation o fComponent B o f he Project.

52. Other Covenants:

Institutional arrangements

0 The Recipient shall mainta in the Project Steering Committee, consisting o ftherepresentatives o f the M O H and other k ey stakeholders in the Government, with theresponsibility forguiding and coordinating the implementation o fthe Program, definingte rms o f references, participating in technical evaluations and working directlywithconsultants o n arrangements o f strategic technical assistance.

0 For the implementation o fComponent B o f he Project, the Recipient shall cause each o f

the Selected marzes to:

o enter into an implementation agreement amonghetween hospital management,marz governor (marzpet) and MOH, satisfactory to IDA, for the implementationo f he regional optimiz ation programs; and

o exercise i t s rights under such agreements in such manners as to protect theinterests o f the As sociation and to accomplish the purposes o f the Project, andshall not assign, amend, abrogate or waive any o f such agreements, or anyprovisions thereof withou tthe Associations prior approval.

0 The Recipient shall maintain a financial management system acceptable toIDA. Theproje ct financ ial statements, Statement o f Expenses (SOE) and Designated Acco untStatements wil l be audited by independent auditors and on terms o f eference acceptableto IDA and on terms o f reference acceptable to IDA. The annual audited statements andaudit report wil l be provided toIDA within six months o f he end o feach fiscal year.

Anti-Corruption

The Recipient shall ensure that the Project i s carried out in accordance with theprovis ions o fhe Anti-Corruption Guidelines.

S f d

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D. APPRAISAL SUMMARY

1. Economic and finan cial analyses

53. Econo mic rationale. The government ref orm progra m as outlin edin the APL2 aims atstrengthening the provisio n o f PH C services, rationalizing themarz hospital network andintroducing necessary adjustments on health care financing mechanisms. In 2005, thegovernment spent approximately AM D $1 4 bi lli on o n hospital servicesand A MD $ 1 2 b i l l i o n o nPHC services. These resources financed 156,500 hospitalizations in hospitals under the M O Hand 7.7 m il li o n P H C visits. Government reform efforts aim to increase utilization, cover thefullcost o f services providedunder the BBP and spend increased resources in a more efficient way,i.e. buy more and better quality services than the ones curre ntly been purchased. T o achievethese goals the government continues to: i) ncrease the reimbursement rates fo r B B P services,ma in ly towards hig her salaries for hea lth personnel; ii) educe the number o fbeds and buildingsused in he hospital network,so as to reduce recurrent expenditure, and increase occupancy rates;and iii) nvest in PHC centers and family medicine training. These actions are expected toincrease utilization o f P H C visits and hospitalizations pu bli cly financed, as individ uals realizethat more and better quality services are providedin hea lth care facilities. In the short run, the

same amount and same quality services wil l be provided with less resources (due to savings onbuilding maintenance, heating, u tiliti esand other recurren t costs); in the long run more and betterservices wil l be providedwith the same share o f public resources in GDP, as shown in the fiscalimpact analysis below. In addition, out-of-pocket payments, formal and informal ones, areexpected to decrease as pu bl ic funding wi ll be covering the rea l provi sio n cost.

54. Fisc al Imp act Analvsis. The fisca l impa ct analysis aims at estimatingthe l e v e l o fgovernment health expenditure under assumptions of increased health care utilization and per

capita public spendingby 2015. I t also compares increased levels o f government spending o nhea lth to the government budget under the M T E Fand PRSP. Under the assumption that the unitcost o f BBP is US$lOOin 2006 (US$132 in 2015), the BBP cost in 2015 will be equal toUS$44 1 mil li on (3 percent o f GDP).The BBP cost wil l represent approxim ately 14 percent o ftotal government spending and will be only slightly higher than the PRSP projections o fpublicexpenditure on health equal to US$395 mi lli on (2.7 percent o f GDP). Thissuggests that theprovision o fa comprehensive benefit package is a plausible and affordable scenario fo r Armenia.Tota l expenditure o n healthin 2015 i s estimated to b e approximately the same share o f GD P asin 2015 (4.9 percent in 2015 and 5.3 percent in 2005); however, the ratio o f public to privatespending changes fro m 30/70 in 2005 to 60/40 in 2015. The latter ratio is one com mon ly foundin countries that offer substantial risk protection against out-of-pocket health expenditures;consequently the burden o fout-of-pocket expenditureswill be reduced considerably.

55. Fin anci al Analysis. The finan cial analysis shows that recurrent costs (including operation

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2. Technical

56. The rationale behind this project i s to o ptimize the inp uts o f the healthcare deliverysystem in a resource-constrained environment to maximize productivityand performance.Hence, the organizational and in stitu tion al changes envisaged entailthe fol lowing:

Upgradingthe primary healthcare netw ork and reorganizing its servicedelivery mo d el o nthe basis o f he tenets o f ami ly med ic in ewhereby each citizen wil l enrollwith a familyphysician and use h is he r services fo r a ll healthcare needs, be they prev entive or curative,a l lowingin turn the phys ician to pr ovide comprehensiveand continuous care. As a resulto f ntensive in-service o r form al residency training,but also continuous interaction, thephysician would be able to resolve most o fthe healthcare needs o f the patient andprovid e a m ore personalized care with a higher degree o f technical and psycho-socialquality. This in turn wo u ld result in a reduction in referrals to specialists, better casemanagement and higher compliance, and consequently less hospitalization, le ading toincreased effic ienc y and cost-containment.

0 A well-functioning PHC network would reducethe need for hospitals, especially inArmenia where there i s a documented glut o f inpatient care facilities, leading tosignificant rationalization o fthe number o f establishments, beds and eventuallypersonnel. Such a rationalization w ou ld resultin better coordinat ion o f care betweenthetwo levels and significant savings wh ich can thenbe channeled towards more services,better m ix o f serv ices and higher quality o f care, m ai nl y through increased salaries toproviders.

Strengthening the institution al capacity t o p oo l and allocate resourcesin such a w ay that

funds are distributed equitably. M or e specif ically, the S H A wo uldneed to be able tobuild i t s capacity to engage in contractual agreements with providers and assess theirproductivi tyand performance and monitor and evaluate qualityand appropriateness o fcare to ensure that its payments fo llo wthe patient and are made to produce he alth ratherthan simply consuming healthcare.

57. Whi l e t herefo rm agenda i s ambitious and multi-faceted, the G O A has demonstrated i t swillingness to act o n each o fthe reform areas above by passing the required legislation or

regulations and it s ca pability toimplement them in a coordinated and well-sequenced manner.The second phase wil l build on wh at has been accomplished t o date, but complete the investmentin human and phy sica l resources while further strengthening MOH and SHAs capacity to makepolicies, manage i t s funds and evaluate i t s performance.

3. Fiduciary

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59. Financial Management Risk at the Project Level. The financial managementarrangements o f the H P I U have been reviewed periodically as part o f previous projectsupervisions and have been found satisfactory. An assessment o f the financ ial managementarrangements for the project was undertaken in early January 2007. Based on the FMassessment, i t was established that HPIU has acceptable FM arrangements in place: particularly,

i) ccounting and reporting i s performed in 1C accounting software, which i s reliable andflexible system to record and reportin he req uired details and formats; ii) iling system allowsto keep in a well systematized manner all supporting financial documentation relating to theproject; iii) he HPIUs accounting staff has extensive experiencein applying IDA proceduresfor disbursement and financial management, including Financial Management Report(FMR)

preparation; (iv) internal control system is adequate; and (v) satisfactory FM supervisions andannual audits o fAPLl.

60. The overa ll FM risk for the project before mitigation measures is moderate and aftermi tig ati on measures,the risk i s ow.

61. A s the Project wil l be implemented in an environment w here cor ruption (see below)i sperce ived as an impo rtant issue, adequate mi tig at ion m easures have been put in place to ensurethat the residual project risk is acceptable. Mi tig at io n measures are incorporated in the project

design and IDA staffwil l closely m oni tor performanceduring implementation. These miti gat ionactions can be summarized as follows: i); he project wil l establish a formal internal controlframewo rk described in the Financial Management Manual; ii) he f lo w o f funds mechanismthat has been agreed with the Recipient wil l be enforced; iii) he project financial statementswil l be audited by independent auditors and on t e rms acceptable to IDA; and (iv) regularfinan cial management supervisionand procurement priorand post reviews wil l be conducted tomonitor and assess the corruption risk; and (v) the HPIU wil l monitor new procedures toimprove the quality o f civ il works (for rehabilitationand construction o f new family medicinecenters), and increase contractor ac counta bility.

62. According to the latest DoingBusiness Survey in 2007, Ar me nia wasthe top-rated CIS country and scored w el l vis-&vis ma nyother developed and developing countries (34th out o f 175). At the same time, in the latestBEE PS report, about 3 0 percent o f businesses have indicated that c orrupt ioni s a problem indoing business. A Country Procurement Assessment Review (CPAR) done in 2004 alsoconcluded that based on the analysis o f the legi slativ e framework, procurement practices,institut ional capacity and the op portunity f or corruption,the environment for conducting public

procurement in Armenia was one o f high risk at that time. The 2005 Country FinancialAcco untab ility Assessment (CF AA ) report concluded that the overall fiduciaryriskI4 n Armeniai s significant. The key reasons are: i) nadequate capacity o f core co ntrol and supervisoryagencies performing audits within the public sector; ii) l though most o fthe basic laws are inplace with respect to various entities (private sector and pub licenterprises, incl udi ng state non-com mer cial organizations) fi nanc ial reporting, the compliance remains a pro bl em and authorities

Financial Management Risk at the Country Level.

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o f the Chamber o f Control (COC) (Armenian SupremeAudit Institution), i t gained moreindependence fro m the Parliament, andi s n o w in the process o f development o f he n e w L a w o nCOC. IDA i s assisting the C O C with the development o f ts audit manuals and methodologiesaccording to internationally accepted practices. The internal audit reformi s underimplementation, with the Government strategy in place supported by PRSC 1 to 3 programsacceptable to IDA. The M O F E also adopted an act ion plan for implem entat ion o fhe IPSAS inthe Government sector and now i s designing a detailed timeline for the transfer to cash basisIPSAS and then to accrual. The on ly ban k acceptable t o IDA for opening designatedspecialaccounts in Armenia i s H S B C Bank. As the banking arrangements with this loc al commercialbank have been found satisfactoryunder APL1, they will remain in place during APL2 projectimplementation, unless other banks become acceptable f or op ening designatedspecial accountsin Armenia.

63. The procurement functions o fhe project wil l be handled by the HPIU. Procurement ex-post review o f the on-going HS M P is conducted periodical ly as part o f regular projectsupervision missions and i t s findings have always been satisfactory. An assessment o f theprocurement arrangements for the second phase operation was undertaken in December 2006and was found to be satisfactory. The projectwil l benefit from some o f he m ajor achievementsthat have been made in the area o f public procurement, includingthe fol lowing: i) he passageo f the amended Public Procurement La wwith the pro visio n o f e-Government Procurement (e-GP); ii) workshop o n e-GP where some o f he good practices o ne-GP fr om selected countrieswere presented; and iii) reparat ion o f the e-Government Procurement Strategy. TheGovernm ent has established a procurement w ebsite (www.procurement.am) where the L a w andthe legislative documents, official procurement advertisementsand other state procurementinformationare posted. An e-catalogue comp rising o f al i s t o f echnical specif icat ion for13,000item s (goods, work sand services) has been created.

64. Mi tiga tio n measures for procurement ris ks are incorporated int o proje ct design and areas follows: i) rior review: intensiveand close supervision by IDA procurement accreditedstaff. In addition, al l contractamendments wi ll be subject to p rior approvalby the Bank; ii)Post review: at least one in five contracts will be post reviewed each six month, includingphysical verif icat ion and site visits; iii) Public procurement official web site(www.procurement.am) wil l be used to disseminate upc om ing tenders and announce results o fcontract awards under the Project; (iv) C iv il W orks contractswil l be supervised by technicallyqualified supervisors employedby the H P I U to ensure that qu ali ty specif iedin the contract i sdelivered in a timely manner. Photos o fworks in progress and completed works wil l b e part o fthe documentation that supports payment requests; (v) E-catalog wil l b e used as a reference-bo ok to specify technical parameters o f he goods (furniture, vehicles,I T equipment etc.) to beprocuredunder the project.

65. Deta iled procurement arrangements forthe proje ct are described in Annex 8

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rates15, there is a need to exp lain to communities the basic tenets o f am ily m edicine as a modeo f practice (i.e., the benefits o f having afamily doctor as a f i rs t poin t o f service and o f hav ingcontinuity forbetter patient-provider relationship and psycho-social qu ality o f care) andanorganizational model fo r P H C(e.g., being enlisted by a family doctor, gate-keeping and refer ralto specialists, the eligibility to BBP and entitled services, etc.). The U S A I D funded PH C projectwill complement Bank-financed activitiesunder the Family Medicine Development(FMD)component with a public Information Educationand Com mu nication (IEC) campaign. Inaddition, a form al im pact evaluation is on-g oing usin g a quasi-experimental designwith a controlgroup and baseline and ex-post household and facility surveysand measurements o f key P H Cindicators (e.g., contact with care providers, utilization, perceived quality, OOP expenditures,

satisfaction, etc.). Under A P L l comm unity meetings and prom otion act ivit ieswere organized intwenty beneficiary comm unities of Aragatsotn, Arma vir, Ararat, Kota yk, TavushandGegharkunik marzes. M ar z health authorities participatedin al l com mu nity meetings. Contractsfor renovatiodconstruction o ffamily medicine ambulatories were signed with 20 communitieswhich made 5 percent contribution to the total costs. APL2 will continue to rely on thepar tic ipat ion o fpatient groups and other stakeholders in he P H C development program.

67. U n l i k e under APL1, the hospital optimization component i s unlikely to have anyimplicationsin e rm s o f sta ff reduction andi t s social consequences due to an already lo w s taffinglevels and ma l d is t ribu tionin marzes. Nonetheless eve ry ef fortwi ll be made to explain to bothhealthcare workers and local populat ion the rationale behind optimizat ion and how i t wil limprove q uality o f care withou t h indering access to services at the loc allevel . Indeed, publ ichearings wi l l be held under the auspices o f the Standing Com mittee on S ocial Affairs, HealthCare and Environmental Protection o fhe Nat io n a l Assemb ly o f h e Rep ub l ic o fArmenia.

5. Environment

68. The expected impact o f he project activities o nthe environment i s limited. There wil l befew new construction, andwhen i t occurs, i t will be on the exist ing faci l i tysite. A s for hospitals,there will n o t b e any ne w construction, but renovation and rehabili tation o f exist ing faci li t iesineight marzes. Therefore, the environmental category rat ing remains B and the safeguardscreening catego ry ra tin g remains S3 as in APL1. As such, the existing EMP remains valid,albeit subject to amendment to inc lude assessment o fnew project sites. To date, compliance withthe E M P has been satisfactory. Therefore, site-specific en vironmental screening for a ll proje ct-

supported rehabilitation o fP H C centers and hospitals wi ll be carried ou t as per the EMP. Finally,an environmental management framework has beenprepared and pu blic ly disclosedin Armeniain December 2006.

69. The on-going A P L l financed technical assistance to improve the handl ing o f medicalwaste Recommendations resulting fromthis consultancy wil l be taken i nto account during the

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H C W Mwas conducted in 200 6 for epidem iologists responsible fo r waste managementin mergerhospitals as well as for specialists from the State Hygienic and Anti-Epidemic Inspectorate.Fol lowingthe development o fguidelines, H C W Mplans will be developed for each pi lo t hospitaland wil l include a l i s t o f H C W M equipment.In addition, al l hospital staffwil l attend short t e r mt ra in ing on HC W M.

6. Safeguard policies

Safeguard Policies Trigg ered b y the Project Yes N oEnvironmentalAssessment (O P BP 4.01) [XI [ INatural Habitats (OP B P 4.04) [ I [XIPest Managem ent (OP 4.09) [ I [XIPhy sica l Cu ltur al Resources (OP/BP 4.1 1) [ I [XIInvolu ntary Resettlement (O P B P 4.12) [ I [XIIndigenous Peoples (OPBP 4.10) [ I [XIForests (OP/BP 4.36) [ I [XISafety o fDams (O PB P 4.37) [ I [XIProjects in Disputed Areas (O P B P 7.60)* [ I [XIProjects o n International Waterways (O P B P 7.50) [ I [XI

7. Policy exceptions and readiness

70. There are no po lic y exceptionsin the proposed credit.

71. Fid uci ary arrangements are in place. These arrangements were put in place during theimplementation o f he Health Financingand Prim ary He alth Care Development Project (closed

o n December 31, 2003) and were hrther strengthened during the preparation and theimplementation o f the H ealth System Moderniza tion ProjectAPLl (effective since December14,2004). Fin anc ial management and procurement assessments con firm ed the adequacy o f hesearrangements, as described above.

72.project ac tivities proposed forthe 2007 calendar year befo re project effectiveness.

The 2007 state budget wil l include a provision forthe required counterpart funds for

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Annex 1: Country and P rogram Background

ARMENIA: Hea lth System Modernizat ion Project (APL2)

2001

Macroeco nomic context

2002 2003 2004 2005 2006

1. GDP growth has averaged over 10percent per annum over the past five years, reaching 14 percent in 2005, and an estimated 13.4percent in 2006. Prudent macroeconom ic pol icie s have main taine d sustainable external andinternal balances, kept inflation low,and reduced Armenias debt burden. The fiscal def icit hasalso remained lo w and has been financed by non-in flation ary sources. Arm eniai s f i l l y on trackwith i ts IMF PR GF Prog ram (Table 1.1).

Economic growth and management are strong.

End o fperiod nflation,CPI, % changeTot al pub lic expenditure(consolidated), percent o fG D PGNI per capita (atlas based)

2.9 2.0 8.6 2.0 -0.2 5.2

23.6 22.0 22.4 20.8 21.9 21.1700 800 950 1140 1470 1750

I Real G DP growth, percent I 9.6 I 13.2 I 14.0 I 10.5 I 14.0 13.4 I

Ta x Revenues to GDP ** 14.3 14.6 14.0 14.1 14.3 14.4

2. With sustained high and broad-based economic growth , pove rty in Armen ia hascontinued to decline. Armenia saw a significant reductionin overall poverty, with theproportion of poor declining fro m 51 percentin 2001 to 30 percent in 2005. Gr ow th reducedextreme poverty even faster from 17 percent in 2002 to below five percent in 2005.16 Thehousehold su rvey also reveals equ ally strong declinesin urban and rura l poverty, and in incomeinequality.

3. Arme nia continues to make progress on the reform agenda, though challenges remain.Ar me nia has made strong progress towards an open economy, as evidenced by the improvementin i t s IDA Performance Based Allocation (PBA) score, now among the highest o f all IDAcountries. Nevertheless, challenges remain. Th oug h wages have been increasing,unemployment remains high at one-third o f the labor force. Impr ove men ts are alsoneeded,in ter al ia, in eliminating distortions associatedwith corruption and building the human capitalnecessary fo r a comp etitive knowledge economy.

4. Arme nia has a strong and comprehensive pove rty reduction strategy in place, and hash d d d h i f i lJ Th CA S f

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improvements in fisca l resources and polic y, th oug h tax and customs administrations continue torequire improvement; iii) ncreased spending in he social sectors and go od progress in nitiatingsystemic s ocial sector reform s- social spending in eal t e rms is higher than anticipated, thou gh i tdid no t achieve PRSP targets as a percent o f GDP; and (iv) goo d progress in infrastructure andrural development, although further increasing private sector involvementand reducing ruralpove rty remain challenges. Arm eniai s preparing a full PRSP update in mid-2007 with refinedpo lic y actionsand revised argets.

5. Arme nia also remains on ta rget to ach ieve most i fn o t a l l o i ts Mil lenn ium DevelopmentGoals (MDGs) by 2015. In 2005, Armenia published a first progress report on meetingtheMDGs. Achievement o f al l o f these goalsi s assessed as either pos sible or like ly. Rates o fpoverty, infant mortalityand maternal mortality have fallen rapidly over the past few years.There i s virtuallyfull enrollment in schools, and the country i s in he midst o feducation reforms.At the same time, challenges continue to exist in promoting gender equality, combatingcommunicable diseases, ensuring environmental sustainability, and implementing theGovernment's anti-c orrup tion agenda.

He alt h outcomes

6. A rm enia co mp ares f avo rab ly w i th co un tr ie s o s im il a r leve l o soc io -eco no m icdevelopment in terms o health outcomes. A steady downward trend in infant, under-five andmaternal mo rta lit y has been observed; between 200 0 and 2004, IMR and U5MR fell from 15.6and 19.8 to 12.3 and 13.6 per 1,000 live births, r e s p e ~ t i v e ly. ' ~uring the same tim e span, MMRf e l lfrom 52.5 to 16per 100,000 li v e births.As a result , l ifeexpectancy at birth in 200 4 was 70.3years for men (higher than in m os t o f he ECA countries) and 76.4 years fo r wo me n (Table 1.2).

7. At the same time, Arme nia is also in the midst o epidemiological transit ion characterizedw i th a decline in communicable diseases and an increase in the preva lence of chro nic diseases.The leading causes o f premature adult death under the age o f 65 are, in order o f magnitude,diseases o f he circulatory system - heart disease, stroke and related conditions, cancer, externalin juries and poisoning - includin g suicideand traffic accidents, and diseases o f the respiratoryan d o f he digestive system.18 HIV prevalence rate i s lower than most CIS, but a pote ntial threatexists due to large numbers o fmigrant workers populationhigher HIV prevalence countries suchas Russia and Ukraine. T uberculosis prevalence remains higher than the European average. In2004, DOTS case detection and treatment su