Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 44752-HR PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHE AMOUNT OFEURO 18.1 MILLION (US$28.3MILLIONEQUIVALENT) TO THE REPUBLIC OF CROATIA FOR A DEVELOPMENT OF EMERGENCY MEDICAL SERVICES AND INVESTMENTPLANNING PROJECT SEPTEMBER 2,2008 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective August 27, 2008) Currency Unit = Kuna(HRK) or Euro (EUR) HRK4.91 = US$1 US$0.20 = HRK 1 EUR0.68 = US$I US$1.47 = EUR 1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ALOS Average Lengthof Stay IHD Ischemic Heart Disease APP Annual ProjectPlan IPH Instituteof Public Health(of Croatia) CAS CountryAssistance Strategy ISDS Integrated SafeguardsDatasheet CEDB Councilof EuropeDevelopment Bank IPA Instrumentfor Pre-Accession CFAA CountryFinancialAccountability MoF Ministry of Finance Assessment MoHSW Ministry o f Healthand SocialWelfare CIEMS Croatian Institutefor EmergencyMedical MVA Motor Vehicle Accidents Services NC No Change DG Sanco DirectorateGeneral for Healthand NPV Net PresentValue Consumer Affairs PAL ProgrammaticAdjustmentLoan DEMSIPP Developmentof EmergencyMedical PAS ProcurementAccreditedStaff Services and InvestmentPlanningProject PCN ProjectConcept Note DRGs DiagnosticRelatedGroups PDO ProjectDevelopment Objection EC EuropeanCommission PER Public ExpenditureReview ECA Europeand Central Asia Region PFM Public FinancialManagement EIB EuropeanInvestmentBank PID ProjectInformationDocument EMS EmergencyMedical Services PHC PrimaryHealthCare ERAS EmergencyReceptionAreas PHRD Policy and HumanResourceDevelopment E-PMT ExtendedProjectManagementTeam Grant of the Japanese Government EU EuropeanUnion PMT Project ManagementTeam GPs General Practitioners RTA RoadTraffic Accidents HFA HealthFor All Database (WHO) SA0 State Audit Office HRK Croatian Kuna SBD Standard Bidding Documents HZZO Croatian HealthInsuranceInstitute SDR StandardizedDeath Rate ICB InternationalCompetitiveBidding SHSP SustainableHealthSystem Project(former ICR ImplementationCompletionReport name of the DEMSIPP) ICT Informationand Communication SWDP Social WelfareDevelopmentProject Technologies SIL Specific Investment Loan IEG IndependentEvaluationGroup WHO World HealthOrganization IFRs InterimUn-auditedFinancialStatements Vice President: Shigeo Katsu Country Director: Orsalia Kalantzopoulos Country Manager Andras Horvai Sector Director: Tamar Manuelyan Atinc Sector Manager: Abdo Yazbeck Task Team Leader: Daniel Dulitzky FOR OFFICIAL USE ONLY CROATIA Developmentof EmergencyMedicalServices and InvestmentPlanningProject' CONTENTS Page I STRATEGICCONTEXTANDRATIONALE . .................................................................. 1 A . Country and sector issues .................................................................................................... 1 B. Rationale for Bank involvement.......................................................................................... 4 C. Higherlevel objectives to which the project contributes ................................................... -6 I1 . PROJECT DESCRIPTION .............................................................................................. 7 A . Lending instrument.............................................................................................................. 7 B . Project development objective and key indicators .............................................................. 7 C. Project components............................................................................................................. - 8 D. Lessons learnedandreflectedinthe project design............................................................ 9 E . Alternatives considered and reasons for rejection............................................................... 9 I11 . IMPLEMENTATION ..................................................................................................... 11 A. Partnership arrangements .................................................................................................. 11 B. Institutional and implementation arrangements ................................................................ 11 C . Monitoring and evaluation of outcomeshesults ................................................................ 12 D. Sustainability..................................................................................................................... 13 E. Critical risks and possible controversial aspects ............................................................... 13 F. Loan conditions and covenants.......................................................................................... 14 I V. APPRAISAL SUMMARY .............................................................................................. 15 A. Economic and financial analyses....................................................................................... 15 B. Technical ........................................................................................................................... 16 C. Fiduciary............................................................................................................................ 16 D. Social ................................................................................................................................. 17 E. Environment ...................................................................................................................... 18 F. Safeguard policies.............................................................................................................. 19 G. Policy Exceptions and Readiness ...................................................................................... 19 ' The Development of Emergency Medical Services and Investment Planning Project was formerly named the Sustainable HealthSystem Project The name o fthe Project was officially changed following the DecisionMeeting . on November 19.2007. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 1: Country and Sector Background ............................................................................... 21 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies ..................36 Annex 3: Results Frameworkand Monitoring ......................................................................... 38 Annex 4: DetailedProjectDescription ...................................................................................... 48 Annex 5: ProjectCosts................................................................................................................ 52 Annex 6: ImplementationArrangements .................................................................................. 53 Annex 7: FinancialManagementand DisbursementArrangements ..................................... 56 Annex 8: ProcurementArrangements ...................................................................................... 64 Annex 9: Economicand FinancialAnalysis .............................................................................. 69 Annex 10: SafeguardPolicyIssues ............................................................................................. 75 Annex 11:ProjectPreparationand Supervision ...................................................................... 76 Annex 12: Documents in the ProjectFile .................................................................................. 78 Annex 13: Statement of Loansand Credits ............................................................................... 80 Annex 14: Country at a Glance .................................................................................................. 82 MAPIBRD 33394 REPUBLIC OF CROATIA DEVELOPMENT OF EMERGENCY MEDICAL SERVICES AND INVESTMENT PLANNING PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSHD Date: August 28,2008 Team Leader: Daniel Dulitzky Country Director: Orsalia Kalantzopoulos Sectors: Health (I 00%) Sector Managermirector: Abdo S. Yazbeck Themes: Health system performance(P) Project ID: PO86669 Environmental screening category: B (Partial Assessment) Lending Instrument: Specific Investment Loan [XI Loan [ 3 Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 28.30 Borrower: Ministry of Finance Katanciceva 5 Zagreb, Croatia 10000 ResponsibleAgency: Ministry of Health and Social Welfare Ksaver 200, Croatia katja.matiievic@,mzss.hr Ministry of Health and Social Welfare Ksaver 200, Croatia Antoaneta.Bilic@mzss.hr i Annual 0.30 5.00 7.00 7.00 9.00 Cumulative 0.30 5.30 12.30 19.30 28.30 Expected closing date: June 30, 2013 Does the project depart from the CAS incontent or other significant respects? Re$ PAD I.C. No Does the project require any exceptions from Bank policies? Re$ PAD IKG. [ ]Yes [XINO Have these beenapproved by Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risksrated "substantial" or "high"? Re$ PAD IILE. [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD IKG. [XIYes [ ] N o Project development objective: Re$ PAD II.C., TechnicalAnnex 3 The Project objective is to improve the efficiency and outcomes o fthe Emergency Medical Services system and to strengthen the capacity o f the Ministry o f Health and Social Welfare to develop and implementstrategic projects. Project description: Re$ PAD ILD., TechnicalAnnex 4 Component 1. Development o f Emergency Medical Services (est. EUR 90.5 million total costs, o f which EUR 16.10 million IBRD financing) will finance goods, services and training to support: (a) the establishment o f a National Institutefor Emergency Medical Services (EMS); (b) re-organizationo f pre-hospital EMS; (iii) integration of in-hospital EMS; and (iv) the use o f telemedicine technology to improve EMS inremote locations. Component 2. Institutional Support for Strategic Planning (est. EUR 1.9million total costs, o f which EUR 1.72 million IBRD financing) will finance goods, services and training to support: (a) the development o f priority programs, such as a hospital masterplan, a human resources strategy and investmentplan, and e-health project plans; (b) the building o f capacity inthe Ministry ofHealth and Social Welfare for accessing and managingEUfunds; and (c) the administrative management o f the Project. Which safeguard policies are triggered, ifany? Re$ PAD IKF., TechnicalAnnex 10 The only safeguard policy triggered is with respect to the possible and minimal Environmental Risks associated with the proposed project investments. There would be risks associated with the dust and noise ofthe constructionactivities, the disposal o f constructionand medical waste and the risks associated with the handling o f the waste during operation (municipal and hazardous). As a result, the assigned Environmental Category Rating i s "B". The Environmental Management Plan for mitigating the associated risks was disclosed inCroatia on November 16, 2007 and by the Bank's Info Shop on November 20,2007. Significant, non-standard conditions, if any, for: Re$ PAD III.F. Boardpresentation: No significant, non-standard conditions o f Board presentation. Loadcredit effectiveness: No significant, non-standard conditions o f Effectiveness. Covenants applicable to project implementation: i. TheBorrower,throughtheMoHSW,shalltakeallactionrequiredtofollowandapplyat all times the provisions o f the Environmental Management Plan ina timely manner, ensuring that: (i)mitigation and monitoring measures acceptable to the Bank are designedand implementedwith due diligence and employing appropriate environmental expertise; and (ii) adequate information on the implementationo f the measures contained inthe EMP i s suitably included inthe Progress Reports. 11. The Borrower, through the MoHSW, will carry out the Project inaccordance withthe 9 . agreed Operational Manual, including updates to the Operational Manual that may from time-to- time be agreed. iii. AnAnnualProjectPlan(includingtheupdatedProjectimplementationplan,budget indicating source o f financing for the next Government fiscal year; updated annual procurement plan for the Bank-financed activities; and annual monitoring and evaluation plan) will be submittedto the Bank by MoHSW by September 20 of the precedingyear for discussion prior to submission of the budget to the MoF. The final version o fthe APP should be submittedto the Bank reflecting the nationally approved budget for the purposes o f project supervision for that fiscal year. iv. The training supported by the Project will be inaccordance with agreed terms o f reference and the trainees will be selected according to criteria described inthe Operational Manual. v. The Borrower, through the PMT, will submit Project Progress Reports to the Bank, including interimun-audited financial reports for the Project covering the semester, one month after the end o f the financial year semester. vi. The Borrower, through the MoHSW, will submit a mid-termreviewreport by July 31, 2011; the MoHSW andthe Bank willjointly conduct a mid-termassessment o fthe Project progress and recommend remedialmeasures for ensuringthe successful and timely completion o f the Project on or around September 30,201 1. 111 e . . I. STRATEGICCONTEXTANDRATIONALE A. Countrv and sector issues2 1. Croatia's economy has performed relatively well during the post-war period, and its policies are now oriented towards successfully negotiating accession to the European Union. In spite of solid growth and low inflation in the past few years, Croatia still faces some challenges inorder to achieve a sustainable growth pathand improve the welfare of its citizens. Indoing so, it remains important to reduce the size o f the state's share inthe overall economy and the fiscal deficit, contributing to higher private sector productivity and competitiveness, and to improve public sector efficiency and effectiveness. 2. During the last 15 years the Croatian health system has undergone significant changes, but challenges remain interms o f both efficiency and financial sustainability. The Health Care Law of 1993 consolidated the health financing system under the Croatia Institute for Health Insurance (HZZO), which established the foundation for a social insurance model based on the principles of solidarity and universality. Regardinghealth outcomes, Croatia has fared relatively well but these results have been achieved at a high cost and the health insurance fund has faced growing deficits -the arrears created by hospitals remain sizable at 0.7 percent o f GDP. The generous benefits and exemptions established during the early growth years have beenpolitically difficult to roll back and the complementary health insurance system has not accomplished its objective of modulating unnecessary demand for health cares3 Croatia's health sector faces a complex and inter-related set o f challenges concerning fiscal efficiency and effectiveness o f service delivery inthe face o f national needs. A successful overhaul o f the health sector to close the gap with EU member states will require a multi-prong approach with reforms on both the demand for and supply ofhealth services. 3. The main challenge in the medium term is maintaining and improving health outcomes while achieving a steady state level o f spending consistent with a sound fiscal policy framework. This is a challenge common to most countries in Europe. Croatia is a good performer, with many health outcomes at or above the average o f new EU member states. However, three observations suggest that additional actions are requiredto improve the functioning o f the health system: (i)the gap with the more developed EUeconomies i s still large (e.g. Standardized Death Rate (SDR) associated to Motor Vehicle Accidents (MVAs) i s 30 percent higher, and SDRs related to all causes i s 22 percent higher, suggesting significant room to improve outcomes); (ii) the current health outcomes are achieved at a relatively high cost for the state; and (iii)the upward pressures on spending are likely to continue due to increasing trends in pharmaceutical spending, technological progress, and aging o f the population. Public spending on pharmaceuticals increased 23 and 16 percent in nominal terms in 2003 and 2004, and continued rising throughout 2005 although at a slower rate (in 2005 the Croatian Health Insurance Fund HZZO spent 21 percent of its budget on pharmaceuticals, a category only surpassed by inpatient care pen ding).^ As for aging, the number and proportion o f elderly will increase substantially * The informationcontained herein was mainly preparedon or aroundthe Project appraisal (October 2007), but has been updated where possible to reflectthe informationavailable as o fJune 30, 2008. The complementaryhealth insurancesystem is a voluntary system that covers insurees' co-paymentsand other groceduresnot coveredby the health insurance system. The Government implementeda reform in its pharmaceutical reimbursement policies in 2006 that reduced spendingby 4% in 2007. 1 (23% o f population aged 65 or more by 2025) generating new pressures on spending. Croatia spends 7.4 percent o f GDP on health (2005), which is significantly above the 6.45 percent o f GDP inthe new member states, yet also far from the 9.57 percent spent on average by the EU15 in2005. 4. On the demand side, the instruments commonly used to deter excessive utilization o f health services are not well established in Croatia. Croatia's share o f co-payments intotal health expenditure i s less than one percent, a relatively low value. The Croatian government introduced in 2005 a flat administrative fee (or flat co-payment) at the minimum amount of 5 Kuna per person and a cap o f 30 Kuna per person per month, but had the policy reversed in 2008 (new policies to modulate demand are under consideration). In addition, the statutory co-payments regulated by the health insurance law are exempted for a large share o f the population. HZZO estimated that the revenues foregone as a result o f co-payment exemptions amounted to about 0.4 percent o f GDP in2004. 5. Regarding the supply o f services, the challenges in health care provision extend to the organizational structure o f inpatient and outpatient care, payment mechanisms, and the adequacy o f response o f emergency medical services. Specifically: The healthdelivery system based on inpatientcare treatment is no longer best suited to address the health needs of the Croatian population. Many countries are taking advantage o f technological progress to shift from a system focused on hospital inpatient care with long stays to one where many procedures are treated on an outpatient basis. Inpatient admissions in Croatia are in line with EU average, but patients stay in hospitals for extended periods o f time. There was a large reduction in ALOS during the 1980s and 1990s in Croatia, but in the last three years the length o f stay has remained at close to 11 (the EU average i s about 8 days). The current payment system to hospitals does not offer incentives to contain spending. The current payment system -a mix o f case based and bed day system with volume ceilings and penalties if ceilings are exceeded- has created a motivation for a hospital to keep the beds full and extend the lengtho f stay, since high occupancy results in steady funding. Low occupancy rates also increase the risk that the annual contract for the hospital would be decreased by HZZO. The current contract arrangement also makes it difficult to adjust staffing levels in response to efficiency gains. Thus, cost overruns are likely to result in the imposition o f arbitrary internal controls, e.g., by restricting the use o f medications or procedures, rather than a response to improve productivity, such as reorganizationo f staffing. The system still provides few incentives to support gate-keeping functions of General Practitioners (GPs). Prescription quotas have proven to be ineffective and a more sophisticated standard cost controls system i s required. The demand has continued to rise in recent years irrespective o f measures taken prior to 2004. General practitioners are acting as points o f transmission o f patients towards specialists' care and hospitals, rather than filters at the entry point to the system. Recent changes in GPs payment mechanisms may create the right incentives to contain referrals and improve quality of care, but these changes have yet to be evaluated. Emergency Medical Services (EMS) are unequally distributed across the territory of Croatia, with teams facing multiple demands, both emergency and non-emergency situations. As no uniform guidelines exist, EMS teams are unevenly distributedacross the 2 territory o f Croatia with some counties having more than twenty teams per 100,000 population and others less than five. One o f the main problems with EMS services is that in addition to pre-hospital emergency calls, the EMS service also handles a large volume o f in- home visits, which are mostly out-of-hours non-emergency primary health care services, and operates EMS clinics providing out-patient services to both the general population and patients brought in by ambulances. The EMS service also provides non-emergency transportation for kidney dialysis and there are dedicated crews devoted to this. It i s estimated that the overall total emergency calls in Croatia i s less than 15 percent o f the total number of calls.' 6. The Government has already adopted a series o f reforms to contain spending, supported by the World Bank's P A L program. In an effort to improve the financial situation o f the health care system while maintaining performance a new health insurance law was approved by Parliament in 2006. The law sets a stricter benefit package by reducing the generosity o f HZZO's drugs reimbursement policy and also limits exemptions as it redefines the eligibility criteria for some beneficiaries. To control spending on drugs, the new law has introduced two drug lists: a list for essential drugs not requiringco-payments (that is, covered by the Obligatory Health Insurance), and an additional list requiring co-payments. The coverage o f these drug co- payments has beeneliminated from the complementary health insurance. 7. The Government has also initiated the implementation o f structural reforms in payment mechanisms to providers and the supply o f services. The payment mechanism for hospitals i s beingmodernizedwith the introduction o f Diagnostic Related Groups (DRGs), a system used- with variants -inmost European countries. This policy has beensupported by the World Bank through the Japanese Government Financed PHRD preparation grant for the DEMSIPP. Full implementation of hospital payments based on DRGs i s expected at the beginningo f the 2009. 8. The overhaul o f EMS system is the first stage inrestructuringthe supply o f services. The reform to the supply o f services will proceed instages and will include the restructuring o f health care facilities, changes in the financing o f PHC in order to create additional incentives for gate- keeping and prevention, and reforming the EMS to improve efficiency and responsiveness. At the request o f the Government the DEMSIPP would support the reform o f EMS services as the first stage in the restructuring o f services given the readiness for implementation, the consensus reached among the major stakeholders on the process and content o f the reform program, and the urgency to improve services in a sector that i s directly related to the tourism industry - an important source o f revenues for Croatia. In addition a good functioning EMS system will also contribute to reductions in SDR from accidents and heart disease, which are relatively high in Croatia relative to the EU. Heart disease will become a more pressinghealth issue as population ages, as i s the case o f Croatia. 9. The Government is initiating the process to reform health facilities through the development o f a health facilities masterplan, also with support from the DEMSIPP. The DEMSIPP would finance the development o f a health facilities masterplan, which would provide a strategy for restructuring the current health care provider network to better meet the needs o f the Croatian population. This would include plans for adapting the current supply network to decrease acute in-patient beds, increase day-surgery capacity, and increase long-term care Boulton, G., "Advisory Servicesfor the Reorganizationof Emergency MedicalServices", June 2007. 3 capacityQ6Inaddition the masterplanwould recommendimprovementsinthe managerialmodel prevailing in Croatian hospitals, discuss various alternatives to improve autonomy and accountabilityof hospitals, and discuss the scope for private sector involvementinthe supply of services through public-private partnerships. The full health facilities masterplan will be producedwith the support of the DEMSIPPprojectbut the recommendedstructuralchanges, due to their medium term nature, would be financed through other means (potentially EU funds). The health facilities masterplanwill complement well the investments financed under the first component, as these would take placeonly after the masterplanis completed. B. Rationale for Bank involvement 10. The Bank has supported the implementation of policies and reforms to the Croatian health sector since the mid-l990s, both through Investment and Development Policy loans. The first investment loan focused on war rehabilitationwhile the second, which closed in December 2005, focusedon piloting certain aspects of service restructuringas well as supportingthe public health system. Additionally and based on the recommendations from the Croatia Health Financing Study (2003), the on-going programmatic adjustment loan (PAL) series has been supporting health insurance reforms to address the fiscal sustainability of the health system (Annex 1provides details about the policiessupportedby the PAL program). 11. While the health insurance reform supported by the PAL is a critical component of the health sector reform, achieving a financially viable health insurance system without sacrificing quality requires a multi-prong approachaddressing both supply and demand side issues. Inthat way, the DEMSIPP would be the right complement of the demand-side measures supportedby the PAL program. The Government approved a National Health Strategy in 2006 -to which the Bank provided feedback - and requested the Bank's support to further define and implement such a strategy. The Bank is in a unique positionto provide this support. There are few investmentpartners active inthe Croatian healthsector and those that are involved are not in a positionto provide any technical support to ensure the appropriateness of their investments. 12. The World Bank's involvement inthe health sector in Croatia includesboth lending and technical assistance. The specific nature of the investments to be financed by the DEMSIPP reflects the nature o f the engagement that the Bank has with a middle income country like Croatia, but in additionthe DEMSIPPwould provide a vehicle for continuingthe policy dialogue on broader aspects of healthsector reform. Testimony to this is the technical assistance that the Bank has providedto support various reforms. The DEMSIPP Japanese Government Financed PHRD grant has supported not only the development of DRGs but also the development of a quality assurance system, the analysis of information systems in hospitals, the sharing of best 6 There have been some successful experiences with the restructuringof hospitals that followed this path, like the case o f Estonia, where a restructuringplan was set up in 2000 with the goal of reducing the number of hospitals from 78 to 21 by 2015. Using demographic and epidemiologicalmodels the demand for health care was estimated, as well as optimal catchment areas by type o f facility, so that for a given catchment area the maximumtime limit to reachthe hospitalwould be one hour. Basedon these criteriaEstoniaidentified3 regionalhospitals for tertiary care, 4 central hospitals, 11 county hospitals, and 3 smaller hospitals. Between 1993 and 2001 the number o f hospitals went from 115 to 67, the number of beds decreased from 14,000 to 9,000, and average length of stay movedfrom 15 to 8.7 days. 4 practices from other health systems in Europe, and a preliminary analysis o f the features that should be included ina health facilities masterplan (See Box 1). Box 1: Key policy related technical assistance supported by the Japanese Government Financed PHRD preparation grant 1. Health Reform Communications Strategy: During a period of considerable political and public debate on the health reform options being discussed, the Grant supporteda public opinion survey, focus groups with the public and healthprofessionals, and the developmentof a communications strategy based on this information. 2. Development and supportfor changing the hospital payment system: The HealthInsuranceInstituteand Ministry made the political decision that they wanted to move from an input based hospital payment system to one based on the patient, adjusted for the diagnosis and severity of the case, using diagnostic related groups. At first, there was discussion about moving radically and quickly towards this approach which could have had potentiallynegativerepercussions. The Grant supporteda review of the proposedmodel, some legal advice about implementing and adapting the Australian DRG model, assistance in the translation of terms for the understanding of Croatian professionals, technical advice and support in initiating a pilot in several hospitals which allowed for the building of the systems understanding and capacity of the Croatian health insurance institute, MoHSW and health providers. A DRG based system of payment is now ready to be implemented and accepted by stakeholders. 3. Development of a plan and consensusfor the development of a Masterplan: The need for looking at ways of improving the efficiency and quality o f the hospital service delivery system has been discussed for a considerable period of time. The option for developing a Masterplan that would update the informationof the needs of the populationand internationaltrends for improved means of deliveringservices was discussed but not well understood. The Grant supported an analysis o f why and how to develop a Masterplan, including responsibilityof institutionsfor developingthis analyticaland planningcapacity. 4. Development of specific plan for developing a quality assurance, including hospital accreditation, system: The development o f a quality assurance and, specifically, a hospital accreditation system was a priority o f the MoHSW. The Grant provided advisory services, providing internationalexperience and specific support about development of such a system, includingthe legislationneeded to establish such a system and the setting up of a Quality Assurance Institute. At the time o f this document, the legislation had been enacted and the Institutewas inthe process of being founded by the MoHSW. 5. Analysis of the Emergency Medical Services System: A specific analysis of the emergency medical services, examining in particular the issues concerning the efficiency and management of the sector, was supported by the Grant and which allowed for various stakeholders to have the same information base for reaching consensus on reform solutions. Focus groups with the users and with the providers of emergency medicalserviceswere conducted in order to adapt the proposedprojectaccordingto their concernsand to plan for the necessary informationand education activities. 13. The DEMSIPP would be focusing on EMS reform and on capacity building at MoHSW for developing and managing strategic plans, some o f which could be financed with EU Funds depending on the results of the accession process. The support to EMS reform (component 1 o f the project) stems from: (i) relevance o fEMS system for providing best practice response in the a country whose economy i s partially based on tourism; (ii) contribution of efficient EMS the systems to reductions in mortality associated with heart disease and trauma, which are high in Croatia relative to the EU countries and could become a serious problem (in the case o f heart disease) as population ages; (iii) the consensusreached among major stakeholders on the needto reform EMS systems and the main features o f the reformed system; and (iv) the political and technical readiness o f the MoHSW to initiate this reform. The EMS sector has remained relatively unchanged while the PHC sector has been the subject o f various changes over the last 10 years. However the EMS reform would not take place in isolation. With support from the DEMSIPP the Government would prepare a health facilities masterplan that would set the basis 5 for structural reforms in the hospital sector (as explained in paragraph 9). The reform o f EMS will also require additional changes in the PHC sector, for example changing the financial incentives and the organizational structure so that PHC providers take on out o f hours consultations that are now channeled through the emergency system, even if they do not representreal emergencies. 14. The support to strengthen the capacity o f the MoHSW (component 2) is based on the Bank's experience in working with new EU member states and accession countries. This experience has shown that the new EU member states have beenslow intaking advantage o f EU structural funds, particularly in health, and one o f the reasons behind it i s the low capacity to prepare and implement strategic plans for the development o f health systems. There is a vast array o f activities that could be financed throughEUfunds inthe health sector, as the experience inEUmember countries shows; examples include the infrastructureinvestmentsrequiredfor the restructuring o f health care facilities, information technology upgrades, training o f human resources for health, and a variety o f e-health initiatives. However the prospects for utilization o f these funds by the health sector hinges on two factors: (i) the health authorities have to be able to raise the profile o f health care investments among various competing priorities, i.e. the "leverage" capacity o f health authorities; and (ii)the health teams must have the capacity to prepare and manage projects according to the EU grant funds guidelines. The prospects for succeeding will increase if the Ministry o f Health has the right teams in place and has advanced inthe preparation o f strategies that could be readily available when the inflow of funds begins. The Bank would provide assistance in this capacity building effort through the DEMSIPP. Improving the capacity in the Ministry o f Health to prepare and implement strategic plans i s needed irrespective o f the outcome o f the accession process, and all the examples provided here are o f strategic relevance for the health sector and will be supported by the Ministry regardless o f the source of funds usedto finance them. This component is also expected to remain flexible to allow for changing needs and priorities inthe future. C. Higher level obiectives to which the proiect contributes 15. The project is expected to contribute to various objectives as laid out in the Country Partnership Strategy (CPS).7 First, the DEMSIPP i s consistent with two overarching objectives o f the CAS: (i) sustaining macroeconomic stability - by contributing to maintaining a fiscally sustainable health sector spending; and (ii)improving the quality and efficiency in the social services -by improving the quality and efficiency o f emergency medical services, an important linchpin between primary and secondaryhertiary care services. Second, the DEMSIPP would contribute to a key cross-cutting theme of the CPS by supporting some o f the demands associated with EU accession. Even though health i s not part o f the acquis communautaire, accession to EUwill trigger a pushfor harmonizing policies inthe health sector with those o f the EU, and the project will contribute to this effort interms of aligning standards of care (inEMS) to those inthe EUcountries. The DEMSIPP also has a specific component aimed at assisting the government to design plans that could be used to leverage EU pre-accession, potential post- accession structural funds or other sources financing. 7Country Partnership Strategy (ReportNo. 44879-HR, dated August 13,2008) submittedto the Board for Discussionconcurrentwith the proposedProject. 6 16. The DEMSIPP also supports the National Health Strategy adopted by the Government in March o f 2006. The EMS reform supported by the DEMSIPP would contribute to fulfill the strategic goals laid out in the strategy (see Annex 1): (i)access; (ii)quality; (iii) effectiveness/efficiency; and (iv) economic rationality. 11. PROJECTDESCRIPTION A. Lendinginstrument 17. The DEMSIPP will be supported by a single phase Specific Investment Loan (SIL), financing investments necessary to achieve the Project's objectives, over a period o f about 4.5 years (2009 to mid-2013). The total Project costs are estimated to be EUR 92.5 million o f which about EUR 65.2 million is to be borne by the MoHSW budget and EUR 9.7 million by the health facilities in increased recurrent cost obligations. In addition, the proposed Bank financing o f the Project is EUR 18.1 million (or about US$28.3 million equivalent), including refinancing of the advance from the Project Preparation Facility (PPF) secured during preparation and financing the front-end fee. 18. A single phase SIL was chosen as the appropriate lending instrumentinconsultation with the Borrower inorder to help leverage the delivery of specific investmentsneededto achieve the change in the EMS service delivery and to develop the plans and capacities for further leverage EUGrant funds -including investmentsintechnical assistance and human capital for which it is more challengingto secure long-term budget support. The mechanisms for implementing a SIL were also best suited for the current capacity o f the MoHSW and it best matched the capacities that the MoHSW would need for eventually accessing EU structural funds. The SIL is a single phase operation given that the environment and opportunities for Croatia may be entirely different in4-5 years from now given its EUmembershipcandidacy. The financial terms o f the SIL chosenby the MinistryofFinance is basedon the country's debt management strategy. B. ProiectdeveloDmentobiectiveand key indicators 19. The Project objective is to improve the efficiency and outcomes o f the emergency medical services system and to strengthen the capacity o f the Ministry o f Health and Social Welfare to develop and implement strategic projects. As developed in more detail in Annex 3, the achievement ofthis objective will be measuredby the following indicators: 0 Improved internal efficiency demonstrated by an increase infield calls as percent of total EMScalls; 0 Increased allocative efficiency indicated through a decrease in cross-county variation o f EMS teams per capita; 0 Improved emergency care outcomes as evidenced by improved outcomes for motor vehicle accidents and ischemic heart disease cases treated by the pre-hospital ambulance service and inhospital emergency receiving areas; and 7 0 Improved capacity to prepare and implement strategic projects as measured by: (i) Number o f projects prepared by the Ministry; (ii)Instrument for Pre-Accession (IPA) Funds leveraged; and (iii) accession to the EU occurs, the percentage of the Regional if Development and Human Resource Development Funds targeted to health related investments. C. Proiectcomr>onents 20. The project includes two components: (i) Development o f Emergency Medical Services and (ii)Institutional Support to MoHSW for Strategic Planning. The objectives, sub- components, and activities for each component are described indetail inAnnex 4. Component 1: Developmentof EmergencyMedicalServices (est. EUR 90.5 million total, of which EUR 16.10millionIBRD financing) 21. This component would finance investmentsto restructure the emergency medical services in order to improve the geographical distribution of resources, responsiveness, efficiency, and quality o f services. It includes four sub-components, each addressing a specific area o f Emergency Service provision and monitoring. Namely, these are: (i)establishment of a Croatian Institute for Emergency Medical Services, which will guide EMS policy, set and monitor national guidelines and standards for EMS services in Croatia; (ii)reorganization of pre-hospital EMS, which will support the implementation of the national guidelines at the county level, upgrade pre-hospital EMS human, vehicle and equipment resources, and establish and integrate the EMS dispatch units with the national emergency system; (iii) integration of in-hospital EMS, which will support the creation of integrated EMS departments in selected hospitals and upgrade the capacity o f selected remote health centers to provide emergency services; and (iv) initiationof an emergency-relatedtelemedicineservice delivery network to improve EMS delivery on selected islands and at other remote sites through the use o f telemedicine technologies. Component 2: Institutional Support to MoHSW for Strategic Planning (est. EUR 1.9 milliontotal, ofwhich EUR 1.72 millionIBRD financing) 22. The objective of this component is twofold: (i) complement supply side reforms under to component 1 by developing restructuring plans for health care facilities and human resources; and (ii)to strengthen the capacity o f the Ministry o f Health to develop and manage projects, some o f which could be financed through EU pre-accession and accession funds. The rationale for this component stems from two observations: (i) there are significant investmentsto be done to improve the efficiency o f the health sector that require adequate planning and managerial capacity at the Ministry o f Health; and (ii) the experience innew EU member states shows that preparation of proposals and plans to make use of EU structural funds should begin as early as possible. This component includes three sub-components: (i) developingpriority programsas a basis for planning the key elements o f a health investment strategy. These elements would be usedfor advocating for the EU or other sources of funds to invest in health in such a way as to achieve a more efficient and effective health system. The elements to be supported by the 8 Project would be focused on but not limited to the development o f a health facilities masterplan, a health human resources strategy, and specific projects to harness information communication technology (ICT) to better manage the health system and deliver health services; (ii)capacity building for accessing EU funds, which would support the development of the necessary human resources and institutional capacity for accessing EU funds; and (iii)project management support for successful execution o fthe DEMSIPP. D. Lessonslearnedand reflectedinthe proiectdesign 23. There were many sources o f lessons to be considered and reflected inthe project design. Most significantly, these include the Bank's lendinghistory inCroatia and inthe Croatian health sector specifically. The proposed project would be the third health sector investment in Croatia. The Bank has supported some limitedinterventions inthe emergency medical services inCroatia previously and has supported reform o f EMS more broadly in other countries in the region. Finally, given Croatia's current path towards EU membership, the Bank has gathered some significant experience from working with the EU member states that joined in 2004 and more recently in 2007. Two critical lessons that have been reflected in the project design are as follows: The Project builds on the successful discrete investments that the Bank has previously supported inthe area o f improved EMS delivery, including the development o f an integrated emergency department in one county hospital that explicitly demonstrates the model and which has been used as a means for building stakeholder support for this reform; the improved computer aided ambulance dispatch in Zagreb; and the piloting o f the use o f telecommunication for medical consultations. The lessons for improvement learned from the previous project was to ensure that the national legislative and policy environment fully supports the service delivery reform; that the beneficiaries o f the reform should be sufficiently diverse in order to leverage broad stakeholder support; and to have a results framework with well targeted and measurable indicators. Looking at the experience of earlier EU acceding countries, it has been observed that the sectors and issues that fall mainly in the domain o f national (rather than community) policy can be neglected and, as a result, fall further behindwhat would be considered EU standards. This observation keenly applies to the health sector that is only marginally affected by the process of adopting the acquis communautaire. At the time of developing the strategic reference framework for use o f the EU structural funds, it has been realized that the health sector i s important for the contribution it can make to the cohesion and Lisbon agenda. New EU members have realized this, but their health ministrieshave not had the needed strategic project plans necessary to justify and mobilize investmentsinthe health sector. Croatia plans to use this time before EU accession to build up the capacity o f the MoHSW to be ready for the opportunities presented bythe EUmembership. E. Alternatives considered and reasonsfor reiection 24. The strategy o f the Bank's involvement in the health sector in Croatia has beendefined by three factors: (i) technical analysis in Croatia and other countries in the ECA region that the 9 confirms the presence of structural problems in the health system threatening its financial sustainability (in spite of relatively good outcomes); (ii) the need to tackle both supply and demand side aspects of health; and (iii) the complementarityof the Bank's lending instruments, where the PAL program would be supporting short term stabilization measures regulating the demand for services and investment lending would be financing investments to restructure the supply. Giventhis the mainalternativesconsideredandreasons for rejectionsare as follows: (a) N o project- Giventhe analysis of sector issues and giventhe demonstratedcommitment of the Governmenttowards this Project and the MoHSW specifically within the last year, the option ofnot pursuingthe projectwas rejected. (b) Larger share of Bank financing of total Project costs - Given the use of the Bank Loan to leverage long-term financial commitment to the implementationof key elements of the proposed reforms, the Bank could consider financing a percentage of more activities than currently planned. Inparticular, financing a certain number or percentage o f the civil works requiredto rehabilitate the hospitals for the establishment of integrated emergency departments and to finance the acquisition of ambulances are considered. At the time of this document, close before Parliament elections in November 2007, it was decided not to reconsider substantively the Loan amount proposed in the CAS progress report andto consider this optionagainwith the new Government. (c) Alternative fiduciary or disbursement arrangements- An increased use of country systems (specificallywith respect to national procurementprocedures) and/or disbursing the Loan funds based on outputs rather than specific inputs was considered. The Project i s using country systems to a large extent with project management being integrated in the Ministry departments and with financial management using the Ministry system. Given that the members of the MoHSW staff are trained in Bank procurement procedures, the MoHSW confirmed that it would be easier for them to apply Bank Guidelines inthe management of the Project. This decision can always be reconsidered ifcircumstanceschange. Additionally, disbursementsbasedoninputsis morefamiliar to the Ministry and more similar to the types o f Projects that it would execute with EU financing so disbursements basedon outputswas not further considered. (d) Alternative objectives and technical content - The main alternatives considered in project preparation were to support structural reforms in payment mechanisms to hospitals, Le. implementationof DRGs, and to finance the restructuringof hospitalsmore extensively. Both activities were initially included in project design. The former was eventually dropped as the Government decidedto advance its implementationfaster than originally planned. Some technical assistance was financed from the Japanese Government FinancedPHRD grant associatedwith the DEMSIPP, and the new payment system is now on its way to be implementedin all the acute hospitals in Croatia. As for the restructuring of hospitals, the original scope was narrowed to match the current design which includes the initial steps of such restructuring, i.e. the reforms in EMS and the healthfacilities masterplan. This approachwas favored as it became apparent that the fullrestructuringofhealthfacilities wouldbe overly ambitiousto includeit inthe project; therefore the project i s now a "catalyst" that i s expected to jump-start the overall process and leverage funds from other organizations, suchas the EIB or the EU. 10 111. IMPLEMENTATION A. Partnershiparrangements 25. The Project involves no other explicit partnership than between the Bank and Government of Croatia. Through normal bilateral relationships, the Government and the Bank will coordinate the activities o f the project with the EU given that one o f the objectives of the Project i s to support the development o f the capacity and plans to more efficiently allocate health resources and prepare for absorption o f EU funds. Both the Government and the Bank have had discussions with the European Commission (EC) delegation based in Zagreb, which has voiced support for the proposed activities included in the DEMSIPP. The Bank has also briefed and will continue to keep informed the representatives o f EU Directorates (DG Enlargement and DG Sanco) that will be responsible for working with the Croatian Ministry o f Health o f Social Welfare inthe preparation for EU accession. B. Institutionaland imr>Iementationarrangements 26. The Ministry o f Health and Social Welfare would be the agency responsible for executing the Project on behalf o f the Borrower. The MoHSW has experience in managing externally financed projects, supported by the Bank as well as other external financiers (e.g. the Council o f Europe Development Bank). It has completed previous Bank-supported projects in the healthsector and is currently implementingthe Bank-supported Social Welfare Development Project (S WDP). Therefore, the proposed implementation arrangements for the DEMSIPP will utilize the MoHSW's existing internal structure for project management and will build on and further the existing skill and expertise ofthe MoHSW staff. 27. The proposed project management arrangements are consistent with the Croatian laws and regulations on managing external financing and have been officially communicated to the Bank by the Minister of Health and Social Welfare. Specifically, the Minister of Finance is appointed as the National Coordinator, the responsibilities associated with the representative o f the Borrower. The Minister o f Health and Social Welfare is appointed as the Loan Coordinator, having the overall responsibility for the Loan's proper and successful execution. The Assistant Minister for Economic Affairs of the MoHSW is appointed as the Project Director, responsible to the Minister for ensuringthe Project execution. Finally, a Project Manager, a technical staff member from the Economic Affairs Department, has been appointed and would be responsible for day-to-day coordination o f the Project. This person would ensure that the different project team members contribute to the achievement o f the Project technically and inthe administration of project implementation, including procurement, contract administration, financial management, and monitoring and evaluation. The core Project Management Team (PMT) consists o f the Project Manager and her two colleagues that support her in the coordination and inthe procurement management underthe Project. The extended Project Management Team (or E-PMT) includes technical experts (from inside the Ministry, other national health institutions, and recognized national experts) appointed to work on the two components o f the Project and other fiduciary (procurement and financial management) staff of the Economic Affairs Department. Experience during Project preparation has shown that these management and 11 coordination arrangements are effective. The institutional arrangements are further elaborated in Annex 6. 28. FinancialManagement. The Financial Unit under the Economic Affairs Department of the MoHSW will maintain adequate financial management both for itself and the project system. The staff of the Financial Unit is found to be currently adequate, but would be further supported by the Project. The Unit will be responsible for maintaining the sound accounting and financial management system for project transactions. The project financial statements will be audited annually by auditors acceptable to the Bank, which will prepare its report from audit. The annual audited project financial statements and audit reports together with auditor's recommendations will be provided to the Bank within six months o f the end o f each fiscal year. The details o f the financial management arrangements are reflectedinAnnex 7. 29. Procurement Management. The PMT will be responsible for procurement under the Project with the necessary technical inputs from the E-PMT. The P M T has beentrained and has gained some experience in Bank procurement, mainly with execution civil works contracts, under the Social Welfare Development Project. The PMT will be provided additional training, will be supported by the field based Procurement Accredited Staff and will receive Bank prior review initially on procedures on the DEMSIPP with which they are currently less experienced (in particular Services and procurement of certain goods such as ICT systems). The details of the procurement arrangements are reflected inAnnex 8. 30. Annual ProjectPlan (APP). The PMT will prepare anAnnual Project Planincluding (i) a detailed description o f planned Project activities for the following fiscal year; (ii) and budget sources o f financing for those activities; (iii) an updated procurement plan for the Loan-financed part o f the budget; and (iv) a monitoring and evaluation plan for the DEMSIPP for the following year by July 31 o f the preceding year. The APP will be discussed by the Bank and the Project Director and PMT by September 30 before final submission o f proposed next year's annual budget to the MoF. The final version of the APP, reflecting the approved national budget, should be submittedto the Bank for the purposes o f the following year Project supervision. The APP will be useful under this project especially considering the relatively small size o f the Bank financing relative to the entire Project costs. C. MonitorinPand evaluationof outcomeshesults 31, The ResultsFramework, including the specific indicators, the data collection instruments and responsibilities has been prepared and is detailed in Annex 3. The indicators established have relied - to the largest extent possible - on data already collected by the health system. During project preparation, the collection o f some specific information for the measurement o f results (Le. response times inpre-hospital and in-hospital emergency services) has beenachieved through the use of administrative questionnaires issued by the MoHSW to the health institutions. Also, it was noted that the MoHSW did require some external support to analyze and make use o f the information. DuringProject implementation, the responsibility for collecting this kind of information will fall under the authority o f the National Institution for Emergency Medical Services (CIEMS). The Project includes both technical and material support to the CIEMS inthe establishment o f the management information system for the monitoring and control of the EMS services. In the event that the development of this information system i s delayed the effort to 12 collect the information in an ad-hoc fashion during preparation has shown that it i s possible and would require only minimal external support (technical assistance from the Institute or School o f Public Health) to continue to collect and analyze the information periodically through an administrative information request from the MoHSW. Besides the CIEMS, there are other institutions that will have information necessary for completely monitoring the results framework. These are the Instituteo f Public Health, the Croatian Health Insurance Institute, the Medical Faculties and the MoHSW itself. The data from these sources are or would be readily available according the information that these institutions routinely collect. The Coordinators o f the Technical Working Groups for the two Components will be responsible for collecting and analyzing the information and providing it to the PMT for inclusion in the semi-annual project progress reports. D. Sustainability 32. The economic and financial analyses o f the project are summarized in Annex 9. The project will generate substantial indirect benefits and some direct savings associated with EMS reform. It i s also expected that the outcomes o f the project would be sustained in the medium term, as: (i)the reform of EMS, to be supported by the Project, has been agreed with major stakeholders including members o f the main opposition parties and, therefore, it i s likely to be implemented irrespective o f how the political situation evolves; (ii) reform would create an the EMS specialty and train a large number of residents who will be able to maintain the progress in outcomes over time; and (iii)the reform would be accompanied by the passing o f enabling legislation, which should provide a sustainable basis for further implementation even after the DEMSIPP is completed. E. Critical risksand possible controversial aspects 33. The project has been designed in a way that minimizes the presence o f controversial aspects. The EMS reform proposal has been the result o f an iterative process and consultations with major stakeholders. As usual, the implementation o f investments will require reaching additional consensus on certain policies, but extensive discussions with hospital directors, medical doctors working on emergency services, focus groups analysis o f patients and doctors, opposition parties, and MoHSW officials show that there i s consensus on the need to reform EMS and that the investments included inthe DEMSIPP are likely to be supported irrespective o f how the political situation evolves in Croatia. In addition, the accession process to the European Union i s a driving force that has shown to unite stakeholders behind that goal, for example inthe case o f Bulgaria. 34. The Croatia Country Financial Accountability Assessment (CFAA) Report (May 2005) concludes that the level o f fiduciary risk attached to the primary elements o f Croatia's public financial management systems i s substantial. Since the date o f the report, Croatia i s taking action to improve the public financial management system. Corruption has declined in Croatia since 1999, as noted in the recent European Bank for Reconstruction and Development and World Bank study (Business Environment and EnterprisePerformance Survey, 2005). Adequate mitigation measures are incorporated in the project, and the Bank staff will closely monitor 13 performance duringthe project implementation. While the country risk i s significant, the specific corruption risk for this project as a result o f mitigation measures i s moderate. 35. The following risks and mitigation measures have been identified, but overall risk o f the project i s rated as "Moderate". Risks Mitigation measures Major stakeholders (e.g. A long process of stakeholder consultation on the Government's physicians association) may reform strategy has been promoted to ensure acceptance of the goals oppose changes in EMS and major strategies. The technical working group that acts as Bank's reforms counterpart in design of EMS reform component has wide representation from the medical profession and MOHSW. The working group had to prepare a vision that helped go through most aspects of the reform as a way to reach consensus. The reform proposalhas been discussedwith Medical Union and has been agreed on major aspects Public opposition to proposed The first component includes activities to raise awareness about the health reform measures and needfor change and explainmainaspects of reformto the public. resistance to change Implementation capacity may The Bank team emphasized the need to have an adequate counterpart not be sufficient to handle team as a pre-conditionfor projectpreparation. The projecthas now a project implementation good technical and managerial team, including a working group for Emergency Medical Services reform, an official coordinator for the second component, a project director, and a Project manager. The team is experienced in World Bank projects. Additional training will be providedthroughthe project on EU relatedprocesses Financial Accountability The implementation and supervision arrangementsdo not completely Assessment assesses rely on use of country systems and there are mitigatingmeasures built environment as having - into the arrangements(see Annexes 7 and 8 for details) substantial risk IBRDfinancing is low The IBRD loan is financing some key investments considered "seed comparedto overall project money" and providing an instrument for dialogue with Government cost increasing risk of on completingthe additional investments. Bank team would request incomplete implementation of the project management unit to submit an Annual Project Plan major investments showing how the Bank and Government financing will result in the Project outcomes EMS reform changes not The EMS sector has remained relatively untouched while the other followed by additional changes parts of the system have been subject o f reforms. These reforms are in the rest of the system already being implemented. In addition the second component will provide the structure for planning additional reforms concomitant with the implementationof EMS reform Legislative changes neededto Most of the necessary changes have already taken place or have been support EMS reform do not agreed amongthe major stakeholders materialize isk rating: H(high); S (substantial); M (moderate); L (low) F. Loan conditions and covenants 36. There are no specific conditions of Loan Effectiveness. 37. Loan Covenants: a. The Borrower, through the MoHSW, shall take all action requiredto follow and apply at all times the provisions o f the Environmental Management Plan in a timely manner, 14 ensuringthat: (i) mitigation and monitoring measures acceptable to the Bank are designed and implementedwith due diligence and employing appropriate environmental expertise; and (ii)adequate information on the implementation of the measures contained in the EMP i s suitably includedinthe Progress Reports. b. The Borrower, through the MoHSW, will carry out the Project in accordance with the agreed Operational Manual, including updates to the Operational Manual that may from time-to-time be agreed. c. An Annual Project Plan (including the updated Project implementation plan, budget indicating source o f financing for the next Government fiscal year; updated annual procurement plan for the Bank-financed activities; and annual monitoring and evaluation plan) will be submittedto the Bank by MoHSW by September 20 o f the preceding year for discussion prior to submission o f the budget to the MoF (by end-September). The final version o f the APP should be submitted to the Bank reflecting the nationally approved budget for the purposes o f project supervision for that fiscal year. d. The training supported by the Project will be in accordance with agreed terms of reference and the trainees will be selected according to criteria described in the Operational Manual. e. The Borrower, through the PMT, will submit Project Progress Reports to the Bank, including interim un-audited financial reports for the Project covering the semester, one monthafter the endo fthe financial year semester. f. The Borrower, through the MoHSW, shall maintain an FM system acceptable to the Bank. The project financial statements, including Statement o f Expenditure (SOE) and Designated Account Statements will be audited by independent auditors and on terms o f reference acceptable to the Bank. The project annual audited financial statements and audit report will be provided to the Bank within six months o f the end o f each fiscal year. In addition, Interim Un-audited Financial Statements shall be furnished to the Bank not later than thirty days after the end o f each calendar semester. g. The Borrower, through the MoHSW, will submit a mid-termreview report by July 31, 2011; the MoHSW and the Bank will jointly conduct a mid-term assessment o f the Project progress and recommend remedial measures for ensuring the successful and timely completion o f the Project on or around September 30,201 1. IV. APPRAISAL SUMMARY A. Economic and financialanalvses 38. A detailed economic analysis for the project is contained inAnnex 9. Using information from existing studies o f EMS effectiveness in Europe and the US it was estimated that the benefits o f implementing the reform to EMS would largely outweigh the costs. The main benefits are related to the mortality reduction and increase in Disability Adjusted Life Years. The reform is expected to generate some direct savings from (i) reducing the number o f dispatch centers; (ii)integrating emergency departments in hospitals; and (iii) shifting non-emergency transportation from the EMS system to other less costly alternatives. However these direct 15 savings were not fully incorporatedinthe analysis as it i s estimated that the savings would be re- investedinthe system. B. Technical 39. The preparation o f the project draws heavily on strategic and technical documents. The Government's recently approved health strategy provides the basic framework for the reform (a summary o f the strategy i s presented in Box 2). A number o f technical reports were financed with a Japanese Government Financed PHRD grant and usedinthe preparationo fthe project: an assessment o f emergency services and recommendations to improve it; a report providing a framework for a health facilities masterplan; a focus groups analysis to survey stakeholders attitudes towards emergency services; and a quantitative analysis o f existing emergency services inthe main hospitals and health centers. A list and summary o f reports is described inBox 1- fullreportsare available inthe project files as shown inAnnex 11. C. Fiduciarv 40. Procurement Arrangements. The procurement management functions of the project will be handled by the PMT within the Economic Affairs Department o f the Ministry o f Health and Social Welfare. Procurement o f Bank-financed goods and services will follow the Bank's Guidelines and utilize the Bank's standard or sample bidding documents. The procurement management arrangements o f the MoHSW have been reviewed periodically as part o f the SWDP project supervisions and have been found to be satisfactory. The assessment of MoHSW was carried-out in October 2007 by the Procurement Accredited Staff member o f the preparation team. The procurement management assessment will be updated prior to negotiations and board presentation, 41. The procurement management arrangements o f the project are determined to be acceptable. The Project's Operational Manual was agreed duringNegotiations. 42. ProcurementRisk Assessment. The overall procurement risk for the project is rated as average. The details are provided inAnnex 8. 43. Financial Management Arrangements. The financial management (FM) functions o f the project will be handled by MoHSW, which will be responsible for the flow of funds, accounting, budgeting, reporting, and auditing. Financial Management Risk at the Project Level. The FM arrangements o f MoHSW have been reviewed periodically as part o f the on-going projects supervisions and found satisfactory. The FM arrangements for DEMSIP project were assessed to be satisfactory for the project implementation, subject to preparation o f IFRs formats before the negotiations, preparation o f FM manual before board presentation and enhancing accounting software in order to include new uses and sources o f funding be entered and also automatic generation o f IFRs enabled before the project implementation. The project's specific financial management arrangements have been included the Operational Manual developed under the new project. These describe project-specific procedures, flow o f funds, accounting policy, periodic control procedures, the agreed formats o f the project's IFRs with the deadline for their preparation, and the project' 16 No. Action Responsible Due date 1. Completing the preparation o f the project accounting software to MoHSW 12/31/2008 include new sources and uses o f funds and automatically generate IFRs D. Social 48. With regard to the overall social context, the Croatian Household Budget Survey provides a means for analyzing potential social impact of the reform. The recent Public Expenditure Review (2006) discusses health spending among different socioeconomic groups; it states that the elderly (65+ years) and households headed by the retired and disabled persons experienced relatively highper capita expenditureson health. There are also substantialregional inequities in total health spending, with the Zagreb Region spending more than twice as much per capita as the Central and Eastern Regions of the country. Unfortunately, the Household Budget Survey does not measure household utilization of health care. As a general indication of the situation, with nearly 18 specialist outpatient visits per capita in 2006 (according to HZZO data), there seems to be relatively high utilization of health services. The proposed project would influence these issues by improving the availability and quality of an essential medical service required of the entire population, but which i s more frequently required by the elderly 17 and by people with certain disabilities, without increasing the costs o f that service to be borne directly by the beneficiaries o f the service. The Project also explicitly aims to improve the regional disparities by reducing the per capita variation in the State investments in emergency medical services. The strategies that will be developed by the health facilities Masterplan would also look at ensuringappropriate geographical access to requiredhospital services. 49. Understanding that substantial change in health service delivery requires the support o f numerous and varied stakeholders, the MoHSW and the Bank have developed the proposed reform o f the EMS services through a process o f consultation and consensus with the key national bodies such as the Chamber o f Physicians, Chamber o f Nurses, and the Medical Faculties and recognized national experts in the field o f EMS. The project was also designed taking into account the feedback from a survey o f service providers (Health Centers and Hospitals). From the perspective o f the pre-hospital service providers the key issues in general order o f priority were: (i)staffing (number, qualifications, and standards); (ii)organization (service network planning, coordination with dispatch); (iii)necessary equipment (medical equipment and vehicles); (iv) reducing burden with non-emergency transport calls; and (v) necessary clinical guidelines, algorithms for emergency situations. From the perspective o f the in-hospital service providers, the key issues were: (i)the need for better working conditions (space, equipment); (ii) need for specialization in emergency medical services; (iii)organization o f the emergency department; (iv) need for improved triage, including algorithms; and (v) lack o f staff and needfor the PHC system to address the non-urgent cases. All o f these concerns were taken into consideration indeveloping the technical options and activities o f the Project. E. Environment 50. The Environmental Category rating o fthe Project is "Category B". The Project includes the rehabilitation of a limited number o f clinical and county hospitals, to establish integrated emergency departments in those facilities. However, these works are not financed by the proceeds o f the Loan. The rehabilitation o f these facilities would trigger the Environmental Safeguard given that there will be risks-albeit limitedand manageable -due to the associated dust and noise of the construction, the disposal of construction and medical waste and the risks associated with the handling o f the waste during operation (municipal, hazardous, etc.). An Environmental Management Plan for the Project has been prepared. It has been publicly disclosed by the MoHSW through their website and submitted to the Bank's Public Information Center. More specifics o f the environmental management risks and management plan are included inAnnex 10. 18 F. Safeguard policies 51. The only safeguard policy that is potentially triggered by the Project is with respect to the Environment. The specifics o f this issue are described above and inAnnex 10. Safeguard Policies Triggered by the Project Yes No EnvironmentalAssessment (OP/BP 4.01) [XI [ I Natural Habitats(OP/BP 4.04) [ I [XI PestManagement(OP 4.09) [ I [XI PhysicalCultural Resources (OP/BP 4.11) [ I [XI Involuntary Resettlement(OP/BP 4.12) [ I [XI IndigenousPeoples(OP/BP 4.10) [ I [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OP/BP 4.37) [ I [XI Projects in DisputedAreas (OP/BP 7.60)' [I [XI Projects on InternationalWaterways (OP/BP 7.50) [I [XI G. Policy Exceptions and Readiness 52. The approval and implementation of the DEMSIPP would pose no exceptions to Bank policy. 53. The following are criteria for Project readiness and the status at the time o f this document: Fiduciary (financial management and procurement) arrangements in place: The basic arrangements are in place as the Project will use the Ministry's existing capacity and experience in managing Bank supported operations. During Project preparation, it was identified that the MoHSW needs to further update its financial reporting system, for automatically generating the IFRs. It was agreed that the software for producing these reports would be updated no later than December 31, 2008. The accomplishment o f this action will be monitored by the Bank as part o f its supervision activities. Project staff and consultants mobilized: The Project Management Team o f the MoHSW, supported by teams o f officially nominated responsible technical experts i s inplace. Counterpart funds budgeted: The Project is included inthe proposed 2008 budget which was discussed and approved by the new Government before negotiations. Tender documents for the first year's procurement prepared and approved: Examples of bidding documents and specifications for some o f the major equipment items have been provided to the Project Management team o f the Ministry. Disclosure requirementsmet: Following the Decision Meeting, the appraisal PID and ISDS were disclosed by the Bank. The MoHSW will publish a GPN and will make publicly available the basics of the procurement plan once agreed at negotiations. An Environmental Management Plan was publicly disclosed by the MoHSW and made available through the Bank's Public Information Center (PIC) inNovember 2007. * By supportingtheproposedproject, the Bank does not intend toprejudice thefinal determinationojthe parties' claims on the disputed areas. 19 Results assessment completed: The results agreement is well developed and has been discussed with the technical experts of the MoHSW. There are a minimum number of baseline indicators which are not yet available and there i s a plan for collection o f that information agreed duringNegotiations. 0 K e y Project beneficiaries identified: The list o f hospitals and remote rural health centers which would receive support for the development of integrated emergency departments or general emergency capacity (in the case of the rural health centers) has been received and agreed. A PPF has been mobilized that will further identify specific issues for the beneficiaries (standards to be met, service network, means of acquiring new ambulances). 54. Based on these indicators, the readiness for implementation i s assessed as sufficient at the time of this document and plans are in place for furthering the readiness between n o w and Project effectiveness. 20 Annex 1: Countryand Sector Background CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project 55. Croatia's economy has performedrelativelywell duringthe post-war period,and its policies are now oriented towards successfully negotiating accession to the European Union. In spite of solid growth (of close to 5%) and low inflation (on average below 3%), Croatia still faces some challenges inorder to achieve a sustainable growth path and improve the welfare o f its citizens. In doing so, it remains important to reduce the size o f the state and the fiscal deficit, contributing to higher private sector productivity and competitiveness, and to improve public sector efficiency and effectiveness. Croatia still has one o f the largest public sectors in Europe -public spending i s about 48.9 percent of GDP, about 9 percentage points above new EU member states in 2007. High levels o f spending have been associated with increasing levels o f taxation, but a tax burden o f 40 percent o f GDP i s relatively high compared to new EU member states. Eventhough the economy is strong and foreign direct investment is high, inorder to reduce external vulnerabilities and increase competitiveness it is recommended that Croatia continues to pursue a policy o f fiscal consolidation with the target of achieving a balanced budget position. 56. During the last 15 years the Croatian health system has undergone significant changes, but challenges remainin terms of both efficiency and financial sustainability. The Health Care Law o f 1993 consolidated the health financing system under the Croatia Institute for Health Insurance (HZZO), which established the foundation for a social insurance model based on the principles o f solidarity and universality. The law also recognized the participation of the private sector in both the provision o f health care services and health insurance and since then private providershave grown in number. Regarding outcomes, Croatia has fared relatively well but these results have been achieved at a high cost and the health insurance fund has faced growing deficits - the stock o f arrears in Croatian hospitals has been increasing almost continuously since 2004 and now amounts to about 0.7 percent o f GDP. The generous benefits and exemptions established during the early growth years have been politically difficult to roll back and the complementary health insurance system has not accomplished its objective of modulating unnecessary demand for health care. Croatia's health sector faces a complex and inter-related set o f challenges concerning fiscal efficiency and effectiveness o f service delivery inthe face o fnationalneeds. A successful overhaul o fthe health sector to close the gap with EU member states will require a multi-prong approach with reforms on both the demand for and supply o f health services. 57. The main challenge in the medium term is maintaining and improving health outcomes while achieving a steady state level of spending consistent with a sound fiscal policy framework. This is a challenge common to most countries inEurope. Croatia is a good performer, with many health outcomes at or above the average of new EU member states. For example disability-adjusted life expectancy i s only lower than the Czech Republic and Slovenia among all the new EU member states (see Figure 1). Croatia has also one o f the lowest Standardized Death Rates associated with cervical cancer, alcohol and smoking related causes, and Motor Vehicle Accidents (MVAs), as shown in Table 1. However three observations suggest that additional actions are required to improve the functioning o f the health system: (i) the gap with the more developed EUeconomies is still large (e.g. SDR associated to MVAs is 30 21 percent higher, and SDRs related to all causes is 22 percent higher, suggesting significant room to improve outcomes); (ii)the current health outcomes are achieved at a relatively high cost for the state. (iii) upwardpressures on spending are likely to continue due to increasingtrends in the pharmaceutical spending, technological progress, and aging of the population. Public spending on pharmaceuticals increased 23 and 16 percent in nominal terms in 2003 and 2004, and continued rising throughout 2005 although at a slower rate.' As for aging, the number and proportion of elderly will increase substantially (23% of population aged 65 or more by 2025) generating new pressures on spending. Croatia spends 8.4 percent of GDP on health (2005), which is far above the 6.9 percent of GDP inthe new member states and close to the 8.8 percent spent on average by the EU15 in2004. Figure 1. Disability adjusted life expectancy (DALE) and per capita GDP (PPP adjusted) 74 * &* I $ 72 A. - a * * v Y 70 v v DALE 68 66 -- * 64 # ** 62 - 60 I GDP p.c. PPP Note: Croatian GDP adjustedfor 16% upwards at the basis of estimate of the size of the shadow economy in order to make GDP accounting method approximately comparable to Europeancountries. DALE at the basis of WHO'S 2002 estimates. GDP 2005 measured as % of EU25=100. Sample includes EU25 (without Luxembourg), Croatia, Norway, Iceland, and Switzerland. Source: World Health Report 2004, Eurostat. 8The Government implementeda reformin its pharmaceutical reimbursementpolicies in2006 that reduced spendingby 4% in2007. 22 Table 1. StandardizedDeathRates,All Ages (per 100,000), 2005 Ischemic Alcohol Smoking All Causes Vehicle Motor Circuiatory heart System ReIated Related Cancer Accidents diseases Causes Causes TB ofcervix Czech Republic 837.6 9.94 419.0 177.5 81.0 359.3 0.5 5.3 Estonia 993.6 12.7 498.2 264.2 158.3 448.6 3.4 6.8 Hungary 1015.5 12.09 502.4 261.3 129.5 490.5 2.1 6.5 Latvia 1107.2 18.18 578.7 287.0 157.2 532.2 7.3 6.6 Lithuania 1081.6 22.63 562.8 355.0 190.8 548.1 10.3 9.8 Poland" 872.0 13.02 397.0 117.6 88.3 290.0 2.1 8.1 Slovakia 945.0 10.9 508.7 268.3 90.6 414.1 0.9 6.8 Slovenia 729.4 11.78 288.0 80.2 93.8 215.7 0.7 2.7 Croatia 886.9 12.69 438.8 167.9 90.5 380.9 1.9 3.5 EU15 690.5 8.56 279.4 105.8 68.3 244.7 1.3 3.6 "2004. Source: WHO-European Health for All database (HFA-DB). 58. Although in terms of per capita spending, these health outcomes come at a comparatively moderateprice, public spending on health is more than in other countries at similar income levels in proportion to the size of the economy. Croatia's public spending of $5 10 per capita inPPP i s the median value o f the comparison group (EUnew member states). As mentioned before however, Croatia is a high spender on the aggregate. After correcting for the Croatia GDP to make it comparable across countries, spendingto GDP ratio in2005 drops to 7.4 percent, which sets Croatia in the group of top spenders on health among EU8 (like Czech Republic and Hungary) and well above the EU8 average. While health spending reached a peak in 2000 with 9.4 percent of GDP, the country has had mixed outcomes in reducing fiscal pressures associatedwith health. Table 2. TotalHealthSpendingper Capita,Selected Countries GDP per Capita ($, Total health spending Public health Total public spending PPP adjusted), 2003 (PPP$ per capita) expenditure as % o f (PPP$ per capita) total expenditure Latvia 10,270 477 64 305 Lithuania 11,702 549 73 401 Estonia 13,539 604 76 459 Poland 11,379 657 72 473 Croatia 11,080 630 84 510 Slovakia 13,494 723 89 643 Hungary 14,584 1,078 70 755 Czech R. 16,357 1,118 91 1,017 Slovenia 19,150 1,547 75 1,160 Source: WHO, European Health for All Database. 23 Figure2: GDP per capita and Public Spending on Health Germany Iceland France * h Malta* / . TL.'"')I .be, Poland Republic of Moldova Butgar' E S ~nia. Russian F eration, Ukraine Latvia. Turkmenistan ,. 0 7 n Source: WHO, ,EuropeanHealthfor All Database. 59. The instrumentscommonly used to deter excessive utilization of health services are not well established in Croatia. Croatia's co-payment share in total health expenditure is less than one percent, and widespread exemptions exacerbate the problem. The current health insurance law calls for co-payments o f 15 percent o f cost for specialized care, 25 percent for hospital accommodations for treatment o f chronic diseases, and 30 percent for accommodation in hospitals for other treatments. There are three classes of individuals however for whom co- payment regulations are not binding: first, there are many categories o f individuals for whom the government takes care o f the co-payments (for example, unemployed, students up to 26 years o f age, spouse o f deceased insured person, wartime disabled, war veterans, disabled, and farmers who are at least 65 years o f age); second, there i s an additional list for whom co-payments are exempted (for example, children under 18, voluntary blood donors, and individuals passing an income test). Finally, those with complementary health insurance do not pay co-payments as they are fully covered by that program. It is estimated that the revenues' forgone as a direct cost o f this policy amounted in2004 to about 0.4 percent o f GDP9. 9Source: Croatian Health Insurance Fund 24 Table.3: Co-payment Structure, 2004 Categories Number of users HRK million per year Insured paying individuals 1,175,562 100 Insured paying individuals with 730,000 500 complementary insurance Children below 18 913,098 Exempted from co-payments 1,584,340 779 Based on income census 884,989 378 Other categories 699,35 1 401 Total insured 4,403,000 1,379 Source: HZZO. 60. The challenges in health care provision extend to the organizational structure of inpatient and outpatient care, payment mechanisms, and the efficiency and effectiveness of emergency medical services. Closing the gap with the EuropeanUnion may require additional changes inthe supply of services in all its dimensions: restructuring of hospitals and changes in management, new financial incentives and monitoring in the hospital and primary care sectors, and a change inthe geographical distributionof emergency medical services, as described below. 61. The health delivery system based on inpatient care treatment may no longer be best suited to address the health needs of the Croatian population. Many countries are taking advantage of technological progress to shift from a system focused on hospital inpatient care with long stays to one where many proceduresare treated on an outpatient basis. Figure 3 shows that the numberof beds inCroatia -approximately 600 per 100,000 inhabitant -is inline with that found inEU15 countries, andbelow that of new member states. The reduction over time has been significant. However, many of the fixed costs observed in hospitals do not arise from the number of beds but from the needto maintain a large infrastructure and the inflexibility to adjust inputs-besides the number of beds. Reducing the numberof beds will not contribute to a large reductionincosts ifthe same numberof staff now has to care for fewer beds and ifinresponseto it hospitals increase occupancy rates. This is indeed what is being observed in Croatia, where occupancy rates are almost 90 percent, higher than any country inthe EU. Figure 3. HospitalBeds per 100,000 population(selected countries) 1985-2004 --tBulgaria :::1~~ --I--Croatia Hungary * Romania +EU members before M a y 2004 --eEUmemberssinceMay2004 0 1985 1990 1995 2000 2001 2002 2003 2004 25 62. The main inefficiency in inpatient care is the long average length of stay. Inpatient admissions are in line with EU average. However patients stay inhospitals for extended periods of time, which tends to increase spending given the payment mechanism for hospitals. The trend followed by many countries inEurope is to reduce ALOS. There was a large reduction inALOS during the 1980s and 1990s in Croatia, but inthe last three years the length of stay has remained at 11 days on average. Other countries outside Europe rely on using outpatient care as much as possible, including the development of day surgery care, resulting in a significant reduction in ALOS. Inthe US for example, ALOS i s 4.8 days and 57 percent of patients are hospitalized 3 days or less. In addition only 16 percent of patients stay in hospitals more than 8 days and almost half of all surgical interventions in the United States are now done on a same-day-in- same-day-outbasis. 63. The current payment system to hospitalsdoes not offer incentivesto contain spending. The current payment system -a mix of case-based and bed-day with volume ceilings and penalties if ceilings are exceeded- has created a motivation for a hospital to keep the beds full and extend the length of stay, since high occupancy results in steady funding and low occupancy rates increase the risk that the annual contract for the hospital would be decreased by HZZO. The current contract arrangement also makes it difficult to adjust staffing levels in response to efficiency gains. Thus, cost overruns are likely to result in the imposition of arbitrary internal controls, e.g., by restricting the use of medications or procedures rather than a response to improve productivity, such as reorganization of staffing. While volume ceilings provide for financial control inthe broader system, parallel reforms inhospital managementand realignment of the incentive structure are also necessary. The government currently sets the salaries and to a large extent the number of employees in a hospital. Additionally trade unions bargain with the government for global increases in the salaries of all workers with little room to maneuver. Therefore delaying services - or increasing arrears - seem to be the only managerial tools available to control costs. The current move towards a prospective case-adjusted payment system (DRGs) represents an important step in rationalizing incentives in the system and reducing ALOS. 64. The system still providesfew incentives to support gate keepingfunctionsof General Practitioners. Prescription quotas have proven to be ineffective and a more sophisticated standard cost controls system is required. The demand has continued to rise in recent years irrespective of measures taken prior to 2004. General practitioners are acting as points of transmission of patients towards specialists' care and hospitals, rather than filters at the entry point to the system. Recent changes inGPs paymentmechanisms may create the right incentives to contain referrals and improve quality of care, but these changes have yet to be evaluated. 26 Number of Visits to Health Specialist and Average Cost, 2002-2005 Avg. cost of outpatient Year specialist service per insured Avg. number of outpatient specialist services per insuredperson person 2002 384.02 12.86 2003 528.16 15.09 2004 594.68 16.82 2005 615.00 17.72 Source: HZZO. . -. 20 - I . . m . 1 5 - I 5 10 15 20 25 66. The EMS teams face multiple demands, both emergency and non-emergency situations. In addition to pre-hospital emergency calls, the EMS service handles a variety of services: (i)in-home visits, largelyout-of-hours non-emergencyprimary healthcare services; and (ii)operation of EMS clinics providing out-patient services and stabilization services to both the general population and patients being brought in by ambulance crews; (iii)non-emergency scheduled transportation services for such things as getting to and from kidney dialysis -there are generally dedicated crews devoted to providing this service. All of this means that "field loCatchment populationis used to recognize commuting patterns 27 calls" represent less than 10 percent o f the total patient contacts o f the EMS services in Croatia. These calls are defined as "those situations where an ambulance i s called out to an emergency in the `field' (a road traffic accident (RTA), home accident, a collapse in a street, a workplace or school accident or acute illness etc.). These situations will generally be o f an emergency nature"l1 Inother words, this represents the core business o f a pre-hospital emergency medical services system. While a certain proportion o f the other calls (home and clinic visits) represent true emergencies also, it i s estimated that the overall total emergency calls represent less than 15 percent o f the total number o f calls.12 In the end the many other activities performed by EMS teams are diverting attention away from dealing with true emergencies in an effective and efficient manner. Compared to other countries andjurisdictions, the volume o f real "emergency" calls i s quite low. While EMS call rates o f between 70 and 100 per 1,000 population are quite common, estimates in Croatia show less than 24 calls per 1,000 population annually. There i s clearly considerable scope for providing a higher level o f service to the people o f Croatia.l3 67. Croatia is behindother countries in the creation of a medicalspecialty in emergency medicine, and contrary to recent trends observed in Europe, it still maintains emergency reception areas for each of the major inpatient departments. The twin burdenso f excessive non-emergency activity inthe pre-hospital part o f the EMS service, and inefficient triage and in- hospital emergency services, limits both the efficiency and the effectiveness o f the overall system. Since the major in-patient departments currently have their own "emergency reception areas" (ERA) -which are often in different locations in the hospital- the ambulance crews must search around to find the most appropriate ERA for their patient, a complicated process in the case of those patients who needimmediate attention most urgently -those with multi-system trauma or multiple signs or symptoms. Although attribution i s problematic, it may also contribute to the higher death rates experienced inCroatia compared to other Europeancountries, especially for ischemic heart disease and motor vehicle accidents (see Table 1). Figure 5 shows that there i s a negative relationship between the number o f EMS teams by county and the mortality due to external causes o f injury and poisoning. '* Boulton,12 II G., "Advisoty Servicesfor the Reorganizationof Emergency Medical Services", June 2007, p,1 1. Ibid. D. 13Bouiion, G.op.Cit. 28 Figure 5. EMS Teams vs. External Mortality I 120 1 8 100 A 0 '\+ 0 h 5u) 80 4 n I ++ 60 + 40 I I I I I 0 5 10 15 20 25 EMS Teams/lOOOOO 68. In order to respond to these challenges the Government approved a new health strategy that includes reforms in the supply of health care services, and policies to modulate its demand. The Croatian National Health Strategy was adopted by the Government on March 22, 2006. The strategic framework i s guided by the following principles: (i) Access - territorial and to a defined packet o f services; @)Equity - anti-corruption and increased transparency measures; (iii)Effectiveness/efficiency - improvements in medical education, adoption o f EU standards for specialization verification and physician accreditation, and health facility investment masterplan for all provinces; (iv) Quality - improvements in all areas, including patient treatment, standardization o f internal organization, procedures and behaviors, and hospital categorization and accreditation system; (v) Safety - occupational safety and behaviors for medical professionals and patients; (vi) Solidarity - new forms o f solidarity and insurance in line with the demands o f cost-efficiency in the health care system; and (vii) Economic rationality of the reform - focusing on costs and impacts of any health reform measure throughout the reform process. 29 Box 2. Main componentsof the Health Strategy -Healthcare System Reform Emphasizethe role of a primaryfamily physician; - Increase investmentsin better equipment includingdiagnostic and lab equipment; - Review and categorization o fthe hospital system - Piloting and rolling-out institutionalaccreditation process; - Stricterhospitaladmissioncriteria; - Introductionof day hospitals into the system - Full normalization of the health system (e-health) enabling for a unique electronic medical patient record and integrated medical documentation to be generated, kept, updated, and shared within the system; - Enablefact-based rational nationaldrug policy; - Efficientprescriptionpolicy; - Overhaul of the emergency medical services (EMS) including: (i) developing a new policy and strategy for the out-of-hospital emergency medical services; (ii) establishing the Institute for EmergencyMedicalServices; and (iii) creating integrated in-hospitalemergency medical services; Healthcare Financing Reform (reducing public health expenditures vis-&-vis private health expenditures) - defining listofservicesnotcoveredbybasichealthinsurance; - discouragingunnecessary use of healthcare; - improving regulation of patients' direct payments through administrative fees (which should be universal except for some preventativeand chronic care services)and co-payments; - improvingregulationofcompulsoryandsupplementaryhealthinsurance; - Reducingnumberofcapitation-paymentcontractswith providersinfavor ofpay-for-serviceor per- case contracts; - Encouraging rationalization of activities through hospital specialization via categorization and accreditation, use of diagnostic and therapeutic algorithms and standardization of activities; - IntroducingDRGsforhospitalpayments; - Keepingapositivedruglistwithreferencepricingandrationalpharmacotherapyalgorithmsbasedon branchof medicine and departments; - Public Health System Reform developing public health strategy for the system and its core institutions; - ensuring regulatory harmonizationwith the EU (e.g., health surveillance system and activities, quality control, occupational safety, drug safety control); - establishing Public Health Fund to ensure targeted financing o f special health risk measures (e.g., - tobacco, alcohol) based on the "polluter pays" principle; establishingtargetededucation and accreditation programs; - Healthcareprevention 69. The recent World Bank's Public Finance Review has recommended short term stabilization measures coupled with medium term structural reforms. In order to control unnecessary demand the PFR recommended that in the short term the government increase the use of co-payments, improve targeting o f low income groups by the social protection system, replace the monthly cap for the flat co-payment (or administrative fee) by an annual one, and rationalize pharmaceutical spending; in the meantime medium-termstructural reforms should be devised and implemented, focusing on payment mechanisms to hospitals and outpatient care providers, and rationalizationo f the hospital network and hospital-based service delivery system. 70. The Government has already adopted a series of reforms to contain spending, supported by the World Bank's PAL program. Inan effort to improve the financial situation 30 of the health care system while maintaining performance a new health insurance law was approved by Parliament in 2006. The law sets a stricter benefit package by reducing the generosity of HZZO's drugs reimbursementpolicy and also limits exemptions as it redefines the eligibility criteria for some beneficiaries. The new law has strengthened income-testing of co- payment exemptions (by adjusting family and income definitions) as the first step toward gradual extension of means-testing to determine co-payment exemptions. In addition, the list of unemployed people eligible for health co-payment exemptions has been updated and made consistent with the data of the unemployment regi~try.'~Further, to control spending on drugs, the new law has introduced two drug lists: a list for essential drugs not requiring co-payments (that is, covered by the Obligatory Health Insurance), and an additional list requiring co- payments. The coverage of these drug co-payments has been eliminated from the complementary health insurance. 71. In an attemptto modulatedemand the Governmentestablished a flat administrative fee after a revisionin the healthinsurancelaw that became effectivein August 2,2005. The minimum amount charged is HRK 5 per person and there is a cap of HRK 30 per person per month. Primary health care doctors charged HRK10 for eachmedical exam performed, for each prescription issued, for each referral to specialist care, and for each referral to hospitals. Hospitals in turn charged each medical examination performed at the specialist-consultative health care without referral and each issued order for ambulance medicaltransportation. The fee was abolished in early 2008 by the new Government; additional measures to modulate demand are currently under consideration. 72. The Government has also initiated the implementation of structural reforms in payment mechanisms to providers and the supply of services. The payment mechanism for hospitals is being modernized with the introduction of Diagnostic Related Groups (DRGs), a system used-with variants -inmost Europeancountries. Rather than paying hospitals on an input basis the new payment system will pay hospitals the average cost of a case (with similar diagnoses and complicating factors). This payment system will allow HZZO to allocate hospital financing more efficiently, reduce hospital-by-hospital disparities in financing, and at the same time will create incentives for hospitals to behave more efficiently (reduce average lengths of stay and conform to cost norms) potentially controlling spending (when adequately monitored and capped). The payment mechanism is designed so that it minimizes the cost of treating a given case, but, as the international evidence shows, it also may increase the incentives for treating more cases; therefore, controlling overall spending will also require strengthening the monitoring capacity of HZZO and enforcing budget ceilings. This policy has been supportedby the World Bank through the Japanese Government Financed PHRD preparation grant for the DEMSIPP. Full implementation of hospital based payments on DRGs is expected to take place at the beginning of 2009. 73. The overhaulof EMS system is the first stage in restructuringthe supply of services. The reform to the supply of services will proceed in stages and will include the restructuring of healthcare facilities, changes inthe financing of PHC inorder to create additional incentives for gate-keeping and prevention, and reforming the EMS to improve efficiency and responsiveness. The primary objectives of the reform are (a) to address the uneven coverage of EMS services across Croatia, (b) to increase efficiency, and (c) to improve the level of care and ultimately l4About 100,000 employed people were on the list of unemployedpeople eligible for healthco-paymentexemption, since the system reliedon self-reporting. 31 patient outcomes.15 As part of project preparationthe MoHSW and the EMS community have developed a vision and a strategy to improve the situation. The main features of the vision are summarized in Box 3. The Government has asked the World Bank to assist in defining and financing the implementationplanfor this vision. The MoHSW wants to move from the current situation, depicted in Figure 6 below, to the desired one depicted in Figure 7. The pre-hospital EMS service would focus on emergency calls, with the out-patient clinic, out-of-hours non- emergency care and non-emergencytransport workload being spun off into other areas of the health system. Further, the hospitalpart of the EMS system would also be consolidated, so that there would be a single, integrated emergency department in each major hospital where both ambulances and the generalpublic would come to obtaincare inemergency situations. I sNationalHealthStrategy 2006 -2011: Basis for Accession"; Ministry of Healthand SocialWelfareofthe Republicof Croatia.Zagreb, March2006. See Box 2 for details. 32 Figure6. Current situationof EMS In-Hospital Pre-Hospital EMS System 1111111111111 Internal Medicine I I I I I I I ...... I I I I -111111111 * lip In-patient,ERA = Emergency ReceptionArea = Figure7. SituationAfter Reform In-Hospital In-patient without referral) 33 Box 3 EMS reformstrategy, vision document The reformto Emergency Medical Services in Croatiacalls for the following changes 1. Establishmentofthe NationalEMS Institute. 2. Settingup o fcounty leveldispatch systems connectedto the national emergency number 112. The caWdispatch units will be based on a county model and reduced from 83 (the number of caWdispatch units operating today) to 21 (the number of counties). 3. Setting up of medical care provisionalgorithms for physicians and nurses/medical technicians. It is envisaged that EMS would be organized so that it does not have a surgery but call/dispatchunits, while teams would be housed in adequate rented premises or in other free premises available in state institutions. Upon receiving a call, a team would head towards the site of incident, providecare to a patient at risk, and based on indications, transport himiherto a integrated hospitalemergencyadmission unit, or exceptionallyto a integrated emergency admission at a health center in cases when the nearest hospital is too far or when it would be difficult to reach a hospitaldue to scarce transport routes (islands, hilly and mountainous areas, etc.), in which case assistance in patient care can be providedat these locationsthrough the system o f telemedicine. 4. Introductionof a specializedpost-graduatetrainingcourse in emergencymedicine for physicians, who would be part of a integratedhospitalemergency admission unit, inthe duration of four or five years 5. Introduction of a specialized training course in emergency medicine for nursedmedical technicians (requirement for admission is completed professional secondary school education, three years of work in outside hospital EMS), inthe duration of one year 6. Integrated hospital emergency admission. The operations performed in emergency hospital admission would include triage, assessment of patient condition, reanimation and stabilization, if needed. A new hospital EMS system starts with patient treatment and diagnosis so that a patient is either admitted to hospitalfor treatment or is sent home to continue treatment there, depending on their health status. The new system would enable to reduce the number of unnecessary hospital admissions by means of triage and treatment, with resources being channeledtowards patients who need them most. 7. Separationof non-emergencytransport from EMS 8. Family practice physicians will carry out after-hours home visits (24 hours a day). Calls from patients will be received by dispatch units and dispatch units will decide whether it would be necessary to call the family physician to carry out the home visit. 9. Dispatch workers will in each case assess and decide whether it is necessary for family physicianto carry out a particularhome visit. 10. Introductionofcontinuingeducation for all members of EMSteams 11. Financing. Currently there are two types of financing in the existing pre-hospitalsystem: per capita financing (free-standing EMS centers) and per team financing (EMS teams, stand-by teams and teams on duty in health centers). Emergency admission units in hospitals are financed through hospital budgets and payments are based on the fee-for-service system. Emergencyunits are attachedto their respective specialized hospital departments. The new EMS system requires a new model of financing. The pre-hospital EMS will be financed through contracts with the HZZO or through the National EMS Institute. Integrated emergency admission in hospitals will be financed through a model that is going to be selected after an analysis of the existing models applied worldwide. 74. Concomitantwith the EMS reformthe Governmentwill initiatethe restructuringof health facilities and additionalchanges to provider payment mechanisms. The Government i s planning to develop a health facilities masterplan (with support from the DEMSIPP) in order to determine the optimal number and structure o f hospitals in Croatia. As explained elsewhere (see Paragraph 9) the masterplan should provide a blueprint to restructure the hospital sector in the country. This follows similar successful experiences in other European countries, like Estonia, Latvia, and Austria. The supply side reforms are related to each other and will happen 34 sequentially. During the life o f the DEMSIPP the EMS system will be reformed, separating it from PHC incounties; this will require changes inPHC, like the promotion o f group practices to increase flexibility in schedules and allow providers to take care o f out o f hours non-emergency services; it will also require introduction o f additional financial incentives for PHC providers - an analysis o f the financing for PHC providers and EMS services will be financed by the DEMSIPP. Finally the masterplan will be developed, also with support from the DEMSIPP. The masterplan will recommendnot only the location andoptimal size o f hospitals but also how to change the current structure to take advantage o f technology advances that promote day surgery and outpatient care, adapt some health facilities to long term care, and how to change management to potentially merge facilities and improve accountability. It is likely that the reforms recommended by the masterplan will take place after the DEMSIPP (as an example, the hospital masterplan inEstoniacontains restructuringplans for the period 2000-2015). 35 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project World BankPortfolio 75. The Second Programmatic Adjustment Loan (FY07, US$ 197.4 million) for Croatia includes measures to enhance fiscal sustainability o f health financing by improving efficiency and reducing drug and hospital expenditures. As part o f PAL-2 a new Health Insurance Act, reducing co-payment exemptions and limiting the complementary health insurance coverage has been enacted, and a set o f seven supplemental measures has been undertaken. The objective o f the PAL series is to enhance economic growth in Croatia through promoting macroeconomic stability (in particular fiscal adjustment) and improving the investment climate. PAL-2 was approved by the Board inMay 2007. All the health-related prior actions were completed. 76. The First Programmatic Adjustment Loan (FY05, US$ 184.9 million) for Croatia included measures to improve fiscal discipline in the health sector and health insurance. Under PAL-1, the Government prepared a policy proposal on the revision o f basic benefit package, reduction of co-payment exemptions and restructuring o f the complementary health insurance, as well as expanded the number o f generic drugs on the drug list and reduced time requiredfor drug registration inorder to reduce drug and hospital expenditures.PAL-1 was approved by the Board in September 2005. (No ICR or IEG ratings will be developed until the P A L program is complete). 77. The Health System Project (FYOO, US$29.0 million, closed in December 2005) focused on creating a more effective, efficient and financially sustainable health system through strengthening institutional capacity within the health sector, introducing pilot delivery system improvements - particularly hospital care - and a national heart disease program, strengthening public health activities, developing policy options for increasing the sector financial sustainability, improving and expanding the health information system and disposing o f outdated and unusable pharmaceuticals. As part o f the pilot in Koprivnica County, a modern integrated emergency department in the County Hospital has been established and extensive training in terms o f the running and operating an emergency department has been provided. Koprivnica Hospital emergency department has served as the role model for the reorganization o f the emergency medical services planned under the proposed project. The Project also supported the technological development for Computer Aided Dispatch in Zagreb and the initiating telemedicine pilots for improving service delivery in remote locations. (ICR outcome rating was moderately satisfactory; IEG project outcome rating was moderately unsatisfactory, mainly due to the inability to adequately monitor the agreed results framework and that the pilot project had not yet achieved change innational policy.) 78. The first Health Project (FY95, US$40 million, closed inDecember 1998), a post-conflict operation, supported the development o f the health insurance fund and improved the quality of the health care delivery system by providing laboratory and diagnostic equipment for primary health centers and basic equipment for hospitals and emergency services, as well as supported health promotion programs. 36 Councilof EuropeDevelopmentBank 79. The Council o f Europe Development Bank (CEDB) has financed three loans to support the reconstruction of hospitals and purchase of new medical equipment.The first loan (closed in 2004) includedrefurbishment and equipment for 10 hospitals and 4 primary health centers for a total cost o f HRK 374 million, o f which HRK 187 million was financed by CEDB. The second loan in the amount of HRK 176 million supports the reconstruction o f 11 hospitals and primary health centers and provided new medical equipment to 8 hospitals. The third loan was approved in September 2006 (to be closed in June 2010) and supports reconstruction and new medical equipment for six hospitals with a total cost o f HRK 655.4 million, 50 percent o f which is financed by CEDB. The refurbishment and equipping supported by CEDB is for the improvement of the basic physical conditions o f the hospitals and health centers and does not leverage any specific restructuringo f the service delivery. EuropeanCommission 80. The European Commission's Community Assistance for Reconstruction, Development and Stabilization (CARDS) allocated EUR 1.7 million for strengthening integrated border management o f sanitary, phytosanitary and veterinary inspections as part o f CARDS 2002 and CARDS 2003 allocations, with the CARDS 2003 project of continued support to the Border Sanitary Inspection still being implementedby the Ministry o f Health and Social Welfare. The EU funds have understandably beentargeted towards the necessary compliance with the acquis communautaire for EUaccession. 37 -0 8 sM e, L 0 9 x cc 0 m m d 0 .E .9 3 d- Y3u 0 2 x $ 0 659%2 vl 09 uz uz u z I/ U .-M 2J 0 0 0 O N N N 0 0 2 2 IC, 0 0 rc d N I m IC, 0 0 0 cr 0 x 0 0 2 gcgh - 6 u $ 6 h z m q3- 6 u u z u z u z e W 3 h u u z z m e e d m CI N c e 0 0 0 0 0 Annex 4: DetailedProjectDescription CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project 81. The project will be organized around two components, and will complement the PAL program focus on demand side interventions and policies: (i) Development o f the Emergency Medical Services; and (ii) Institutional Support for Strategic Planning. The objectives, sub- components, and activities for each component are described below. Component 1: Development of Emergency Medical Services (EUR 90.5 Million total, EUR 16.10 Million IBRD financing) 82, This component will finance investmentsto restructure the emergency medical services in order to improve the geographical allocation of resources, responsiveness, and efficiency of services. It i s organized around four sub-components, each addressing a specific area of Emergency Service provision and monitoring. 83. Sub-component 1: Establishment of a Croatian Institute for Emergency Medical Services, which would provide overall policy guidance, set national guidelines and standards for EMS services in Croatia and monitor the system. The creation of the Institute would be supported by the project, including but not necessarily be limited to: 0 the final drafting o f enablinglegislationand regulations; technical assistance to define its function, composition, and help in capacity development; 0 investmentsto furnish, rehabilitate, and equipthe premises; 0 support for the development of service targets and standards, algorithms and protocols for care. This includes developing staffing plans and standards for pre-hospital physicians, nurses, and technicians, establishing continuing medical education requirements, and setting vehicle and infrastructure standards for pre-hospital and in-hospital emergency services; and 0 technical assistance for developing a financing scheme for pre-hospital emergency care, in-hospital emergency care, and non-emergency transport services. 84. A major investment in this area, to be supported by the project, is the development o f appropriate information systems for the monitoring and improvement o f the EMS system. This would include the development o f a Trauma Registry, Injury Prevention Registry and CPR registry, as well as information systems for licensing and continuing medical education o f EMS personnel and for the review and analysis o f EMS services. This system will be used to monitor the quality andeffectiveness of the services that have beendelivered-both ina pre-hospital and in-hospital setting - and to explore areas where further changes in standards, algorithms or policy direction are needed. 85. An important element o f the overall reform program would be public information and education regarding the objectives o f the reform itself, the key changes and the expected 48 benefits, as well as issues that may affect the potential success of the reform. This public information and education will be directed both at key stakeholders and the general public, and will be financed by the project. 86. To ensure that the EMS services become more focused, but at the same time currently provided services are still covered the reform o f the EMS will also need to include complementary restructuring o f GP practices so that non-emergency care during out-of-hours can be addressed to GP physicians rather than at EMS centers or hospitals as is currently the case; and ensuring that the non-emergency transport services are available and financed, as appropriate, by regular transport providers. 87. Sub-component 2: Reorganization of pre-hospital EMS. First, this sub-component would support the implementation o f the national guidelines at the county level on service organization and standards. As part o f this, the human and capital resources will be upgradedto ensure that they are up the proposed standards, including the retraining o f EMS personnel (course costs, materials, travel, and staff replacement costs if applicable) and renewing the emergency medical vehicles feet (financing o f new emergency vehicles (ambulance Class B and C, other emergency types o f vehicles) and the updating the medical equipment in the existing fleet with new medical equipment). Second, a major change included in the reform would be the creation of dispatch centers at the local level and specifically the integration o f EMS dispatch with the 112 call centers. This will reduce the number o f locations where the dispatch is being done from 83 to not more than 25 (including 4 regional coordination centers), and will allow staff that are no longer needed for the dispatch function to be redeployed to provide additional emergency teams. The specific investmentswould include (i) the training o f dispatchers inEMS procedures, (ii) acquisition o f a priority dispatch EMS module for the computer aided the dispatch (CAD) system which is currently being tested in Split, and (iii) improvements in the communications system (Tetra), including expanding the coverage o f the system and acquiring mobile, hand-held, and fixed devices for EMS personnel to access the Tetra system. 88. Sub-component3: Integrationof in-hospitalEMS. The goal of this sub-component i s to improve responsiveness and efficiency o f emergency care in hospitals by creating integrated EMS departments in major hospitals (3 in clinical hospitals and minimum 6 and up to 13 in county hospitals). The main activities included in this sub-component are: (i)creation of emergency medical departments in hospitals, including setting up o f staffing, equipment and infrastructure standards as well as assessing needs; (ii) rehabilitation o f the selected facilities the including the designpreparation and construction supervision and the supply medical equipment to the new units; and (iii)training and re-training o f staff to work within the new emergency department environment. A necessary action in support o f this subcomponent is the development and financing of the medical specialization in emergency medicine in the medical colleges for physicians and nurses. The development o f the integrated in-hospital EMS units will be done insuch a way as to be consistent with the organization o f hospital services included inthe Masterplan(see Component 2, subcomponent 1). 89. Sub-component 4: Development of telemedicine projects to support EMS reform. The reform to the emergency medical services in Croatia includes plans to extend certain telemedicine services to the islands and other sites to allow for more quality care to be given to the islands' population and tourism visitors and for more rational decision making as to when emergencytransport from the islands should be called. The specific investmentswill include the 49 purchase and installation o f equipment packages for 5 consulting and 20 referral sites. Training and other recurrent costs will be borne by the newly formed Telemedicine Institute. Component 2: Institutional Support for Strategic Planning (EUR 1.9 Million total, EUR 1.72 Million IBRD financing) 90. The objective of this component is twofold: (i) complement supply side reforms under to component 1 by developing restructuring plans for health care facilities and human resources; and (ii)to strengthen the capacity o f the Ministry of Health to develop and manage projects, some o f which could be financed through EU pre-accession and accession funds. The rationale for this component stems from two observations: (i) there are significant investmentsto be done to improve the efficiency o f the health sector that require adequate planning and managerial capacity at the Ministry of Health; and (ii) the experience in new EU member states shows that preparation o f proposals and plans to make use o f EU structural funds should begin as early as possible.l8This component includes three sub-components as described below. 91. Sub-component 1: DevelopingPriority Programs. This sub-component would focus on developing the strategies and projects that would assist the MoHSW to advocate for investing EU funds in the health sector, and use those funds to achieve a more efficient and effective system. The premise o f this sub-component i s that there are a number o f strategic plans that should be developed in order to improve the functioning o f the health system. The implementation o f these medium term strategies i s necessary irrespective of the source of funding. However, as the plans become available, it will become easier for the MoHSW to leverage funds from EU pre-accession and accession funds, which have been used elsewhere to support health related investments. This sub-component would focus on, but not necessarily be limitedto the following activities: 0 Development o f a health facilities masterplan. Starting with an assessment o f population needs based on catchment areas, topography, epidemiological profile, population density, and other socioeconomic and demographic factors the masterplan will lay out an optimal distribution o f hospitals o f varying complexity levels and determine the gaps relative to the current infrastructure. Next it will recommend a plan to move from the current to the desired status, which would include -among others- the following aspects: (i)infrastructure and equipment needs in each hospital; (ii)options for changing the organizational model (e.g. hospital mergers, creation o f holdings, etc.); (iii)options for changing the management model (to increase accountability); and (iv) prospect for private sector participation, e.g. through PPPs. The creation o f the EMS departments in hospitals would be part of the restructuring o f the supply o f services and therefore the two components complement each other. The Ministry o f Health and Social Welfare has tasked the Instituteo f Public Health to '* A recent report by the EuropeanCommissionshows concern at the slow rate of absorption of EU funds in new EU member states. For example Poland only used 57% of its "entitlement". Lithuania (45%) and Cyprus (41%) have used the least while Slovenia (68%) and Malta (69%) made most use. While the EU8+2 use, on average, 57% of EU structuralfunds, the EU15 share is 75%. A similar situation is observed with pre-accessionfunds. For example for Phare 2005 (a pre-accession funding instrument) 90% of funds remained un-contracted two months before closure, and a high rejectionrate of tendering documentationwas observed (42%), mostly attributedto low capacity in the sector ministries. 50 provide some specific services related to the achievement o f the Masterplan. The MoHSW remains responsible for the achievement o f the Masterplan. Developing a human resources strategy for the health sector. The process would be similar to the health facilities masterplan. The current situation in terms o f availability o f human resources for health would be assessed, and based on population projections, epidemiological profile, and other characteristics, the strategy would lay out an optimal distribution, type, and skills o f various human resources for health. It would also recommend a strategy for skill development and upgrading o f existing staff, and incentives to improve the distribution and skills in understaffed areas. The Ministry o f Health and Social Welfare has tasked the Institute o f Public Health to provide some specific services related to the achievement o f the Human Resources Strategy. The MoHSW remains responsible for the development o f the Human Resources Strategy. Development o f investmentprojects ine-health infrastructure. The MoHSW has developed a strategy for the use o f information communication technology (ICT) to better manage the health system and deliver health services. Some o f the proposed activities in the strategy include (i) the establishment of electronic insurance cards to all Croatian citizens that would provide up-to-date information on their insurance status; (ii)health portals for citizens to access health information, (iii)e-prescriptions (electronic networks between doctors, pharmacists and the health insurance organization), (iv) health information systems, and (v) electronic patient records. The DEMSIPP would support the development o f specific investment plans for each o f these activities, many o f which could be financed with EU funds. Other priorities may become apparent and opportunities for developing strategic programs may be identifiedinthe course o f Project implementation which may be supported. 92. Sub-component 2: Capacity Building for Accessing EU Funds. The purpose of this sub-component i s to build the human and institutional capacity at the Ministry and the counties to apply for and making use o f pre-accession and accession funds. To accomplish this, the main activities to be funded include but are not necessarily limited to an assessment o f needs and design o f an office within the M o H to supervise planning and implementation o f programs financed with EU funds, exchange with EU peers to learn what other countries have done, and the implementation o f training for MoH, county-level and other staff in EU related investment opportunities. 93. Sub-component 3: Project Management. This sub-component would provide the MoHSW with support for the successful execution o f the DEMSIPP. It would finance training activities for the Project Management Team, the audit ifa private auditing firm i s contracted and other technical or training related investments insupport o f the Project implementation. 51 Annex 5: ProjectCosts CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project IBRD Project Cost By Component and Total Cost'' Financing % Sub-Component (EUR `000) % of Total (EUR `000) Financing 1. Development of Emergency Medical Services, of which: 90.51 97.8 16.10 90.4 a. NationalInstitutefor EMS and Standards Development 21.37 23.1 1.20 6.7 b. Re-organizationof Pre-HospitalEMS and Dispatch 27.22 29.4 6.89 38.7 c. Integrationo f In-HospitalEMS 38.72 41.9 6.44 36.1 d. Delivery of EMS by Telemedicine 3.19 3.4 1.57 8.8 2. Institutional Support for Strategic Planning, of which: 2.00 2.2 1.72 9.6 a. Strategic Plan Development 1.15 1.2 0.98 5.5 b. StrengtheningCapacity 0.63 0.7 0.51 2.9 c. Project Management Support 0.22 0.2 0.17 1.O Total Project Costs" 92.51 100.0 17.82 100.0 Refinancingo fthe PPF (P4370) 0.232` Front-end Fee 0.045 Total Financing Required 18.10 19 Costs shown are includingphysical and price contingencies. Physical contingencies are estimated as 15% of the project costs to be invested in civil works related activities. Price contingencies are estimated based of expected national inflation (3.4%, 2.6%, 2.5%, 2.3%, and 2.0%) and international inflation (2.4% for 2008 and 2.0% for each of the 4 years). Total physicaland price contingencies are estimated to be EUR 3.27 million and EUR 6.60 million respectively. 20 Identifiabletaxes and duties are EUR 14.54 million, and the total project cost, net o ftaxes, is EUR 77.97 million. Therefore, the share of project cost net oftaxes is 84%. *' Converted amount giventhat the PPFAgreement is inthe amount of US$352,000 basedon the exchange rate usedduringnegotiations. 52 Annex 6: ImplementationArrangements CROATIA: Developmentof Emergency Medical Services and InvestmentPlanning Project 94. The Ministry o f Health and Social Welfare would be the agency responsible for executing the Project on behalf o f the Borrower. The MoHSW has experience in managing externally financed projects, supported by the Bank as well as other external financiers (Le. the Council o f Europe Development Bank). It has completed previous Bank-supported projects in the healthsector and is currently implementingthe Bank-supportedSocial Welfare Development Project (SWDP). Therefore, the proposed implementation arrangements for the DEMSIPP will utilize the MoHSW's existing internal structure for project management and will build on and further the existing skill and expertise o f the MoHSW staff. N o self-standing or segregated Project Implementation Unit would be established or utilized for the management o f this Project. 95. The proposed project management arrangements are consistent with the Croatian laws and regulations on managing external financing and have been officially communicated to the Bank by the Minister o f Health and Social Welfare.22 Specifically, the Minister o f Finance is appointed as the National Coordinator, the responsibilities associated with the representative of the Borrower. The Minister o f Health and Social Welfare is appointed as the Loan Coordinator, having the overall responsibility for the Loan's proper and successful execution.23 The Assistant Minister for Economic Affairs of the MoHSW is appointed as the Project Director, responsible to the Minister for ensuring the Project execution. Finally, a Project Manager, a technical staff member from the Economic Affairs Department, has been appointed and would be responsible for day-to-day coordination o f the Project ensuring that the different project team members contribute to achieving the objectives of the Project technically and in the administration of project implementation, including procurement, contract administration, financial management, and monitoring and evaluation. The core Project Management Team (PMT) consists o f the Project Manager and her colleagues that support her in the coordination and in the procurement management under the Project. The extended Project Management Team (or E-PMT) includes technical experts (from inside the Ministry, other national health institutions, and recognized national experts) appointed to work on the two components of the Project and other fiduciary (procurement and financial management) staff o f the Economic Affairs Department. Experience during Project preparation has shown that these management and coordination arrangements are effective. More details on the Terms o f Reference o f the various extended Project Management Team members will be includedinthe Project Operational Manual. 22Letter dated May 11, 2007 from the Minister of Healthto the Bank's Country Director for Croatia indicatingthe Project Management appointments for the Health Project are pursuant to the Act on the System of the Implementation of the EUPrograms and the System of Implementationo f Projects Financedfrom Loans and Grants from Other Foreign Sources, enacted by the Parliament of the Republic o f Croatia on May 18, 2006 (Official Gazette 58/2007) and the Decree on the Activities of Management of the System and Supervision of the Implementation of the Projects Financed from Loans and Grants Provided to the Republic of Croatia for Other Foreign Sources, adopted by the Governmentof the Republicof Croatia at the session held on March22, 2007. 23As agreed in the working relationship between the Bank and the MoHSW, in the event that the Minister is unavailable, the Bank discusses the higher level Project issues with the State Secretary o f the Ministry as well as with the Project Director. 53 96. The extendedProject Management Team includes the members of two technical Working Groups - one for each o f the two Project components - which have been or are inthe process o f being established. The Working Group for Emergency Medical Services reform is led by the Deputy Minister responsible for Medical Affairs. He has appointed a technical expert from his department to work as the day-to-day coordinator. The Working Group includes experts from the Ministry, the Croatian Health Insurance Institute, the Telemedicine Institute, and recognized national experts in the field o f emergency medical services. The Working Group for EU- Oriented Strategic Planning i s led by the State Secretary o f the Ministry as accession and e- health related activities are under his direct responsibility as well as his responsibility to the Minister for general strategic planning. There has been someone appointed to support the State Secretary in the day-to-day coordination o f this component. The Working Group members include the Institute o f Public Health that will take the lead with respect to the development o f the Masterplan, the HumanResources Department ofthe Ministry, the CroatianHealth Insurance Institute,and Department for Programs and Projects. With respect to those assignments that may be tasked to the Instituteo f Public Health, the MoHSW remains responsible for supervisingthat work. The Working Groups are responsible for developing and recommending to the Ministry management (leading the Working Groups) on the technical aspects o f the Project preparation and implementation. 97. Procurement Management. The PMT will be responsible for procurement under the Project with the necessary technical inputs fiom the E-PMT. The PMT has been trained and has gained some experience in Bank procurement, mainly with execution o f civil works contracts, under the Social Welfare Development Project. The PMT will be provided additional training, will be supported by the field based PAS and will receive Bank prior review initially on procedures on the DEMSIPP with which they are currently less experienced (in particular Services and procurement o f certain goods such as ICT systems). The details of the procurement management arrangements are reflected inAnnex 7 and, therefore, not further described here. 98. FinancialManagement. The Financial Unit under the Economic Affairs Department of the MoHSW will maintain adequate financial management both for itself and the project system. The staff o f the Financial Unit is currently found to be adequate, but would be further supported by the Project. The Unit will be responsible for maintaining the sound accounting and financial management system for project transactions. The project financial statements will be audited annually by auditors acceptable to the Bank, which will prepare its report from audit. The annual audited project financial statements and audit reports together with auditor's recommendations will be provided to the Bank within six months o f the end o f each fiscal year. The details of the financial management arrangements are reflected in Annex 8 and, therefore, not further described here. 99. The following key reports are planned for the purposes of supporting Project Management and facilitating discussions between the Bank and MoHSW during Project supervision. Annual Project Plan (APP). The PMT will prepare an Annual Project Plan including updated detailed description of the activities to be completed during the next fiscal year, the budget and sources o f financing for those activities, an updated procurement plan for the Bank-financed part o f the budget and a monitoring and evaluation plan for the DEMSIPP for the following year and discuss these with the Bank by September 30 o f the preceding year before submission o f proposed next year's annual budget to the MoF. The final version o f 54 the APP should be submitted to the Bank, following the approval of the national budget, for the purposes of project supervision. The APP will be useful under this project especially considering the relatively small size of the Bank financing relative to the entire Project costs. Semi-Annual Project Progress Reports (PPRs). Short progress reports will be submitted semi-annually betweenabout one month after the end of semester (i.e. July 31 for semester ending June 30 and January 31 for the semester ending December 31). The Progress Reports should highlight the main issues requiring Bank or Ministry attention and summarize accomplishments of the Project during the reporting period. The Progress Reports should be accompaniedby an attachment with an update of the Key PerformanceMonitoring Indicators of the Results Framework and be accompaniedby the InterimUn-auditedFinancial Reports. Mid-Term Review Report. A comprehensive version of the project progress report should be submitted to the Bank about 60 days prior to the Mid-Term Review date agreed between the MoHSW and the Bank. The Mid-Term Review is estimated to take place around September 30,201 1. 100. SupervisionPlans. The Bank will make extensive use of the field based operational and fiduciary staff for on-going supervision. There will be at least two official supervision missions per year. The supervision and on-going policy dialogue will be supported by short and more frequent visits by the senior international staff. 55 Annex 7: FinancialManagement and DisbursementArrangements CROATIA: Development of EmergencyMedical Services and InvestmentPlanning Project Country Issues The Croatia CFAA report (May 2005) concludes that the level o f fiduciary risk attached to Croatia's public financial management systems i s significant for the legal framework and for the institutional capacity and practices for the core financial control processes such as budgeting, treasury and cash management, accounting, financial reporting, internal control, internal audit, external audit and Parliamentary oversight. 101. Since the date o f the report, Croatia i s taking action to improve the public financial management system. For example, the authorities have, with the help o f EC, established internal audit units in all line ministries, central state organizations, and extra-budgetary funds. Their establishment i s also underway in local governments. The Law on Financial Management and Control Systems in the Public Sector has been enacted and controllers have been appointed for all line ministries. Risk Analysis 102. The overall financial management risk for the project is substantial before mitigation measures; with adequate mitigation measures agreed, the financial management residual risk i s rated moderate. The table below summarizes the financial management assessment and risk ratings o f this project: Risk Elements FM Risk Mitigating Measures FM Risk Residual - Risk INHERENT RISKS Country level. Weaknesses in the existing S Project will maintain a robustfinancial M financial accounting and management management system; use of state or private systems. Lack of trained stafl auditors and use of acceptable commercial Underdeveloped internal audit. High level of bankfor holding a Designated Account. It corruption. will be alsoperiodically audited by the State Audit Office. Entity level. Risk ofpolitical interference in M Any changes to the structure in the M entity's management and replacement of the implementing agency will require agreement management and staffing issues with IBRD. However, there is a moderate risk of changes in the staffing, purchasesfunction - (procuremeng will be closely monitored. Project level. Project relies on country S Several mitigation measures described below M systems. will help minimize the risk of misappropriation of funds andproject assets. 0VERALLINHERENT RISK S M 56 CONTROLRISKS - Budget. M Budget based onprocurement plan agreed M with the Bank and subject to MoHSW and Parliament approval together with the state budget. Accounting. Application of accounting S Project accounting system already developed M policies is hindered by lack of automatic only adjusting of the accounting software reporting module. Ministryfinancial staff prior to the Board Presentation is required. needs training in WorldBank procedures. Financial staff of the Ministry should participate in the next WorldBankfinancial management and disbursement training. - Internal Controls. Adequate controls over S Project relies on the existing internal control M the use of funds within the Ministry. The framework in MoHSW. Theproject FM internal controlprocedures should be the manual includes WorldBank specific samefor loanfunds. TheProject FM procedures and has beenfound acceptable to manual should be yet prepared. the WB.. Fundsflow M Processpart of regular FMsupervision M Simpleflow offunds, Ministry willprocess Bank Disbursement Guidelines applied, thepayments to contractors through regular trainings attended. Designated Account (loan) and through Treasury Single Account (government contribution). - Financial Reporting. S Ministry will adjust the existing system to M Reports are produced manuallyfrom excel include new project sources and uses of funds data base which can be a source of human codes and allow the system to automatically error. The existing accounting system of generate reports prior to the Board MoHSW is not able toproduce IFRs Presentation. Regular reconciliations of automatically due to lack of interface with accounting records with original the existing accounting data. documentationperformed and documented; Formats of IFRs have been agreedprior to negotiations. - Auditing M Annualproject auditperformed by M independent auditors and TOR acceptable to the Bank and review of audit reports by country FMS, The ongoingproject received a unqualified audit reportfor FY2006. OVERALL CONTROL RISK S M - OVERALL FMRISK RATING S M - H-High S - Substantial M- Moderate L-Low 57 Strengths 103. The strengthsthat provide a basis o f reliance on the project financial management system include the current experience o f MoHSW staff in implementing the previous Health Project and ongoing Social Welfare Development project and the fact that staff i s functional and ready to implementnew project based on existing experience. Weaknesses and Action Plan 104. The specific weakness identified during the assessment relates to not fully completed agenda to strengthen some areas o f financial management arrangements, including customization o f the computer software and automatic generation o f the reports. The implementation o f the new project would require update o f the accounting and reporting system (by adding another source of funding into the existing project accounting and reporting system). Therefore there i s an action that needs to be completedby the implementingentity: I No. I Action 1 ResponsibleIDue date I 1. Completingthe preparation o f the project accounting software MoHSW 12/31/2008 to includenew sources and uses of funds and automatically generate IFRs ImplementingEntities 105. The Project will be managed by the Ministry o f Health and Social Welfare by a Project Management Team working inthe Economic Affairs Department. Staffing 106. The project will utilize the existing staff in MoHSW and other implementing entities. Currently, the MoHSW has assigned staff to act as a Project Manager. Processing o f financial management matter will be done by existing staff o f the Financial Unit under the Economic Affairs Department with two staff specifically assigned for the project. The assigned financial staff has sufficient experience in the Bank financed projects. However, they would benefit by gaining more information on the use o f the World Bank specific procedures related to disbursement of funds. Therefore, it is recommended that assigned financial staff should participate in the financial management/disbursement training. It i s also advisable that assigned two financial staff responsible for contact with the World Bank should at least have readinghiting English language skills. The associated financial management risk related to staffing i s moderate. Budgetingand Planning 107. The budget for the project including loan and counterpart funding is prepared within the state budget and approved by the Parliament on annual basis. The project budget will be prepared in accordance with the procurement plan agreed with the World Bank in line with the State Budget Act and it i s integrated in the MoHSW budget. The budget i s made public in the Official Gazette after Parliament approval, normally inJanuary o f the budget year. The financial management risk associated with planning and budgetingi s assessed as moderate. 58 InformationSystems 108. The MoHSW uses Oracle based accounting software (ENEL FIN 07). For the ongoing SWDP all accounting records are kept in the software. However due to technical problems reports were prepared manually. The software vendor is currently working on finalization o f the interface enabling for automatic generation o f the reports from the existing accounting software. MoHSW will have to adjust the existing software inorder to produce IFRs automatically. It was agreed that the ENEL software will be adjusted to produce automatic IFRs for World Bank reporting purposes. System upgrade is to be implementedbefore project implementation since it lacks reporting module and a contract has already been signed to implement the module. The financial management risk associated with information systems i s substantial, before mitigation measures, due to uncompleted computerized project accounting software and possibility o f human error usingexcel data base. After mitigation measures, it i s ratedmoderate. AccountingPolicies and Procedures 109. Accounting is done on a cash basis in accordance with the Accounting Law with the modifications applicable to the budget funded organizations. 110. The project's financial statements will be prepared on a cash basis - invoices will be recognized when received and registered in a document evidence module in the accounting system, but expenditures will be recorded only after payment. The reports will be prepared in the borrower's currency, in Kuna and there will have to be a monthly reconciliation between project financial statements in Kuna and data used for Interim Un-auditedFinancial Statements (ex FMRs). The DA statement and the project Balance sheet will be preparedinboth currencies (Kuna andEuro). 111. Additional accounting policies to be applied on the project will include the following major assumptions: cash accounting as the basis for recording transactions; reporting in Kuna and EUR by disbursement categories; consolidated IFRs to be prepared for all components o f the project; and counterpart funds will be reflected inthe financial reports. 112. The MoHSW has documented its own internal control procedures in existing internal instructions and orders. The project's specific financial management arrangements have been included the Operational Manual developed under the new project. 113. The risk associated with accounting policies and procedures i s substantial before mitigation measures. After mitigation measures, it is rated moderate. Internal Controls and Internal Audit 114. The MoHSW has an appropriate set o f procedures and internal controls including authorization and segregation o f duties over the use o f the Treasury Ledger System and the Ministry'sownaccounting system. MoHSW will operate within the existing internal control framework as per the applicable Croatian legislation and will build upon its existing accounting policies, procedures and internal controls. The contracts to be financed from the project sources will be included in the procurement plan to be approved by the World Bank. MoHSW will apply procurement procedures as agreed with the World Bank. The payments are processed only when approved by Minister's Assistant MoHSW following the verification that the invoice was issued in accordance with the contract and was accompanied by an appropriate certified completion 59 certificate by the assigned authorized person or other goods received note or acknowledgement o f receipt o f the goods or services. Inline with budgetary procedures payments for each invoice must be checked with the contract and acceptance certificate, checked by the financial controller (independent from accounting department) and authorized by Minister's Assistant. The accountant can only enter the invoice into the system for the contract which was earlier activated in the system. The payments are done by the Treasury System (budget part) and from the Designated Account (loan share). In case o f the ongoing SWDP the payments were authorized and checked by the P M T and the accounting unit was processing the payments. The FM sections o f the new O M provide detailed description on the internal controls o f the project. 115. The Project Management Team would monitor and coordinate inter alia the flow of funds, maintaining project accounting, managing the cash flow liquidity of the project and preparation o f the reports and records for documentation o f the expenditures to the World Bank. 116. Internal audit i s a relatively new function within the Croatian financial management framework. The 2003 Budget Act required all ministries to establish an internal audit function reporting directly to the responsible Minister. Accordingly, the MoHSW has appointed staff members to the internal audit function, who are currently being trained by the Ministry o f Finance. Giventhe relatively limited experience o f this function, no reliance will be placed on this unit. The risk associated with the internal control andinternal audit is moderate. Reportingand Monitoring 117. Project management-oriented Interim Unaudited Financial Reports (IFRs) will be used for project monitoring and supervision and the sample formats o f these have already been agreed with the MoHSW duringassessment. 118. Assigned MoHSW finance staff will prepare consolidated Interim Unaudited Financial Reports (IFRs) for the entire project including all sources o f funding (loan and counterpart financing) and all expenditures on semiannual basis within 30 days as well as annual Project Financial Statements. 119. The basic IFRs required every 6 months will include: Sources and uses o f funds by project categories, Uses o f funds by project components, Designated Account Statement, Project progress report - contract monitoring report, Procurement report. IFRs report required for disbursementwould need additionally to include: Cash forecast for the next 6 months by project categories in currency o f the loan, Summary statement o f expenditures by categories and in currency o f the loan (Due to the unstable reporting module MoHSW will additionally attach the printouts from the system showing payments for expenditures. Such procedure will be required untilthe system is finalized and reliable.) and Designated Account reconciliation and a copy of the bank statements. The IFRsfor the on-going project are submittedon time and acceptable to the bank. The risk associated with reporting and monitoring is assessed as substantial before mitigation measures due to the incomplete computer facility to generate the IFRs automatically for the ongoing and new project and possibility o f human error using excel spreadsheets. After mitigation measures, it i s rated moderate. ExternalAudit 120. The latest Croatia CFAA (May 2005) draws attention to a number o f weaknesses in the operations o f the State Audit Office (SAO). The CFAA specifically notes that, "[the SAO's] audit opinions do not constitute positive statements o f assurance concerning the true and fair 60 nature o f the financial statements". However, the SA0 i s seeking to improve its capacity and the Bank will continue to monitor the progress o f the SA0 and may subject to agreeing adequate terms o freference, seek to place reliance upon its audit work. 121. As o fthe date of this document, the Borrower i s incompliance with its audit covenants of the Bank financed projects. In 2007 the World Bank received acceptable audit report of the Social Welfare Development Project. 122. There is the statutory requirement for SA0 to audit annually the all Ministries including MoHSW. Therefore, the audit o f the project shall be conducted by SA0 or independent private auditors acceptable to the Bank, on terms o f reference acceptable to the Bank, and procured by the implementing agency. The annual audited project financial statements will be submitted to the Bank within six months o f the end o f each fiscal year and also at the closing o f the project. The cost o f the private auditor will be financed from the proceeds o f the loan. The auditors opinion on the project financial statements for the on-going project for FY2006 was unqualified (clean). 123. The following chart identifies the audit reports that will be requiredto be submitted by the project implementation agency together withthe due date for submission. I AuditReport Due Date Project financial statements (PFS), including IF& or SOEs and Designated Within six months Account. The PFSs include sources and uses of funds by category, by o f the end o f each components and by financing source; withdrawal applications summary based on fiscal year and also IFRsor SOE, Statement o fdesignated account, notes to financial statements, and at the closing of reconciliationstatement. the project 61 be sent to the disbursement department together with the WithdrawalApplication. The recovery withdrawal applications will be supported by full IFRs including in particular Summary Statement of Expenditures (part of IFRs) showing types of expenditures with applied disbursement percentages and expressed inEUR (currency of the loan), and DesignatedAccount statement includingcopy of the Bank Statement. Due to the unstablereporting module MoHSW will additionally attach the printouts from the system showing paymentsfor expenditures. Such procedure will be required until the system is finalized and reliable. Full documentation in respect of project expenditures will be kept by MoHSW and verified by auditors on an annual basis. The risk associatedwith flow of funds and disbursement is assessedas moderate. Table 4 Allocation of Loan Proceeds and Financing Percentage Amount of the Loan Allocated Percentage of Expenditures Category (expressed in EUR) to be Financed (1) Health system goods, services 17,824,750 85% (including audit), and training (2) Refinancingof the PPF (P4370) 230,00024 Amount payable pursuant to Section 2.07 (a) of the General Conditions (3) Front-EndFee 45,250 Amount payable pursuant to Section 2.03 of this Agreement in accordancewith Section 3.01 (b) o f the General Conditions TOTAL AMOUNT 18,100,000 127. The Country Financing Parameters allow for disbursing up to 100% of Project expenditures. Indiscussionwith the MoHSW, 85% was establishedas this is the approximately the net percentage(excludingtaxes) of the total project costs; it will allow the Bank financingto leverage some national budget resources; and it lowers the overall Loan amount required to achieve the Project objectives. Financial Covenants 128. The Borrower shall maintain FM system acceptable to the Bank. The project financial statements, includingStatement of Expenses (SOEs) and DesignatedAccount Statements will be audited by independent auditors and on terms of reference acceptable to the Bank. The annual audited statements and audit report will be providedto the Bank within six months of the end of each fiscal year. 24The EUR Amount of the PPF is a conversion from the USDValue of the PPF Agreement $352,000. 62 Supervision Plan 129. As part of its project supervision missions, the Bank will conduct risk-based financial management supervisions, at appropriate intervals. During project implementation, the Bank will supervise the project's financial management arrangements in the following ways: (a) review the project's semiannual financial statements (IFRs) as well as the project's annual audited financial statements and auditor's management letter and remedial actions recommended in the auditor's Management Letters; and (b) during the Bank's on-site supervision missions, review the following key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii)disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences o f corrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist will assist in the supervision process. The first supervisionis plannedto verify that effectivenesscondition is met. 63 Annex 8: ProcurementArrangements CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project A. General 130. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, revised October 2006 and the provisions stipulated in the Loan Agreement. The general description o f various items under different expenditure category is described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed betweenthe Borrower and the Bank project team inthe Procurement Plan. The Procurement Plan will be updated in accordance with requirements for updating o f procurement plan included as an attachment to the Plan, at least annually or as requiredto reflect the actual project implementation needs and improvements ininstitutional capacity. 131. MoHSW through its Project Management Team (PMT) will follow the World Bank's anti-corruption measures and will not engage services o f firms and individuals debarred by the Bank. The list o f such debarred firms and individuals i s located at http://www.worldbank.otg/html/opr/procure/debarr.html. 132. Advertising: A General Procurement Notice (GPN) listing all main consultant contracts shall be issued on-line in UNDB, dgMarket, the national gazette Narodne novine and on the web-site o f MOHSW. Specific Procurement Notices (SPN) for International Competitive Bidding(ICB) for goods and Requests for Expressions of Interest (REoI) for consultant services contracts estimated to cost Euro 140,000 and above, will be advertised on-line in UNDB, dgMarket, the national gazette Narodne novine and in at least one widely circulated national daily newspaper or at MoHSW web-site. SPN for National Competitive Bidding (NCB) for goods contracts and (REoI) for consultant services contracts estimated to cost below Euro 140,000 and available locally shall be published in the national gazette Narodne novine and in at least one widely circulated national daily newspaper or at MoHSW web-site. The results of contract awards for consultant services will be posted on UNDB on-line and dgMarket as required under the Guidelines,and on MOHSW website. 133. Procurementof Works: It is not envisaged that the Loanwill finance works contracts. 134. Procurement of Goods: Goods procured under this project would include and are not limitedto: furniture, office equipment, and vehicles for the National and Regional Offices of the National Institute for the Emergency Medical Services (CIEMS); dispatch and communications related equipment; medical and other equipment for ambulances, integrated emergency medical services in hospitals, and remote health centers providing emergency services; a management information systemfor the CIEMS and ICT related equipment. ICB procedure will be followed for contracts estimated to cost EUR 700,000 and above. The Bank's most recent version for the SBD for Procurement o f Goods will be used for 64 procurement o f furniture, simple office equipment o f standard nature, vehicles, medical equipment, etc., and these documents are available on the Bank's website (www.worldbank.org). The Bank's most recent version o f the SBD for Supply and Installation o f Information Systems (single and two stage as relevant) shall be used for procurement o f IT and communication equipment. NCB procedure will be followed for contracts estimated to cost less than EUR 700,000. The Bank's sample NCB documents or the national biddingdocuments, satisfactory to the Bank, will be used, subject to the provisions set forth below: Procedures The public bidding method shall apply to all contracts. Invitations to bid shall be advertised in the Borrower's Official Gazette (Nurodne Novine) and in at least one widely circulated national daily newspaper or at MoHSW website, allowing a minimum o f thirty (30) days for the preparation and submission o f bids. Participation o f Government-owned Enterprises Government-owned enterprises located and operating on the Borrower's territory shall be eligible to participate in bidding only if they can establish, to the Bank's satisfaction, that they are legally and financially autonomous, operate under commercial laws and are not a dependent agency o f the Borrower's Government. Said enterprises shall be subject to the same bidand performance security requirementsas other bidders. Bidding Documents Project Implementing Entity acting as procuring entity shall use the appropriate standard bidding documents for the procurement o f goods or services, as defined in the paragraph 1.1 o f the Guidelines, which shall contain draft contract and conditions o f contract acceptable to the Bank. BidSubmission, Opening and Evaluation (1) Bids shall be submittedina single envelope containing the bidder's qualification information, technical and price bids, which shall be opened simultaneously at the public bid opening. (2) Bids shall be opened in public, immediately after the deadline for submission o f bids. The name of the bidder, the total amount o f each bid and any discounts offered shall be read aloud and recorded inthe minutes o f the public bid opening. (3) The evaluation o f bids shall be done in strict adherence to the monetarily quantifiable criteria specified in the bidding documents and a merit point system shall not be used. (4) Extension o f bid validity shall be allowed once only for not more than thirty (30) days. No further extensions should be granted without the prior approval o fthe Bank. 65 (5) Contracts shall be awarded to qualified bidders having submitted the lowest evaluated substantially responsive bid. (6) N o preference shall apply underNational Competitive Bidding. Rejection o f All Bids (1) All bids shall not be rejected and new bids solicited without the Bank's prior written concurrence. (2) When the number o f bids received is less than two, re-biddingshall not be carried out without the Bank's prior concurrence. Securities Bid securities shouldnot exceed 2% (two percent) of the estimated cost of the contract; and performance securities -- not more than 10% (ten percent). N o advance payments shall be made to contractors without a suitable advance payment security. The wording o f all such securities shall be included into the bidding documents and shall be acceptable to the Bank. 0 Shopping procedure will be used for goods and standard computer software and hardware, networks and database, estimated to cost less than EUR 70,000. Procurement will be carried out on the basis o f comparing written quotations obtained from at least three qualified suppliers and the Bank's sample format for Invitation to Quote will be used or the national document agreed with and satisfactory to the Bank. 0 Direct contracting procedure will be used for goods contracts, which the Bank agrees meet the requirementsfor Direct Contracting, may be procured inaccordance with the provisions o f paragraph 3.6 o f the Procurement Guidelines and such contracts shall be included in the Procurement Plan or its updates agreed with the Bank. 135. Selection of Consultants: The consultant services under the project will include contracts for firms and individuals for various advisory services for strengtheningcapacity of the Ministry of Health and Social Welfare and other institutions such as the CIEMS for implementingthe emergency medical services reform and for developing EU-oriented strategic project plans, such as the development of hospital master plan, human resource strategy, e-health investment plans, audit services, etc. For consultant services estimated to cost less than EUR 140,000, the short list of consultants may comprise only national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The following consultant procedures may be applicable for the project: Quality and Cost Based Selection (QCBS); Quality Based Selection (QBS), Fixed Budget Selection (FBS), Consultant Qualification (CQ); Least Cost Selection (LCS); Single Source Selection (SSS), and Individual Consultants (IC). 136. In cases where the services state-owned universities, research institutes, and/or medical institutes are required for some project specific assignments, ajustification-- inaccordance with para 1.11 of Guidelines -- would be presentedto the Bank for review on a case-by-case basis to determinethe eligibility. 137. Training: The institutions, for training, conducting seminars, and for study tours, will be selected on the basis o f analysis of the most suitable program of training offered by the 66 institutions, availability of services, the period of the training and the reasonableness of cost. Individual consultants will be contracted in accordance with IC procedures and based on comparisono f CVs to deliver the staff training under the project. 138. OperationalCosts: It is not envisagedthat the Loanwill finance any operating costs. 139. Others: It is not envisagedthat the Loan will finance any other costs. B. Assessment of the agency's capacityto implementprocurement 140. Implementingagency risk assessment. Based on the assessment of the capacity of the PMT to carry out and manage procurement the Bank determines that the overall risk for procurement is average. It is recommendedthat the procurement thresholds for procurement of contracts under the project are set in accordance with the ECA regional thresholds of February 2006. 141. Action plan for building agency's capacity. Most of the issues/risks concerning the procurement component for implementation of the project have been identified and mainly include not enough experience in World Bank procurement of goods and complex ICT systems. The Bank recommends the following actions in order to build-in and maintain strong procurementmanagementcapacity inthe implementing agency: The staff that will be involved in the project procurement will attend the one week regional training inWorld Bank procurement inSofia, Bulgaria inMay 2008. The PAS responsiblefor the project will carry out a briefprocurement training session during the project launchworkshop and on as-needed-basis. The PAS will also provide PMT team with a full set of the most recent guidelines (inEnglish and Croatian language), bidding, proposal and evaluation documentson CD andpaper. Ifneeded, inorder to get betterunderstandingofthe Bank's procurement, inparticular goods and information and communication technology (ICT), and consultant procedures, as well as the new bidding and proposal documents, it is recommendedthat the above mentioned staff attend procurement training organized either inthe training centre in ILO Turin, Italy, or by other institution within the region, or by the Bank. The website of the ILO training centre where the training program canbe found is at the following website: www.ictilo.it. The Bank will prior review the first tenders following those procedures (NCB, Shopping) that will be below the Bank's prior review threshold so that the PMT gains experience and confidence incarrying out those proceduresinaccordance with Bank requirements. As soon as the procurement plan for the project is prepared and it is clear what type of contracts will need to be procured, the assessment and the corrective measures shall be revisedto address any issues that might have occurred. C. ProcurementPlan 142. The Borrower, at appraisal, developed a Procurement Plan for the first three years of project implementation which provides the basis for the procurement methods. In the 67 procurement plan, all contracts are grouped in bid packages as much as feasible to encourage better competition. This plan has been agreed between the Borrower and the Project Team during the negotiationsand is available at the office of the PMT. It will also be available inthe Project's database and inthe Bank's external website. The ProcurementPlanwill be updatedin agreement with the Project Team annually or as required to reflect the actual project implementationneeds andimprovementsininstitutional capacity. D. Frequencyof ProcurementSupervision 143. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended that the frequency of procurement supervisionwill be at least once a year, but ad-hoc supervisionmay be carried out the Bank on a as-needed-basis. The PMT will maintain the procurementdocuments in a timely and orderly manner that will facilitate the procurementreview. Contractsnot subject to Bank's prior review will be post reviewedby the Bank's procurement specialist. At a minimum, 1 out of 10 contracts will be randomly selectedfor post review. 68 Annex 9: Economic and FinancialAnalysis CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project 144. The main focus o f the project is the restructuring o f emergency medical services in Croatia. This reform i s expected to have clear benefits for the population. Benefits would be direct - e.g. savings generated from reducing dispatch centers from 83 to 25 - and directly quantifiable, and indirect -e.g. increase in survival rates as a result o f reducing response times o f ambulances. This Annex provides a summary o f the estimated costs and benefits associated with the project. 145. The project will support (i) creation o f a National Institute for Emergency Medicine the that will set up national standards and contribute to the creation o f an emergency medicine specialty; (ii) restructuring o f pre-hospital emergency medical services; (iii) restructuring o f in- hospital emergency medical services; (iv) implementingselected telemedicine projects; and (v) capacity building at the MoH to prepare and implement strategic plans that could leverage EU funding. 146. Direct benefitso f the project would come from: 0 Separation o f emergency from non-emergency transport. As explained in Annex 1 emergency medical teams are currently taking the responsibility for non-emergency transportation for various activities, e.g. dialysis, elderly, etc. Table 5 shows that inthe city o f Zagreb for example about 62 percent o f the total call volume appears to be non-emergency transport in 2005, including the movement o f patients to and from the hospital or between hospitals, movement o f patients to and from dialysis and home visits o f a non-emergency nature.25 The use o f ambulances for non-emergent cases differs across counties. At the national level, about 27% o f ambulance runs are "un-identified". Using the available data from Zagreb EMS, and after accounting for differences increw sizes and composition, and in 25The calls classificationsystem used in Croatia includes the following types of calls: (i) Clinic - number of cases routinely attending the ambulatory clinic provided in conjunction with EMS. Some, but by no means all o f these cases will be emergencies.Detailedrecords kept by the sub-county EMS organization at Samobor confirm that from its clinic attendances (12,790) in 2006, about 24% comprised acute illnesses, accidents or road traffic accidents (RTAs) and about 9% of patients seen in the clinic were referred to hospitalfor care. The remainder of cases was satisfactorilyresolved in the primary health care setting. (ii) Home - occasionswhen the ambulance team is called to visit a patient at home as an emergency. Again not all of these cases constitute an emergency- some representthe provisionof a locum GP service, fulfilling a home visiting service. (iii) Field - Refers to those situations where an ambulance is called out to an emergency in the `field' [a roadtraffic accident (RTA), home accident, a collapse in a street, a workplace or school accident or acute illness etc.]. These situations will generally be o f an emergency nature. Samobor records confirmthat from both field and home visits about 41% were referredto hospitalfor further treatment. This seems to tie in with estimates from other centers that about 50% o f the combined field and home calls were for cases, which would normally be dealt with by GPs working in the primary health care system. (iv) Unspecified- Refers to the many items o f non-emergency `sanitary transportation' when the ambulance service is used as a `taxi' service to convey patients to and from hospital and polyclinic outpatient appointments (some of whom require an escort on medical grounds), trips for therapy and other treatments, etc. A large element of this workload is the transport of patients on regular visits to dialysis centers for treatment. One service (Rijeka) estimated its dialysis workload as high as two thirds, Zagreb estimates the workload at 50%, but the overall consensus putsthe figure at about one third of all routine `unspecified' transportjourneys. 69 materialresource use betweenemergencyand non-emergencycalls, it is estimatedthat about one third of the totalbudgetis spent on non-emergency cases. Table 5 Number of Proceduresof Ambulance Services Other Ambulance Clinic Home Field Runs Number YO Number % Number % Number % City of Zagreb 12,833 6% 48,362 24% 15,071 7?'o 126,512 62% Zagreb 72,736 64% 15,387 14% 3,394 3yo 21,643 19% Krapina-Zagorje 33,087 70% 6,085 13% 2,244 5yo 5,847 12% Sisak-Moslavina 57,490 70% 7,600 9% 2,311 3% 14,675 18% Karlovac 21,549 54% 3,024 8% 4,835 12% 10,463 26% VaraRdin 30,296 49% 6,472 10% 2,473 4% 22,724 37% Koprivnica-KriRevci 31,999 67% 3,390 7% 1,94 1 4% 10,256 22% Bjelovar-Bilogora 24,556 62% 1,342 3yo 1,192 3% 12,627 32% Primorje-Gorski Kotar 77,932 51% 14,145 9yo 10,529 7yo 49,890 33% Lika-Senj 31,482 86% 2,202 6% 862 2Yo 2,084 6% Virovitica-Podravina 36,498 74% 2,762 6Yo 444 1% 9,444 19% PoRega-Slavonia 25,359 77% 525 2Yo 2,471 8Yo 4,550 14% Slavonski Brod- Posavina 56,558 73% 5,104 7% 2,340 3yo 13,239 17% Zadar 71,242 81% 7,883 9% 1,735 2% 6,911 8% Osijek-Baranja 49,931 35% 23,424 16% 2,598 2% 66,454 47% kibenik-Knin 22,945 78% 2,248 8% 3,091 10% 1,224 4% Vukovar-Sirmium 35,920 82% 3,739 9% 1,895 4% 2,108 5% Split-Dalmatia 143,937 68% 14,106 7% 5,546 3yo 48,2 12 23% Istria 98,290 76% 8,664 7% 4,000 3yo 17,763 14% Dubrovnik-Neretva 58,469 85% 4,484 7% 1,402 2% 4,127 6% Medimurje 39,103 59% 6,882 10% 485 1% 20,081 30% Croatia 1,032,212 59% 187,830 11% 70,859 4% 470,834 27% Data Source: Croatia Health Services Year Book Reductionindispatch centers from 83 to 25. This shouldnot only improve coordinationbut reduce the necessary investment inequipment, infrastructure, etc. Creation of unified emergency departments. This will have an indirect effect as quality of care will increase (e.g. currently the emergency transportationteams have to go to different buildings where the wards are located depending on the type of emergency, which is sometimesdifficult to assess incases of multi-traumasituations). Inadditionthe overlapping on equipment and infrastructure should be reduced after the initial investment to build the unifieddepartment is implemented. Telemedicineprojects shouldreduce physical investmentsinsome areas of Croatia 147. The indirectbenefitsof the projectwould come from: Establishing uniform standards in the country. Currently there are no uniform national standards for emergency care inCroatia. This meansnot only that, absent the EMS specialty, 70 teams and doctors receive different type o f training, but also that counties have discretion in terms o f how the EMS i s organized and in terms o f number o f transport vehicles, teams, procedures, etc. Table 6 shows some indicators of access to EMS across the counties. The number of full time teams/l0000 population ranges from 0.28 in Krapina-Zagorjera to 1.55 inDubrovnik-Neretva, 1.62 in Split-Dalmatia and 1.99 inIstria. The number o f ambulances per 10,000 population ranges from 0.54 in Vukovar-Sirmium county to 3.73 in Lika-Senj county. The distribution o f number o f teams and number o f ambulances is also different. The number o f teams per ambulance is quite low in some counties, such as 0.10 in Krapina- Zagorje, 0.15 in Zadar and 0.25 in Lika-Senj. As shown in Figure 5 there is a clear relationship betweendistribution of teams and mortality. Retraining of personnel. Once the emergency medicine specialty i s established in Croatia between 50 and 120 residents will be trained annually using the new standards and best practice techniques. 0 Upgrading o f ambulances. This will involve refurbishing some o f the existing equipment and purchasing new equipment. Creation of unifiedemergency departments in25 acute hospitals Separation o f emergency from non-emergencytransport Table 6 EMS resources by counties in Croatia in 2005 Teams per Ambulances Teams per 10,000 per 10000 ambulance City of Zagreb 1.13 1.26 0.90 Zagreb 1.oo 1.71 0.58 Krapina-Zagorje 0.28 2.95 - 0.10 Sisak-Moslavina 1.19 2.54 0.47 Karlovac 0.56 2.05 0.28 VaraPtsdin 1.41 1.73 0.81 Koprivnica-KriPtsevci 0.80 1.37 0.59 Bjelovar-Bilogora 0.38 2.55 0.15 Primorje-Gorski Kotar 1.54 1.70 0.90 Lika-Senj 0.93 3.73 0.25 Virovitica-Podravina 1.07 2.78 0.38 PoFtsega-Slavonia 0.70 1.86 0.38 Slavonski Brod-Posavina 0.74 0.74 1.oo Zadar 0.43 2.90 0.15 Osijek-Baranja 1.39 1.72 0.81 kibenik-Knin 0.71 1.59 0.44 Vukovar-Sirmium 0.63 0.54 1.18 Split-Dalmatia 1.62 1.57 1.03 Istria 1.99 2.37 0.84 Dubrovnik-Neretva 1.55 2.60 0.59 Medimurje 0.68 1.01 0.67 Croatia 1.11 1.75 0.63 Data source: Croatia Health Services Yearbook and Statistics Year book 71 148. The reform measures are expected to increase quality and responsiveness of the emergency system. Various performance indicators will be used to measure progress, as described in Annex 3. Many countries have analyzed the impact of quality enhancements to EMS on survival rates. For example Pel1 et.al. analyzed the impact of reducing ambulance response times on deaths from cardiac arrest in Scotland, using data from 1991to 1998.26The study concluded that reducing response time from 14 minutes to 8 minutes for 90% of cases increases the predicted survival rate from 6% to 8%, and reducing response time to 5 minutes increases survival to 10-11%. Blackwell and Kaufman also find a positive impact on survival rates from ambulance reducing response times. The critical response time seems to be five minutes. They find that mortality risk was 1.58% for patients whose response time exceeded 5 minutes, and 0.51% for those whose response time was under 5 minutes (in a metropolitan county with populationof 620,000).27 Box 4 Assumptionsused in Cost-Benefitcalculation The following parametersare consideredrelevant in estimating the economic benefits o fthe proposedproject:the length ofthe projecthorizonand the time to impact the health ofthe population, the existing patternsof morbidity and mortality, the number of years of productivelife added as a result ofthe percentagedecrease in mortality,and the existingcost structure inthe health sector. Giventhe medium-to-long-termeffect ofthe changes, the estimates presentedinterms of reducedmorbidity, which assume aproject horizonof only 10years, are conservative. The analysis o fthe Croatia DEMSIPP uses the following assumptionsto measure the direct and indirectbenefits: Mortality reduction from improvingresponsetimes and distributionofteams See Annex 3 for targets in SDR reductions Years of life saved: 15 Labor force participation:0.652 Discountrate: 10percent 149. Table 7 shows the estimated costs and benefits associatedwith the DEMSIPP. Clearly the NPV of benefits outweigh the costs. The project costs are front-loaded due to initial investments while the benefits are back-loaded to allow for the changes to be reflected in outcomes. 26 BMJ. 2001 June 9; 322(7299): 1385-1388. 27Acad Emerg Med Volume 9, Issue4288-295 72 Table 7: Costs and Benefits from the DEMSIPP 150. As for second component, its benefits are hard to quantify. Range from aggregate (Le. facilitate absorption o f EU Funds) to sector specific (improve capacity in Ministry o f Health for planning). The implementation o f the masterplan could have enormous positive influence on quality o f services and efficiency o f spending. Financial Sustainability 151. As reflected inthe economic analysis, the implementation o f the DEMSIPP should result in some direct savings from consolidation of integrated emergency departments in 16 hospitals, reduction in the number o f dispatch centers, and replacement o f physical investments by telemedicine projects. It i s expected however that part o f these savings would be reinvested in the system. For example the non-emergency transport will require funding, albeit less than the current cost o f such transport by ambulance teams. The main direct saving will come in the medium term, when the Government starts implementing the restructuring of hospitals as recommended by the masterplan being financed through the DEMSIPP. The experience inother countries inEurope shows that substantial savings in Croatia could come from the conversion o f some acute beds and facilities to long term care and also from the introduction o f day surgery centers to implement procedures that are currently performed as inpatient. These activities would certainly improve the financial sustainability of the health sector. 152. As the project would incur inrelatively large investmentand recurrent costs early on, it is expected that it would have a negative net impact on the MoHSW budget in the period 2008- 2012. But as the indirect benefits in terms o f mortality reduction start materializing -which could also contribute to increased labor force participation- the reform could have a positive impact on Government revenues through increased taxes and social security contributions. Another positive impact on overall budget could come from improving the prospects for absorption o f EU grant funds with the support from the second component o f the DEMSIPP. This would reinforce the sustainability o fthe investmentssupported by the project. 153. Finally, using the budget data for 2006 and 2007 as an estimate it i s possible to assess the size o f the project in terms o f the overall budget o f the MoHSW. The Government has not prepared a full MTEF for the upcoming years due to the proximity o f elections, but has informed the Bank that the overall budget o f the MoHSW is expected to grow at a somewhat slower pace 73 as the previous year. Based on this assumption the estimatedproject cost for 2009 i s less than one percent of the overall budget of the Ministry of Health (cost of the project for 2009 is estimatedat HRK 152,099,799.00). Table 8 Overall Budgetof MoHSW2006-2009 2006 2007 2008 (est.) 2009 (est.) Total Budget 19,398,749,386 22,234,376,015 24,457,813,616.5 26,903,594,978.15 Recurrent 18,993,257,868 21,693,185,818 23,862,504,399.8 26,248,754,839.78 Capital 405, 491,5 18 541,190,197 595,309,2 16.7 654,840,138.37 74 Annex 10: SafeguardPolicyIssues CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project 154. The proposed Environmental Category rating o f the Project is Category B. The Project (not necessarily including the Loan proceeds) will finance the rehabilitation of a number o f clinical and county hospitals (between 8- 16), for the purposes o f establishing the integrated emergency departments in those facilities. The rehabilitation o f those health facilities triggers the Environmental Safeguard. The immediate impact on the environment especially related to reconstruction activities would be minimal. According to Croatian Laws, for the constructionheconstruction o f proposed type o f facilities, the Environmental Impact Assessment (EIA) is not necessary, which indicates that the impacts on the environment by this type of projects are limited. 155. Possible environmental issues can be clearly separated in two categories, one related to construction and other related to operation. The main type o f environmental issues that derive from the actions during construction / reconstruction are (i) dust and noise due to the demolition and construction; and (ii)disposal o f constructiodmedical waste. The one related to operation are the risks associated with handling wastes duringoperation (municipal, hazardous, etc.). 156. All these risks can be effectively dealt with, if they are recognized through this EMP in pre-designphase. Inthis project, implementationo f mitigation measures can be advised on three levels: design, constructionheconstructionand operation. These measures should be feasible and cost effective aiming at eliminating, offsetting and reducing adverse environmental impacts. The measure should not only deal with recognized risks, but should as well be used as guidance to make facilities more environmentally friendly and sustainable. 157. An Environmental Management Plan for the Project was preparedand publicly disclosed by the MoHSW through the publishing o f it on their website and by the Bank through its Public Information Center inNovember 2007. 75 Annex 11:ProjectPreparationand Supervision CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project 158. The Project preparationandproposed implementation timetable is as follows: Planned Actual PCNreview 04/11/2006 04/11/2006 Initial PID to PIC Not Available 05/01/2006 Initial ISDS to PIC Not Available 05/17/2006 Appraisal 11/19/2007 01/17/2008 Negotiations 02/11/2008 06/20/2008 BoardRVP approval 09/30/2008 Planned date of effectiveness 12/30/2008 159. Key institutions responsible for preparationof the project: 0 MinistryofHealthand SocialWelfare ofCroatia with support from the HealthInsurance Institute, Institute for Public Health, Telemedicine Institute, and representativesfrom key emergency medical centersrepresentedthrough the EMS Working Group. 0 Ministry of Finance of Croatia 0 World Bank, notably ECSHD and ECCUS departments supportedby ECSPS, LOA, LEG, ECCHR and others 160. Bank staff and consultants who worked on the project included: Name Title Unit DanielDulitzky Senior Economist andTTL since July 2006 ECSHD Shiyan Chao Senior Economist andTTL until June 2006 ECSHD Kari Hurt Operations Officer ECSHD DominicHaazen LeadHealthPolicy Specialist ECSHD IvanDrabek Operations Officer ECSHD PetraPalej ET ProgramAssistant ECCHR MarilouAbiera ProgramAssistant ECSHD Abdo Yazbeck HNP Sector Manager since July 2008 ECSHD Hermanvon Gersdorff HDCountry Sector Coordinator until Dec. 2007 ECSHD Armin Fidler HNP Sector Manager until April 2008 ECSHD Sanja Madzarevic-Sujster Sr. Country Economist ECSPE Jan Bultman Lead HealthSpecialist ECSHD Xiaohui Hou Young Professional ECSHD Antonia Viyachka ProcurementSpecialist ECSPS MariaVannari Sr. Procurement Specialist ECSPS IwonaWarzecha Sr. FinancialManagementSpecialist ECSPS 76 Name Title Unit Lamija Hadzagic Financial Management Specialist ECSPS Annaliese Viorela Voinea Financial Management Assistant (Consultant) ECSPS Natasa Vetma Operations Officer ECSSD Hannah Koilpillai Sr. Finance Officer LOAFC Egli Ilic Finance Analyst LOADM Claudia M.Pardiiias Ocaiia Sr. Counsel LEGEM 161. Bank funds expendedto date on project preparation: Bank resources: US$503,000 Trust funds: US$7,000 (AustrianTrust Fund inFY05) Total: US$510,00028 162. Estimated Approval and Supervision costs: e Remaining costs to approval: approx. US$35,000 (staff time for Board package preparation and about 1.5 trips to Croatia for the purposes of briefing the new Government on the Project) e Estimated annual supervision cost: approx. US$96,000 (standard coefficient for SIL SPN for the ECCU5 Country Unit). ** Note: The Project Preparationbudgetwas used for on-going policy dialogue inthe health sector while active project preparationwas in hiatus at various times -as the previous health sector project was completedand the PAL policy reform agenda was prioritized. Cost of project preparationsince the beginning of FY07 when active project preparationbegantotals about US$300,000. 77 Annex 12: Documents inthe ProjectFile CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project StandardProjectPreparationDocuments 1. Project Information Document (PID) at Concept -March2006 2. Integrated SafeguardsData Sheet (ISDS) at Concept-March2006 3. Project Concept Note (PCN) -May 2006 4. Project Concept Note (PCN), Minutes-May 2006 5. Project PreparationFacility -November 2007 6. Minutes of the Quality EnhancementReview Meeting-November 2007 7. Environmental ManagementPlan-November 2007 8. Project Information Document (PID) at Appraisal -November 2007 9. Integrated SafeguardsData Sheet (ISDS) at Appraisal -November 2007 MissionReports 10. Aide MCmoire, Identification - October 2004 11. Aide Memoire, Identification - May 2005 12. Aide Memoire, Identification - September 2005 13. Aide MCmoire, Identification -January 2006 14. Aide Memoire, Preparation-October 2006 15. Aide MCmoire, Preparation-March2007 16.Aide Memoire,Preparation-June 2007 17. Aide MCmoire, Pre-Appraisal- September 2007 18. Financial ManagementAssessment - September 2007 ConsultantReports(PHRD Financed) 19.HealthReform Communication Strategy (based on Japanese Government FinancedPHRD supportedpopulation survey and focus groups), July 2006 20. Review and Evaluationof the developed Diagnostic Related Group payment system model, July 2006 21, A note on the copyright of the Australian DRGclassification and ICD-IO-AM, September 2006 22. DRGBooklet No. 1: Per case payment by DRG- Some background notes for Croatian health professionals, September 2006 23. DRGBooklet No. 2: An overview of DRGsand ICD Diagnosis and Procedure Classifications, September 2006 78 24. DRGBooklet No. 3: Responding to the change to per case payment by DRG- Some background notes for hospital managers, September 2006 25. Clinical Coding for DRGimplementation inCroatia (for the training of HZZO and hospital staff trainers), November 2006 26. Report on ensuring the adequacy o f the HZZO, MoHSW, and IPH and hospital information systems for implementinga DRG-based payment system, April 2007 27. Planfor the Development o f a National HealthMaster Plan, March2007 28. Development o f a Quality Assurance and Hospital Accreditation System inCroatia (including specific plan for the development o f a Quality Assurance Agency), May 2007 29. Functional Review of the County Healthcare Information System inKoprivnica-Krizevci County, June 2007 30. Advisory Services for the Reorganizationo f Emergency Medical Services, June 2007 31. Report on focus groups with the users and providers o f Emergency Medical Services, June 2007 Other RelatedReports and Documents 32. World Bank, Croatia, Health SystemProject, ImplementationCompletion Report. June 2006. 33. Note for files (excel worksheet) with economic analysis assumptions -November 2007 79 Annex 13: Statementof Loansand Credits CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project Difference between expectedand actual Original Amount in US$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO95389 2006 District HeatingProject 29.80 0.00 0.00 0.00 0.00 30.63 0.00 0.00 PO91715 2006 AGRIC ACQUIS COHESION 30.14 0.00 0.00 0.00 0.00 32.55 0.00 0.00 PO86671 2006 EDUC SECTOR DEV PROGRAM (CRL) 85.00 0.00 0.00 0.00 0.00 85.19 7.50 0.00 PO80258 2006 SCI & TECH 40.00 0.00 0.00 0.00 0.00 38.55 1.58 0.00 PO76730 2005 SOC & ECONREC 45.68 0.00 0.00 0.00 0.00 40.41 3.27 0.00 PO71464 2005 RENEW ENERGY RES (GEF) 0.00 0.00 0.00 5.50 0.00 4.95 0.10 0.00 PO69937 2005 SOC WELF DEVT 40.00 0.00 0.00 0.00 0.00 38.42 -0.81 0.00 PO7146I 2004 ENERGY EFF (GEF) 0.00 0.00 0.00 7.00 0.00 5.54 4.65 0.00 PO65416 2004 COAST CITIES POLLUT'NCONTROL 47.54 0.00 0.00 0.00 0.00 42.35 35.22 0.00 (APL # 1) PO79978 2004 ENERGY EFF 5.00 0.00 0.00 0.00 0.00 4.88 2.60 0.00 PO43195 2004 RIJEKA GATEWAY 156.50 0.00 0.00 0.00 0.00 70.41 32.31 0.00 PO67149 2003 REAL PROP REG& CADASTRE 25.70 0.00 0.00 0.00 0.00 18.73 1.98 0.00 PO63546 2003 PENSIONSYS MVST 27.30 0.00 0.00 0.00 0.00 13.55 13.55 0.00 PO42014 2002 KARST ECOSYS CONSV (GEF) 0.00 0.00 0.00 5.07 0.00 1.38 4.10 3.62 PO65466 2001 COURT & BANKRUPTCY ADM (LIL) 5.00 0.00 0.00 0.00 0.00 1.39 1.39 1.39 PO43444 1998 MUNENV MFRA 36.30 0.00 0.00 0.00 0.00 13.06 11.94 4.04 Total: 573.96 0.00 0.00 17.57 0.00 441.99 119.38 9.05 CROATIA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars ~~ Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 Belisce 3.49 6.01 0.00 0.00 3.49 6.01 0.00 0.00 2002 Belisce 12.75 0.00 0.00 9.59 12.75 0.00 0.00 9.59 2006 Belje 50.99 0.00 0.00 0.00 50.99 0.00 0.00 0.00 I999 Croatia Capital 0.00 2.37 0.00 0.00 0.00 2.04 0.00 0.00 1999 E&S Bank 1.85 0.00 0.00 0.00 1.85 0.00 0.00 0.00 2002 E&S Bank 20.40 0.00 0.00 0.00 20.40 0.00 0.00 0.00 2005 PBZ 95.61 0.00 0.00 0.00 95.61 0.00 0.00 0.00 2004 Schwarz Group 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2000 Viktor Lenac 0.06 0.00 0.50 0.03 0.06 0.00 0.00 0.03 Total portfolio: 234.55 8.38 0.50 9.62 234.55 8.05 0.00 9.62 80 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2002 ESBankZagreb I1 0.01 0.00 0.00 0.00 2004 Viktor Lenac Exp 0.00 0.00 0.00 0.00 Total pendingcommitment: 0.01 0.00 0.00 0.00 81 Annex 14: Country at a Glance CROATIA: Developmentof EmergencyMedicalServices and InvestmentPlanning Project Europe iUpper- POVERTY and SOCIAL Central mlddie. Croatia Asla Income Development diamond' 2006 Population,mid-year(miliions) 4.4 473 599 GNIpercapIta (Atlas method, US$) 6,300 Life expectancy 4,m 5,625 GNi (Atlas method, US$ billions) 36.9 1945 3,368 Average annual growth, 899-06 T Population (%I -0.4 0.0 0.6 Laborforce (W -0.5 0.6 12 GNI Gross per w a r y M o s t recent estimate (latest year avallable, Is99.06) capita enrollment Poverty (%of populationbelownationalpovertyline) Urbanpopulation (Xoftotatpopulation) 57 64 72 Lifeexpectancyat birth(pars) 75 69 69 i Infantmortality (per IOOOlivebirths) 6 28 23 Chiidmalnutntion (%ofchildren under5) 5 7 Access to irnprovedwatersource Access to an improved water source (%ofpopulation) 0 0 92 94 Literacy(%ofpopulationage159 98 97 94 Gross primaryenrollment (%of school-age population) 94 0 4 0 7 -Croatia Male 95 0 5 0 8 Upper-middle-incomegroup Female 94 0 2 x)6 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1886 1996 2004 ZOOS Economic ratloa' GDP (US$ billions) .. 8.8 35.3 38.5 Gross capitalformation1GDP .. 7.6 30.9 313 Exports of goods andServicesIGDP .. 38.6 47.4 47.1 Trade Gross domestic savings1GDP .. 6.7 216 22.6 Gross national savingslGDP .. 0.8 23.6 22.6 Currentaccount balanceiGDP .. -7.5 4.7 -3.5 Interestpayments1GDP .. 0.5 3.1 Domestic Capital Total debtlGDP .. 20.4 69.5 savings formation Total debt SeTviceIexports , 4.7 26.0 Present valueof debt1GDP 1 87.0 Present valueof debtlexports 150.6 Indebtedness 1886-96 1996-06 2004 2005 2006-09 (averageannualgrowth) GDP -5.9 3.8 3.8 43 3 7 Croatia ~~ GDP percapita 6.0 4 2 3 6 42 4 1 Upper-middle-incomegroup ~rportsof goods andservices 6 3 5.4 ~ 46 4 2 82 STRUCTURE o f the ECONOMY 1986 1996 2004 ZOOS (%ofGDPj Agnculture a 7 72 7 0 Industry 34 3 30 3 308 Manufactunng 24 3 184 170 Services 55 0 62 5 62 2 Householdfinal consumption eqenditure 63 9 574 570 Generalgov t final consumption eqenditure 29 4 210 204 Imports of goods and services 49 5 567 55 8 1986-96 1986-06 2004 2006 (averageannualgrowfhj [Growth of export8 and Imports (Oh) Agnculture -67 -03 4 2 0 1 Industry -Q6 4 0 43 48 Manufactunng 429 41 40 48 Services -30 4 8 41 44 Householdfinal consumption expenditure 37 39 34 Generalgov't final consumption eqenditure 0 4 -0 3 08 Gross capital formation 86 35 63 I Imports of goods andservices 6 4 35 35 -Exports - 4 - l m ) O r I S Note 2005data arepreliminaryestimates This tablewas produced from the DevelopmentEconomics LDB database 'Thediamonds showfourkeyindicators inthecountry(in bo1d)comparedwithits income-groupaverage Ifdata aremissing thediamondwll be incomplete PRICES and GOVERNMENT FINANCE 1986 1996 2004 2006 Domestic prlces (%change) Consumerpnces 4.0 2 1 33 ImplicitGDP deflator 5.3 33 32 Governmenf tlnance (%of GDP,includes current grantsj Current revenue 47.2 45 3 42 0 Current budgetbalance 2.7 38 12 Overallsurplusldeficit -13 -4 1 -36 -GDP deflator -CPI TRADE 1986 1996 2004 ZOOS (US$ millions) Export and Import levels (US$ mlll.) Total eqorts (fob) 4,517 8,208 8.69 Capital goods 250 449 471 !o.ooo T Chemicals 392 909 936 15,000 Manufactures 1,806 3,824 4,06 Total imports (ctf) 7,745 6,555 6,808 10,000 Food 771 1,190 1556 Fuel andenergy 860 1987 2,046 5 000 Capital goods 1,952 5 739 5,992 I 0 00 01 03 Export pnce index(2000=720) 67 73 99 02 Import pnce tndex(2000=?JO) 67 73 B Exports IIm)OrIS Terms of trade (2000=72Oj 99 a0 O4 83 BALANCE of P A Y M E N T S 1985 1995 2004 2005 (US$ millions) !Current account balance to GDP (%) Exports of goods and services 6,972 7,828 18479 Imports of goods andsewices 9,152 20.180 20 098 Resourcebalance -2,181 -2,353 -1619 Net income -29 -772 -936 Net current transfers 802 1483 1220 Current account balance -1407 -1641 -2336 Financing items (net) 1,850 1,709 2659 Changes in net reserves -443 -68 -323 i Memo: Reserves includinggoid (US$ millions) 1,895 8,759 9 082 Conversionrate (DEC local/US$J 5 2 6 0 59 EXTERNAL DEBT and RESOURCE FLOWS 1985 1996 2004 2005 __ (US$ millions) Composition of 2004 debt (US$ mill.] Total debt outstanding and disbursed 3,830 31548 IBRD IT 856 798 IDA 0 0 0 Totaldebt service 366 5,294 IBRD 28 83 96 IDA 0 0 0 Composition of net resourceflows Official grants 31 63 Official creditors 20 9 Private credilors 265 3,718 Foreign direct investment (net inflows) 761 1,243 Portfolio equity(net inflows) 5 7 7 F World Bank program 26,988 Commitments 120 48 A . IBRO E - Bllalwal Disbursements 50 98 81 6-IDA D-Othermitilaterat F-Private Principalrepayments 20 62 70 C-IMF G . Shon-teri Net flows 29 36 n Interest payments 7 21 26 Net transfers 22 15 -15 Note This tablewas producedfromtheDevelopment Economics LDB database 8/9/06 84 Map section IBRD 33394R1 CROATIA This map was produced by the Map Design Unit of The SELECTED CITIES AND TOWNS MAIN ROADS World Bank. The boundaries, colors, denominations and any other information shown COUNTY (ZUPANIJA) CAPITALS RAILROADS on this map do not imply, on the part of The World Bank NATIONAL CAPITAL COUNTY (ZUPANIJA) BOUNDARIES Group, any judgment on the legal status of any territory, RIVERS INTERNATIONAL BOUNDARIES or any endorsement or a c c e p t a n c e o f s u c h boundaries. 14°E 15°E 16°E 17°E 18°E 19°E AUSTRIA AUSTRIA To To ZalaegerszegZalaegerszeg To To MEDIMURSKA MEDIMURSKA To To Graz Graz CakovecCakovec KaposvarKaposvar Varazdinrazdin HUNGARY HUNGAR To To VARAZDINSKA ARAZDINSKA KOPRIVNICKO- KOPRIVNICKO- Ljubljana Ljubljana KrapinaKrapina KoprivnicaKoprivnica KRIZEVACKA KRIZEVACKA KRAPINSKO-KRAPINSKO- DurdevacDurdevac To To 46°N ZAGORSKAZAGORSKA 46°N To To BajaBaja SLOVENIA SLOVENIA PecsPecs To To To To Bjelovar Bjelovar PecsPecs To To Ljubljana Ljubljana ZAGREBZAGREBZAGREBACKAZAGREBACKA Virovitica irovitica SomborSombor IvanicIvanic BJELOVARSKO-BJELOVARSKO- ZAGREBACKAZAGREBACKA GRADGRAD GradGrad BILOGORSKABILOGORSKA VIROVITICKO- VIROVITICKO- OSJECKO-OSJECKO- To To To To To To To ZAGREBZAGREB Daruvar Daruvar PODRAVSKA PODRAVSKA BARANJSKA BARANJSKA SomborSombor Trieste Trieste ieste Ljubljana Ljubljana OsijekOsijek Kupa SisakSisak KarlovacKarlovac POZESKO-SLAVONSKAPOZESKO-SLAVONSKA NasiceNasice ISTARSKA ISTARSKA RijekaRijeka Sava NovskaNovska PozegaPozega Vukovar ukovar GlinaGlina Dunay (Danube) PazinPazin Vinkovci inkovci SISACKO-MOSLAVACKA SISACKO-MOSLA ACKA SlavSlav Porec BRODSKO-BRODSKO- PRIMORSKO- PRIMORSKO- To To KARLOVACKAKARLOVACKA POSAVSKAPOSAVSKA BrodBrod VUKOVARSKO-VUKOVARSKO- Novi Sad Novi Sad GORANSKA GORANSKA SRIJEMSKA SRIJEMSKA To To DvorDvor To To To To To To PrijedorPrijedor RumaRuma 45°N StalijeStalije Krk Krk SenjSenj BihacBihac Banja Luka Banja Luka 45°N To To DobojDoboj To To To To Pula DobojDoboj Tu la Tuz OtocacOtocac To To Cres Rab BihacBihac LICKO-LICKO- JablanacJablanac SENJSKASENJSKA Una Losinj KarlobagKarlobag GospicGospic UdbinaUdbina SERBIA Pag Pag GracacGracac BOSNIA AND BOSNIA AND To To ZADARSKA ZADARSKA GlamocGlamoc ZadarZadar HERZEGOVINA HERZEGOVINA Pasman Pasman 44°N Dugi 44°N KninKnin DinaraDinara Otok (1830 m) (1830 m) Vodice odice SibenikSibenik To To SIBENSKO-SIBENSKO- SinjSinj LivnoLivno Adriatic KNINSKAKNINSKA Trogir rogir Sea SplitSplit To To ImotskiImotski MostarMostar ITALY SPLITSKO-SPLITSKO- Brac Brac DALMATINSKADALMATINSKA MakarskaMakarska To To MostarMostar Hvar Hvar 43°N Vis Vi Ploce Metkovic 43°N Korcula Korcula Peljesac Peljesac DUBROVACKO-DUBROVACKO- MONTENEGROMONTENEGRO To To NERETVANSKANERETVANSKA Mljet Mljet Trebinje rebinje Dubrovnik CROATIA Gruda To Podgorica 0 20 40 60 Kilometers 42°N 0 20 40 Miles 14°E 15°E 16°E 17°E 18°E 19°E JULY 2006