Report No. 31468-AZ Azerbaijan Health Sector Review Note (In Two Volumes) Volume I: Main Report June 30, 2005 Human Development Sector Unit Europe and Central Asia Region Document of the World Bank TABLEOFCONTENTS AZERBAIJANHEALTH SECTOR REVIEW NOTE: VOLUMEI Acknowledgements ............................................................................................................ ... 111 Acronyms and Currency Equivalents ................................................................................ iv Executive Summary ............................................................................................................ 1 Chapter 1. Introduction: Structure and Content o fthe Review .................................... 11 Chapter 2. Key Findings. Issues and Options for Reform ............................................. 13 2.1 Demography ................................................................................................ 13 2.2 Socioeconomic Context andPoverty .......................................................... 15 2.3 Health Status andUnmet HealthcareNeeds ............................................... 17 2.4 Healthcare System ...................................................................................... 24 Chapter 3. An Agenda for Health Sector Reform ......................................................... 50 3.1. The Case for Health Sector Reform............................................................. 50 3.2 Scope andPurpose o f HealthSector Reform .............................................. 50 Chapter 4. The Way Forward ....................................................................................... 58 Epilogue ............................................................................................................................ 63 Annex 1. Achievement o fMDGGoals inAzerbaijan................................................ 64 Bibliography .................................................................................................................... 67 Boxes Box 2.1. Macro-environmentalandsector-specific factors with consequences for effective healthcare stewardship ....................................................................... 26 Figures Figure 2.1. Demographic Trends inAzerbaijan .......................................................... 14 Figure2.2. Nexus o f Stakeholders inHealthcare........................................................ 27 Figure2.3. MonthlyOOP per Capita HealthExpenditureby Income Quintile,2002 ........................................................................................... 31 Figure2.4. Household Health Expenditure by Income Quintile in 10 Districts, 2003........................................................................................................... 32 i Figure 2.5. Ratio o fPlannedHealthcare Expenditures to Budget Executionby Type o fExpenditure. 2003 (%) ................................................................ 32 Figure 2.6. Inpatient Expenditures as % o f Total HealthExpenditures inSelected Countries. Latest Available Year.............................................................. 36 Figure 2.7. Availability andUse o f Inpatient Care Services inSelected Countries. 2002........................................................................................................... 40 Figure 2.8. Average Monthly HouseholdExpenditure on Medicines by Income Quintile ..................................................................................................... 47 Tables Table 2.1 Demographic Indicators. 1990-2002 ........................................................ 13 Table 2.2 Total Fertility Rate. 1990 vs.2002 ........................................................... 13 Table 2.3 15 GDPpercapita. 2003 ................................................................................ Evolution o f DependencyRatio. 1990-2003 ............................................ Table 2.4 16 Table 2.5 Life Expectancy at BirthinAzerbaijan. Selected Years. Official Data vs.World Bank Estimates ................................................................ 17 Table 2.6 Average Life Expectancy at BirthinSelected ECA Countries. Mortalityby Cause o f Death. 2002 (per 100.000 population) ..................17 SelectedYears........................................................................................... Table 2.7 18 Table 2.8 Comparisons o f IMR. U 5 M R andMalnutrition by UrbanRural. Poor/Rich and EducatecUPoorly Educated Households (% o f total) .........22 Table 2.9 Composition o f Total Health Expenditures. 2002 .................................... 29 Table 2.10 Formal and InformalPayments by Type of Service. 2004 ....................... 31 Table A-1 Azerbaijan's Prospects for Achieving the MillenniumDevelopment Goals ......................................................................................................... 64 Table A-2 Likelihood o fAchieving MillenniumDevelopment Goals inSelected Countries ................................................................................................... 66 .. 11 ACKNOWLEDGEMENTS This Sector Review Note was prepared by a team led by Enis Bang, principal author, comprising Panagiota Panopoulou (health financing), Antonio Lim (pharmaceuticals), Maria Gracheva (health status and determinants), Monique Mrazek (health financing and pharmaceuticals) and Lucia Kossarova (demand and utilization). Elvira Anadolu provided research and technical assistance. Some sections o f Volume Iand chapters in Volume I1were prepared by overlapping groups, each o f which was led by a member o f the task team. Nicole L.L aBorde provided administrative assistance. The peer reviewers were Mukesh Chawla, Lead Economist, ECSHD; Michael Borowitz, Senior Health Advisor, Open Society Institute; and Joseph Kutzin, Regional Advisor, HealthFinancing, WHO Regional Office for Europe. The team received feedback from colleagues in the Human Development Unit o f the Europe and Central Asia Region, including b i n H. Fidler and Peyvand Khaleghian. The report has also benefited from discussions with D- MDowsett-Coirolo, CountryDirector, who providedoverall guidance to the team. The preparation o f this report draws heavily on discussions and resolutions o f the National Health Conference held inBaku inDecember 2004. The authors are grateful to conference participants for their active involvement and constructive debate and criticism. Background material for the conference included reports on health policy and human resources prepared by consultants Drs. Antonio Duran and David Cochrane, respectively, which greatly facilitated identification o f key issues and options, as well as the consensus on recommendations. Survey data and reports by G&G Consulting and Westem World Consultants have also been useful in preparing the evidence base for the policy recommendations in this Note. Finally, the findings o f the Sector Note were presented and discussed at an Inter-Agency meeting attended by senior government officials inM a y 2005. The authors gratefully acknowledge the assistance provided by Dr. Azer Maharramov, Director, Project Coordination Unit o f the Health Reform Project, and his team in organizing the conference, facilitating numerous interviews and collecting background material. Assistance o f the representatives o f G&G Consulting and Westem World Consultants on survey data, analysis andreports i s also appreciated. ... 111 ACRONYMS AND CURRENCYEQUIVALENTS AIDS Acquired Immunodeficiency Syndrome ALOS average lengtho f stay AMU Azerbaijan Medical University BPMS basic package o fmedical services B S L Budget System Law CAS Country Assistance Strategy CDCL Central DrugControl Laboratory C D H Central District Hospital CEE Central and Eastern Europe CIS Commonwealth o f Independent States C o M Cabinet ofMinisters, Republic o f Azerbaijan DALY disability adjusted life years DOTS directly observed treatment, short course DPOLY district polyclinic DPT diphtheria, pertussis, tetanus DRG diagnosis-related groups E C A Europe and CentralAsia ECSHD Europe and CentralAsia HumanDevelopment Unit EDL essential druglist EU EuropeanUnion FAP Feldsher AmbulatoryPoint FDI foreign direct investment FSU former Soviet Union FSW female sex worker GDP gross domestic product GFATM Global Fundagainst AIDS, Tuberculosis and Malaria GLP good laboratory practice GMP goodmanufacturingpractice GOA Government ofAzerbaijan GTZ GermanInternationalDevelopment Agency HBS HouseholdBudget Survey HDR HumanDevelopment Report HIT Health Systems inTransition HIV HumanImmunodeficiency Virus HMO healthmaintenance organization HRP HealthReform Project, Republic o f Azerbaijan IBTA Institution Buildingand Technical Assistance project IDA InternationalDevelopment Association IDPS intemally displacedpopulations IDU injecting druguser IEC information, education, communication I M C International Medical Corps I M C I integratedmanagement o f childhood illness iv IMF International Monetary Fund IMR infantmortality rate IUD intrauterine device KAP knowledge attitude practice LBW low birthweight LICUS Low-income Countries under Stress MCH matemal and child health M&E monitoring andevaluation MDG MillenniumDevelopment Goals MDR-TB Multiple DrugResistant Tuberculosis MED Ministry o fEconomic Development, Republic o f Azerbaijan MMR matemal mortality ratio MICS Multiple Indicator Cluster Survey MLSPP Ministry o f Labor and Social Protectiono fPopulation, Republic o f Azerbaijan MOA MinistryofAgriculture, Republic ofAzerbaijan MOE Ministry o f Education, Republic ofAzerbaijan MOF MinistryofFinance, Republic o fAzerbaijan MOH Ministry o fHealth, Republic o f Azerbaijan MOI Ministry o f Interior, Republic ofAzerbaijan MOJ MinistryofJustice, Republic ofAzerbaijan MTEF medium-term expenditure framework MTPES medium-term public expenditure strategy NAR NakhchivanAutonomous Republic N C D non-communicable diseases NCFPA National Committee to Fight andPrevent AIDS NGO nongovernmentalorganization NTP National Tuberculosis Program OOP out-of-pocket OR occupancy rate (beds) OTC over-the-counter PA Poverty Assessment PER Public ExpenditureReview PHC primaryhealthcare PIP public investment program PPL public procurement law PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper RDU rational drug use RH reproductive health R H S reproductive health survey San-Epid Sanitary EpidemiologicalNetwork, Republic o f Azerbaijan SCPESP Science, Culture, People's Education and Social Problems Unit,Republic of Azerbaijan SME small andmediumenterprises SOCAR State Oil Company ofRepublic o f Azerbaijan V SOFAR State Oil Fundo f Republic o fAzerbaijan SPPRED State Program for Poverty Reductionand Economic Development, Republic o fAzerbaijan ssc State StatisticalCommittee, Republic o f Azerbaijan SSPF State Social ProtectionFund, Republic o fAzerbaijan STI sexually transmitted infections STP standard treatment protocol SUB rural hospital andpolyclinic, Republic o fAzerbaijan SVA doctor ambulatory center, Republic o fAzerbaijan TB tuberculosis USMR under-five mortality rate UN UnitedNations UNDP UnitedNations Development Programme UNICEF UnitedNations International Children's Emergency Fund USAID UnitedStates Agency for International Development VCT voluntary counseling andtesting VHI voluntary health insurance WDI World Development Indicators WHO World Health Organization CURRENCY EQUIVALENTS Exchange rate effective as o f M a y 9,2005 Currency unit =Azeri Manat (AZM) US$1= AZM 4,809 GOVERNMENT AZERBAIJANFISCAL OF YEAR January 1-December 31 vi EXECUTIVE SUMMARY Health outcomes in Azerbaijan are poor, in part due to a healthcare system that i s persistently ineffective indelivering affordable, quality services with equal access for all segments o fthe population. Infact, Azerbaijan lags behind most post-transition countries interms of healthstatus, aswell asinits approach toreformingthe healthcare system. This two-volume Sector Review Note outlines the burden o f illhealth, its distribution and trends, then addresses the adequacy o f the existing healthcare system to meet unmet healthcare needs and respond to epidemiologic and demographic challenges. The main rationale behind this Sector Note is to spur policymakers to consider a set o f options for reforming the system, thereby enabling them to embark on a long-awaited reform initiative to improve health outcomes. The BurdenofIllnessanditsDeterminants Azerbaijan i s undergoinga demographic transition as a result of a decreasing population growth rate, a steady decline in fertility rates over the past several decades and net emigration during the 1990s. Despite declining fertility, Azerbaijan presently has a relatively young population. In 2003, 26.8 percent o f the population was under age 15, while only 7.5 percent was over 65. However, the population is aging and, according to projections, the dependency ratio (the number of people aged 0-14 and 65 years and older divided bythe number ofpeople aged 15-64) is expected to increase. Between 1990 and 2002, life expectancy at birth shortened by six years-the highest downtrend inthe world, excluding the countries o f Sub-Saharan Africa, which lost up to three times as many years during the same period due to the HIV/AIDS pandemic.* The most likely primary explanation for this decline is increasing infant, child and matemal mortality, all corroborated by independent surveys.2 This findingis most disconcerting if one considers that there is one matemal and child health (MCH) clinic inthe country for every 900 children below age five and for every 2,200 women of childbearing age (15- 44). Similarly, there are 3.6 physicians and 7.5 nurses per 1,000 population-clearly adequate ratios from a purely resource input per~pective.~The decline in life expectancy i s also due to premature adult mortality. The probability o f dyingbetween ages 15 and 60 is 23.1 percent for Azeri males and 12.2 percent for females, twice as high for both sexes thaninEUcountries. 1 McMichaelet al., "Mortality Trends and Setbacks: Global Convergence or Divergence?" TheLancet 363, no. 9415 (April 2004): 1155-59. See inparticular UNICEF, ReproductiveHealth Survey 2001 (New York: UNICEF, 2003), andMultiple Indicator Cluster Survey (New York UNICEF, 2002). The Reproductive Health Surveywas conductedin 2001 andpublishedin2003; it i s referred to as the RHSurvey throughout this SectorNote. The Multiple Indicator Cluster Surveywas conductedin2000 andpublishedin2002; it is referredto as the MIC Survey throughout this Sector Note. The EU-15averages for doctorsandnurses are 3.9 and 7 per 1,000 population, respectively. 1 Ifcurrent trends continue unabated and urgent action is not taken, health outcomes are expected to decline fwther, making it unlikely that Azerbaijan will meet its pledged health-related MillenniumDevelopment Goals (MDG) by 2015 (a two-thirds reduction in maternal mortality and a three-quarters reduction inchildm~rtality).~ Non-communicable diseases are mainly responsible for highpremature adult mortality in the country, accounting for about 85 percent o f total mortality. Specifically, circulatory diseases are the main cause o f mortality, affecting men and women equally. However, male mortality from accidents, injuries and poisoning is three times higher than female mortality from the same causes. Adult health is also adversely affected by a recent resurgence o f infectious diseases. For example, during the last 15 years, the TB incidence rate has more than doubled. During the same time span, the HIV incidence rate has increased 35 times. While the HIV prevalence rate is still less than 1 percent, survey data indicate that the risk o f HIV transmission is high due to lack o f awareness o f HIV transmission modes, a high prevalence o f intravenous drug use, highrates o f HIV infection among IDUs, and a high rate o f infection among commercial sex workers. According to survey data, the maternal mortality ratio (MMR) remains high-the third highest inthe ECA region and 10 times higher than the EU average. The main causes o f maternal deaths are acute post-partum hemorrhage and post-abortion complications, which are exacerbated by a high prevalence o f anemia inpregnant women. Inadequate quality and uneven access to antenatal and postnatal care also contribute significantly to highmaternal mortality. The infant mortality rate (IMR) is also highinAzerbaijan-the second highest inthe E C A region and 16 times higher than the EUaverage. IMR is also three times higher among poor households than rich households. The same is true for under-5 child mortality (USMR), also the second highest in the region and 20 times .higherthantheEUaverage. BothIMRandU5MRare50percenthigherinruralthanin urban areas. The main causes o f mortality and morbidity among infants and children are respiratory diseases and dehydration caused by diarrhea. There are several forces drivingdeteriorating health outcomes in Azerbaijan. Unhealthy lifestyle choices are perhaps the most powerful risk factors affecting mortality and morbidity. They include tobacco use, alcohol abuse, a high-fat diet, lack o f physical activity, a relatively low intake o f fruits and vegetables, and drug addiction. The consequences o f some o f these risks include high blood pressure, high cholesterol, and diabetes, all o f which contribute to the highprevalence o f circulatory diseases. Lifestyle risks are compounded by socioeconomic factors, including urbadrural and poor/rich disparities, as well as environmental factors (e.g., inadequate water quality). Access to and quality o f health services also affects health outcomes inthe country. For example, only half o f the population utilizes health services when experiencing an illness, indicating that people either cannot or will not pay for poor-quality services. While decreased utilization o f healthcare services due to highout-of-pocket payments may not, See Annex 1for a detailed assessment of Azerbaijan's prospects o f meeting these MDGgoals. 2 in the short term, significantly impact levels of morbidity and mortality resulting from non-communicable diseases, the impact may grow exponentially over time. Low utilization o f healthcare services is and will continue to be the case for the poor, who at present are less healthy because they do not have the necessary financial resources to pay for health services (informal payments) and drugs. The poor also have less access to good nutrition (leading to malnutrition and micronutrient deficiencies), tend to live in more unsanitary and overcrowded conditions, andhave less access to safe drinkingwater. Another health condition, one often overlooked by health policymakers and practitioners alike, i s the high incidence o f mental illness as a cause o f disability, with men affected twice as much as women. Since the early 199Os, the population o f Azerbaijan has undergone significant stress as a result o f the war with Armenia, economic transition, mass population displacement and high rates o f poverty, all o f which have played an important role inadversely affecting health outcomes. The SocietalResponse Although it is more than adequately endowed in terms o f facilities and staff, the healthcare system inAzerbaijan has not been successful in achieving the societal goal o f providing essential health services to the population, nor has it been able to respondto the evolving needs, preferences and aspirations o f the Azeri people. Unfortunately, despite very large unmet preventive and curative healthcare needs in Azerbaijan, policymakers continue to rely on administrative data that indicate a population ingenerally good health and an adequately performing healthcare system. The need for reform has not, therefore, been widely acknowledged. Today, there is a general consensus that the Azeri health care system has, infact, failed to reform Soviet-style centralized financing andnormative allocation o f human, physical and financial resources. Indeed, compared with other countries o f the FSU, Azerbaijan is truly lagging behind in the modernization o f its healthcare system. The collapse o f the Soviet Union and Azerbaijan's subsequent independence led to the obsolescence o f existing healthcare governance, organization and financing models as a result of: (i) lack o f enforceability o f the previous system's hierarchy and regulatory framework, which constituted the backbone o f a highly technocratic and normative organizational model, and (ii) disengagement o f the state from its financial obligations to the healthcare system. The response o f the Ministry o f Health (MOH) has been to consolidate new power, hitherto based inMOSCOW, and hold on to the Soviet healthcare system model as long as possible without major disruptions to system authority or hierarchy. Accordingly, MOH opted to make changes gradually and began reforming those subsectors and spheres of activity most easily amenable to change, such as primary healthcare, dental care and pharmaceuticals. In addition, MOH has been reluctant to address the issues o f excess capacity o fhealthcare providers and the informal payments adopted by these providers as a coping mechanism duringthe transition period. 3 The lack o f proactive systemic reform by MOH has had deleterious effects on the volume, intensity, mix andquality o f heathcare services. Inaddition, private spending by consumers was allowed to flourish at a time o f economic hardship. As people paidmore, but received less for their money, they became more dissatisfied and eventually lost confidence inthe system's ability to provide adequate care to restore health. Today, MOH continues to "steer" and "row," albeit with very little clout over major policy decisions, which theoretically fall within the competence o f the President, the Cabinet o f Ministers and its advisory units. The MOH's actual role and capacity to govern the system, make policies, regulate and control overall quality and gather the intelligence needed to monitor public heath i s very limited. The ministry does not, for example, have a unit tasked with policymaking, nor does it have departments for monitoring and evaluation (M&E), human resources or long-term planning. This institutional weakness i s compounded by a lack o f pluralism in system governance. In other words, the system is plagued by the absence of an active purchaser o f services, extremely weak representation of providers and consumers, and fragmentation o f health investment and budget decisions (the latter fall under the responsibility o f the Ministries of Economic Development andFinance). As a result, the current system suffers from thefollowing shortcomings: .. a legal and regulatory platform that is not conducive to effective system stewardship; fragmented accountability for technical, administrative and financial matters, leading to conflicts o f interest, divided loyalties and inefficient resource . allocation; excessive hospital and specialized care facilities; poorly funded and managed, as well as highly fragmented, primary healthcare . services; a de-motivated health workforce that relies on informal payments to cope with low wages and a practice environment devoid of incentives to provide appropriate . care; and, major inequalities inhealth and healthcare as a result o f very low public outlays, coupled with increasingly highlevels o f out-of-pocket payments. A Way Forward This report makes a number o f recommendations with a view to moving away from a model o f specialist physician-centered care towards a model o f family-based primaryhealthcare (PHC); a biomedical care model towards a model that values disease prevention and . health promotion; a highly structured, hierarchical model towards a more integrated, network-based model with built-ingatekeeping; 4 a model that does not solve most health problems (referring them instead to higher levels) towards one where most problems are solved at the PHC level; e a model with extremely inefficient resource allocation towards a model that allocates resources according to healthcare needs; and, a model where provider payments are based on inputs towards a model where providers are paidon the basis o f productivity and the appropriateness and quality o f the care that theyprovide. In order to reach the above objectives, the recommendations below are offered for the main elements of the healthcare system: stewardship, financing, organization and delivery structure, human resources, andpharmaceuticals. Stewardship The MOH should assume responsibility for health policymaking in Azerbaijan. This responsibility would require the ministry to redefine its vision, mission, mandate, roles andresponsibilities, all o fwhich would be presented ina White Paper. This paper would also outline Azerbaijan's health and healthcare policy and reform agenda and propose a road map for its implementation. The drafting o f the paper would require: (i)re- activation o f the Health Reform Commission, which would be placed in charge o f drafting the White Paper; (ii) carrying out a consensus-building exercise among all stakeholders inthe healthcare system; and, (iii) preparation o f an implementationplanfor reform, including the costing ofnecessary inputs (this crucial step i s already envisaged in the upcoming PRSC, a goal to which the GOAhas explicitly committed itself). The preparation and the issuance o f the White Paper should have the backing o f the President and be supported by an interagency steering committee and technical groups. The array of options presented inthe White Paper should be fed back to all stakeholders to buildconsensus on their specific content and, equally important, to facilitate agreement on the timing, sequencing and financing o f reform elements. Followingthis process, five districts that demonstrate a high level o f commitment to the reform process should be selected to pilot the reforms. It i s critical to consider that implementation o f reforms would likely require changes in laws and regulations, changes which would need to be prepared andput inplace inadvance o f the reforms. Finally, a public information campaign, preferably conducted through the media, should be developed and properly financed. The campaign should explain to the populations of the five pilot regions the main tenets o f the reform, the nature and timetable o f reform activities and emphasize those actions that are likely to produce tangible results in the short run (e.g., improved access to and quality o f care, as well as reduced out-of-pocket expenses for essential services). Last but not least, collaboration with international partners throughout the process will be needed to secure their political, technical and financial support. 5 Financing Increasing government spending on the health sector is an absolutely necessaryfirst step, but must be accompanied by a major change in the way health resources are pooled and equitably allocated. There are several mechanisms that can be used to pool bothpublic andprivate resources. The simplest mechanism would be to agree on an allocation formula based on objective criteria such as demographic, epidemiologic, socioeconomic and other relevant factors that affect healthcare needs, demand and utilization. Further refinement could include adjustments for the cost o f delivering care to more remote areas, with other important risk adjusters added over time. Another option would be to create a single pooling entity that could enhance rationalization o f resources by linking the budget to the healthcare needs o f the population. This entity could be virtual, i.e., it could operate within the existing structure o f the Ministryo f Finance (MOF), or it could be established as a separate public entity in the form o f a fund. A third option would be to establish a Health Insurance Fundthat would assume, among other responsibilities, the pooling function. Inorder to introduce improvements intechnical efficiency, cost-containment andquality o f care, performance-related payments to primary care providers need to be put in place. Primary-care facilities could receive payment on a per capita basis, with the flexibility to generate savings that could be reallocated for pharmaceuticals and equipment. Such an approach could improve levels o f equipment and supplies, as well as enhance national training programs for physicians and nurses. These changes would need to be combined with a more systematic approach towards monitoring user charges andwages inthe public healthcare system. Performance-related payments should also be introduced for hospitals. Gains in efficiency could be made by replacing current budgetingwith payment mechanisms that reward hospitals for higher throughput while motivating a decrease in cost per case. Based on the experience o f other countries, performance-based payments are best applied within a global budget. Lowering the average length o f stay and staffing levels could lower the cost per case and result in overall cost savings, particularly if combined within a global budget. Equity and access to basic healthcare can be addressedthrough revision and costing of a package of services. The provision o f existing services should be re-assessed in terms o f affordability, various scenarios o f population coverage, the size and content o f the service package and the service mix. One option is to define an essential package that would be provided to the entire population free o f charge and financed by general tax revenues. This package would include all primary and preventive care, plus public health interventions and some secondary and tertiary care. An expanded version o f the package 6 could include additional curative services that would require a financial contribution from the population, yet offered free of charge to the poorest. Again, the potential cost o f expanded coverage should be realistically assessedto ensure that it is affordable. A decision must be made as to whether the government will gradually assume full responsibility for financing all health services or limit its scope o f responsibility to a basic service package, thus allowing for expansion o f the health insurance market. Regardless o f the government's decision, there must be a clear delineation between services covered by the government and those covered by health insurance. Ideally, the latter should not cover the same mix o f services, but supplement the government package. Organization and Delivery A well-established,grassroots healthcare network exists in Azerbaijan under the name of Feldsher Ambulatory Points (FAP). This network should be upgraded, its service mix re-assessed, and the benefit package for feldshers and nursehid-wives revalued. Inaddition, the scope and quality of maternal andchild healthcare services providedby FAPs need to be upgraded through additional training and investment in facilities, equipment and supplies. FAP staff can also be trained in outreach activities to work as change agents in information, education and communication (IEC), especially for health promotion. Thejob description of thephysician at doctor ambulatory centers (SVAs) also needs to be redefined in a manner more conducive to providing community-based preventive andpublic health services, managing the staff o f other SVAs and FAPs, and delivering family-oriented PHC or family medicine. This change in job responsibilities would requireretoolingphysicians through extensive training. As for rural hospitals (SUBS), the proposed option would be to look into productivity indicators, such as the degree o f concordance between the availability o f facilities and service utilization. On the basis o f this evidence, local decisions would be made on whether to maintain these facilities as small hospitals or transform them into group practice settings-hubs o f a rural network o f SVAs and FAPs that would also provide specialized outpatient care. The number and bed distribution of central district hospitals needs to be re-evaluated in parallel with the rationalization o f SUBS. As part of the rationalization of facilities, there is a major need for reconfiguration, consolidation and, in some cases, downsizing. Indeed, facilities that have separate buildings for maternity, infectious diseases, children's hospitals and/or wards and district polyclinics may have to be consolidated to improve physical access and economies o f scale (interms o f maintenance and operating costs). There is a definite need to significantly reduce the number of specialized hospitals, dispensaries, sanatoria and "rest establishments." This reduction will require, however, a 7 change o f policy vis-a-vis their role inthe healthcare system, to what extent their services should be covered out o f the public budget in general and by MOH in particular, and which o ftheir services could be integrated into the existinghealthcare network. Finally, the situation in Baku and Nakhchivan deserves separate analysis to better understand the demand side, more specifically, referral patterns and the origin and destination o f patient flows. Inthe case o f Baku, this would require setting up a special committee in charge o f consolidating the vast hospital sector. As for Nakhchivan, the referral mechanismhas to be rethought to ensure minimumreferrals to Baku. HumanResources There is a need for a long-term human resources policy and planning to redress urbanhral imbalances and inequities in human resource distribution, particularly of specialistYfamily practitioners and across levels of care. The latter imbalance could be gradually resolved through the proposed program o f post-graduate medical education. In addition, improvements inthe pay scale o f health workers could partially be addressed by optimizing current budgets so that posts that exceed requirements are removed without reducing the overall staff budget. The incentive structure also needs to be realigned to link payments to productivity. A more dynamic retirement policy and strategy may be in order, such as severance payments for those who are reluctant to retire. Finally, overproduction o f medical graduates could be curtailed by closing or imposing strict regulations and norms on the licensing o f private universities. Pharmaceuticals Azerbaijan needs a comprehensive national drug policy, the objective o f which would be to improve the population's access to high-quality, safe and effective drugs in accordance with the burden of disease and the priorities of the national health sector. Areas o f emphasis include pricing o f brand and generic drugs, an essential drug list and standard treatment protocols for most common diseases. ProposedReformAgenda: Phasesand Sequencing Three consecutive phases o f reform o f the healthcare system are suggested as stages o f a gradual but comprehensive reform agenda. Phase I would entail defining healthcare priorities and improving the day-to-day functioning of the system for enhanced access and quality of care. In this step, affordability would cease to be the major impediment that prevents people from seeking healthcare. This phase would involve the establishment o f an essential package of clinical and public health interventions and build the mechanisms and tools to deliver them effectively. Effective delivery o f this package will require a number of actions, 8 including identification o f the major causes o f the existing disease burden; standardized diagnostic, treatment and referral protocols; costing o f interventions, training and certification o f primary care physicians and allied personnel; mechanisms for quality control and assurance, including the information management system; and the legal and regulatory basis to assign roles and responsibilities, together with the necessary financial and non-financial incentives for effective delivery. Phase Iwould focus almost entirely on primaryhealthcare, with changes to inpatient care limitedto those neededto introduce effective delivery o f the essential package. Phase 11 would build on Phase I and would focus on improving allocative and technical efficiency, encompassing both inpatient and primary-level healthcare facilities and services. This would require major additional capital investments in hospital infrastructure and equipment with a view toward rationalizing inpatient care facilities. This additional investment would, inall likelihood, require a sharp reduction in the number o f hospitals and/or beds on the basis o f a nationwide mapping exercise. Such an exercise would follow a thorough assessment o f inpatient and outpatient healthcare needs, together with the existing supply and utilization o f beds and other inpatient services. Phase 111 would be more systemic, encompassing all reforms undertaken under previous phases, and require a restructuring of the existing institutional framework. More concretely, MOH would revise its mandate and business processes and define its functions, roles and responsibilities within the new institutional framework. Accordingly, MOHwould mainly become a policymaking, planning, regulating andmonitoring agency without direct involvement in the financing or provision o f curative services. However, MOH would maintain its responsibility for the provision o f public health services, including disease prevention and health promotion (which would be provided at the reformed primary healthcare level). Interms of financing, MOF, incoordination with MOH, should design a mechanism to allocate resources according to the needs-based formula described above. Ultimately, a separate fund could be established to pool resources and assume the purchasing function o f healthcare services as a true Health Insurance Fund. However, this last step may not materialize until the tax base in Azerbaijan becomes broader, or people become more willing to make earmarked contributions to a fund. Inany case, more research is needed on potential revenues and expenditures to determine the long-term fiscal sustainability o f such a fund. All phases presented above are implicitly sequenced, so that Phase I1 cannot be successfully implemented without first undertaking the necessary reform steps required under Phase I,and so on. One may, therefore, view Phase 111as the long-term goal o f comprehensive reform. The proposed reform agenda is clearly ambitious in scope and timing. Given a willingness to reform, Azerbaijan can greatly benefit from the experiences and lessons learned in other countries where similar reforms have been implemented. The issue is whether the government has the capacity and/or the political will to follow through and 9 deliver on these and other commitments inthe health sector. Granted, some o f the reform initiatives would depend largely on the availability o f additional resources. Other initiatives would require difficult policy decisions, with implications for how the budget i s allocated to improve efficiency, governance and utilization o f available resources. To be successful, the goals o f restructuring the healthcare system and strengthening public health in Azerbaijan must become central development objectives o f the government. One indicator o f this commitment would be the completion of the White Paper discussed earlier. 10 CHAPTER 1. INTRODUCTION: STRUCTUREAND CONTENT OFTHE REVIEW This review i s organized in two volumes. Volume I, to be a standalone report, designed provides a brief summary o f health and healthcare issues inAzerbaijan and proposes an agenda for reform. It presents an overview o f the country's main health and healthcare needs, discusses priority health conditions and determinants, and undertakes a system diagnosis by documenting the extent o f under-performance and shortcomings in system governance, management, organization and financing. It then proposes an agenda and strategy for health sector reform. This agenda is purposehlly broad because Azerbaijan is truly lagging behind in reform o f the health sector, whether compared to its record in other social sectors (e.g., education and social protection) or to that o f other countries o f the former Soviet Union (FSU). Volume I1provides the evidence base for Volume I. It is a compilation o f seven papers, presented as standalone chapters. Chapter 1describes the current status and determinants o f health in Azerbaijan for infants, children, women and men as adults, and the relative importance and distribution o f determinants of the dual burden o f communicable and non-communicable diseases. Chapter 2 examines in detail the demand for and use o f healthcare services and their behavioral and system-related determinants. More specifically, it focuses on the socio-structural determinants o f healthcare-seeking behavior, with a view toward identifying the role that income, education, place o f residence and gender play in access to and use o f services. Chapter 3 reviews the requirements o f healthcare stewardship intheory and practice inAzerbaijan, i.e., who are the key stakeholders, what contextual factors play a role inkey policy decisions, threats to and opportunities for comprehensive health sector reform, and the content and process o f a soundreform strategy. Chapter 4 o f Volume I1presents the main features o f healthcare financing inAzerbaijan and assesses the efficiency and equity of resource allocation and use. It also reviews in detail how healthcare facilities andproviders are paid and proposes an agenda to improve public financing o f essential health services. Chapter 5 deals with human resource issues by analyzing current workforce capacity, distributional inequalities between rural and urban areas as well as between primary and secondary levels o f care. It also assesses existing incentive mechanisms, as well as the education and training needs o f physicians. Chapter 6 provides a detailed account o f the current organizational and management model, concentrating on system hierarchy in curative care and public health services. Finally, Chapter 7 is devoted to pharmaceuticals, or more precisely, to the production, distribution, retail sale, quality control and appropriate utilization o f needed pharmaceuticals. This Sector Review is expected to: (i) help MOH and district-level health authorities understand the main policy issues and development challenges faced by the healthcare system, (ii) help MOH to critically appraise its role and capacity in policy design and development, together with its strengths and weaknesses within the current institutional framework; and (iii) by proposing a reform agenda, assist the Government of Azerbaijan (GOA)in general, and all stakeholders in health inparticular (Le., Cabinet of Ministers, 11 MOH, Ministry of Finance, Ministry of Labor and Social Protection, and State Social Protection Fund), in their deliberations vis-&vis the optimal organization and financing scheme for healthcare in Azerbaijan. This Review is also intended to serve as the basis for a coherent policy dialogue to guide the World Bank and, hopefhlly, its UN, international, bilateral and Azeri partners, on the scope, nature and extent o f future investment needs in, andtechnical assistance to, health sector reform inAzerbaijan. 12 CHAPTER2. KEY FINDINGS, ISSUESFORREFORM AND OPTIONS 2.1 Demography Azerbaijan is in a demographic transition, with decreasingpopulation growth due to a low fertility rate, an aging population and a flattening dependency ratio (see Figure 2.1). As o f 2003, the population of Azerbaijan was 8.23 million, with a male/female ratio o f 4951. More than 90 percent of the population are Azeris. While the population continues to grow, the rate of increase has been gradually declining. The average annual population growth rate declined from 3 percent inthe years 1959-1970 to 1.3 percent in the years 1989-1999, reaching 0.7 percent in2001. This decline is due to several factors, including the recent war with Armenia, net emigration, and a dramatic decline in the crude birthrate from 26.4/1,000 in 1990 to 13.6/1,000 in2002 (see Table 2.1). Table 2.1. DemographicIndicators, 1990-2002 1990 1995 2000 2002 Population (millions) 7.02 7.4 8.05 8.17 %populationunder 15 years old 33.12 33.00 29.18 27.59 %population 15-64 62.08 61.43 63.77 64.75 %population65 years andolder 4.81 5.58 7.02 7.31 Deaths, per 1000 live births 6.20 6.80 6.10 5.7 Live births per 1000population 26.40 19.10 15.23 13.6 Sources: World Bank, World Development Indicators(WDI), 2004 (populationfigures); WHO, "Health for All" database, (all databasefigures for deaths and live births in 2001, 2002. The Total Fertility Rate (TFR) fell from 5.5 in 1964 to 2.8 in 1990, andmore recently, to 1.8 in 2002 (1.6 urban and 2.1 rural). This rate i s below the replacement level of 2 children per woman over her reproductive live span. As Table 2.2 shows, TFR in Azerbaijan i s lower than in almost all Central Asian countries, Albania and Turkey. Although the rate is comparable to that of Kazakhstan, it is still higher than that o f other countries inthe region. Table 2.2. Total Fertility Rate, 1990vs. 2002 Countries 1990 2002 Tajikistan 5.1 2.9 Turkmenistan 4.2 2.4 Uzbekistan 4.1 2.3 Kyrgyz Republic 3.7 2.4 Albania 3.0 2.2 Turkey 3.0 2.2 Kazakhstan 2.7 1.8 Azerbaijan 2.8 1.8 Armenia 2.6 1.5 Russia 1.9 1.3 Ukraine 1.9 1.2 Georgia 2.2 1.1 Source: World Bank, "Rising to the Challenges," MDGReport, 2004. 13 Figure 2.1. DemographicTrends inAzerbaijan Population Growth Rate Total Fertility and Net Reproduction Rates 7 1 8 - 2.7 - 12 - 2.3 1.9 ~ 0.3 ' 880- 885- 8 9 0 895- 2000- 2005- 2010- 208- 2020- 885 890 895 2000 2005 2010 2025 2020 2025 880- 885- 8 9 0 8 9 5 2000- 2005- 2010- 2025- 2020- 885 890 895 2000 2005 200 208 2020 2025 '+NRR--r-TFR I Broad Age Groups (%) Dependency Ratios 80 70 70 0) m 60 60 m 50 50 2 0 40 40 0 r i 30 2 30 20 20 a 10 10 0 0 1995 2000 2005 20'0 2015 2020 2025 8 9 5 2000 2005 20'0 2015 2020 2025 m Population4 5 0 Population 15-64 Population60+ I +Total -m- , I Child -A- Oderly Azerbaijan 2005 Azerbaijan 2020 10 8 6 4 7 0 2 4 6 8 10 10 S 6 4 2 0 2 4 6 8 1 Percentage ~ Percentage ~ Sources: UnitedNations Population Division, WorldPopulation Prospects: Population Database, 2004 Revision. 14 Despite its low TFR, Azerbaijan has relatively a young population. In2003, 26.8 percent o f the population was under age 15, while only 7.5 percent was over 65. The dependency ratio has fallen from 0.61 in 1990 to 0.53 in 2003, mainly because the percentage o f young people aged 0-14 has declined by 6.3 percent, while the percentage o f persons aged 15-64 and persons aged 65 and older has increased only slightly (3 percent) since 1990 (see Table 3). Table 2.3. Evolution of Dependency Ratio, 1990-2003 Countries 1990 1995 2000 2003 Albania 0.62 0.59 0.56 0.53 Armenia 0.62 0.56 0.48 0.41 Azerbaijan 0.61 0.63 0.57 0.53 Georgia 0.51 0.53 0.51 0.48 Kazakhstan 0.60 0.58 0.52 0.48 Kyrgyz Republic 0.74 0.74 0.67 0.61 Tajikistan 0.89 0.87 0.79 0.70 Turkey 0.65 0.59 0.52 0.52 Turkmenistan 0.79 0.78 0.69 0.62 Uzbekistan 0.82 0.79 0.72 0.64 EU-unweighted 0.50 0.50 0.50 0.50 average Source: World Bank, WDI, 2004. 2.2 Socioeconomic Context and Poverty 2.2.1 Macroeconomic Performance The economy has rebounded strongly after a significant decline in the early 1990s. However, Azerbaijan remains one of thepoorest countries in the region. Followingthe breakup of the Soviet Union, the economy suffered a dramatic decline in output as a result o f the war with Armenia over Nagomo-Karabakh, the subsequent dislocation o f families and disruption o f trade routes, the switch to a market economy, and the reduction o f state control over prices and production. Compared to the CIS average o f 42 percent, the GDP o f Azerbaijan droppedby 63 percent during the period 1989-1995, a drop that was accompanied byhyperinflation and a sharp currency depreciation. Despite economic recovery that began after 1996, with an average growth rate in excess o f 9 percent a year from 1997 to 2002, GDP in 2004 was still roughly 30 percent less thanin1989. Azerbaijan remains one ofthe seven lowest-income countries inthe Europe and Central Asia region (see Table 2.4). Its GDP per capita in 2003 (US$865) was 3.5 times lower than that of many countries in Eastern Europe and the FSU (US$2,949 on average), and 30 times lower than the EUaverage. 15 Table 2.4. GDP per capita, 2003 Countries GDPkapita (US$) Kyrgyz Republic 343.76 Uzbekistan 388.58 Moldova 463.38 Georgia 768.14 Azerbaijan 865.30 Armenia 915.12 Ukraine 1,024.42 Turkmenistan 1,235.86 Albania 1,932.57 Kazakhstan 1,995.51 RussianFederation 3,022.52 Turkey 3,365.34 EEandFSUaverage 2,949.95 EUaverage 26,704.23 Source: World Bank, WDI, 2004. 2.2.2 Poverty Almost 50percent of the population of Azerbaijan is consideredpoor. Poverty is more entrenched among urban dwellers, IDPs and people living in Nakhchivan. Despite significant economic growth since the mid-l990s, the 2002 Household Budget Survey (HBS) found that 46.7 percent o f the population was living below the poverty line, with the highest incidence o f poverty recorded in the Nakhchivan Autonomous Republic, or NAR (62.9 percent). The risk o f poverty increased with household size; poverty levels were found to be slightly higher in urban than rural areas and generally lower in larger cities than small towns. According to the survey, 40 percent of the population o f Baku, a city that comprises one-fifth o f the total population o f Azerbaijan, had household incomes below the absolute poverty line. Lack of employment opportunities is one of the root causes ofpoverty. At the end o f the 1990s, the unemployment rate was 16 percent (14.2 percent among males and 18.6 percent among females). In addition, the 1999 census revealed that the employment-to- population ratio was only 54 percent, indicating that almost half o f the population was dependent on income generated by others. The unemployment rate was particularly high (29 percent) among urban youths aged 20-24. Azerbaijan has attained a very high level of literacy, but the educational system does not provide the necessary skills for gainful employment. The enrollment rate for compulsory education i s still high (95 percent in 2001), with literacy rates close to 100 percent, irrespective of gender and ethnicity. Beyond the age o f 16, however, enrollment rates drop sharply, with only 13 percent o f young adults aged 17-24 enrolled in post- secondary educational institutions. Among children o f poor families, the number i s 9 percent. Low enrollment inhigher education can be attributed to the falling quality of this education and the inability o f institutions to adapt to the changing skills requirements of the labor market, as confirmed by youth highunemployment inthe country. 16 2.2.3 Life Expectancy Since independence, Azerbaijan has experienced a significant decrease in life expectancy. Although official figures show that life expectancy at birthhas increased by one year, according to World Bank estimates, it has actually shortened by 6 years over the period 1990-2002, affecting men and women equally-one o f the steepest declines inthe world. Table 2.5. Life Expectancy at Birthin Azerbaijan, Selected Years, Official Data vs. World Bank Estimates I990 1995 1996 1997 1998 1999 2000 2001 2002 Official statistics (a) Male 67.0 65.2 66.3 67.4 67.9 68.1 68.6 68.6 69.4 Female 74.8 72.9 73.8 74.6 75.0 75.1 75.1 75.2 75.0 Total 70.9 69.05 70.05 71.0 71.5 71.6 71.9 71.9 72.2 World Bank estimates (b) Male 67 65.2 63.8 61.7 61.8 Female 74.8 72.9 71.3 68.9 68.3 Total 70.9 69.05 67.55 65.3 65.1 Sources: (a) State Statistical Committee (SSC), Population of Azerbaijan, Statistical Bulletin, 2003; (b) World Bank, W1,'2003. World Bank data also shows that average life expectancy in Azerbaijan is one o f the lowest in the region-13 years lower than the EU-15 average. Azerbaijan also ranks highest, together with Kazakhstan, interms o f the number o f years lost inlife expectancy since 1990 (see Table 2.6). Table 2.6. Average Life Expectancy at Birthin Selected ECA Countries, SelectedYears 1990 I995 1997 2000 2002 Kazakhstan 68 65 64 64 62 Azerbaijan 71 69 68 65 65 Kyrgyz Republic 68 66 67 66 65 Turkmenistan 66 66 66 65 65 Tajikistan 69 68 68 67 67 Uzbekistan 69 69 69 68 67 Turkey 66 68 69 70 70 Georgia 72 73 73 73 73 Albania 72 71 72 74 74 Armenia 72 72 74 74 75 EU-15 76 76.8 77.2 77.7 78.0 Source: World Bank, WDI, 2003. 2.3 Health Status and Unmet Healthcare Needs 2.3.1 Health Status The health status of the population of Azerbaijan remains poor, even when compared with other CIS countries. Health outcomes in Azerbaijan were significantly worse than in Western Europe before the breakup of the Soviet Union; the dramatic political and socioeconomic changes that accompanied its collapse have only exacerbated these outcomes. 17 Adult Health Premature adult mortality is one the main reasons behind reduced life expectancy. Premature deaths among adults (under age 65) account for roughly 68 percent o f all deaths in Azerbaijan, compared to roughly 51 percent in EU-15 countries. The highest share (90 percent) o f the increase inmortality from 1990 to 2002 falls within the 35-50 age group, with premature male mortality more than twice premature female mortality. Overall, the probability o f dying for menbetween the ages o f 15 and 60 inAzerbaijan i s 23 percent, compared to 11.7 percent inEU-15countries. Non-communicable diseases constitute the main reason for high adult mortality, accountingfor about 85percent of total mortality (see Table 2.7). Circulatory diseases are the main cause o fmortality, affecting menand women equally. Mensuffer more than women from respiratory diseases and cancer; women suffer predominantly from breast cancer, as well as cervical, ovarian and uterine cancers. Types o f cancers that affect men include cancers o f the stomach, larynx, trachea, bronchial tubes and lungs, bladder, bone andlymphatic tissue. Table 2.7. Mortality by Cause of Death, 2002 (per 100,000 population) Total Diseases of Diseases of Diseases Accidents, Diseases deaths the Cancers the of the poisoning of the from all circulatory respiratory digestive and nervous causes system system system injuries system Women 538.9 327.7 63.1 35.1 32.8 10.9 d a M e n 618.2 330.7 82.9 44.4 36.2 36.0 nia Average 578.5 329.2 73.0 39.7 34.5 23.4 10.1 ./, 100% 57% 13% 7% 6% 4% 2% Source: SSC, "2003 Women andMeninAzerbaijan," 2003 (2002 data). Male mortality is three times higher than female mortality in terms of accidents, injuries and poisoning. In fact, road traffic accidents in Azerbaijan caused more deaths per accident than in most comparator countries, with the ratio o f deaths to accidents 52 times higher than the EU average. This astounding statistic i s compounded by the fact that accidents, poisoning and injuries are also important causes o f morbidity (8.4 percent) inAzerbaijan, even more prevalent than diseases ofthe circulatory system (7.5 percent), although diseases o f the respiratory system (46 percent) account for the majority o f morbidity. Adult health is also adversely affected by the recent resurgence of infectious diseases. For example, between 1990 and 2003, the TB incidence rate has more than doubled, from 37/100,000 to 82/100,000 population, while the prevalence rate i s estimated at 109/100,000 population. The reported incidence o f syphilis has also increased almost fourfold from 1990 to 1997 and, while official data suggests that it declined to 1990 levels by 2002, this i s unlikely in light o f international comparisons. For example, the 2002 figure for syphilis prevalence in Azerbaijan is 20 times less than that reported in Turkmenistan and 10 times less than that reported inGeorgia and the Baltic countries. 18 Lastly, HIV incidence has increased by 35 times between 1996 and 2003 and, while prevalence is still less than 1percent, survey data indicate that risk o fHIV transmission i s very high in Azerbaijan due to: (i) rudimentary knowledge about HIV transmission and AIDS in general, particularly in rural areas; (ii) prevalence o f high-risk sexual the behavior in young adults (only 36 percent o f youths aged 15-24 had ever used any type of contraception); (iii) a highprevalence o f intravenous drug use and highrates of HIV infection among IDUs (up to 19.5 percent); and (iv) increasing heterosexual HIV transmission, as evidenced by a high rate o f infection among commercial sex workers (8.5 percent). Maternal and Child Health5 Maternal mortality remains high. If this trend continues, Azerbaijan may not meet the MDG goal of a two-thirds reduction in maternal mortality by 2015. The Maternal MortalityRatio (MMR) o f 94/100,000 live births in2000 is the thirdhighest inthe region and ten times higher than the EU average. Meanwhile, official figures cite a number of 19.9/100,000 for 2002, which is probably a significant underestimate, at least partly because an increasing number o f women (36 percent in rural areas) give birth outside medical facilities, with their deaths unlikely to be recordedas matemal mortalities. The main cause of maternal deaths is acute post-parium hemorrhage and post- abortion complications, both of which are exacerbated by the high prevalence of anemia in pregnant women. Chronic or recurrent anemia is linkedto malnutrition and/or iron deficiency, often compounded by frequent pregnancy and repeated abortions, all factors that are highly prevalent in Azerbaijan. The abortion rate is also very high- twice the total fertility rate in the country and the second highest in the region after Georgia. Infant mortality is also high in Azerbaijan. If this trend continues, Azerbaijan may not meet the MDG goal of a three-quarters reduction in child mortality by 2015. The Infant Mortality Rate (IMR) i s estimated at 81/1,000 live births for 2001 (38/1,000 neonatal mortality within 0-27 days and 43/1,000 post-neonatal mortality within 28-364 days). It i s the second highest IMR in the region after Tajikistan. With respect to the under-five mortality rate (USMR), it is estimated at 92.2/1,000 live births in 2000, while some sources suggest an even higher figure o f 102/1,000. This rate is almost 20 times higher than the EUaverage o f 5.3/1,000 live births in2002. The main causes of mortality and morbidity among infants and children are respiratory diseases and dehydration caused by diarrhea. Diarrhea, infectious and parasitic diseases and even measles also contribute to child illness and death. Inaddition, children also suffer from micronutrient deficiencies and poor nutrition, with resulting high levels o f anemia. The prevalence o f iodine deficiency among young children is Please note there is a large discrepancy between official matemal and child mortality data reportedby the State Statistical Committee o f the Republic of Azerbaijan, and estimates provided by the RHand MIC surveys. The discrepancy extends to the prevalence o f underlying conditions (e.g., anemia, abortion rates, etc). 19 extremely high, as is vitamin A deficiency. Also, the prevalence o f low-birth-weight babies i s one o f the highest in the region. In terms o f child nutrition, the M I C Survey revealed high rates of underweight, stunted (as a result o f chronic malnutrition) and wasted (due to acute malnutrition) children under five years o f age. 2.3.2 Determinants of Health Outcomes Themain determinants ofpoor child, maternal and adult health, together with the high overall mortality rate in Azerbaijan, are behavioral and/or related to reduced access to and low quality of healthcare services. There are four groups o f health determinants: (i) biology and/or genetic inheritance, (ii) human lifestyle, (iii) environment (social, physical and psychological), and (iv) the healthcare system. The first factor-genetic makeup, sex, age and other characteristics that make an individual more or less susceptible to disease-is an important determinant o f health, but one over which the individual and society have little control. The other three factors represent areas o f opportunity where individuals and society can make changes that would eventually lead to improved health outcomes. An understanding o f these determinants is critical inorder to formulate soundpolicies and actions to prevent disease andpromote health. Lifestyle determinants constitute the main risk factors affecting mortality and morbidity in Azerbaijan. These include tobacco use, alcohol abuse, a high-fat diet, lack o f physical activity and a relatively low intake o f fruits and vegetables.6 These risks are mostly self-imposed and can be divided into consumption (e.g., smoking, alcohol and drug use, poor nutrition) and unhealthy lifestyle choices (e.g., lack o f exercise, poor hygiene, high-risk sexual behaviors). Manyo f these factors are clearly relatedto the high prevalence o f circulatory and respiratory disease, which account for 64 percent of mortality and 54 percent o f morbidity inAzerbaijan. For example, 40 percent o f all adult males in Azerbaijan smoke, which contribute to an estimated 17 percent o f all mortality among men aged 35-69.7 Likewise, Azerbaijan ranks third, after Russia and Belarus, in consumption o f alcohol inthe region, a consumption pattem that contributes to increased violence and extremely high death rates from motor vehicle accidents, in addition to causing liver and cardiovascular disease. Interms ofnutrition, ahigh-fat diet rich incholesterol isprevalent inAzerbaijan, with 21 percent o f the population overweight or obese. This situation has direct consequences for developing cardiovascular disease and diabetes. Drug use and addiction have also quadrupled since 1990. Sixty percent o f an estimated 400,000 IDUs inject heroin, making this group particularly vulnerable to HIV infection.' It should be noted that highdrug use and addiction rates are occurring ina country that has a predominantly young population, which is already at higher risk for HIV transmission (particularly in light o f high-risk sexual behavior and a general lack o f knowledge about HIV transmission). Information based on the ranking ofrisks for ECA Sub-region B, which includes Azerbaijan. WHO 2002. J. Holley, 0.Akhundov, and E. Nolte, "Health Care Systems inTransition: Azerbaijan," editedby E. Nolte, L.MacLehose and M.McKee (Copenhagen, Denmark European Observatory on Health Systems andPolicies, 2004). * UNAIDSIWHO, "Epidemiological Fact Sheet: Azerbaijan, 2004 Update" (Geneva: UNAIDS, 2004). 20 In addition to lifestyle determinants described above, there are socioeconomic and environmental determinants, including externally imposed stress that also affect health outcomes. Since the early 1990s, the population of Azerbaijan has undergone significant stress as a result of the war with Armenia, economic transition, dramatic population displacement and high rates of poverty, all of which have adversely impacted health outcomes. This can be seen in the incidence of mental illness, which rose sharply in the early 1990s and again in 2000. The incidence o f disability from mental illness is twice that from TB andmore than twice that from ~ a n c e rM . ~e n are more than twice as likely to be affected bymental illness than women. Poverty adversely impacts health outcomes in Azerbaijan. Poor individuals tend to be less healthy because they do not have the necessary financial resources to pay for health services (informal payments) and drugs. They also have less access to good nutrition (leading to malnutrition andmicronutrient deficiencies) and safe drinkingwater, and tend to live in more unsanitary and overcrowded conditions, where infectious diseases generally thrive more aggressively. For example, the M I C Survey found that IMR among poor households was three times higher than in rich households, most likely because antenatal and perinatal care was not available to these households. The percentage o f low-birth-weight babies inpoor households i s also more than twice that in rich households, as is the prevalence of underweightand stunted children. The M I C Survey also found that iodized salt is used in 41.3 percent o f households; the figure for poor households is 33.4 percent and in some areas, such as Nakhchivan, 10.6 percent. Another important difference between poor and rich households is seen in the prevalence and treatment of children with diarrhea, a major cause o f death among children due to dehydration. Three times as many children in poor households suffer from diarrhea, with 60 percent more in rural areas than in urban; the percentage o f children who received no treatment for diarrhea was twice as high for poor households than for rich. This outcome is compounded by the fact that only 75 percent of the population has access to safe drinking water, a figure comprised o f 52 percent o f poor households and 57.5 percent o frural households. The examples provided above indicate that health indicators o fpoor households correlate well with those o f rural households. For example, whereas 5 percent o f urban households were considered poor, the corresponding figure for rural households was 40 percent. Table 2.8 below demonstrates differences in health outcomes o f children by level o f poverty, urbdrural variations and the mother's level o f education. As the table shows, mortality rates are twice as high for infants and children whose mothers have only a secondary or high-school diploma. The same is true for low birth-weight babies and underweight children. ~ State Statistical Committee, "2003 HealthCare," 2003 (data for 2002). 21 Table 2.8. Comparisons of IMR,U 5 M R and Malnutrition by UrbanRural, Poor/Rich and EducatedlPoorly Educated Households (YOof total) Infant Under-5 Low Under- Severely Severely Severely mortality mortality birth- weight under- Stunted stunted Wasted Wasted rate rate weight weight Urban 63 79 8.3 14.9 3.9 17.2 6.8 8.0 1.7 Rural 92 122 10.4 18.5 4.6 21.7 7.7 7.9 2.1 Rich 35 41 5.O 8.8 2.0 13.2 3.9 5.4 1.o Poor 102 133 12.6 21.2 5.3 26.5 8.6 7.3 1.8 2'$4 ~1= Secondaryorless 92 118 11.9 23.2 6.4 24.5 8.7 10.1 3.0 Highschool 84 108 9.8 18.0 4.3 20.8 7.6 7.3 1.5 2ow University - 0 Collegeivocational 65 80 8.1 11.6 3.3 16.5 5.5 7.7 1.9 42 50 6.5 10.4 2.3 12.1 6.4 8.1 2.3 Source: MIC Survey. The healthcare system is another determinant o f health outcomes. The current health system is severely under-funded, which impacts both access and quality. With respect to access, public health expenditures declined from roughly 3 percent o f GDP in 1991to an estimated 0.9 percent o f GDP in2004. There was a corresponding increase informal and informal out-of-pocket payments to providers. Even as early as 1995, out-of-pocket expenditures amounted to 80 percent o f total healthcare spending. I n fact, nearly all healthcare services are paid for by the population in Azerbaijan, putting poor households at greater riskfor many healthproblems. The 2001 Household Budget Survey found that one in three households could not use health services when needed because they were too expensive. Since 50 percent o f the population is deemed poor, this means that half o f the population is likely to postpone seeking care and will definitely avoid seeking preventive care. This assumption is supported by the fact that 25 percent o f all births take place at home (36 percent inrural areas) due to patients' inability to pay hospital and provider fees." This situation has immediate consequences for health outcomes, since home deliveries pose a greater risk o f post-partum complications and mortality, particularly when not managed by a skilled attendant. Some abortions are also performed outside medical clinics, generally also due to lack o f funds, leading insome cases to severe complications and even death. Despite thefact that many patients are required to pay for services, healthcare is of poor quality, with poor physical infrastructure, scarce or obsolete technology and inadequate staff skills. Good-quality primary care and preventive services are not widely available. MOH does not have a unit that designs and implements community- based health education and promotion programs. Evidence-based medicine has, moreover, not yet been incorporated into the medical curriculum, with many physicians continuing to rely on training materials and pedagogical tools from the Soviet period. For instance, TB case detection and treatment is still largely based on chest x-rays and admission to TB hospitals, respectively. Another area impacted by the lack o f evidence-based medicine is reproductive health care. For example, antenatal and postnatal care is provided only to 70 percent and 25 10RHSurvey, 2003. 22 percent o f women, respectively. Also, only 57 percent o f all women report having been examined by a gynecologist once intheir lifetimes. And only an astounding 2 percent o f women have ever had a pap smear for detection o f cervical cancer. High rates o f post- abortion (27 percent) and post-partum (38 percent) complications also point to low standards o f care in public facilities and, most likely, poor hygienic conditions. High abortion rates are also a result of lack o f awareness o f modem methods o f contraception. Insurveys, 75 percent ofwomen inAzerbaijanreportedwanting more information about these methods. Only 12 percent reportedly used modem contraception, one o f the lowest figures inthe region. 2.3.3 Health and HealthcareNeeds The health needs of the population are numerous, especially in relation to lifestyle choices. For example, some o f the main risks behind non-communicable diseases, such as smoking, poor diet and alcohol consumption, need to be addressed at the primary-care level, through health promotion efforts. Likewise, matemal and child health must be approached in a comprehensive way that encompasses quality preventive reproductive health services, improved information, and education o f women on modern methods o f contraception and nutrition. Similarly, communicable diseases such as TB,diarrhea and other diseases can most effectively be handled on an ambulatory basis. I n summary, primary healthcare needs to be strengthened (including upgrading of the workforce), particularly in rural areas, and should play a central role in improving health outcomes. A number of challenges, however, go beyond the reach of theMOH alone and require multisectoral initiatives: Public services, such as water supply and sanitation-especially outside Baku and in areas where IDPs reside-need to be improved in order to reduce the burden o fwaterborne diseases. 8 Collaboration with the Ministry of Justice and Ministry of Interior toprevent and reduce harm associated with intravenous drug use, both in society at large and in prisons. Collaborative efforts should include prevention and control o f TB and HIV/AIDS in prisons and other detention and correctional facilities. Similar efforts should be made to reduce the very high incidence o f traffic accidents by reducing drunk driving (ie., through education and law enforcement initiatives, use of seatbelts, improved road signalization, etc.). 8 The impact of the environment on health is another area that requires further attention. Studies are needed to assess the health impact o f exposure to health hazards caused by the dilapidation o f defimct industries (e.g., metallurgy, dye production, etc.). Azerbaijan has significant oil and other mineral deposits, as well as relatively extensive agriculture, including cotton production for export. Pollution from heavy industry, mineral extraction and agriculture is a long- standing andpersistent problem. 23 Closer collaboration with the food industry, Ministry of Agriculture, and other government agencies is needed to establish a nutrition strategy to preempt the rise of diet-related chronic diseases and to prevent and cure micronutrient, iron and iodine deficiencies among thepopulation at higher risk (i.e., rural residents, women and children). These strategies will decrease anemia inwomen, as well as mental retardation and arrested cognitive development in children with iron deficiencies. 2.4 Healthcare System 2.4.1 Health System Stewardship Stewardship in healthcare refers to sound principles o f health system governance, a responsibility usually assigned to, or assumed by, the Ministry o f Health. It is considered a core function in healthcare, along with financing, resource generation and service delivery. Assessment o f the core stewardship function in Azerbaijan includes four dimensions: (i) the extent to which MOHprovides strategic direction for policymakingin health andhealthcare; (ii) effectiveness ofMOHinsetting and enforcing the legal and the regulatory framework, as well as establishing mechanisms and tools for policy implementation; (iii) the ability o f MOH to ensure a coherent institutional and organizational culture that supports the attainment o f policy objectives; and (iv) the capacity o f MOH to generate intelligence for the monitoring and evaluation o f policy implementation. Policymaking in healthcare is an integral part of stewardship and is supported by prevailing social values. Accordingly, in a hndamentally egalitarian society, health and access to healthcare are perceived as fundamental rights. Healthcare policies are expected to be equitable-driven by a conscious effort to reduce inequities in access, especially those o f a financial nature. Azerbaijan is, or at least aspires to be, an egalitarian society; rights to health and healthcare are enshrined inthe 1995 Constitution (Article 41) and detailed inthe Law on Public Healthcare. Despite these laudable goals, no official document exists (e.g., a white paper or health policy document) that critically assesses the extent to which the aim o f equitable access to care has been achieved in the country. Such a document would identify outstanding issues that need to be addressed (e.g., improvements to access and health outcomes); policy prescriptions; the main elements o f an implementation plan; who is going to implement these policies, and how, when and where. Nor is there a functioning government unit that could be tasked with leading or steering the policy design process, which requires a good understanding o f context, dialogue with various stakeholders, and development o f a broad consensus on policy content and implementation. 24 Issues Any description o f the macro-context inAzerbaijan, as in all FSUcountries, must begin with a reference to the triple challenges o f transition: the socioeconomic and political consequences o f the breakup o f the FSU, the switch from a state-planned to market- driven economic model, and ongoing political transition. Azerbaijan's own transition has proven all the more challenging due to armed conflict with Armenia, which resulted in the occupation of about 20 percent o f its territory and the uprooting and migration o f about one millionpeople (including refugees andinternally displacedpeople). The social, political and economic costs o f the conflict have been considerable: major economic decline, hyperinflation and political instability. Indeed, it is remarkable how quickly the country recovered from the damage o f war in macroeconomic terms, with a resumption o f growth, reduced inflation and improved budgetary discipline. However, the socioeconomic costs o f the transition and war have proven enduring, seen in widespread and increased poverty, growing inequalities in income and access to social services, reduced purchasing power o f people with regular incomes, decreased social spending andreduced state subsidies. The lingering social and political consequences of the failure to achieve peace and recover occupied land in thepost-conflict period continue to inhibit progress towards greater democracy andpluralism. Azerbaijan could be considered a late reformer at best, and a reluctant one at that. In brief, power is still concentrated in the hands o f a few. There is limited oversight o f the executive branch o f the government by legislative and judicial entities. And, despite the fact that many political parties vie for power and presidential and local elections were recently held, representative democracy with a true opposition has yet to flourish in Azerbaijan. Participation in policy and political processes by professional associations and civil society remains rudimentary and ineffectual, with a consequent lack o f transparency, limited media freedom and endemic corruption.' * All these contextual factors have a bearing on the health sector (see Box 2.1). One obvious challenge is the lack o f a culture or process o f policy development that involves various stakeholders. According to Transparency International, Azerbaijan in2005 scored only 1.9 out o f a maximumscore of 10 on the CorruptionPerception Index andranked 140" out of 146 on a listing of most corrupt countries, with 146" country being the most corrupt. For purposes of comparison, Georgia, Russia and Turkey scored 2.0,2.8 and 3.2, respectively, giving themrespective rankings of 133, 90 and 77. For details, see the Global CorruptionReport 2005 at http:llwww.globalcorruptionreport.org. 25 Box 2.1. Macro-environmental and sector-specific factors with consequences for effective healthcare stewardship Limited degree o f pluralism andtransparency inpolicy- and decision-makiig inthe country ingeneral Azerbaijan's transition towards a market economy Macroeconomic management inthe context o fan expected rise inoil revenues Government commitment to the State Program for Poverty Reduction and Economic Development (SPPRED) Proposed reform o fpublic administration andthe civil service Lack o f tradition o f policy-based reform (in the Soviet system, most key decisions were made in Moscow andplanning was normative innature) A prevailing bureaucratic system o f governance inwhich the involvement o f healthcare professionals and consumers is visibly absent Despite the economic transition towards a market economy and ever-increasing private sector involvement, a bureaucratic proclivity for top-down normative planning and budgeting continues to impact the health sector. Last but not least, purported corruption inthe health sector compromises a levelplaying field, undermines system authority and public confidence, and seriously constrains access to care, especially by the poor, under- privileged andthose without "connections."'2 Pluralistic healthcare systems are characterized by four main stakeholders, each of which represents a specific function (see Figure 2.2): the population and/or "consumers" are at the receiving end o f health services, for which they pay either directly out-of-pocket or indirectly through taxes and contributions. Providers of care represent the "supply" side o f the equation and charge patients directly or through a third-party payer. The latter can be a public or private entity (either for- or not-for-profit) that collects premiums from enrollees or taxation from the population and, in turn, pays service providers according to various modes o f payment and/or reimbursement. Inatrulypluralistic system, the state, the fourth stakeholder, is often confined to making policies, legislating and regulating transactions among the three other parties and collecting information to ensure that each party respects the rules and regulations (i.e., payment compliance, quality o f services, etc.). This role in turn requires the active involvement o f all stakeholders insystem governance and management. l2According to the results of Transparency International's "Country CorruptionAssessment: Public Opinion Survey inAzerbaijan, 2004," public confidence inthe MOHis about 30 percent, onpar with confidence inthe roadpolice, tax and customs agencies, and the Privatization Committee-the so-called "fourth group" that enjoys the least amount of public confidence, less than the Cabinet o f Ministers in general and other ministries (MOE, MOI, MOSP, etc.) inparticular. For details, see http://www. transparency-az.org. 26 I - - -____ -- . Third-pariy payer __ - ._ 27 public health programs, such as those concerning HIV/AIDS, tuberculosis and malaria, even though these programs receive co-financing and technical assistance from external donors. Finally, all personnel incentral and district facilities are technically accountable to MOH, which controls staff appointments, including that o f chief doctors (a process usually conducted inconsultation with district governors). MOH also determines the staffmix o f facilities, salary scales, grading issues and other personnel policy matters. Inaddition, it specifies the nature o f employment contracts, leaving institutions at the local level very little discretion to adapt these contracts to local needs and conditions. Finally, it i s noteworthy that the Nakhchivan Autonomous Republic (NAR)has its own "Ministry o f Health" within MOH, which i s in charge of the administration o f NAR health facilities. Bakualso has a separate line of authority within MOH, which is accountable to its own healthdivision. Recommendations The Ministry of Health should assume responsibility for health policymaking in Azerbaijan. This step would require a careful redefinition of its vision, mission, mandate, roles and responsibilities. A senior-level intergovernmental working group should be formed, preferably by decree o f the President, to prepare a mission statement and a new organizational structure for M O H in line with these new functions and responsibilities. The new structure should, at the very least, include separate units for health policy; research, planning and coordination; and health promotion. It i s expected that the statement will move the M O H away from "rowing," that is, being mainly in charge of service delivery, towards "steering," that is, having a greater role in policymaking, regulation, quality assurance, control and intelligence gathering. In all likelihood, policy support and technical assistance will be needed from international partners. The next step would require establishing a mechanism to produce a White Paper that explicitly outlines Azerbaijan's health and healthcare policy and reform agenda and proposes a road map for its implementation. (See Chapters 4 and 5 for a proposed agenda and implementation options.) 2.4.2 Healthcare Financing Healthcare financing in Azerbaijan still largely resembles, at least officially, the former Soviet model of full public financing, inherited at independence in 1991. However, the healthcare system has grown increasingly dependent on extra-budgetary funds derivedfrom formal user charges andor informal payments by patients. Most patients now pay for all types of health services, from simple consultations to sophisticated interventions. Drug expenditures in particular account for an increasing share of household expenditures on health care. The 1997 law, "About the Protection of Health of the Population," states that the health system shall be financed from the state budget, mandatory medical insurance, voluntary 28 allocations, donations by legal and physical persons and other sources not explicitly prohibited by the legislation. Despite the fact that mandatory medical insurance is mentioned in the legislation and a law on a national health insurance system was passed in 1999, this system has not yet been introduced. This leaves three types o f pooled resources to finance the healthcare system: (i) public resources financed through taxation and collected by the Ministry of Taxes; ($voluntary private health insurance contributions collected by private insurers; and (iii) loans and grants from foreign governments and multilateral agencies. Collectionof funds Public resourcesfinanced by general taxation account for only a small proportion of total health expenditures. The ratio o f public to total health resources depends on the estimated level of out-of-pocket (OOP) expenditures. The Azerbaijan health expenditure study shows that only 20 to 25 percent of total expenditures were financed by public monies in2002 (see Table 2.9). Voluntary health insurance contributions represent less than 5 percent of total health expenditures. Although voluntary health insurance (VHI) was first introduced in Azerbaijan around 1995, the market remains small. Approximately 20,000 people (less than 0.2 percent of the total population) are currently covered by VHI, which represents only an estimated 5 percent of total healthexpenditures. It is assumed that the amount o f private services financed through VHI i s even smaller. This type of insurance is currently very expensive for the average Azeri and usually covers expatriates or people who work for large companies, inparticular, those who work inthe oil industry. Table 2.9. Compositionof Total HealthExpenditures, 2002 Type of expenditure AZM (Billions) % Source/Assumption GovernmentExpenditure District health sector expenditure 179.5 14.9 Form50 calculation M O H 50.0 4.2 Latest figure from MOH interview Rail, Police, Oil (250,000 pop.) 10.0 0.8 Assumed to be AZM 40,000 per capita Der year Total Government Expenditure 239.5 19.9 Private Expenditure User charges 13.7 1.1 Form50 calculations Informalpayments for services 270 22.4 Average informalpayment 3 times the average government salary Private health services 60.0 5.0 SSC -25% of government expenditure Drug direct payments 600.0 49.8 MOHestimate: US$130 millionper year Total PrivateExpenditure 943.7 78.4 Expenditure by aid agencies 21.1 1.8 8.8% o f government expenditure (WHO estimate) Total HealthExpenditure 1,204.3 100.0 Source: G&G Consulting, 2004. 29 Informal payments, which in many cases are the result of the regulatory regime, are widespread. The low level o f public expenditures devoted to health has increased the private cost o f healthcare services over time. This trend has been exacerbated by the regulatory regime, which promulgates troublesome norms (e.g., for treatment by specialized doctors) and decrees (such as one that forbids family members from visiting hospitals, creating an incentive to levy informal fees for each family visit). Informal payments can take two forms: (i) payments made outside o f official channels directly to healthcare workers in government health facilities, and (ii) the purchase or provision o f inputs (e.g., drugs and medical supplies) needed for care in government health facilities, inputs that are supposed to be included inthe services to which the population is entitled. Estimates of OOP healthcare payments based on official data vary between AZM 707 billion and 934 billion (approximately US$l50-190 million) in 2002. OOP healthcare payments reported inhousehold surveys likely include both formal and informal charges. Based the 2002 Household Budget Survey data, average per capita OOP spending on healthcare per month was AZM 6,970 (around US$1.40). This is approximately three times what the government spends on healthcare per capita per year. On an annual basis, survey estimates suggest that direct OOP accounted for AZM 707 billion in 2002, or 75 percent of total health expenditures. This figure i s lower than estimated inthe 2004 health expenditure study; the highest figure was AZM 934 billion, which would increase the share o f OOP to 78 percent o ftotal health expenditures (see Table 2.9). Out-of-pocket expenditures can exceed officialfigures by afactor offive. According to a recent household survey undertaken within the framework o f the Health Reform Project, OOP expenditures appear to be much higher than those reported in national household budget surveys, with annual per capita OOP expenditure reaching AZM 479,446 (around US$96), or roughly five times the previous official figures (AZM 83,600 for 2002 and AZM 88,908 for 2003). These figures were expected, given that household health expenditure surveys tend to show higher expenditures than general consumption surveys (where health expenditure represents only part o f the entire consumption pattern). This finding has two important policy implications. First, taking into account the survey's estimate o f OOP health expenditure, total health expenditures are rising sharply and second, the share o f OOP spending is also increasing. More informal payments are made to health personnel than to health facilities. I n addition, more of thesepayments are made in cash than in kind, and more are made for hospitalization thanfor primary orpreventive care. Recent survey results distinguish between: (i) payments for items other than the provider bill (i.e., "donations"); cash (ii)payments in cash to health personnel other than the provider; (iii) payments in kind (valuables or gifts) to health personnel; and (iv) payments for goods (drugs and medical supplies) and procedures (lab tests) procured outside the government healthcare facility. Regarding the latter, the survey didnot provide information on the extent to which inputs purchased outside a state healthcare provider were expected to be included in services to which the population is entitled free ofcharge. Altogether, informal payments represented 31.4 percent o f all OOP payments (see Table 2.10) in 2004. The majority (63 percent) o f these payments were made in the form o f 30 cash payments to health personnel. Payments out o f gratitude (inthe form o f gifts) were small, suggesting that informal payments are not made willingly by patients to show satisfaction with services provided. Informal payments were, moreover, higher for hospitalization than for outpatient or preventive services. In the case of hospitalization, payments for medicines or procedures (e.g., lab exams, diagnostics, medicine, etc.) procured outside the provider represented 44 percent o f total OOP payments. Expenditures on drugs obtained outside the provider represented the second-highest category of OOP spending (32 percent o f total payments), indicating an insufficient stock of drugs inhospitals. Table 2.10. Formal and Informal Payments by Type of Service, 2004 (% of total payment) ~~~ Type of service Hospitalization Outpatient Preventive Total Formal payments 15.8 64.8 78.1 58.1 Informal payments Payments to personnel outside 40.2 35.2 21.9 31.4 official channels Payments for goodslprocedures 43.9 1.1 5.4 outside the provider Source: G&G Consulting, "Health Financing Study," 2005. Rich people make larger and more frequent OOPpayments than do poor people, but OOP expenditures (mostlyfor hospitalization and drugs) represent a higher share of the income of poor households (see Figures 2.3 and 2.4). It is estimated that about 28 percent o f the population did not seek treatment when illin 2001, primarily because health services were too expensive. The figure rose to 39 percent among poorest households. This finding was also supported by a 2004 survey on OOP health expenditures. While decreased utilization of health care services due to high OOP payments may not have an impact on levels of morbidity and mortality in the short term, the impact may grow exponentially over time. Figure 2.3. Monthly OOP per Capita HealthExpenditure by Income Quintile, 2002 14000 I 11926 I 12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 Income quintile Source: SSC, Household BudgetSurvey, 2002, as cited inG&G Consulting, "Health Expenditure Analysis," 2004. 31 Figure 2.4. Household Health Expenditure by Income Quintile in 10 Districts, 2003 100.0 90.0 TransportationCost to Facility 80.0 0PrivateHealers 70.0 60.0 Private Doctorskiospitals 50.0 0HomeConsultation 40.0 30.0 0OutpatientFacility 20.0 10.0 =Hospital Payment 0.0 0 Medicmes Top 25% Income Second25% Third25% Bottom25% Income Income Income Source: WesternWorld Consultants"Baseline Study," 2003. The low level of publicfunding of the healthcare system in Azerbaijan is exacerbated by inefficient budget management. In addition to low public spending, there are discrepancies between the planned and executed national budget for healthcare (see Figure 2.5), with all types o f expenditure, even salaries, appearing to be lower in the executed budget. Consultations with MOH officials could not provide a clear explanation o f these discrepancies. One plausible explanation could be problems in the MOF's release o f the budgeted amount inthe first place. A second explanation could be that personnel expenditures are not calculated accurately during the budget preparation process. Figure 2.5. Ratio of Planned Healthcare Expenditures to Budget Execution by Type of Expenditure, 2003 (%) - 90% 8 0 % I I 7 0 % 6 0 % W 1 9 9 8 5 0 % I 1999 0 2 0 0 0 4 0 % 0 2 0 0 1 3 0 % 2 0 % 10 % 0 % P e r s o n n e l G o o d s a n d S e r v i c e s D r u g s C a p i t a l E x p e n d i t u r e s Source: WorldBank, Azerbaijan MacroPolicyGroup, 2003. Pooling of funds Health-related revenues in Azerbaijan are pooled by multiple agencies, both at the central and district level. While the collection of public revenues in Azerbaijan is performed by a single agency, the Ministry o f Taxes, the accumulated funds are then divided among a number o f agencies. The two most important agencies are the MOH 32 and district administrations. The healthcare budget for the MOH and district administrations i s established by the MOF, according to fiscal priorities set by the Cabinet of Ministers (CoM). The annual line-item budget allocation i s based on expenditures reported inthe previous year. Forecasted budgets are reviewed by the MOF and CoM, then approved by Parliament. Central fimding is, for the most part, used to cover hospitals, maternity homes, research centers, sanitary and epidemiological stations and training. Local budgets are largely used to cover district hospitals, ambulatory and PHC facilities, among others facilities. Approximately 75 percent o f the public healthcare budget is spent on the management of facilities run by districts and large cities, while the remainder covers facilities runby MOH. Parallel health systems exist for the State Railways Department, the Ministry of the Interior, the Ministry of Defense and the Government Oil Company. The MOF allocates healthcare resources directly to these entities. With the possible exception ofthe military, the budget ofwhich is unknown, entities that runparallelhealthcare systems are generally small; together, they represent perhaps 1 percent o f total public health expenditures. Paymentof public hospitals Hospitals obtain most of their funding from the budgetary allocations of MOF, paid through MOH or district administrations, according to line-item budgets. These allocations are intended to cover major cost items, namely, staff salaries, pharmaceuticals, equipment, maintenance and infrastructure. In addition, hospitals also receive direct payments from patients by imposing formal charges for health services. Income from user fees is mainly used to supplement salaries and, on the rare occasion when there is a surplus, to pay for drugs and/or improvements to a facility. A small number of the most prestigious hospitals in Baku receive payments from private insurance companies. Input-based, normative line-item budgeting is a major impediment to efficient resource allocation by type of healthcare, hinders performance and productivity, and reduces access to and quality of inpatient care services. The use of line-item budgets as a payment mechanism for public hospitals poses a number of problems. Line-item budgeting assumes that individuals will seek care in facilities to which resources have been allocated and consequently receive services. However, there is no obvious incentive on the part o f a facility to provide these services, given that the budget is allocated ex ante and not predicated on service needs or utilization. Further, in a system where public resources are barely sufficient to pay salaries, utilities and a small fraction of supplies, the first priority o f a health institution i s to ensure payment o f its medical personnel, then to finance the provision of services on a residual basis. 33 Payment of medical personnel The great majority of medical staff in Azerbaijan are salaried state workers. The salay of these medical professionals is among the lowest in the country. In2003, the average monthly wage o f medical personnel was just AZM108,900 (about US$22), only 28 percent o f the national average. In an effort to improve the situation, the salaries o f state-funded health sector employees were increased by 50 percent in June 2003. The measure did not, however, appear to bring their salaries into line with the national average. As a result, medical professionals continue to have a strong incentive to charge patients both formally and informally. The imposition of formal and informal charges is accepted as a coping mechanism not only by medicalprofesionals, but also by patients, who understand that official salaries are only a part of fair remuneration. State salaries, however small, formally link healthcare staff and the institutions where they work. Working as an employee o f these institutions, however, currently gives staff a quasi-license to impose informal charges on patients. This situation leads to rent-seeking activities throughout the hieararchy, with individuals appointed to senior positions often having to make significant payments (i.e., payments representing several years' pay) to even more senior executives. Fee-for-service is the primay de facto payment mechanism of public healthcare providers. Given the high level o f informal payments as a percentage of total health expenditures, one can argue that the most common provider payment mechanism in Azerbaijan is fee-for-service payments from patients directly to medical professionals. Private healthcare facilities Fee-for-service is also the primay payment mechanism of private healthcare providers. Private medical facilities were introduced in Azerbaijan in 1999 with the passage o f the Law on Private Medicine. The objective o f this law was to formalize private delivery o f healthcare and subsequently reduce the state's role inthe sector. The law facilitated the establishment of private healthcare facilities and stipulated their operating standards. MOH i s the sole licensing authority for such private facilities. To date, approximately 300 licenses have been awarded to private-sector entrepreneurs involved indental clinics, diagnostic laboratories and outpatient clinics. A number of services are provided free of charge in Azerbaijan, while copayments apply to others. Public funds are intended to pay for services provided free o f charge, as well as services for which official user charges were introduced in 1998. Certain groups of individuals are exempt from official charges; the government is responsible for paying all healthcare services provided to these groups. An actual copayment has two components: a payment to the person providingthe service (which supplements his or her salary) and a payment to the institution (which may use the money to supplement salaries andor purchase drugs). The exceptionally low level o f user fees as a percentage o f total health expenditures in the country (1.1 percent in 2002), as reported by official figures, suggests serious undereporting o f these fees. 34 Poverty is not a criterion for exemptionfrom formal healthcare payments. As already mentioned, according to the law, healthcare inAzerbaijan should be provided free at the point o f use, save for certain services for which a fee i s designated. A number o f groups are exempt from these charges but, with the exception o f IDPs and refugees, poverty is not a criterion for exemption from formal payments. However, it is believed that anyone who cannot pay is exempt from formal user charges, although they may still be required to pay some informal fee (possibly at a "reduced" level). Key Issues Analysis of healthcare financing in Azerbaijan has identified the following key issues: (i)low levelof public spending onhealth; (ii) a fragmentation o f pooled revenues; (iii) allocation o f resources according to historical budgets that favor large facilities with a highnumber o fbeds andpersonnel; (iv) an absence o f links between allocation o f funds and outcomes achieved; (v) an increasing role o f informal payments in financing the health sector and their adverse impact on utilization o f healthcare services, especially by the poor; (vi) growing inequities in regional allocation o f healthcare funds; (vii) under- execution o f plannedhealth expenditures; and (viii) a disproportionate share o f resources devoted to inpatient care and salaries. A disproportionate share of public resources is devoted to hospital care and salaries. These levels o f expenditure are high compared to those of other FSU countries (see Figure 2.6). If Azerbaijan seeks to move towards a family-based PHC model, where individuals can in most cases be treated by a general practitioner, a s h i ! of resources from inpatient to outpatient primary care is advisable. Although a high share o f resources devoted to hospital care may not be inefficient per se, the very low utilization rates o f hospital facilities in Azerbaijan suggests that these resources are being spent on underutilized facilities. Similarly, although total healthcare staffing is not excessive compared to other countries, the fact that hospital facilities are empty indicates that hospitalpersonnel are also underutilized. High hospital spending crowds out spending on public health and primary care. The PHC facilities currently tend to be underfinanced. The lack o f a sustainable system to finance these facilities impacts the effectiveness o f PHC providers and the availability o f resources, such as pharmaceuticals and medical supplies, essential to their operation. In general, PHC funds are only sufficient to cover salaries. 35 Figure 2.6. Inpatient Expendituresas YOof Total Health Expenditures in Selected Countries, LatestAvailable Year Kyrgyz Republic (2000)1 I67 Azerbaijan (2000) 61.8 Latvia (2003) 1 * I60.3 < PIb "e Kazakhstan (2000) I " 1 5 3 6 Finland (2002) I 4 39.2 " ] Estonia (2002) 1 1 , 130.5 I Czech Republic (2003) -1 3 6 2 I Hungary (2002) 29 Turkey (2000) I I i i I I 0 10 20 30 40 50 60 70 80 Percent Jource: WHO, "Health for All" database, 2005. Spending on wages negatively impacts spending on drugs and medical equipment. Wage costs also negatively impact the cost-effectiveness o f service delivery, which is determined not only by overall spending, but by the mix o f spending (which affects the availability o f drugs and medical equipment). Wages are essentially a fixed cost that must be financed regardless o f the amount o f medical supplies or other health production inputs. As a result, only about 14 percent of the state health budget is spent on medicines and medical supplies, indicating that most health facilities lack adequate supplies o f medicines andthat patients themselves must pay for the medicines they need. Recommendations The recommendations presented below focus on increasingthe budget allocation for health, inparticular for PHC services creating larger pools o fhealth revenues allowing for a provider-purchaser split and selective contracting promoting the allocation o f healthcare funds based on the health needs o f the population usingperformance-related payments for all healthproviders ensuring access to health services for the poor andbasic services for all, and rationalization o fthe current provider network. 36 A consensus on these recommendations is shared by several stakeholders active in the health sector in Azerbaijan. Although certain progress has been made towards their implementation, further efforts are needed.I3 There is a clear need to increasegovernmental spending on the health sector. The low level o f public resources presently devoted to the health sector has had a negative impact on access to, and utilization of, services, and needs to be increased. The collapse of public health spending over the last ten years has also had a negative effect on the equity and quality o f health services. Without further govemment expenditure on the health sector, the distribution o f health service utilization across income groups will become even more skewed towards the better off. Public resources should be allocated by linking the budget with the healthcare needs of thepopulation. Health funding couldbe allocated on a per capita basis, with adjustments made for patient characteristics, including demographic, epidemiologic, socioeconomic and other relevant factors. Furtherrefinements could include adjustments for the cost o f delivering care to more remote areas, with other important risk adjustments added over time. The creation of a single pooling entity could result in better planning for the health sector and allow for selective contracting. A single entity, either within the MOH or a separate entity, could lead to better planning for the health sector. Given that MOH and district authorities are presently the owners o f healthcare facilities, the introduction o f a separate entity would allow the purchasing and service delivery functions to be separated, thus increasing the probability that selective contracting would occur. An important way to improve the budgetprocess is to ensure that historical budget and activity data are accurate. This data is important informulating healthplans and budgets for future years. Activity data and budget information also needs to be more comprehensive, so that planners and finance staff can gain a more accurate picture o f the overall health sector. This means incorporating data from all MOH operations. This l3 Inresponse to the consensus on these recommendations, the government has already announced some important initiatives. Inparticular, the reform strategy set out in the State Program o n Poverty Reduction and Economic Development (2003) envisages an increase in expenditure o n the health sector, including wage increases. Health expenditures are projected to increase slightly, to 1.2 percent o f GDP by 2005. From a l o w base o f only 3.8 percent o f total expenditure in 2001, expenditures on the health sector are projected to increase to 6 percent by 2005. Allocations for personal emoluments will b e sharply increased, to 64 percent o f a much larger overall allocation by 2005. The budget for salaries and wages will increase by about 32 percent ineach o f the next three years. The wage increase is justified by some downsizing in the number o f employees. At the same time, a system o f flexible budgeting is planned to ensure that rationalization efforts are not penalized by subsequent reductions in budget allocations. The government also recognizes that health expenditures need to be refocused o n providing improved primary health care. The system o f targeted exemption for paid medical services will accordingly be reviewed to improve the targeting o f the poor. The government has also committed itself to gradually assume responsibility for financing the expanded immunization program and plans to increase financing for other important programs, such as those that address malaria and tuberculosis reduction, child and maternal health and healthy lifestyles. 37 process will require significant time and has already begun with the reporting o f district administrations to MOH. Improvements in technical efficiency, cost containment and quality could be achieved through performance-related payments to primary care providers and hospitals. Primary care facilities could receive payment on a per capita basis, with flexibility for generating savings that could be reallocated for pharmaceuticals and equipment purchases. Such an approach could improve quality through improved levels o f equipment and supplies, as well as national training programs for physicians and nurses. This strategy would need to be combined with a more systematic approach to monitoring user charges andwages inthe public healthcare system. Performance-related payments should also be usedfor hospitals. Gains in efficiency could be made by replacing current budgeting with payment mechanisms at the hospital level that reward higher throughput while motivating a decrease in cost per case. The experience o f other countries shows that performance-based payments are best applied within a global budget. Decreases inboth staffing levels and the average length o f stay could reduce the cost per case andresult inoverall savings within such a budget. Thepackage of servicesfinanced through general tax revenues should be revised so that public resources cover the cost of provision of these services. The issue o f the breadth and deptho fthe benefit package merits particular attention. At present, there is a package o f services that is fully covered by public resources in Azerbaijan, while other services are only partially covered. However, high OOP payments for all types o f services suggest that the real cost o f providing these services differs from the public funds allocated for them. The gap between real costs and reimbursement rates is currently financed by individual patients on a fee-for-service basis. One way o f addressing this issue would be to revise the specific package o f services based on the amount o fpublic resources available inthe system. Targeting mechanisms for reaching the poorest population groups need to improve. Poor individuals should be exempt from copayments for services that are partially covered, as well as from payments for services that are not covered at all. However, exemptions should be given to individuals in need, not to heterogeneous groups that mightcomprise worse-off andbetter-offindividuals at the same time. Another approach would be to introduce a compulsory social health insurance system in which individuals in both the formal and informal economies would pay monthly insurance contributions in return for a basic benefit package. The government could pay the insurance contributions o f the poor. Copayments based on individual income could be introduced to control demand for healthcare services and raise additional revenues. In a social health insurance system, special attention needs to be paid to entitlement. Individuals who are able to contribute and do not do so should not be entitled to receive any free care or qualify for low copayments. Rather, they should pay in full. Other 38 issues that need to be addressed are the capability o f the government to enforce and collect social insurance contributions and the ability o f a relatively large sample of the population to pay these contributions. A compulsory social insurance scheme could also be used to introduce supplementary coverage. The latter could be offered through either the private insurance market or various forms o f "local" prepayment schemes. For all these measures to work, the restructuring of the healthcare provider network, especiallypublic hospitals, is crucial. This process would involve the gradual merging and consolidation o f hospital facilities in order to reduce the total number o f hospital facilities in the country. This reduction would allow for a more efficient use o f public resources and the provision o f better-quality services. As a result, hospitals would increase their occupancy rates, individual patients would pay less out-of-pocket and healthpersonnel would receive higher salaries. Nevertheless, ifefficiency gains are to be made at the facility level, managerial autonomy is necessary to use funds in a way that addresses local needs. Increased autonomy over purchasing, personnelmanagement and service provision means greater accountability of hospitals for their own institutional decisions. A compatible human resource strategy should be developed that considers staff levels, as well as staff training and re-training in response to emerging needs. Each o f the above measures is one piece o f the greater puzzle o f health reform. None o f these pieces can, in isolation, be expected to provide the solution to the multiple challenges faced by the Azeri health system, or any other health system for that matter. Only their simultaneous implementation will initiate changes toward more equitable, efficient andbetter-quality health services. 2.4.3 Organization and Delivery The collapse of the Soviet Union and the subsequent independence of Azerbaijan led to the obsolescenceof the Soviet organizational model due to (i) lack o f enforceability o f the system hierarchy and its regulatory framework, which constituted the backbone o f a highly technocratic andnormative organizational model; (ii) up o f the healthcare opening marketto private financing anddelivery; and(iii) resulting free choice o fproviders. the The institutional survival strategy that emerged in the post-Soviet era was predictable: (i) power, hithertobasedinMOSCOW,consolidatedintheMinistryofHealth; new was (ii) existingmodelwasmaintainedaslongaspossiblewithnomajordisruptionsto the system authority or hierarchy; (iii) changes were introduced gradually, beginning inthose subsectors that were either most amenable to change (e.g., primaryhealthcare services) or untenable (e.g., dental care and pharmaceuticals); and (iv) coping mechanisms adopted by healthcare staff (the price for their continued service and loyalty) were ignored or overlooked. The downside of such a survival strategy is, of course, its total ignorance of the demand side of the healthcare equation. The result was a reduction in the volume, intensity, mix and quality o f heath care services; a major increase in private spending 39 during times o f economic hardship, and subsequent loss o f confidence in the system's ability to provide adequate care to restore health. Nonetheless, certain strengths were inherited from the previous system. The fact that the Ministryo fHealth, district authorities andbasic delivery structures were maintained gave the healthcare system a degree o f continuity. At the very least, this continuity ensured that funding continued to flow, despite its limited amount and skewed distribution. In short, survival of the system permitted minimal services to continue to be provided to some segments ofthe population. Service delivery is organized into a three-tiered network. National-level tertiary andor reference hospitals and polyclinics in Baku form the first tier, followed by district and city hospitals and polyclinics (second tier), and then rural hospitals, ambulatory clinics (SVAs) and village health stations, or FAPs (third tier). In addition, there are a large number o f specializedhospitals and dispensaries that address specific medical conditions or segments o f the population. While a certain system hierarchy and a referral chain appears to exist, the network i s fragmented among polyclinics, hospitals, staff and administrations, depending on the type andlevel o f care. RuralFAPs, for instance, which are meant to serve as first-level gatekeepers, are underused because people frequently bypass these facilities to seek care indistrict hospitals. Despite a modest decrease over the last decade, a surplus of hospitals and hospital beds remains. This surplus severely taxes the limited public sector budget devoted to healthcare, resulting in allocative and technical inefficiencies. Azerbaijan has a very highhospitalbed-to-population ratio. At 7.7/1,000 population, this ratio is second only to that o fRussia (9.5) and almost twice as highas the EUaverage o f 4.1. Given the fact that the country has a younger population than Russia, with people aged 65 years or older comprising only 6.5 percent o f the population, admissions and occupancy rates remain very low, 4.4 and 25.6 percent, respectively, and the average length of stay very high- 15.3 days (see Figure2.7). Figure 2.7 Availability and Use of Inpatient Care Services inSelected Countries, 2002 7 00 eo 80 70 80 50 40 30 20 10 0 Source: WHO, "Health for All" database, 2004. Note: All data are for 2002, except the EUaverage data, which is for 2000. 40 There is also wide variation in the use o f inpatient services, depending on the management and productivity o f the provider, the types o f services offered by a facility and its distance from major centers and the capital. For example, the occupancy rate is about 17 percent inTB hospitals and less than 15 percent in infectious disease hospitals. Occupancy rate alone is not, however, a valid indicator o f hospital utilization in Azerbaijan for at least two reasons. First, on the demand side, many patients are expected to pay for food, laundry, consumables and pharmaceuticals, as well as informal payments to inpatient staff, which in all likelihood results in the under-reporting o f inpatient service use. Second, on the supply side, the number o f reported beds i s very misleading, since a large majority o f hospitals, especially in rural and certain remote regions, are not operational, but are nevertheless reported as such because MOF funding is input- rather than output- based. In other words, funding is a direct function o f a hospital's potential, rather than actual, capacity and staffing. A primary healthcare (PHC) network is well established in rural Azerbaijan. This network is composed o f 1,830 Feldsher Ambulatory Points (FAPs), 680 Doctor Ambulatory Clinics (SVAs or DACs) and 360 village hospitalpolyclinics (SUBS) inrural areas. Inaddition, ambulatory clinics exist inlarge enterprises, and central district (town) or municipal hospitals and district polyclinics are present in some urban areas, bringing the grand total to 1,620 facilities (excluding 40 public dental polyclinics). There has been very little change in the number, distribution and service mix o f these facilities since independence in 1991. One could add to the list o f facilities physicians' private homes, which also function as a site o f PHC service de1i~ery.l~ I t is remarkable that all of these facilities are almost fully staffed and still provide certain basic service^.'^ The scope o f clinical services provided at this level o f the healthcare system is, however, very limited due to lack o f medical equipment and supplies, in addition to a limited and narrowly defined skills mix. Indeed, the term primaryhealthcare is a misnomer, since the care provided is very fragmented and has no continuity. People freely "shop" for physicians depending on their need and ability to pay (even primary-level physicians are considered specialists in their own narrowly defined area o f expertise). The concept o fintegrated family-based care is nonexistent. ThePHC level does not really operate as a gatekeeper. Rather, it generates a very high number of referrals to hospitals. Alternatively, users of PHC services are treated l4According to a survey by International Medical Corps (IMC), 31.7 percent o f PHC providers commonly see patients intheir homes. IMC, "Primary Health Care Network Survey for Southem Azerbaijan," November 2000. According to a recent survey conducted inten districts o f Azerbaijan, all FAPs are staffed with feldshers or nurselmidwives and close to 90 percent o f SVAs and 80 percent o f SUBs are staffed with physicians. In 2004, the average service population per physician was around 7,965 for SVAs, 19,53 1per SUBs and 4,224 for nurseifeldshers. On average, there are 1.5 physicians per SVA, 3.3 per SUB and 27 per district polyclinic (Western World Consultants, "Evaluation Survey," 2005). Except for SUBs, which have rather unrealistically high standards, there does not seem to be any major shortage o fphysicians. 41 privately if they are able and willing topay. Inany case, most services provided at this level are either a quick prescription, a referral or an illness certificate. The continuing use o f specialists to provide "first-contact" care builds low productivity and inefficiency into the system, particularly in small communities. Affordability, perceived quality o f care and socio-organizational and geographic accessibility are the main determinants o f outpatient services. Indeed, many acilities lack running water or electricity, let alone medical supplies and equipment.`I! Improved access to and quality of primary healthcare has been an objectivefor most UN and international nongovernmental organizations (NGOs) working in the health ~ector.'~These goals are also the primary focus of the World Bank-financed Health Reform Project. The projects financed by all o f these organizations combine efforts to train health sector staff, enhance clinical and management skills, upgrade facilities and promote community participation in the management o f PHC network facilities. While these efforts are well received by rural populations, PHC providers and local authorities, they need to be better coordinated. Inaddition, MOH andlocal authorities need to assume true ownership o f these efforts. Finally, collaborative efforts should subscribe to comprehensive health sector reform, especially inthe areas o f financing and stewardship. Otherwise, these efforts are destined to remain small in scale and experimental innature, with little chance o f sustainability. The role and responsibilities of Sanitary Epidemiologic Stations (San-Epid) have become obsolete as a result of the current demographic and epidemiologic transition, as well as changes in the organization and financing of the healthcare system. Most public health services geared toward disease prevention and control in Azerbaijan fall under the responsibility o f the San-Epid network, although in recent years, many such services have been financially and technically supported by international and private donors. Nonetheless, a decade o f underinvestmenthas significantly reduced the capacity ofthis system. A network o f 82 Municipal Epidemiological Centers staffedby specialist physicians and technical support staff are responsible for controlling infectious and parasitic diseases and monitoring environmental health. Their responsibilities include food and water safety, bacteriology, parasitology, virology and other laboratory services. These facilities are vertically organized and report directly to the Sanitary Epidemiologic Services Unit o f MOH. The network is also in charge o f organizing immunization programs, for which it provides technical advice and logistical support. l6In districts hosting World Bank-funded healthprojects, 83 percent of FAPs receive electricity for only half o f the day. Roughly 82 percent o fFAPs, 68 percent o f SVAs and 55 percent o f SUBSdo not have a water connection, relying instead on well water. None o f the FAPs and only 14 percent o f SVAs and 15 percent of SUBShas a sewage connection or their own toilets. The numbers are even worse inthe control districts, where a very large majority o f facilities are indire need o frepair-renovation and the standard set o f equipmentused at all levels inthese districts is either incomplete, missingor inneed o frepair. A large proportion o fthese facilities do not even have a means oftransportation (Westem World Consultants, "Evaluation Survey," 2005). The findings o f the I M C survey cited infootnote 14 above are very similar. "UNICEF,IMCand, morerecently, USAIDarethemostnotableexamples. 42 L o w salaries and limited resources have put many San-Epid services in abeyance. Outbreaks o f infectious diseases raise doubt about official statistics reflecting high coverage rates, especially because all children are included in the statistics, whether or not the cold chain i s maintained effectively." Nonetheless, the San-Epid system has had some recent achievements, including having helped to eradicate polio. The network is currently working with international partners on TB,HIV/AIDSandmalaria. As in most former Soviet Republics, the concept and underpinnings of health promotion have yet to take root in Azerbaijan. MOH does not have a department or unit in charge o f health promotion. The main obstacles to effective health promotion at the PHC level are the current organizationalmodel o f the healthcare system, lack of a family- based practice environment and lack o f skilled physicians and allied personnel. One could add to this list the role o f cultural mores and customs, including the attitude toward lifestyle-related health determinants (e.g., safe sex and not smoking), which require a heighteneddegree o f awareness and the assumption o fpersonal responsibility. *' Rehabilitative and Social Care Azerbaijan is well endowed with medical sanatoria. However, the contribution of these facilities to theprevention and cure of disease, or thepromotion of health in general, is doubtful. There are some 132 sanatoria and "medical rest" facilities for adults, with a total o f 25,000 beds. Inaddition, there are 18 inpatient medical sanatoria for children and a further array o f "preventoriums," rest homes and tourist centers that involve a care element, which account for an additional 3,560 beds. Some o f these facilities are owned by MOH, others by the Ministry o f Labor and Social Protection, enterprises and trade unions. Each is funded through the budget o f the respective agency that owns the facilities (as well as by informal payments). The services provided vary, but most sanitoria don't offer much more than accommodation and low-technology interventions such as occupational or movement therapy, "curative" baths, and so on. Social care is also fragmented among establishments owned by various ministries (including Education, Interior, Health, and Labor and Social Protection). These establishments provide care to orphans. Abandoned children, the elderly and disabled youth have access to residential facilities. One could add to this list the extended care facilities for mental patients. Social care facilities inAzerbaijan are characterized by: (i) a blurring o f boundaries between healthcare and social assistance, including relevant governmental bding and responsibilities, (ii) low-quality medical andpsychosocial care due to lack o f funding and adequately trained staff, and (iii) overall allocative According to the "WHO Healthfor All" database, which uses government statistics, immunization coverage was 97 percent in2004. However, baseline and evaluation surveys carried out as part of the HealthReformProject inAzerbaijan showed that real coverage varies between 85 and 90 percent for both first-dose and follow-up vaccines, which indicates that the full vaccination coverage rate may be even lower. Inaddition, no FAPs had refrigerators and 91percent didnot have cold boxes. At the SVA level, only about 3 percent hadrefrigerators and 34 percent, cold boxes, indicating that the cold chain may have been seriously hampered. Western World Consultants, "Evaluation Survey," 2005. See Chapter 1o f Volume I1for a detailed discussion o f behavioral determinants. 43 inefficiency (valuable human, physical and financial resources are captured by a large andineffective social care network). 2.4.4 Human Resources Azerbaijan has retained most aspects of the Soviet healthcare provider network, including heavy reliance (at least in urban areas) on hospital inpatient services. Ambulatory care is delivered by approximately 70 narrow-specialist doctors in polyclinics. There are just over 110,000 total health staff inthe MOHprovider network, about 140 staff per 10,000 residents. Twenty-four percent o f this number are physicians; 2 percent, dentists; 46 percent, feldshers, nurses and midwives; and the rest, paramedics andadministrative staff. Azerbaijan has a marked surplus of doctors, with excess capacity of up to 30percent at the aggregate national level. There are wide geographic variations and inequities in doctor and nursing staff levels relative to local populations. Total healthcare staffing in the country is not, however, excessive. Current doctor and nursing staff levels in Azerbaijan do not reflect actual healthcare needs, or even former Soviet planningnorms (Semashko) still in use in the country. Although national staffing averages are high, staffing in rural districts i s low, evidence that staffing in urban areas is substantially higher than average. Below the district level, the rural health network is experiencing significant personnel supplyproblems. Theprofile of the medical workforce in Azerbaijan continues to reflect the Soviet-era model of narrow specialization, with over-supply of certain specialties at the national aggregate level and shortages of others at local district and sub-district levels. This narrow specialist model undermines good-quality primary care and the supply o f doctors to rural areas, a problem that would be alleviated by moving the system toward a family- doctor model. The role o f nurses is also underdeveloped and, to some extent, crowded out by the surplus o f doctors inurban areas. Current Human ResourcesPlanningand Management Capacity Responsibilityfor human resource development isfragmented at both the national and local level, with four national ministries (Health, Finance, Education and Labor) involved. A rigid centralized statutoryframework severely limits the discretion of local management to make staffing decisions on the basis of local needs and service requirements. The national statutory framework inherited from the former Soviet Union is an impediment to the reform process. The current, 35-year old staffing norms are rigid inprescription, applied inconsistently, and provide a perverse incentive to restructuring. They are also largely based on outdated criteria. A centralized standard obviously cannot reflect the diversity o f local clinical needs across the country. Moreover, the current budgetarysystem imposes rigidconstraints on local decisionmaking and actually reduces already inadequate budgets. In short, there is no incentive to restructure staffing in the current healthcare system and every incentive to avoid doing so. 44 Current Capacity in MedicalTraining The capacity to train doctors at the undergraduate level far exceeds what the healthcare system is ever likely to require. As a general principle, state funding for medical education should be linked to demand for new doctors in the system. Unfortunately, the country currently has no demand plan, so it is difficult to determine the appropriate number of budgeted students whose fees will be paid by the state. Currently, some 500 places are available annually inthis category. The budgeted system offers a potential mechanism to improve the supply o f doctors to rural areas, provided conditions are placedon students who benefit from this free education. Undergraduate medical education should be integrated and post-graduate specializations should be linked to medium- and long-term demand. There should be further unification o f undergraduate training, with pediatrics becoming a post-graduate specialization and undergraduates educated in a single faculty across the spectrum o f family medicine. Options for Restructuringthe Health Workforce Correction of inequitable urban-rural staffing imbalances requires (i)new system for a planning and financing the healthcare workforce; (ii) financial and professional incentives for working inrural areas; (iii) relaxation o f supply pressures, thus allowing a family-doctor model o f care to emerge; and (iv) development o f non-medical roles to allow feldshers, nurses and technicians to work at a higher clinical level and go some way toward meeting the needs o f the community (e.g., by being trained to use diagnostic and therapeutic equipment). The imbalance in the current configuration of medical specialties could be gradually resolved through a new program of post-graduate medical education (such as that proposed by Azerbaijan Medical University) and a new system o f healthcare workforce planningbased ona mix o f specialties that respond to local needs. Under-utilization of staff and disincentives for staffing reform require changing budget rules to permit greater local autonomy by: (i) removing the formal link between budgets and bed numbers; (ii) abolishing rigid line-item budgets and allowing local managers the discretion to allocate their total budget at the local level; and (iii)allowing districts to retainunspent monies and transfer them to other definedparts o f the budget. Improvements in the pay scale of health workers could partially be addressed by: (i)optimizing current budgets so that surplus posts are removed without reducing the overall staffbudget; (ii)changing the incentive structure to link payments to productivity; (iii)formalizing all copayments to increase overall staffing budgets at the local level (this is now beingdone in"self-managed" units ofthe system). A more dynamic retirement policy is needed for older staff, which could include severance payments. Overproduction o f medical graduates could be curtailed by closing or imposing strict regulation and norms on the licensing o fprivate universities. 45 2.4.5 Pharmaceuticals Public expenditure onpharmaceuticals is one of the lowest in the region, yet as a share of total health expenditures, it is one of the highest because a very largeproportion of pharmaceutical expenditures are made out-of-pocket. Affordability o f drugs is thus a major concern. While estimates vary from one survey to another, pharmaceutical expenditures account for approximately 60 percent of total health expenditures, 70 percent o f total OOP expenditures and 30 percent o f inpatient expenditures. Total annual sales of pharmaceuticals in Azerbaijan are estimated between US$120 and US$l50 million. A wide range o f pharmaceuticalproducts are currently available on the market. However, the public allocation for drugs is a bare minimum, limited to either inpatient care or diseases with public health consequences, such as tuberculosis, malaria, and other chronic diseases. As a result, the burden o f paying for almost all outpatient drugs falls squarely on the patients themselves. Since independence, the pharmaceutical sector in Azerbaijan has undergone considerable changes-from severe shortages to a rapidly maturing and consolidating market. Most drugs are imported and remain expensive by local standards. Domestic production in Azerbaijan remains limited. Imports are estimated to account for at least 60 percent o f the local drug market. While there are nominally two production facilities inthe country, only one pharmaceuticalplantis currently inoperation. There is a large and unregulated informal market in pharmaceutical products in Azerbaijan. The sales o f unregulated market traders are estimated to account for as much as 50 percent o f market volume. Although several laws govern the import o f pharmaceuticals and inspection o f imports has improved, anecdotal evidence indicates that up to 70 percent o f imports do not pass through customs or undergo inspection. Quality control has recently been instituted through the introduction o f a "hologram seal o f approval," but pharmaceuticals without this seal are still widely available and distributed. The absence o f the "hologram seal" is often explained by saying that retail drugs came from old stocks distributed prior to the new system, or that the seal was affixed only to the wholesale bulk package, not retail packages. Access topharmaceuticals has ceased to be a problem, but geographic variations exist. The number o f pharmacies in Azerbaijan is adequate, about 1 per 5,500 persons, compared with the Western Europe average o f approximately 1 per 6,750. However, certain rural areas still do not have any pharmacies. Shortfalls in the public healthcare budget have reduced the number o f people eligible for public drug coverage and subsidies, as well as the list o f covered products. Although private pharmacies are supposed to supply drugs free to certain defined vulnerable groups, they rarely do so. Private pharmacies generally turn away subsidized patients because o f delays in government reimbursement. Community-based health councils, moreover, determine which families are exempt, leading to large variations in their number. 46 Figure 2.8. Average Monthly HouseholdExpenditure on Medicines by Income Quintile 9,000 7 i 8,000 7,000 6,000 32 5,000 E 4,000 3,000 2,000 1,000 0 1- 2 3 5- ~ poorest Income Quintile 4 richest Source: HBS 2001, as cited in World Bank, 2003. Annual per capita outpatient expendituresfor prescribed and over-the-counter (OTC) medicines are very high: 52percent of total outpatient expenditures. An earlier study (Health Expenditures Analysis study), estimated that direct drug payments ranged from 46.2 to 49.8 percent of OOP health expenditures at the household level. The relatively high incidence of expenditure on pharmaceuticals by households seems to be consistent with the estimate by local experts that public pharmaceutical funding covers, at best, approximately 10percent of demand. Rational Use of Drugs Irrationalprescribing of drugs continues to undermine the quality of healthcare. This practice i s an inheritance of the former Soviet health system, inwhich all treatments were free and consultations createdthe expectation of a prescription. Since many drugs are available OTC,people often bypassphysicians and go directly to the pharmacy. Potent pharmaceuticals, including antibiotics, can often be purchased without aprescription. With the support of the World Health Organization (WHO) and the World Bank, MOH has started to develop treatment protocols for selected common diseases, linked to modificationsof the essentialdrug list. At present, the only standardizeddruglist is that used for patients who are eligible for free care. Even that list contains a range o f drugs that do not meet WHO standards. An essential drug list (EDL) is being finalized by M O H and may be adopted before the end o f 2005. A modern national drug formulary that uses internationally recognized drug classifications (ATC/DDD) is also expected to be adopted, together with revised standardtreatment protocols (STP). 47 Recommendations Azerbaijan needs a comprehensivenational drugpolicy. The objective of such a policy would be to improve the population's access to high-quality, safe and efficient drugs in accordance with the burden o f disease and national healthcare priorities. The policy document should review progress to date on legislation and regulation, identify areas where hrther legislation and regulation is needed, and highlight weaknesses in existing system capacity (institutional and human) to support enforcement, quality assurance and control. More specifically, the policy document should: (i) maintain and improve the quality, safety and efficiency o f the production o f pharmaceuticals in the country; (ii)establish an efficient pricing system and reimbursement policies; (iii) the secure uninterrupted supply o f and access to drugs belonging to critical therapeutic classes (in accordance with disease prevalence, morbidity and available financial resources); and (iv) buildup a system for the rational use o fmedications. Crucial goals include thepricing of brand and generic drugs, creation of an essential drug list and standard treatmentprotocolsfor most common diseases. Present efforts to develop and adopt an EDL suitable to Azerbaijan should be pursued to completion. In additional to an EDL, work on a national drug formulary and standardized treatment protocols (STP), together with a program for rational drug use (RDU), should be completed as expeditiously as possible. Expansion o f STPs to cover additional areas should be on the immediate horizon, using present momentum to update the body o f medical knowledge inthe country. Ongoing work to improve the National DrugRegister must be maintained to ensure systematic documentation that meets international standards. Training (pre and in-service) for all practitioners also needs to be conducted on a regular basis. Most importantly, a public education and information campaign should be carried out on the EDL, STPs andRDU. Quality control and assurance need to befurther strengthened. Despite a great deal o f progress, especially with regard to licensing and the use o f holograms, good manufacturing practices (GMP) and good laboratory practices (GLP) in the manufacture andtesting o fboth imported and locally produceddrugs needto be introduced. Effective law enforcement to prevent importation or manufacturing o f counterfeit or low-quality drugs should be scaled up. All these initiatives require significant investment in human resource development, and in production and testing facilities, not to mention education o f the general public. Affordability of drugs can be improved under current circumstances. While the adoption o f an EDL would be a step in the right direction, the government also needs to review the pricing o f drugs on the EDL and its own payment and reimbursement policies so as to better target the poor and chronically ill.These changes would lead to the revision o f state budgetary allocations for pharmaceuticals procurement. Targeting mechanisms used for social assistance could also be used for this purpose. Another method o f potential cost containment is for the state to become an active bulk purchaser of, at the very least, drugs used in public facilities or distributed fi-ee (or at low cost) to 48 eligible patients. Albania introduced precisely such a mechanism, resulting in lower prices and a higherquality ofpubliclyprocured drugs. Appropriate use of drugs begins with goodprescribing practices of physicians. While the introduction of STP would be a step in the right direction, it i s unrealistic to expect that all medical practice could be covered by such protocols. While a more holistic family medicine model is likely to increase time spent with patients, and consequently decrease both the number o f prescriptions and the number o f drugs per prescription, in- service physician training could, in the short run, result inmore appropriate prescribing, as seen inpilot districts ofthe World Bank-financedhealthproject inthe country. Current training efforts must, however, be scaledup considerably. A monitoring and evaluation system (M&E) is urgently needed. Admittedly, the amount, reliability and validity of data on pharmaceuticals remainvery limited for sound policymaking and regulation in a sector known for its dynamism, private-sector involvement and consequences for health and safety. Inits ever increasing stewardship role, MOH should buildits own M&E system to collect timely and accurate data on the production, importation, distribution, pricing, quality control and retailing o f pharmaceutical products, as well as the prescribing patterns of providers. In addition, feedback mechanisms should be put in place, such as the Central Drug Control Laboratory hotline for user complaints, to improve the quality o f pharmaceuticals sold in the country. 49 CHAPTER3. ANAGENDAFORHEALTH SECTORREFORM 3.1. The Case for Health Sector Reform Although adequately endowed in terms o f facilities and staff, the healthcare system in Azerbaijan has not been successful indelivering essential health services, nor has it been able to respond to the evolving, needs, preferences and aspirations o f the people o f Azerbaijan. Indeed, the country has very large unmet preventive and curative healthcare needs. The shortcomings inthe quality and adequacy o f health services presented inthe previous section all point towards the healthcare system as the main "culprit." An equally, if not more, important determinant o f the present status o f healthcare in the country is the attitude o fpolicymakers, who continue to defend the reliability andvalidity o f inaccurate administrative data.20 In 1999, for instance, MOH reported that 98.5 percent o f children aged 12-23 months had been inoculated with the measles vaccine, yet an independent survey found that only 66.9 percent o f children in this age group were actually immunized, a rate lower than necessary to build herd immunity to prevent measles outbreaks. There is broad consensus among national and international policy analysts and health system specialists that the healthcare system o f Azerbaijan has failed to reform Soviet- style centralized financing and normative allocation o f human, physical and financial resources. This failure is evidenced by persisting skewed budgetary allocations that over- fund excessive hospital facilities and inefficient tertiary-level servicesY2lwhile under- fundinghighly fragmentedandpoorlymanaged primary healthcare services.22 Compared with other countries o f the FSU, Azerbaijan is truly lagging behind inthe modernization o f its healthcare system. 3.2 Scope and Purpose of Health Sector Reform The recommendations below are intended to achieve the often conflicting objectives o f improving equitable access to care, comprehensiveness and continuity o f care, patient freedom o f choice and satisfaction, and allocative and technical efficiency o f service delivery. More specifically, these recommendations are meant to help the healthcare system move from a model o f specialist physician-centered care towards a model o f family-based primaryhealthcare (PHC); a biomedical care model towards a model that values disease prevention and health promotion; 20According to the UNDP Human Development Report 2002, Azerbaijan (with a GDP per capita PPP o f US$2,936) i s the only country with a LEOof 71 years but with an IMR,U5MR andMMRfive to six times those o f the countries with the same LEO, a finding that indicates the incongruity o f official and survey data. By comparison, LEoinBulgaria (with a GDP per capita PPP o fUS$5,710) is 70.8, yet the country's IMR, U5MRandMMRare 14, 16and 15, respectively. 21Azerbaijan has 7.3 inpatient beds for acute care per 1,000 population and a hospital occupancy ratio o f 28.5 percent or less, compared to EU-15 averages o f4.2 and 77 percent, respectively. Hospital and tertiary care services together represent 62 percent o f total health expenditures inthe country. 22See Holley, Akhundov andNolte, "Health Care Systems inTransition," 2004, 19-20. 50 a highly structured, hierarchical model towards a more integrated, network-based model with built-ingatekeeping; a model that does not solve most health problems (referring them instead to higherlevels) towards one where mostproblems are solved at the PHC level; a model with extremely inefficient resource allocation towards a model that allocates resources according to healthcare needs; and, a model where provider payments are based on inputs towards a model where providers are paid on the basis ofproductivity and the appropriateness and quality o f the care that they provide. These recommendations are organized into three basic categories: system hierarchy, management (including issues relatedto decentralization), and funding. 3.2.I System Hierarchy The number and distribution of FAPs, as well as the skills mix in FAPs is ap~ropriate.~~ level of care has been neglected, resulting in serious deskilling o f This staff, deterioration o f health facilities and lack o f basic equipment and supplies. This well-established, grassroot-level healthcare network should be upgraded, its service mix re-assessed, and the benefit package for feldshers and nurse/midwives revalued. In addition, the scope and quality o f matemal and child healthcare providedby FAPs could be quickly improved by additional training and investment in facilities, equipment and supplies. Staff o f these facilities could also be trained as change agents in information, education and communication (IEC), especially for health promotion. In addition, they could be used to provide home-based care o f patients with chronic conditions (e.g., asthma, diabetes, high blood pressure, etc.), as well as for directly observed short-course treatment (DOTS) for Tuberculosis and other standardized regimens (e.g., the integrated management o f childhood illness, or IMCI). These functional changes would require upgradingthe training curriculum o f FAP staff, as well as extensive in-service training. Research should be conducted to better understandthe professional and personal needs, preferences, practice behavior, productivity and aspirations o f FAP staff, as well as the incentives that would motivate them to provide the new mix of services effectively. While the number and distribution of physicians at the SVA level appears to be adequate, their skills mix is not.24 This level o f care i s too close, in terms o f the catchment population, to both grassroots FAP care and SUB care. However, physician qualification requirements and skills at this level are not adequate for family-oriented 23Surveys on clinical services and practice styles conducted inthe 10pilot districts o f the World Bank- assistedhealthproject inAzerbaijan showed that FAPs cover, on average, 4,000 people, a good size for the proposedmix o f services (Western World Consultants, "Evaluation Survey," 2005). 24Surveys on clinical services and practice styles conducted inthe 10pilot districts o f the World Bank- assistedhealthproject inAzerbaijan showed that SVAs cover, on average, 8,000 people, a good size for a team o f 2 to 3 primary-care and community-health physicians (Western World Consultants, "Evaluation Survey," 2005). 51 PHC. In addition, SVAs also employ feldshers and nurse/mid-wives whose geographic area o f responsibility and skills overlap those o f their colleagues at the FAP level. There are two options for SVAs: One option is to abolish this level of care, at least in areas where geographic accessibility to village-level hospitals (SUBs) is not a problem. The SUBs should then be reconfigured to provide family-oriented PHC in a practice environment with a certain critical mass o f physicians. This option would only make sense if no change inthejob description o fthe SVA physicianwas envisaged. b A second, more likely, option would be to redefine the roles and responsibilities of the SVA physician (and, if needed, increase their number) in a manner more conducive to providing community-based preventive and public health services, managing the staff o f other SVAs andFAPs, and delivering family-oriented PHC. This change in job responsibilities would require retooling physicians through extensive training. Again, the same kind o f knowledge, attitude and practice (KAP) researchwouldbe needed. Village-level hospitals (SUBs), which have an average of 32 beds, appear to have become redundant; these units have low admissions and occupancy rates. There are too many SUBs and most are under-utilized. The proposed recommendation for these facilities is to investigate productivity indicators, including commitment and relevance indexes,25preferably in a pilot project in a selected number o f districts. On the basis o f the pilot, local decisions could then be made to either maintain SUBs as small hospitals or transform them into group practice settings-hubs o f a rural network of SVAs and FAPsthat would also provide specialized outpatient care.26 This strategywould not make major changes to the scope and mix o f services provided at the SUB level, except for the discontinuation o f inpatient care services. Nonetheless, it would entail extensive training. The evaluation process should build on previous experience in preparing district-level rationalization plans for those districts that are participatinginthe World Bank-financed HealthReformProject. Thenumber of central district hospitals is adequate. However, many appear to have too many beds. In addition, hospitals at the district level are dispersed into separate buildings-sometimes entire facilities-for maternity care, infectious diseases, childrens' hospitals and/or wards and district polyclinics. There i s a major need to reconfigure, consolidate and, in some cases, downsize these facilities. Even changes in physical infrastructurewould generate significant savings bydecreasing maintenance costs. 25A commitment index refers to the proportiono fpatients seeninthe facility who come from the theoretical catchment area; a relevance indexrefers to the proportion o f all patients inthe theoretical catchment areawho actually use their own facility. 26 Surveys on clinical services and practice styles conductedinthe 10pilot districts o f the World Bank- assistedhealthproject showedthat SUBs cover, on average, 20,000 people, which would qualify as a hub o f a PHCnetwork and a center for specialized outpatient-based care (Western World Consultants, "Evaluation Survey," 2005). 52 A district-level mapping exercise mustbe undertaken to determine the appropriate size of central district hospitals and to redefine the scope and complexity o f their services. These determinations should be made with a view toward minimizingpatient referrals to Baku hospitals. All future investments in physical upgrades and medical equipment by these facilities should be based on the outcome o f this exercise, together with the definition of specialist-physician training needs. The number of specialized hospitals, dispensaries, sanatoria and `%estestablishments" needs to be significantly reduced. This reduction would require a change o f policy vis-&- vis their role in the healthcare system, the extent to which their services should be covered out of the public budget ingeneral and by MOH inparticular, and which o f their services could be integrated into the existing healthcare network. The vast hospital network in Baku deserves separate analysis to better understand the demand side of the services provided by it. This means ascertaining what proportion o f patients served by these facilities are from Baku and what types of services attract patients from outside the capital. The analysis should propose an optimal reconfiguration o f the Baku hospital network, using an integrated model with a hierarchy of care levels. A special committee will need to be put in charge of the consolidation. A similar approach could be adopted for the health facilities of NAR, given its geographical separation from the rest of Azerbaijan and separate healthcare administration. 3.2.2 Management of Health Facilities Primary Healthcare Thefirst step in refocusing the healthcare system onprimary healthcare is to define an essential package of services that would be provided free of charge to the entire population, regardless o f their status, employment, income level, or place of residence. This service package could be based on the services that are technically free today, but the cost o f these services must first be established. A fee policy and schedule for services provided outside the basic package should also be developed. Second, the composition of PHC teams and thejob descriptions of team members must be redefined with a view toward encouraging teamwork, complementarity of skills and tasks, and provision o f the basic service package. Third, the training needs of PHC team members should be defined and a trainingplan costed, timed and implemented. The training program should cover both clinical practice and basic tenets o f community-based, primary and family healthcare (ie., comprehensiveness of care, continuity o f care, psycho-social aspects of care, the patient- provider relationship, etc.). The program should first be piloted, based on previous experience, then scaled up after two to three years. These changes would require a revision of the current practice environment of the primary healthcare level and substantial capital investment in the medium term. 53 Finally, the terms of employment of PHC teams should be revamped. (This task will be dependent on general civil service reform.) Efforts must be made to introduce flexible employment conditions, such as contractual agreements with MOH or local authorities. Employment arrangements should encompass fund holding, managerial responsibilities, modes o f payment, such as unweighted per capita, risk-adjusted per capita, etc., (dis)incentives for patient referral, case management o f chronic conditions, home-based care, etc. Inpatient Care Decentralization of hospital management is the key to improving inpatient care. Decentralization must specifically address the extent to which hospitals can make their own decisions on strategic issues (e.g., capital investment in infrastructure, equipment, change in the scope and mix o f services, etc.), directly procure goods and services, manage their accounts, decide on human resource needs, and set their own employment conditions and personnel policies. One model, already tested on a small scale, would be to retain MOH ownership o fhospitals, but allow individual hospitals greater management autonomy and pluralism-at their own financial risk. While this strategy might improve technical efficiency, large-scale application o f this model would likely reduce access to inpatient care, increase inequalities and quite possibly exacerbate allocative inefficiency. A more appropriate model for Azerbaijan is a management structure involving local authorities, community representatives and MOH. These stakeholders would oversee a professionally trained hospital manager who would have the authority to purchase and contract out goods and services within the limits o f a global budget. This budget would be broadly determined on the basis o f a costing exercise and fine-tuned over time. Hospitals should also be allowed to define a fee schedule and retain revenues for services provided outside o f the essential package. Such a model would require information disclosure, independent financial and technical auditing of hospital accounts and a regulatory framework for contracting, all responsibilities that, inthe short term, belong to the MOH as part o f its stewardship role. While it may be too early to expose hospitals to the market in terms o f raising capital, subleasing and/or liquidating assets, or investing in high-cost medical equipment, in the short term, they could be allowed to hire or lay o f f staff and make minor investments to upgrade facilities. 3.2.3 Funding of Facilities and Payment of Providers Primary Healthcare Depending on how PHC providers are renumerated (see discussion in section 3.2.2), PHC teams could receive a capitation payment that would be adjusted according to qualifications, seniority or area of practice. Alternatively, the capitation could be weighted on the basis of the demographic and morbidity profile of the catchment area served. This amount could be supplemented by a fee-for-service scheme for specific 54 services, based on output (e.g., number of children immunized) or outcome (e.g., no diabetic comas, highbloodpressure under control, etc). While these proposed changes may not be possible under the current personnel regime, they are nevertheless crucial. Organizational changes andtraining alone will not improve the accessibility and quality o f PHC services. The recent significant increase in the pay scale o f healthcare staff is welcome, but remains insufficient to improve their motivation and performance. Indeed, contractual agreements with PHC teams are becoming more prevalent as many FSU and Eastern European countries move away from salary to capitation payments at the PHC level. Examples to date include Bulgaria, Moldova, Kyrgyz Republic and Bosnia Herzegovina, to name a few. Inpatient Care For proposed managerial changes to be effective, line-item budgeting based on input norms must be discontinued. Most other transition countries have opted for some variant o f output-based funding, be it on a per case, per day, per admission or diagnosis-related groups (DRGs) basis. Others countries have opted for capitation or global budgets as their primary mode o f funding. Changes in the system o f financing would need to be introduced over a certain experimental period, beginning with a costing o f inpatient services to determine real costs, followed by a trial-and-error period o f cost-based budgeting. The behavior o f hospitals could then be tested and fine-tuned by adjusting fee schedules andprofit margins. The distinction between private and public ownership should eventually blur as hospitals come to befinanced by a mixture of public and private funds, with payments based on output. The challenge o f this new financing framework will be to ensure a level playing field in terms o f regulation, quality assurance and control. MOH will need to assume this responsibility until a mandatory health insurance system is created and the service delivery and financing functions o f the healthcare system are separated. 3.2.4 Cross-cutting Issues Three additional actions are needed to enhance the effectiveness o f proposed organizational reforms: (i) o f medical education and specialty training; (ii) reform re- alignment o f public health and clinical practice in accordance with emerging healthcare priorities and contemporary trends in epidemiology; and (iii) strengthening o f the San- Epidnetwork. The current status o f medical education in Azerbaijan and recommendations for its reform are addressed in Chapter 5 o f Volume 11. In short, three issues need to be addressedin medical education reform: The human resources development plan for the healthcare sector needs to be revised and updated in accordance with the projected supply of physicians and the demandfor healthcare. The update should be supplemented by a review and revision, ifnecessary, o f the personnelpolicy governing the medical profession. It 55 would be preferable if the update addressed other professions, especially feldshers, nurses and midwives, so that the new plan is based on a thorough view o f healthcare inits entirety. A detailed analysis o f the roles and responsibilities o f all institutions and stakeholders involved inmedical education is needed. Ifrequired, the institutional foundation of the medical profession should be strengthened, a strategy that may entail establishment o f a medical research council and a stronger physicians' association (to better respond to changing needs and preferences o f the medical community). The entireprocess of medical education,from educational entry topost-graduate practice, must be critically reviewed. This review should identify the relative importance o f various determinants, financial or otherwise, that make the system amenable to policy change in favor o f evidence-based medical practice. The review should specifically focus on: (i) input, or the selection process; (ii) throughput, or medical education program management and its components (faculty, curriculum, teaching methods and infrastructure); (iii)output, or board examination and licensing; and (iv) teaching institutions themselves, including research as an integrated educational activity. Notwithstanding high infant and maternal mortality rates, the burden o f disease in Azerbaijan, as in many countries o f the FSU, falls heavily on the adult population. The current disease burden consists mostly of largely preventable non-communicable diseases (NCDs), a reality that calls for a new public health paradigm which emphasizeslifestyle changes. The following actions are needed: The M O H should establish, properly staff and fund a new unit incharge o f health promotion. Such a unit should develop anN C D strategy and actionplan. In-service training o f PHC physicians and relevant specialists should include communication and counseling skills specifically geared towards NCDs and their main determinants (e.g., smoking, nutrition, exercise, etc.). Training should also include evidence-based case management o f NCDs in line withmoderndiagnosis andtreatment protocols. A similar approach is needed to ensure prevention and control o f tuberculosis, STIs and HIV/AIDS at the primary healthcare level. Finally, the San-Epid network is in dire need of reform. Its capacity for system intelligence, disease surveillance, outbreak detection, rapid response, and maintenance o f the cold chain and laboratory network must be strengthened. These goals require the following actions: Core public health functions that fall under MOH (e.g., immunization, bacteriology laboratories, etc.) should be separated from those that fall under 56 municipal authorities (e.g., food hygiene, environmental health, water quality, etc.). A convincing case shouldbemadeto increasethe financing o f San-Epid facilities, with significant capitalinvestment, preferably through donor funding. A training plan inmodern methods of epidemic surveillance and control methods should be prepared, timed andcosted. 57 CHAPTER 4. THEWAY FORWARD At present, the health status o f Azerbaijan's population is poor, both in absolute terms andrelative to other countries at a similar level o f socioeconomic development. However, two caveats need to be made. First, unlike many other countries, the Azeri health sector could not be considered an underachiever per se because major structural and financial obstacles currently prevent the healthcare system fiom functioning properly. To put it differently, governance and financing o f the system is anachronistic in view o f the significant progress made towards a functioning market economy and major reforms in other areas o fthe public sector. Second, the amount o f funding allocated to the healthcare system by the state is so meager that it barely covers the wage bill. Wages are, moreover, well below any reasonable pay scale that one would expect in a relatively well-endowed healthcare system. Inshort, the questionis not whether efficiency canbe improved inany significant way, or better value obtained for current investment. Rather, the question is what volume of funding, in addition to organizational andfinancial restructuring, is needed to make the systemfunction again. Given the close relationship between health and the economy, a phased reform is proposed tofoster a virtuous cycle of investment and improved health.27 Phase I would focus on programmatic issues. Specifically, it would concentrate on defining healthcare priorities and improving the day-to-day functioning of the system to enhance access and quality of care. Affordability would cease to be the major impediment that prevents people from seeking healthcare. This phase would involve establishing a package o f essential, cost-effective clinical and public health interventions andbuildingthe mechanisms andtools to deliver these interventions effectively. The essential service package would mainly include services provided at the primary-care level, but include case management o f chronic diseases that require occasional inpatient care. Effective delivery o f such a package would require identifyingthe major causes o f the current disease burden; standardization o f diagnostic, treatment and referral protocols; costing o f interventions; training and certification o f primary-care physicians and allied personnel; establishing mechanisms for quality control and assurance, including an information management system; and establishing the legal and regulatory basis to assign roles and responsibilities, as well as the necessary financial and non-financial incentives to ensure effective delivery. Ifimplementedproperly, themain advantagesof PhaseIwouldbe: public health interventions that are easier to design, pilot and implement, with a potentially highimpact ina decentralized setting; 2'See J. Frenk ,"Comprehensive Policy Analysis for Health SystemReform," Health Policy 32 (1999257-77. 58 minimumdisruptionto the current organizational setup, makingthe initialreform phase more politically palatable; an opportunity to buildon ten years' experience inPHC; an opportunity to showcase real improvements inaccess to care; a pro-poor orientation; affordability (minimal ca ita1investment would be required and only modest recurrent costs incurred);l)8 and momentum for more comprehensive reforminthe medium term would be preserved, while gradually strengthening the stewardship capabilities o f MOH. Disadvantages could include a public perception o f "too little too late" and tinkering at the edges o f the system without commitment to comprehensive reform (Le., redefinition of the roles and responsibilities o f MOH and other key institutions, as well as financial reform). Phase Iwould, in fact, retain current system segmentation; the better-off would continue to be privately insured and/or use private facilities. The initial phase o f reform would, however, allow the GOAto begin experimenting with contracting service delivery to the burgeoningprivate sector-the so-called "public contract Phase 11 would still be programmatic, but wider in scope. I t would encompass the reform of both inpatient andprimary-level healthcarefacilities and services. This phase would focus on improving allocative and technical efficiency. It would include all elements o f Phase I,albeit with additional capital investment in hospital infrastructure and equipment aimed at rationalizing inpatient care facilities. Additional investment would, in all likelihood, require a sharp reduction inthe number o f hospitals on the basis o f a nationwide mapping exercise. Such an exercise should be preceded by a thorough assessment o f inpatient and outpatient healthcare needs and the existing supply and utilization o fhospital beds andother inpatient services. Subsequent changes will, however, still be needed. Specifically, payments must become output-based, at least initially, until sound cost-accounting practices are developed and implemented, and the real cost o f a comprehensive set o f hospital services can be determined. Inaddition, sound decentralized management practices need to be instituted inhospitals, together with a referral chain from the primary to secondary level of care. Overall, the system must adopt a family medicine organizational model, including changes inthe way family physicians are employed and compensated. Theadvantages of Phase 11are: a more complete organizational overhaul o f the healthcare system and its provision o fhealthcare services; 28PhaseIwould be inline with the proposed mandatory health insurance systemthat would cover essential services. 29See J.L.Londoiio and J. Frenk, "Structured Pluralism: Towards an Innovative Model for Health System ReforminLatin America," Health Policy 41 (1997): 1-36. 59 the potential for improved efficiency inthe medium and longterm; stronger support from providers, most o f whom are specialists accustomed to working ina hospital-based delivery model;30 stronger popular support, as the population perceives a far-reaching attempt to improve quality o f care; and endorsement by stakeholders who seek greater autonomy inthe management and fundingo fhealthcare facilities. The disadvantages of Phase 11include the need for major investment in the hospital sector; the complexity o f changes in hospital management and funding; the likelihood that additional public outlays may be needed as a result of potential increases in the volume and intensity o f service^;^' a longer time frame; and the added complexity o f reforming formal medical education and in-service training. It is imperative to properly sequence Phase I1to rebuild system authority. In addition, Phase I1would require much stronger, sustained political will to see the implementation process through and ensure much-needed regulatory changes inhospital accreditation and provider licensing. Phase 111 would be more systemic, encompassing all reforms undertaken under previous phases, plus a restructuring of the existing institutional framework. More concretely, MOH would revise its mandate and business processes and define its functions, roles and responsibilities within a new institutional framework. Accordingly, M O Hwould mainly become a policymaking, planning, regulating andmonitoring agency without direct involvement inthe financing and provision o f curative services. However, MOHwould retain its responsibility for the provision o fpublic health services, including disease prevention and health promotion (which would be provided through the reformed primaryhealthcare level). Interms of financing, MOF, in coordination with MOH, would design a mechanism to allocate resources according to the needs-based formula described earlier. Ultimately, a separate fund could be established to pool resources and assume the purchasing function o f healthcare services as a true Health Insurance Fund. However, this last step may not materialize until the tax base in Azerbaijan becomes broader, or people become more willing to make earmarked contributions to a fund. Inany case, more research is needed on potential revenues and expenditures to determine the long-term fiscal sustainability o f such a fund. All phases presented above are implicitly sequenced, so that Phase I1 cannot be successfully implemented without first undertaking the necessary reform steps required under Phase I,and so on. One may, therefore, view Phase I11as the long-term goal o f comprehensive reform. 30The extent of support mayvary depending onthe specialist andwhere he or she works, e.g., rural hospitals, central district hospitals, or tertiary or specialized hospitals. 3'A large portion o fthese services mayhave to be financed through a health insurance scheme. 60 It is noteworthy that Phases I and 11do not go beyond the programmatic level and, therefore, would not involve a major realignment of existing government institutions (particularly MOH). Nor would these phases redefine roles and responsibilities within the healthcare system along functional lines, with a strict separation between stewardship and financing on one hand, and financing anddelivery, on the other. Equitable access to care would not be guaranteed, nor would a universal health system be instituted. However, the reforms would create sufficient room for the private sector to flourish, given a level playing field. However, the first two phases, especially Phase 11, would pave the way towards eventualsystempluralism. MOHwould buildits regulatory capacity, especially vis-a-vis the private sector. The government would define the boundaries o f its involvement in healthcare based on its fiscal capacity and abandon a centralized command and control structure. Providers would organize themselves in effective interest groups to play a greater role in future policy- and decision-making. Finally, given the limited scope o f changes envisaged in overall system governance, as well as the constrained environment for consensual policymaking in Azerbaijan, the proposed reconfigurations are more realistic, and therefore, more likely to be i m ~ l e m e n t e d . ~ ~ Successful implementation of all phases of healthcare reform requires proper sequencing. The first step o f the process would be to re-activate the Health Reform Commission and give it an explicit mandate and timetable to prepare the white paper discussed earlier in this volume, followed by a consensus-building exercise among all stakeholders inthe healthcare system. The second step would be to issue the White Paper, followed by a timed-delimited, costed implementation plan. (This crucial step i s already envisaged in the upcoming PRSC, a step to which the GOAhas explicitly committed itself). Both o f these steps, which are mainly political in nature, should have the backing o f the President and should be supported by an Inter-Agency Steering Committee and technical groups. The main task o f the committee and technical groups would be to synthesize the wealth o f information on unmet healthcare needs and their determinants, specifically those related to weaknesses o f the healthcare system that are amenable to intervention, and then identify specific courses o f action. The array o f reform options should be fed back to all stakeholders to facilitate agreement on the timing, sequencing and financing o f their implementation, as well as pre-requisites for their introduction (e.g., required legislation, regulation and training). Recommendations should include a cost-effective essential service package, pilot projects infamily medicine, and revised hospital payment modalities, among others. Four or five districts that have demonstrated a high level of commitment to the reform process should then be selected to pilot the reforms. 32 Intheir paper, "Structured Pluralism" (1997),Londofio and Frenk classify four policy configurations: (i) "isolated" strategies that have a low level of consensus and are partial inscope, which they deem irrelevant; (ii)"piecemeal" strategies that have a highlevel o f consensusbut are partial inscope, which they deeminconsequential; (iii) "non-consensual comprehensive" strategies, which they deem non- implementable; and, finally, (iv) "fully consensual comprehensive" strategies. The challenge, then, is to finda middle ground, or balanced configuration, that is bothconsequential and implementable. 61 Finally, a public information campaign, preferably conducted through the media, should be developed and properly financed. The campaign should explain to the populations o f the five pilot regions the main tenets of the reform, the nature and timetable o f reform activities and emphasize those actions likely to produce tangible results in the short run (e.g., improved access to and quality of care, as well as reduced out-of-pocket expenses for essential services). This step is very important to galvanize public support and help people understand and endure the distortions that are likely to occur during implementation of the reforms. A similar approach will be needed to fblly inform health professionals and thus lessen misconceptions, alleviate fears, mitigate bureaucratic and professional resistance and assure their cooperation. Last but not least, collaboration with international partners throughout the process will be needed to secure their political, technical and financial support. 62 EPILOGUE Despite politically more stable and macro-economically austere conditions, the reform options proposedinthis Sector Review remain largely untried inAzerbaijan, except for a number o f minor reforms in primary healthcare. While the government's State Program on Poverty Reduction and Economic Development (SPPRED) does not directly address the healthcare sector, the program envisages an increase in public outlays for the health sector, including wage increases followed by a certain amount o f downsizing. The government recognizes that there i s a need to redirect health outlays to improve primary healthcare. It also needs to recognize the need for flexible budgeting and improved targetingo fthe poor. The most contentious issue o f healthcare reform inAzerbaijan is whether the government has the capacity and/or political will to deliver on its commitments. Granted, some reform initiatives will depend largely on the availability o f additional resources. Other initiatives will require difficult policy decisions, with implications for how the budget is allocated to improve efficiency, governance and utilization o f available resources. To be successful, the goals of restructuring the healthcare system and strengthening public health inAzerbaijan must become central development objectives o fthe government. The proposed reform agenda is clearly ambitious in scope and timing. If willing and ready to reform, Azerbaijan can greatly benefit from the experiences and lessons learned inother countries where similar reformshavebeenimplemented. 63 ANNEX1. ACHIEVEMENTOFMDGGOALS AZERBAIJAN IN TableA-1. Azerbaijan's Prospects for Achievingthe Millennium DevelopmentGoals Millennium Present Situation Development Goal Prospectsfor Achievement by 2015 Cut income poverty in About 50 percent o fthe population o f Withprojected highannual GDP half Azerbaijan lived inpoverty in2001. growth for the period 2001-2010, Among these, 1.3 millionpersons, or 17 thepovertyrate should drop from percent o f the total population, livedin 50% to 30%, assuming no change in extreme poverty. income distribution. Azerbaijan is thus on track for halvingincome poverty by 2015. Withbetter- targeted social programs and stronger job creation, this goal could be met sooner. Achieve universal Enrollment rates inbasic education The country inherited an primary education (grades 1-9) are fairly close to loo%, education system that provides although dropout rates are higher for the nearly universal basic education. poor than the non-poor. Sector concerns Sector issues relate more to quality relate more to the quality o f education, than access. including the need to buildthe skills and knowledge necessary to meet the challenges of an increasingly globalized economy. Achieve gender Surveys show no significant gender Although girls drop out o f secondary equality inprimary differences inenrollment rates for basic school earlier than boys and fewer education education (grades 1-9). Concerns relate enroll inpost-secondary education, more to girls' access to upper secondary especially inrural areas, there is no andhigher education, particularly inrural evidence of gender inequality at areas. the primary level. Reduce under-five According to official data, under-five There is a large discrepancy between mortality by two-thirds mortality was 23.1 per 1,000 live birthsin survey and administrative data, 2002, and infant mortality, 12.8 per 1,000 making assessment o fprogress live births.However, estimates based on toward this goal highlyuncertain. surveys indicate that in 1990, the baseline To reduce under-five mortality by for MDGgoals, U5MR and IMR,were two-thirds, a 4.4% annual reduction 106 and 84 respectively, and dropped to would be needed between 1990 and 96 and 76, respectively, by 2002. 2015. Azerbaijan's progress has However, inthe pilot districts beenslower, about 0.9% annually participating inthe World Bank-assisted between 1990 and 2000. Thus HealthReformProject, UNICEF reports Azerbaijan is at risk of not an 11%decline ininfant mortality, from meeting this MDGwithout a 73.2% in2002 to 63.7% in2004. If concerted effort to strengthen sustained and generalized to the rest o f the primary healthcare and make it country, this reductionwould put accessibleto the poor. Azerbaijan back on track to meet the goal o f a two-thirds reductionby 2015. 64 Millennium Present Situation Development Goal Prospectsfor Achievement by 2015 Reduce maternal The estimates o fthe UNICEF M I C Again, there are significant mortalityby three- Survey place maternal mortality at 79 differences between survey and quarters deaths per 100,000 births in 1990, and 94 administrative data. Based on in2000. According to the State Statistical trends provided by survey Committee, the MMR was 19.9 deaths per estimates alone, Azerbaijan is 100,000 births in2002, comparedto 37.6 unlikely to meet the MDG goal of in2000, a 52% reduction. reducing MMRby three-quarters by the year 2015. However, maternal mortality is a rare event, resulting inunstable estimates with wide confidence intervals. A World Bank survey carried out in December 2004 didnot findany maternal mortality inthe pilot districts. Reverse the spread o f Theprevalence rate ofHIVinfections Although the prevalence rate is HIViAIDS among Azerbaijani citizens i s believed considered very low, an estimated low by regional standards, although newly 600,000 IDUs inthe country account reported cases doubledbetween 1999 and for 63% o fHIV/AIDS cases. There 2000. The actual extent o f infection i s not i s a need for both sero- and knownbecauseo f the limited coverage o f behavioral surveillance and sero-prevalence surveys and lack o f greater attention to HIV/AIDS behavioral surveys. prevention and care. As ofDecember 1,2004, MOH launched an HIViAIDS project fundedby the Global Fundto Fight AIDS, Tuberculosis and Malaria. Reverse the spread o f In2003, tuberculosis prevalence and According to the WHO Global tuberculosis mortality rates were 50 cases and 12 Tuberculosis Control Program, deaths per 100,000 population, DOTS populationcoverage was 48% respectively. The 14% case fatality rate is in2003. Political commitment and high. The case detection rate remains additional resources are needed to around 25%, much lower than the expand current coverage to 100% international standard o f 70%, with only a inorder to meet the MDGgoal of small fraction o f cases detected through reversing the spread of the disease. DOTS. However, the cure rate was 84%, close to the target o f 85%. Ensure environmental According to available estimates, around Achieving this MDGis feasible if sustainability (including 76% o f all households inAzerbaijan have the government gives sufficient halving the proportion access to an improved drinking water priority to rural water in its public o fpeople without source: 93% inurban areas and 58% in investment program, consistent access to safe water) rural areas. with the SPPRED program. Note: Where no 1990baseline data exists, the value for the closest year for which data exists was used to calculate the MDGtarget on a pro-rata basis. The 2015 target was determinedinrelation to the available base year. 65 BIBLIOGRAPHY Andersen, R., andJ.F. Newman. 1973. "Societal andIndividualDeterminants of Medical Care Utilizationinthe UnitedStates." TheMilbank Quarterly 51:95-124. Baris, E. 1995. "Patient andProvider Determinants of the Use o fAmbulatory Physician Services for Chronic Illness EpisodesinanAdult PopulationinQuebec. 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