May 14, 2018

Why large business should consider investing in medicine

One of the main stakeholders in healthcare reform in Ukraine could be large businesses (producers of agricultural products, processing and food companies, industrial enterprises, etc.). Employees of these companies and their families usually make up 30-50% of the population of small towns with a total population of 30,000 people or more, and there are 137 such towns in Ukraine.

To maintain stable production, business processes and growth, companies need to ensure the timely hiring and retention of qualified personnel. This is achieved today by offering a reliable salary that is usually higher that the average local one. However, as the latest trends show, this method is losing its effectiveness. It is impossible to attract and retain qualified employees if there is no high-quality social infrastructure, such as kindergartens, schools, leisure facilities and, most importantly, medical facilities, at the site of the company's production facilities.

All decision-making regarding medical institutions is currently under the control of officials that are responsible for budget allocation, apart from the quality of medical services. Healthcare reform will change this – it will be hospital administrators and management bodies that will make the big decisions now. In the new system, hospitals will be able to change their legal status and become municipal non-profit enterprises (this is one of the conditions for concluding a contract with the National Healthcare Service of Ukraine). This will grant the administrator (chief physician) independence in running the municipal hospital. Communities will also be able to monitor how efficiently funds are used, such as by setting a KPI for the manager and establishing an external regulatory body (supervisory board). Another important point is that budget funds will be available not just to public hospitals, but to private clinics and individual general practitioners as well.

All this allows large enterprises to directly influence the transformation of healthcare in their host cities, communities and regions in several ways:

1) Giving aid to existing clinics and communities through targeted financial support or various grant initiatives: the implementation of energy efficient measures and technologies in order to reduce operating costs, the training of medical personnel, the purchasing and granting of medical equipment as charity, hiring external consultants to assist hospitals in organizing business processes, paying for management courses for hospital administrators, etc.

The law is giving business the necessary tools to monitor the efficiency of such investments: supervisory boards and/or boards of trustees can now be established by territorial communities as the owners of medical assets in hospitals. Representatives of companies that provide support to hospitals can sit on these boards. These bodies can, for instance, review the hospital’s financial and business activities, and monitor how well the funds are used.

2) Creation of new medical institutions and PPP projects

Alternatively, large businesses can create separate medical facilities to provide services to employees and their families. For instance, a company can lease premises from a community (local government authorities), renovate them, buy and install medical equipment, hire doctors and open an outpatient clinic. Or, after renovation, it can sublease the premises out to qualified private practitioners. The lease contract can be concluded for a period of five to 50 years. This primary care will be paid for by the NHSU based on a contract, and services not covered by the state-guaranteed package of medical services can be covered by insurance, which companies will be able to purchase for their employees. The similary scenario we’re using now with our client - MIRONIVSKY HLIBOPRODUCT (MHP). Along with supporting changes at the municipal healthcare facility, the company will create conditions for opening a private outpatient clinic in the community, whose doctors will also be able to sign a contract with the NHSU and provide the population with medical services using budgetary funds. This will give the community residents a choice - whether to get treatment at the municipal medical institution or a private outpatient clinic.

To pursue this scenario, it is necessary to realize that decisions on infrastructure belong to regions now instead of the capital. Parallel to the medical reform, decentralization reform is under way, which will also affect management and financing of hospitals. In particular, this reform envisages the creation of united territorial communities (UTCs) all over Ukraine, which will enjoy broad authority in issues of local importance, as well as significant financial resources. There will be 1,177 of them in Ukraine in total, and 724 have already been established. This is an important step for ensuring the efficient implementation of changes in regions, considering the country's scale: 42.2 million people, 24 regions and five cities with over a million people.

Thus, investors will be able to follow the Turkish scenario. According to the law on concessions, a company can build and manage an outpatient clinic for the period of up to 50 years, where doctors will be treating the employees of the said company and their families, as well as other residents of the community. The community can purchase from the doctors of the outpatient clinic, using funds from the local budget, additional medical services not covered by the NHSU. There are other legal forms of cooperation with the communities that business could use, such as contracts for the management of medical assets, as well as unique contracts that combine elements of several forms of cooperation and are concluded in accordance with the Law of Ukraine On Public-Private Partnerships.


However, despite all these opportunities, there are certain risks as well, since Ukraine lacks professional managers of medical institutions. On the other hand, changes will allow the hiring of managers, rather than doctors, on a competitive basis. They also enable business, by investing in healthcare in their area of operation, to influence healthcare, sit on supervisory boards, and pool resources with other companies to form a joint investment plan and participate in healthcare management.