Ukraine’s healthcare reform is one of the few that might be carried out by the end of 2017. The World Bank, World Health Organization and European Commission played a major role in this by providing financial and technical assistance as well as engaging national and international experts in working on the new legislation. The current health system is based on laws adopted in the early 1990s, with a Soviet approach to the organization and funding of medical care which isn’t viable in market economy. 90% of Ukrainian hospitals are state and municipal ones, with 80% of their budget spent on maintaining infrastructure and paying miserly wages to the staff, rather than on treating patients and purchasing modern equipment. Because of this, patients today have to pay over 52% of the actual costs of treatment on their own. In the overwhelming majority of cases, these are shadow payments that are not taxed and can guarantee neither quality nor safety of medical service.On June 8, the Ukrainian Parliament adopted in the first reading draft law No. 6327 "On State Financial Guarantees for the Provision of Medical Services and Medication". This draft law as well as draft law No. 6329 "On Amendments to the Budget Code of Ukraine" should be approved by July 20. The new legislation will radically change the healthcare and pharmacy market.
New funding principles
The key point of the reform is to modify public funding of healthcare. The government so far has been funding hospitals through the administrative-command method, allocating subventions of more than USD 2 billion each. Subventions are granted to public and municipal hospitals only, and the sum depends on infrastructure rather than the number of patients. The reform assumes that instead of paying for infrastructure maintenance, the state will be purchasing a package of certain medical services and drugs for patients. Depending on the level of medical care (primary, secondary, etc.), payment will be provided either for each patient that chooses a certain healthcare provider, or for each treated case. Drugs will be paid for separately. Procurement will be carried out through direct contracts between the authorized state body (payer) and the hospital. Private clinics will be able to apply for contracts with the state along with public and municipal hospitals. The number and scope of medical services and drugs to be procured will be determined annually in the state budget. In addition, co-payment of certain types of medical services by patients will be possible. The conditions and amounts of such co-payments will also be established by law.
Introduction of official co-payment for medical services will contribute to the development of the private health insurance market. Out of 310 insurance companies operating in Ukraine, no more than 45 provide health insurance. It is unlikely that they will be able to satisfy the demand, which is bound to spike when new international players start entering Ukraine’s insurance market.
New organization of services
Another challenge for hospitals will be the provision of scarce health services. Even now in each region of Ukraine hospital districts are formed, the purpose of which is to create of a single medical space for patients. This means that all hospitals within a district (either public, municipal or private) will be treated as a single pool of medical services. Each of the pool’s hospitals will provide its patients with the necessary minimum of medical services (the minimum having already been determined by the Ministry of Health of Ukraine), while specialized medical services will be redistributed between hospitals to avoid duplication of resources and grant patients access to them within a reasonable timeframe. Suggestions regarding the types of specialized medical services as well as their redistribution within the pool will be prepared by hospital councils, which will include representatives of hospitals and their owners. This approach to medical care will encourage hospitals to cooperate in order to build effective patient routes and prevent parallel expenses on the development of medical services (personnel, infrastructure, equipment) with limited demand.
New treatment methods
Ukraine has about 3000 medical protocols - step by step instructions that determine the procedure and methods of treating various diseases. However, most of them were adopted back in the 90s, and some are leftovers of the Soviet era. Only about 10% of the protocols are based on the principles of evidence-based medicine and have been tested in the field, which means that treatment for Ukrainians is often far from reliable.
In April 2017 doctors got the right to use new evidence-based protocols developed by professional medical associations of countries with advanced healthcare (Australia, USA, Canada, EU countries). They don’t have to wait until the Ministry of Health or some other body approves them, as was previously the case.Aside from providing new efficient treatment methods, the new protocols also present a challenge to head physicians (top managers). New treatment procedures will directly affect hospital operation, from the number, location and equipment of premises to responsibilities of each employee at every stage of treatment.
All those changes will serve to promote and reshape the medical services market in Ukraine. For instance, the reform of Turkish healthcare, including its funding, spurred the development of the private healthcare market, and from 2006 to 2010 the number of private hospitals there increased by 86%.
Competition or survival
In order to survive, Ukrainian public and municipal hospitals are facing new challenges in managing infrastructure, personnel and finances. How to monitor the hospital’s activities, how to hire foreign doctors, how to legally optimize the structure of the staff, how to improve the hospital’s energy efficiency, how to sell medical services to the state and to insurance companies, how to adapt to the new clinical protocols, how to battle corruption? It’s but a small part of managerial and legal issues that clinic administrators will have to deal with after the reform. To keep your hospital competitive under new conditions, its owners - territorial communities - will require a new breed of managers. Other countries often use foreigners for this role. For example, in Kazakhstan, in order to increase the efficiency of the state multi-purpose clinic Okhmadet, the reins, under a management contract, were handed over to the European group of companies VAMED, which specializes in the design, construction, equipping and management of complex healthcare facilities.
Investment
The current healthcare system is unable to satisfy the existing demand for medical services (obstetrics and gynecology, simple surgery, cardiology, etc.), especially in terms of quality service and comfortable infrastructure. This demand, coupled with the fact that private operators will be able to receive payment for patients from the state budget and due to unoccupied spaces becoming available in public and municipal hospitals, will serve to attract new investors to Ukraine’s healthcare market. For example, in Turkey, foreign direct investment in healthcare went up from USD 8.6 to 12.5 billion a year from 2008 to 2012 after a similar reform. Among the investors were international healthcare holdings (Integrated Healthcare Holdings, Euromedic International) as well as global investment funds (ADM Capital, etc.).
To open a multi-purpose or specialized clinic, the investor will be able to rent or manage unused hospital buildings and facilities, where many generations of Ukrainian patients are already accustomed to go. Ukraine’s public-private partnership legislation is quite flexible and allows shaping contracts between private investors and the public partner (state or territorial community) to the mutual satisfaction of both parties. Thus, in case of lease, the investor can count on a long-term business relationship (up to 50 years) and the pre-emptive right to purchase the leased object, if the state or territorial community decides to sell it.
The reform is underway and potential investors from Turkey, Sweden, Netherlands, Georgia and the United States are already considering the prospects of Ukraine’s market. The government’s expediency in making necessary changes and the strategy of territorial communities for managing their assets will determine the market distribution between competing public and private players.
