July 17, 2019

Ukrainian healthcare is turning into a competitive market

Changes in healthcare are probably the most successful of the announced reforms in Ukraine yet. Its authors from the very beginning had clear goals and a strategy for achieving them as well as professional advocacy of the reform by lawyers among doctors as well society as a whole. WHO experts that are helping Ukraine transform its healthcare system report astonishingly high rates of change and their high quality.

Main achievements and shortcomings of the reform

In a year and a half, over a half of Ukraine’s population (about 25 million people) signed declarations with their family doctors. This is quite a high figure for such a short time, which indicates that society is ready and there is demand for changes in healthcare.

The transformation of the approach to primary healthcare funding is already complete. One of the tasks of this stage was to create equal conditions for obtaining funding from the state budget for medical institutions of all forms of ownership. The National Healthcare Service of Ukraine (NHSU) acts as the sole purchaser of medical services for Ukrainians. It is up to the patients themselves to decide where to get these services: in a municipal hospital, in a private clinic or from an independent practitioner - thus, money follows patients.

As for the reform’s achievements up to this point, those are:

  • fully functioning NHSU office was established - central executive body that implements state policy in the field of healthcare guarantees.
  • the commitments undertaken by the NHSU team have been fulfilled (over a thousand medical institutions became partners of the NHSU, among them 104 private clinics). There are plenty of stories all over the country where doctors and their teams who had been paid a pittance before the reform are now getting two to three times more. Nobody believed, many resisted, and yet it works. When local governments and medical teams work in concert, they get good results that make  doctors as well as their patients happy.
  • many doctors are going solo to start private practice. There are over a hundred of them already. Competition is starting to emerge in the medical market, which used to be 90% government players.
  • as of 1 April 2019, the NHSU launched the Accessible Medicines reimbursement program, allowing pharmacies to receive compensation for provided prescription drugs from the NHSU directly, bypassing the often corrupt local authorities. Also, the Free Diagnostics program will launch on 1 July this year.
  • the pilot introduction of DRG (diagnostically related groups) payment for medical services will start in April in Poltava Oblast, making it easy to calculate the actual cost of treatment. This system has been actively used in developed countries since the 80’s and is considered the most effective for maintaining a balance between the quality and cost of medical services.

All of this opens up new opportunities for patients, doctors and medical institutions as a whole. Everything indicates that the most important part - formation of a medical market in Ukraine - has already begun.

In regards to the reform’s problems, the biggest one is sabotage of changes in regions. Not all local governments are able to assess the situation correctly. There are instances when local councils reject requests for hospital autonomization (transformation from a budgetary institution into a municipal one) twice or three times in a row, risking not receiving a subvention as of the second half of this year and thus putting the burden of financing medical institutions on local budgets. Political ambition and desire to profit from the situation often get in the way of reforms. Fortunately, these stories are getting fewer and fewer. After all, hospital administrators and medical workers alike can see that their colleagues that have embraced the reform start getting higher salaries while their institutions get new development opportunities.

Prospects and risks of investing in healthcare

The market of medical services is still in its infancy in our country and competition for patients occurs only at the primary care level. This market is considerably smaller than the secondary level market (specialized medical care). Thus, subventions for primary care have always been about 40% of the total budget for healthcare. It is also important to understand that the remaining 60% did not cover the entire demand - almost all medical services here were unofficially paid for by patients. However, the secondary care reform is already scheduled to start this year and there is every reason to believe that it will be no less successful than the reform of primary healthcare.

There exist certain political risks for the reform. This year Ukraine is going to have presidential and parliamentary elections. Many of the medical market players in our country (this includes doctors, hospital administrators, representatives of local governments) are concerned that with the change of power and political goals, all changes and accomplishments could be rolled back. Indeed, there is a risk that the new parliament will vote against continuing the reforms.

We, as lawyers, believe that it is hard to do, because we got a completely new approach to the healthcare funding formula due to legislative changes. It is important to understand that this provides a serious resource for the sustainability of the medical reform. Plus, over 20 million declarations mean that half the country has embraced the new course. In essence, we already have a kind of social consensus that legitimizes the reform.

If the secondary care reform is going to start in 2019, it is possible that the medical service market could be operating at this level by 2020. When the state pays for services under the DRG system and according to the law, all players, both state and private, participate in this on equal terms, this presents new opportunities for investors. If they know they are guaranteed a certain amount of funding from the state, then with a business approach to the whole thing, they will be able to make extra money, for instance, by providing various services, conducting clinical studies, etc.

Under these conditions, large holdings with experience in managing large medical complexes in other countries will start coming to Ukraine. There are the necessary legislative prerequisites in Ukraine for this. Since 2018, medical institutions can be run by people with managerial rather than medical education. After all, a clinic is essentially a business, and it should be run a manager, not a chief physician, as is the case now.

Similar processes took place in the Balkans and in Turkey in their reform years. Thus, as soon as medical reforms were launched in the countries of the former Yugoslavia and medical markets appeared, international players from neighboring states started coming there, knowing how to properly set up a medical business and turning a nice profit. They built large modern medical complexes, which they gave to municipalities in exchange for preferential rights to provide management and medical side-services there, such as direct management, servicing, cleaning, food, diagnostics, etc.

A modern sociomedical services market is also only just emerging in Ukraine. There is always a shortage of quality service in healthcare in general, with few decent rehabilitation, palliative and gerontology centers. At the same time, there is demand in society for such services, and it is increasing thanks to the development of Ukrainian healthcare. Investing in such projects today is not just economically promising, but also practical because there are no legal restrictions and it is not related to the implementation of the medical reform and associated political risks.

Already, during the transition period, business can invest in Ukrainian medicine, facilitating its development while learning along the way how everything works and what the rules are, thus creating a network of contacts required for future partnerships, making money, etc. For this, Ukraine has such mechanisms as corporate social responsibility (CSR), creation of boards of trustees in hospitals, work of energy service companies, etc.

How business already affects organization of healthcare in regions

When implementing CSR projects, business is either interested in increasing its influence in a city or region, or in reducing risks to its activities. If we look at CSR projects in healthcare at the international level, these are hospitals built by companies in depressed regions of India, where a huge number of people used to die in the past simply because they had no access to medical care, or vaccination programs that help keep the population’s ability to work at a high level, and many others.

Ukraine does have similar experience - we are currently assisting with a CSR project of a large agricultural holding aimed at developing city healthcare. More and more businessmen are realizing that medicine is an important component of social infrastructure. If a company is located in a region with no proper healthcare, education or roads, then even a high salary will not be able to motivate the necessary number of workers to move there.

Another way to make local medical services more efficient is by establishing boards of trustees in hospitals. The board’s task is to take part in working out and implementing hospital development strategies, making business decisions, building teams, as well as to participate in marketing, service development, etc. If in the past hospital administrators were responsible for the medical part of the work and supervised only certain aspects of management, now they need to organize the entire work of medical personnel on their own, finding a balance between the quality of medical services and efficient use of available resources. By joining boards of trustees, businessmen are already helping yesterday's budgetary institutions become successful enterprises.

Demand for high-quality medical services in the country is steadily growing, as well as the doctors’ demand for transparent and high salaries, while the hospitals are in dire need of experienced managers. Yes, we are talking about venture capital investment in healthcare here, but thanks to the innovations and achievements of the medical reform, Ukrainian medical industry should become a competitive market with great potential as early as next year.