Jan. 9, 2018 317

Ukrainian healthcare: new market emerging

Ukrainian healthcare market is estimated at $4.9 billion, $2.4 of which are patients’ medical expenses. At the same time, 90% of medical services are provided by state and municipal clinics, which fail to deliver the necessary scale and quality of treatment. The remaining 10% of the market are private-owned medical centers, most of which specialize in dentistry and laboratory analysis. Private multi-field clinics can only be found in large Ukrainian cities while other regions lack proper healthcare. This is especially the case with the treatment in the highest demand, including perinatology, cardiology, oncology, ophthalmology and rehabilitation. Other regions lack in quality of medical services in virtually all areas.

Another reason for the development of the market is the healthcare reform announced by the government. The reform seeks to change financing of medical institutions. The state opts for the reduction of subventions and instead encourages development of private healthcare market by providing greater autonomy to state and municipal clinics. The latter will face the need to improve their efficiency and enhance public infrastructure, which they will struggle to maintain. Even this year all municipal and state clinics have received less money from the budget and continue to spend money on the upkeep of idle space. With the reform gradually taking hold, that space is only going to increase, prompting state and local authorities to look for profitable ways to utilize it. Negotiations with investors from the US, Turkey, Georgia, Slovakia and other countries are already under way to create private medical businesses based on the unoccupied premises in municipal hospitals. This trend will persist, resulting in public-private healthcare partnerships over the course of 3 years. Analysts estimate that even during crisis private medical clinics yield around 18-22% profits and the average payback period is 3-7 years.

Ukrainian legislation provides investors with a number of legal venues for cooperating with the state on managing freed hospital assets: rent, joint enterprise, concession, asset management, etc. These forms may also take into account the investor’s goals: starting a private medical business, providing professional management of such a business, providing services for the creation or modernization of assets for operating medical business. The object of a public-private partnership can be one or several hospital buildings, or a part of one, as long as it isn’t in use by the hospital. Public-private partnerships in Ukraine are characterized by twofold regulation: national laws and local rules. If the public party already has model agreements, the investor may be unable to alter major terms. These nuances need to be carefully considered at the planning stage of such projects.

The reason for this is that most hospitals belong to local territorial communities and depending on the region may vary in economic conditions for public-private partnerships and procedures for the public party to enter into such a partnership. Decentralization will encourage local communities to manage their resources carefully which will lead them to seek partners from private sphere. Today, the public health system is at its lower market point and the brand new healthcare market is about to emerge in Ukraine. The attention of national and foreign investors to this market is growing progressively, but those who will enter the market first will be the ones to collect the spoils.

The article is published in the second annual Kyiv Post Doing Business in Ukraine guide, June 3, 2016