Nevertheless, in the recent years, its influence has significantly decreased due to both closing of a number of hospitals, process set to continue under IMF protocols, and with a rapid growth of the private players.
The private healthcare system has steadily increased the number of units in the past decade. Initially, it started with single clinics and laboratories, it has later constructed chains of both, while recently it has boomed in hospital-type units – a trend which is expected to continue at a high speed for at least two more years.
Much of 2012 has been plagued with mostly one-way discussions on how to create revenues and control expenses within the public healthcare system. Debates have included the budget allocations, public services rendered free of charge, but also the co-payment of a series of services.
In respect of the co-payment of a selected list of health services, the entire process of assigning costs for the patients has been placed under review at the end of the summer, with more decision making being expected in the first half of 2013. Under the current IMF mandate, there is no set out date for the conclusion of the co-payment, creating possibilities for the deadline to further slide.
2012 – the year of deeper cuts
The healthcare sector in 2012 has continued the trends constituted since 2008, with its most important ones proving to be:
• Continuous decrease in public budget allocation for healthcare – 4% of GDP in 2012 , against 5% in 2011
• Restructuring of the public sector services – closing a number of hospitals or turning them into nursing houses (67 hospitals were closed in 2011), limiting the free of charge access to services to a few social classes and introducing co-payment for the rest of the population
• Increased impact of the private insurance in the detriment of the public insurance, therefore further limiting the effects of public insurance in expanding capacities and adding investments
• Increasing private investment in developing chains of clinics and adding hospital capacities – 54 private hospitals currently offer more than 3,000 beds, mostly in generalist units
• Increased competition and general margin decrease in the clinic chains, with significant potential for restructuring – top 5 players have posted decreasing margins in 2011 versus 2009
• Decreasing number of medical specialists in the market, with a significant number leaving for Western Europe
2013 – 2014 – the years to decide the decade
The following couple of years have the potential to be decisive in how the healthcare sector will shape for the upcoming decades.
A number of crucial elements for the industry will have to be finally defined, such as the business models for private clinics, for private insurance and for private generalist hospitals. At the same time, the public sector covering all these markets will need to reshuffle, along with specialist hospitals and the emergency hospitals.
On the business model side, it is important for most players torealize that the risks posed by increased reliance on the state budget’s reimbursement of services is probably too high to be assumed as a working model going forward. Currently the models which work are based on private subscription and payment for service.
Given the increasing importance of the private actors in all of these markets, the influence they will have over the state-run system is set to increase. Trends like increasing revenue per customer, additional investments in specialty hospitals (pediatrics, orthopedics, urology, obstetrics, cardiovascular and oncology), opening new major hospitals also outside Bucharest and second tier cities will exert direct changes in the public sector’s services.
Significant changes are expected in the private insurance, now the market presenting only a few accepted products – life insurance with medical coverage and check-up insurance, but little plain vanilla health insurance. In 2013-2014, with the opening of 18 more privately operated hospitals, the stock of beds should surpass the 4,500 threshold, which in turn would enable a better national coverage for medical insurance services.
Regarding individual players, the consolidation will continue, fueled by finance from private equity and banks, and sustained by the profits of the entities with critical mass. The margins of the smaller players will narrow in the competitive market. The current consolidation trend has included mostly the clinics and laboratories markets, with signs of interest extending to general hospitals and specialty hospitals, but the market is still largely fragmented. Out of the total 59 companies operating 186 clinics nation-wide, only the largest six chains account for 83 clinics – operated under the brands Regina Maria, Romar, Medlife, Medcenter, Medicover and Hiperdia.
It is worth a mention, that there is a concentration for the medical services in Bucharest.A valid example is that of the clinics which in Bucharest and surroundings number 92 units, whilst the rest of the country accounts for another 94 units. This also applies for private investments in hospitals, with only 4 located out of Bucharest from the proposed 18 hospitals to open in the next couple for years.
We should conclude that, in the healthcare markets, where significant private players are actors or influencers, both growth and maturity are expected for the coming years, while top actors have the prerequisite to deliver results for the long term.
When looking at the public sector, the facts are less positive, with an expected decrease of available funding for the maintenance and investment in the health sector, and a decrease of public insurance funds as a percentage of the overall market size. The realities in this market will continue to offer a dim perspective, probably of further cuts and reductions, in a way keeping pace with the development of private operators.
This view is supported by the long term decrease of contributors to the public insurance budget, at the same time with increasing number of covered individuals.
The “brain drain” effect of medical specialists is expected to take a change in the following decade with creating more local financial support for the newer generation. The first signs of improvement come from the increasing salary levels offered by private operators. Nevertheless, the drainage phenomenon is expected to continue, but the actual rates to decrease significantly. Later in the decade, with the appropriate support in place, healthcare specialists will return from more developed Western markets, directly into, by then, the competitive private system.
On the short term, an array of issues seek urgent resolution and most of these need a swift decision to deeply restructure the system. As there are three main targets, the most important is to control, decrease and eliminate a number of costs – close a number of hospitals, decrease the services offered free of charge, decrease the number of fixed points for emergency relief etc., as per IMF negotiations. The other targets are to create additional revenues – the co-payment scheme, and concentrate spending in critical points – and more mobile services with wider coverage, to create excellence centers and link them with rapid ambulance logistics, and to enable better schooling and early development programs.
Regarding the notable individuals which stood out in the past year, Dr. Raed Arafat emerged as a major influencer in regards to the direction the public system restructuring.In October, he was assigned to a position where he will directly oversee the financing of the health budget for 2013.
Trusting that the short term financing will be agreed, the Ministry should use the opportunity to lay out a medium term perspective for the sector. This will insure visibility for the private players, will encourage investments and comfort external financiers backing the investments.
In conclusion, the apparent benefits of a state-run healthcare system have been abused, thus pushing the system into a state of obsolesce. In turn, this has created opportunities for private players, at first to occupy niches, and then to consolidate with similar, or sometimes better services to those offered by the state entities.
For the past 15 years, the evolution driver in the entire health environment has been the misgivings of the centralized system. However, with private actors having more influence, interest and entrepreneurial vision, this is about to change. The lack of clear roadmap from the Ministry might nevertheless hamper the efforts to make the change a significant and rapid one.