Growth in demand
While the overall Russian economy is stable with annual GDP growth at approximately 4%, the fee-for-service healthcare industry was worth RUB 482 billion in 2011 (an estimated 20% of the total healthcare market) and is forecast to grow at a compound annual growth rate of 14.7% over the next five years. Working alongside the public sector, private healthcare is a key element in the development of healthcare solutions in Russia.
The Russian healthcare environment is characterised by heavy reliance on immense but poorly functioning public healthcare infrastructure (a third of the facilities are in need of major refurbishment), lack of qualified medical personnel, and growing demand for quality medical services from the population amid growing disposable incomes and health awareness.
2011 data from the Ministry of Health and Social Development reveals that 66% of Russian citizens were not satisfied with the provision of public healthcare services. The satisfaction level varies across the regions ranging from 52% down to 20%; even in Moscow only a third of respondents were satisfied with the level of medical care they receive.
Growth in private healthcare expenditure
Total healthcare expenditure in Russia, measured as a percentage of GDP, is almost twice as low as the OECD average indicator. The difference is even greater when measured in USD per capita terms.
Growing demand for healthcare services, increasing costs of medical technologies and ageing of the population are all factors that are expected to contribute to global healthcare expenditure growth. Russia’s situation is almost unique compared to other countries. While virtually every government is looking to mitigate healthcare costs, the Russian government is investing large amounts of money into a poorly-functioning healthcare system amidst negative demographic trends. Consequently, according to Frost & Sullivan, both total and private expenditure on health in Russia are expected to grow at double digits until 2015.
In April 2012, the Russian Ministry of Economic Development predicted that total healthcare expenditure of both the public and private sectors will constitute between 6% -7% of GDP by 2030.
Private healthcare system overview
Before 1990, public healthcare was the only legal system that existed in Russia. Private healthcare practitioners were not legally allowed to provide services and their numbers were relatively small. Legal private medicine began in the early nineties with the creation of private branches of government health facilities. It developed very slowly until 2000 and was dominated by dental surgeries and pharmacies. The sector for private healthcare in Russia experienced its first boom in the early noughties when separate multi-disciplinary clinics and network projects were created.
Fee-for-service medical aid can be provided by private as well as public healthcare institutions and is paid for either by individuals (out-of-pocket), insurance companies or commercial enterprises.
The market is characterised by high barriers to entry, namely: high capital investment requirements, a limited supply of a skilled workforce – both managerial and medical, the importance of brand awareness, and reputation in the market – both of the establishment and the doctor’s personal reputation. No new major players are expected to emerge in the near-to-medium term however an increase in activity from strategic and financial investors supporting existing projects is increasing.
In view of the poor state of the public healthcare infrastructure, widespread social dissatisfaction with quality of service and limited budget resources, the Russian government is taking steps to support the development of the private healthcare sector in the country in order to relieve the strain of the public system. Among recent developments, a number of support measures were introduced at the regulatory level:
- abolition of income tax for private organisations involved in the provision of healthcare services, including all licensed medical care services.
- extension of mandatory healthcare insurance to all of the private medical care providers from 2015. This means that Russian citizens will be free to choose whether to go to a public or private clinic/hospital with the latter reimbursed for services provided by the state.
- tax deduction – Russian citizens are entitled to a tax deduction from their and their family’s healthcare expenditure up to expenditure of RUB 120,000.
Healthcare market drivers
The Russian healthcare services market is poised for stable double-digit growth to 2016 due to a number of key driving forces:
- Russian GDP growth and rising disposable incomes, including the regions beyond Moscow.
- Improving or deteriorating demographic trends (eg fertility rates and disease incidence) which will boost demand for respective medical care.
- Growing health awareness among the Russian population and healthier lifestyles.
- Strong governmental support, as healthcare becomes a matter of national security doctrine:
- Increase in government healthcare expenditure
- National healthcare programmes aimed at reversal of overall population decline (National Health Priority Project, maternitycapital etc
- Stimulation of private healthcare market development by way of supportive regulatory measures such as zero income tax and OMI extension.
- Specifically, private healthcare will continue emerging as a viable alternative to the troubled public healthcare system, addressing unsatisfied demand for quality healthcare among the Russian population.
- Under-penetration of quality healthcare in the regions of Russia.
- Further expansion of VHI.
- Inflow of investments from strategic financial investors into the market given its high growth potential and attractive returns.
- Gradual eradication of the grey market for healthcare services and re-direction of cash flow into legitimate channels (private and public).
MD Medical’s positioning
MD Medical Group is one of the largest private healthcare service providers in Russia. We stand out because of our focused business model, concentrating on our core strengths in women’s and children’s health, and we are unique in this regard.
Our Moscow hospitals are the largest specialised private maternity hospitals in Russia and account for over one third of total deliveries in the private healthcare sector. Our world-class full-cycle service generates clinical outcomes comparable to the developed countries.
Our model is structured to be easily replicated in new regions where there is significant unmet demand and to enable the addition of adjacent, complementary services that are relevant to our existing client base to provide a continuity of care and encourage client loyalty.