Healthcare regulatory regime developments
In view of Romania's accession to the European Union, local legislation has to be harmonized with EU requirements. Due to the scarcity of resources, lack of experience and ongoing changes in the political and economic environment, there is still a gap between the legal requisites and the actual implementation status.
Unable to support the costs of the numerous centrally controlled healthcare facilities, the government has announced further healthcare reforms, specifically targeting the decentralization of the public healthcare facilities, as well as an increased efficiency and transparency in the allocation of the existing sparse resources. Decentralization strategy has been defined and approved through a Governmental Decision (i.e., Decision no. 562/2009 from May 10th, 2009, which entered into force on May 21st, 2009).
Furthermore, the Ministry of Health has announced new legislative initiatives aiming to the definition of the basic medical services package to be covered by the mandatory health insurance plan and the introduction of co-payment obligation for public medical services falling outside of such basic package. The envisaged level of co-payments is still under public debate. So far, the authorities are analysing the benefits of introducing a rather low level of co-payment obligations, in order to educate the patients and prevent unnecessary visits in the ambulatory premises and especially hospital admissions. While the amounts are not very high and do not envisage the poorest and the emergency cases, they have a strong psychological effect due to the public perception that medical care is free of charge. About half of the funds obtained are envisaged to contribute to salaries increase for medical personnel, whose number has been declining given the massive emigration. Also, the co-payment system is expected to reduce the grey payments of the system. The new legislative framework concerning the two main objectives is expected to be enforced at the end of 2009, following a public campaign of mass education in respect of the co-payment concept and implementation procedures.
A clear definition of the basic medical service package, enforcement of current regulation regarding referrals, as well as the deterioration of the public infrastructure, are expected to stimulate the growth of the private medical services sector.
Prospects for the private health insurance market in Romania
The legal frame for private health insurance was set in 2004 by the homonymous law, which provides for two types of private health insurance: supplementary and complementary. Up to now, legislation has failed to clearly define the basic package of medical services covered by public insurance. In this context, supplementary or complementary insurance do not represent a real necessity.
Due to the absence of clear regulations and to the limited tax deductibility of such services, the private health insurance market remains negligible. In 2008, gross written premiums for private health insurance amounted to EUR 9 mn, which represents a mere 0.5% of the total insurance market.
In the years to come, once specific legislation would be implemented, market makers anticipate that private health insurance is likely to become more sizeable, as informal payments would be gradually phased out and replaced by, inter alia, health insurance premium. The current regulatory developments regarding the basic medical services covered by mandatory health insurance, the development of the private hospitals infrastructure and the establishment of fair levels of copayment for medical services are supposed to contribute to the long expected increase of the private health insurance services.
Romanian private healthcare industry SWOT analysis:
Strengths
Sustained growth during the past years and good prospects for future growth
Rigid demand due to lack of a viable substitute (poor public health services)
Better managerial capacity as opposed to the public sector, especially for the private medical services providers which are controlled by foreign investors with superior expertise in this field
The heavy investments performed in the past are now paying off
Weaknesses
Incomplete records of private expenditure
Poor private health insurance legislation
Low deductibility quotas for cash payments
Highly fragmented market
Insufficient medical resources
Limited to specialties which can generate profit (i.e., specialties such as oncology involving expensive treatments and high expertise cannot be developed in the private sector)
Opportunities
High interest from both financial and strategic investors to trigger increased FDI through acquisitions of local players or Greenfield projects
Development of private health insurance to trigger investments in private hospitals
Lower resources allocated from the state budget for the public health services to direct patients toward the private sector
Poor-quality of the public primary care services, inadequate referral and overemphasis on hospital based curative services with lack of good equipment and drugs
Threats
Migration of healthcare personnel to EU countries
Migration of patients to more developed EU countries
Significant delays in collection of receivables for the contracts with the National Insurance House
The raise in medical devices prices and consumables to put additional pressure on the medical services companies’ margins
Instability of the economic environment to lower population access to private medical services
Romanian attitudes to private healthcare
According to a communiqué remitted to ‘Nine O’Clock, ‘ the most recent IMAS survey ordered by MedLife shows that 20 per cent of Romanians living in urban areas use the private health system. Over 70 per cent of them choose the private health system because of the quality of services offered. The other arguments in favour of their choice are: civilized conditions and cleanliness in private clinics (45.7 per cent), the medical staff’s attitude (43.1 per cent), the time it takes to receive medical care (39.2 per cent), the private clinics’ high-performance technology (34.2 per cent), the medical staff’s professionalism (30.1 per cent), and the absence of informal payments (29.3 per cent). The survey was conducted at national level on a sample of 1,000 persons on April 8-19, 2011. According to the same survey, 61 per cent of respondents undergo medical check-ups one or several times per year, 19 per cent once every 2-3 years and 10 per cent once every 5 years or more. According to the survey, the best-known private hospital in Romania is the Life Memorial Hospital, followed by the Regina Maria Maternity, the Euroclinic Hospital, the Pelican Hospital in Oradea and the Arcadia Hospital in Iasi. The same survey reflects the frequency of visits to the doctor. Thus, compared to 2010, the percentage of Romanians that visit the doctor once a year has remained relatively constant, going from 20 per cent last year to 22.6 per cent this year. On the other hand, the percentage of Romanians that do not visit the doctor at all dropped significantly, from 13 per cent in 2010 to 3 percent in 2011. The percentage of Romanians that visit the doctor several times per year has risen by approximately 15 per cent compared to 2010.
About half of the Romanian citizens, mostly from Bucharest, have used at least once the private medical services. Although there is a high concentration of private hospitals in Bucharest area, the money gained from this region is almost equal to the profits in the rest of the country.
Private medical services market segments - Competitive landscape
In 2008, the most of the market players have envisaged expansion outside the Bucharest area, in cities such as Timisoara, Constanta, Brasov, Iasi, Sibiu and Bacau, through either Greenfield projects or partnerships with local players. Due to the soaring growth rhythm of the market during the past 2-3 years, the small players with a previous turnover of EUR 0.5 mn have became sizeable, increasing the number of potential acquisition targets.
Corporate subscriptions market
In the absence of a favourable legislation for the private health insurance plans, medical services providers have developed the prepaid medical services as a substitute to these plans.
The most important driver for the subscription market has been the mandatory occupational health (OH) services, boosted by an Order issued by the Ministry of Health in 2002, requiring the public and private employers to provide their employees with medical examination at signup date and on a regular basis. These costs are fully deductible at the employers' level. The subscription market has seen rapid development over the past five years, reaching an estimated size of EUR 35 mn in 2008 (including the OH subscriptions). Compared to other CEE markets, a relatively large part of the active population uses medical subscriptions rendered by the private medical service operators. The subscription market revenues are generated mainly by companies, which have included the prepaid plans in the benefits package offered to employees.
While some providers focus their prepaid services merely on occupational healthcare (Romar Medical Centre, Medcenter, Gral Medical), others consider the occupational health an entry point to more complex prepaid services based on specific client needs (Medlife), whereas a third category delivers only classic and premium medical service packages (Unirea Medical Centre, Medicover).
At the end of 2008 the market leader, MedLife, reported over 150,000 subscribers from more than 1,500 companies. Other major players, namely Medicover, Unirea Medical Centre (CMU) and Medsana have also recorded an upsurge in the subscription revenues over the past four years.
Revenues of the main players in the corporate subscription market, 2008 (EUR mn)
Source: 2008 estimates based on companies' representatives statements
Clinics
Primary care services are provided by about 11,000 family physicians - independent practitioners contracted by the National Health Insurance House (NHIH), but privately operating their medical offices. Access to specialized care currently requires a referral by the general practitioner, but the frequency of primary care consultations in Romania is still behind the average recorded in EU countries. This is due to the fact that, historically, patients have sought and have received hospital treatment for medical cases, which could have been carried out in the ambulatory premises.
Specialized ambulatory healthcare is currently delivered through hospital outpatient departments, centres for diagnosis and treatment and medical specialized offices.
The qualified physicians who work in ambulatory care generally split their time between the public and private sectors. Many of them are employees in a state owned hospital and work extra hours in private settings, with or without a contract with the NHIH.
The local private medical services market is currently very fragmented, small clinics with 2-3 consultation rooms, coexisting with large clinics having 10 to 20 consultation rooms. Medlife, having 44 consultation rooms and addressing 54 specialties, operates the largest clinic in the country. The recently opened large private clinics have invested in new technologies and up-to-date medical equipment, becoming the main alternatives to the formerly renowned "top clinics" in the public sector, as they gradually succeed to attract experienced and well-known physicians. A number of private medical services providers developed their businesses by building networks of outpatient clinics.
Number of outpatient care facilities in Romania, by type of majority ownership, 2007
Source: The National Institute of Statistics, 2008
In terms of outpatient contacts per capita, Romania falls below the CEE average, underlining the growth potential for the private medical service providers. The figure reflects the tendency to go directly to a hospital emergency unit instead of visiting the family physicians, thus increasing the burden on inpatient services.
The deterioration of the public health services due to lower funds allocated to the Ministry of Health and the insufficient number of public ambulatory centres might result in an opposite trend, that of directing patients towards the private clinics. Also, a higher demand for better medical services due to the increase in health awareness and the growing needs of an ageing population are expected to fuel the constant development of private ambulatory facilities.
Outpatient contacts* in selected CEE countries in 2006
Note: * The total number of primary healthcare or ambulatory care contacts per capita taking into account private and public healthcare; Source: WHO, 2008
Laboratory services
According to market players, the total laboratory diagnostics market had an estimated value of EUR 200 mn in 2007, with tests carried out in intra-hospital laboratories weighting 70%. The remaining of 30% relates to the ambulatory segment, being serviced mainly by private laboratories. The sector benefited from the national program for assessment of the health condition in Romania, initiated by the Romanian Ministry of Health in 2007. The program aimed to re-assess the pathologies with major impact on the population health and has included both the insured and uninsured population. The program was run through family physicians and laboratory services providers having concluded a contract with the NHIH for this purpose.
The state owned hospitals have a tendency to outsourcing the laboratory services. The approximately 400 public hospitals unable to close the inefficiency gap will look for public private partnerships (PPP). Agreements with private medical service operators have been already established, with some 20 hospitals outsourcing their laboratories. The demand for more sophisticated laboratory tests which require the use of the latest technological developments will favour the consolidation of the private laboratory services market and the large providers with already diversified offerings and access to state-of-the-art equipments.
Consequently, the competition in this market segment is increasing, especially in Bucharest where a number of private providers have entered the market through either Greenfield projects or service agreements with local public hospital laboratories. Currently, the sector is still very fragmented, consisting of around 750 privately owned laboratories around the country, with few service providers of scale.
Synevo, the medical laboratory division of Medicover Group is the largest provider of laboratory services in Romania. Total number of tests delivered in 2008 was of some 6.3 million, majority of which derive from contracts with public hospitals, generating more than 80% of their business. While certain providers focus only on stand-alone laboratory diagnostic services (such as IDS, Focus, Biomedica, Synlab), others envisage developing an integrated business model, combining laboratory and diagnostic imaging with ambulatory services. MedLife, Medicover and Medsana are among the largest integrated service providers; MedLife is so far the only private operator present in all major segments of private medical services market (i.e., OH and corporate subscriptions, clinics, laboratories, hospitals).
Hospitals
Inpatient care accounts for the largest part of total healthcare spending in Romania, reflecting not only the underutilization of primary and ambulatory care services but also the insufficient development of different levels of care, since many patients are hospitalized for services which could be carried out on ambulatory premises. Romania has a relatively high inpatient admission rate: 24/100 population, compared with the EU average of 18/100 population (according to WHO Regional Office for Europe, 2009).
Total inpatient expenditure (% of total health spending) in selected CEE countries, 2006
Source: WHO Regional Office for Europe
The number of hospitals has slightly increased since 1980, when 416 hospitals were recorded versus 447 in 2007. The majority of hospitals are state owned, while private investors mostly develop new hospitals. Very few new state-owned hospitals have been built after 1990, the increase in numbers resulting from spin-offs or transforming of outpatient wards into small hospitals and vice versa.
Given the limited financial resources for inpatient care in public facilities, the government announced intentions to pursue evaluation and development of PPP projects with particular emphasis on high cost areas such as imaging, dialysis and surgery services.
In terms of hospital beds, Romania has a relatively high hospital beds to population ratio, imposing extra costs on the healthcare system. According to the National Institute for Statistics, Romania had over 143,000 hospital beds in 2005 (including short-term acute care and long-term care beds) or 6.6 beds per 1,000 people. The ratio for acute care is lower, as WHO data points out. In 2005 the ratio for acute care was around 4.5, decreasing dramatically from 6.9 in 1999. Nonetheless, both the ratio for all bed types (6.6) and the ratio for acute care beds (4.5) were comparable to the average figures for the EU (5.9 for all bed types and 4.1 for acute care beds). The relatively high ratio is not managed effectively as the allocation of beds is uneven and does not match the actual incidence of diseases in different therapeutic areas.
Hospital beds, per 100,000 inhabitants
Source: WHO Regional Office for Europe, PMR Publications
Currently in Romania there are only five private hospitals with more than 50 hospital beds. The largest private hospitals commissioned so far in Bucharest are Life Memorial Hospital (LMH) developed by MedLife, Euroclinic operated by Eureko Dutch insurance group and a maternity commissioned by CMU in January 2009. With a capacity of 120 beds, LMH, commissioned as of July 2008, is not only the largest private hospital in the country, but also addressing the largest number of therapeutic areas, including the only private paediatric department and the largest private surgery unit in Romania. Commissioned in June 2005, Euroclinic has been designed as a 35 beds private wing of the public Floreasca Hospital. In time it has extended its capacity to a current level of 70 beds.
In the context of the limited supply of public funds and lack of efficient management in the public hospital sector, an increasing number of private medical services operators are contemplating massive investment projects (i.e. private hospitals). Lately, many of the local medical services providers but also international investors have announced their intentions to develop private hospitals, although most of the announced projects are still in a very early stage of development and not all of them may materialize as planned.
Investments in private hospitals (*) expected date of commissioning
Source: Public statements of the companies' representatives, 2008
Top players of the private medical services market
While still in the early stage of development, the Romanian private medical services industry is slightly fragmented, with top ten players accounting for roughly 40% of the market in 2008. The remaining market is divided between many smaller clinics, individual medical practices and independent privately owned laboratories.
Most private medical companies have budgeted double digit growth rates for 2009, despite the ongoing economic challenges.
Top 10 private medical services providers, turnover (EUR mn)
Source: Companies data, Raiffeisen Investment Research
Note: For comparability purpose, in absence of consolidated reports for Medicover Group, Synevo and Medicover are presented separately; starting with 2009, Euromedic and Nefromed revenues are reported combined, following Nefromed's acquisition at the end of 2008
Top players portfolio
Note: Unirea Medical Centre only operates a maternity hospital
Source: Raiffeisen Investment Research
MedLife
Largest private integrated provider of medical services, MedLife is currently operating 4 of the largest clinics in the country, 5 laboratories and the largest private hospital in Romania, following a heavy investment strategy in the past years both in Bucharest but also in Cluj and Timisoara. In addition, the company has tapped the niche segments through specialized medical centres such as a psychotherapeutic clinic (MindCare), an IVF centre and a Balneal-therapy facility. The company has recently signed a partnership with Dermastyle, the only private specialized dermatology clinic in Romania, with a view to develop the first private dermatology and plastic surgery hospital on the Romanian market.
The OH and Corporate subscribers have access to MedLife's ambulatory medical centres and also to the 5 specialised OH clinics and 45 onsite medical offices. Moreover, in order to ensure national service delivery for its patients, the company developed a strong network of sub-contractors well known in the market as NetLife, with up to 100 external medical service providers throughout the country.
With a turnover of EUR 21.3 mn in 2008, MedLife has experienced an impressive above the market growth, of 69% against the previous year. For H1 2009, MedLife reported a 50% y/y increase in revenues in RON terms and anticipates maintaining the same growth rhythm for the end of the year, which will consolidate its leadership position.
Medicover
The local subsidiary of the Swedish healthcare services provider Medicover Group has posted revenues of EUR 14 mn in 2008 and expects a 14% increase in 2009, up to around EUR 16 mn. Part of its expansion plans, Medicover announced the intention to build a new clinic in 2009.
Synevo, the medical laboratory division of Medicover Group, is the largest provider of laboratory services in Romania. In 2008, the company's turnover soared by 11% yoy, to EUR 15.5 mn. For 2009, Synevo targets a 16% increase in turnover. Furthermore, the company announced the intention to expand its network with a greenfield project in Bucharest and a new laboratory in Craiova. In addition, Synevo intends to take over outsourced laboratories from large public hospitals throughout the country, if the opportunity may arise.
Unirea Medical Center (CMU)
CMU operates a network of 8 ambulatory units along with 3 onsite medical offices in Bucharest, as well as 6 medical centres outside Bucharest (2 in Cluj, 1 in Ploiesti and 3 in Constanta). CMU has recently commissioned a private maternity and a Stem Cell Bank. In 2008, CMU posted a turnover of EUR 11.9 mn, up by 47% as compared to 2007. For 2009, the company targets a 40% increase on the year, to EUR 16.5 mn. Furthermore, the company announced an investment programme of EUR 8 mn for 2009.
Medcenter
Medcenter was one of the first providers of private medical services to start a countrywide expansion, being more focused on delivering OH services. Currently, the company runs a network of clinics and laboratories in 8 cities across Romania. According to its estimates, Medcenter generated turnover worth EUR 11 mn in 2008, up by 34% as compared to 2007. Future expansion plans include investments of EUR 9 mn in 4 clinics (2 in Bucharest and 2 outside) and 1 imaging centre.
Sanador
Although it offers a diverse portfolio of medical services, Sanador only competes in the Bucharest market. The company operates two clinics, a fully equipped medical laboratory and several private medical reserves located in the "Floreasca" Emergency Hospital. Revenues for 2008 amounted to EUR 9.1 mn, a 34% increase yoy, while in 2009 half-year revenues stood at EUR 5.3 mn, up 38% against the same period of 2008. Further expansion plans resume to a EUR 40 mn budgeted investment in a 100-bed private hospital in Bucharest.
Gral
Following a rapid expansion, Gral currently operates a network of 17 medical centres throughout the country, which address mainly OH services. The company posted revenues of EUR 10 mn in 2008 and a corresponding profit margin of 15%. In the first half of 2009 revenues soared to EUR 5.1 mn, 42% ahead of the same period in 2008. However, margins decreased sharply to 9% as a result of economic downturn and recent expansion activity. Future investment focus is the opening of a private niche hospital in Bucharest, specialized in orthopaedics, cardiology and otolaryngology evaluated at EUR 20 mn.
Medsana
Medsana Medical Centre currently operates two medical centres in Bucharest, a multidisciplinary medical centre in Ploiesti and a fully equipped laboratory. 2008 turnover is estimated at around EUR 10 mn, whereas for 2009 the company has forecasted a turnover of EUR 12.5 mn. Expansion plans were put on hold in the first half of the year, the main focus being to consolidate the company's market position. For the second half of 2009, however, Medsana plans the opening of two new medical centres in Bucharest.
Euromedic
Following Nefromed's acquisition, the Romanian arm of Dutch-registered healthcare services provider Euromedic International reported a combined turnover of EUR 14 mn for 2008. Except for Nefromed's dialysis centers, the company operates 8 imaging diagnostic centres throughout the country. Euromedic has invested more than EUR 30 mn in the development of healthcare centers and medical equipment and is planning to pump some EUR 40 mn into the expansion of its network.
Romar
Romar Medical runs a network of 10 medical centres, out of which 5 are in Bucharest. The company is 60% owned by the Romanian Hagicalil family, with the remaining stake being held by Reconstruction Capital 2 (RC2) investment fund.
In 2009, two years since the acquisition, the fund has expressed its intention to exit the company. Romar claims to hold about 10% of the occupational health market, with the occupational health services to derive over half of the company revenues. Initially forecasted revenues for 2009 were EUR 12 mn, but the company has revised its growth plans downwards to EUR 10 mn in turnover.
Private medical services development considerations
The Romanian private medical services market is estimated to continue its double digit growth over the coming years, sustained by the unsatisfied market demand for better quality medical services in all market segments. A promising development for 2011 is reflected by the fact that most of the main players on the market have announced significant investments in the sector in their fight to break the borders of Bucharest and expand in rest of the country. In the same time, it is expected that the small players on ambulatory and laboratory services to be more impacted by the current economic context, especially because of high dependency on the NHIH funds and the diminishing of the patient base due to termination of the National Health Assessment Program.
On the other hand, the deterioration of the public health services due to lower amounts of resources allocated to the Ministry of Health for 2009 might result in an opposite trend, directing patients towards the private clinics and the few hospitals. In this regard, the large integrated players are better position to face the demand by already addressing a broader range of services, being equipped with modern medical equipments and being able to attract and retain the most prominent qualified physicians.
In addition, the establishment of the basic medical services package covered by mandatory insurance plans and the development of copayment models are likely to contribute to the expansion of the private health insurance services, furthermore boosting the development of the private hospitals.
Overall, in the absence of a viable substitute, the demand for private medical services is expected to remain strong. In this situation, the competition for market share and patients is expected to tighten, especially in Bucharest.
In the long run, the private medical services market remains one of the few investing environments with a promising outlook. The market growth is to be supported by the increase in disposable income and patient expectation for higher level of service provision cumulated with the rising disease incidence rates and ageing population in the context of limited resources from the public health fund.
by
anitudose (student)
