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Managing Partner, ILF
Coordinator of the Kharkiv expert group on implementation
of medical reform
Associate Partner, ILF
Head of medical and pharmacy law department
Address: 22 Shovkovychna Street, Kyiv, 01024, Ukraine
Tel.: +380 44 390 7777
ILF (Inyurpolis Law Firm) is an independent Ukrainian law firm with a core focus on litigation and business support (business setup, transactional support, regular advisory support). The Firm has been operating on the market for 24 years through its two offices located in major cities of Ukraine — Kyiv and Kharkiv.
We help our foreign clients get a clear understanding of the Ukrainian business environment, based on our knowledge and experience in medicine and pharmacy, agribusiness and alternative energy, IT, banking and finance, creative economy.
ILF is known for its successful business structuring record in the IT sector, support of sophisticated technology contracts, and public private partnership (PPP) work in the field of healthcare and energy.
We carry out business support through our commercial, corporate, M&A and other teams, that follow an industry-minded approach. The diverse expertise of the team ranges from business structuring and high-profile contracts to corporate acquisitions and asset deals. We also protect businesses and company assets (real estate, land, business reputation), both in Ukraine and in the European Court of Human Rights. This is ILF’s main focus.
The ILF team includes 47 highly-qualified lawyers, attorneys, investment and business consultants.
In 2018, ILF made it into the international Legal 500 ranking in the fields of dispute resolution as well as corporate law and M&A. ILF is also in the TOP-15 law firms in the national rating 50 Leading Law Firms of Ukraine in 2018 by Yuridicheskaya Practika Publishing.
Areas of practice: public-private partnerships and privatization, corporate law and M&A, land and real estate, labor and employment, debt recovery.
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 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 — a 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 a private practices. 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 prescription drugs provided from the NHSU directly, bypassing the often corrupt local authorities. Also, the Free Diagnostics program will launch on 1 July of this year.
— the pilot introduction of DRG (diagnostically related groups) payment for medical services will start in April in Poltava Region, 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 way of maintaining a balance between the quality and cost of medical services.
In regards to the reform’s problems, the biggest one is sabotage of changes in the regions. 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.
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 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 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 medical reform and associated political risks.
Already, during the transition period, business can invest in Ukrainian medicine. 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. 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 is the doctors’ demand for transparent and high salaries, while 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 medical reform, the Ukrainian medical industry should become a competitive market with great potential as early as next year.