Georgia’s healthcare privatisation stands as a warning to Ukrainian reformers

Ukraine's government is eager to overhaul the country's ageing healthcare system. Following Georgia's example may be tempting, but is not without risk.

Kathleen Weinberger
6 August 2015

Since the fall of the USSR in 1991, policymakers across the post-Soviet space have struggled to reform newly independent healthcare systems in the face of skyrocketing mortality and illness rates.

However, change does not always produce positive results. Following the introduction of Georgia’s health reforms in 2003 and again in 2007, uptake of health services continues to be dangerously low due to the combination of corruption and the high costs associated with medical services and treatments, while basic indicators of effective health provision, such as the maternal mortality rate, show a disappointing lack of progress.

One of the most disturbing aspects of Georgia’s reform model is the possibility of its export, specifically to Ukraine. In March 2015, the Ukrainian government accepted a $215m loan from the World Bank in order to improve its medical system.

There is no doubt that Ukrainian healthcare requires invasive surgery: Soviet-style planning means that the system is extremely inefficient, while lack of oversight has resulted in Third-World levels of hygiene and infrastructure in some regions. At the same time, the influence of Saakashvili-era Georgian ministers, such as former Ukrainian Health Minister Aleksandr Kvitashvili, means that Georgia’s mistakes could very well be repeated, leaving Ukraine worse-off than reformers found it.

Attempts at reform

Ukraine has attempted healthcare reforms in the past. Former president Viktor Yanukovych attempted to redesign Ukraine’s medical model in a series of disorganised, half-realised steps across 2011-2013—from intentions to test a new funding and organisational model to the signing of a law addressing ‘Emergency Medical Assistance’.

These reforms have been heavily criticised due to their poor planning. For example, take Yanukovych’s pilot programme, which launched in Donetsk, Dnipropetrovsk and Vinnytsia in January 2011, with the intention of extending it nationally in 2013. In Donetsk alone, successful implementation required the training of 400 family doctors, a requirement that may be described either as naive optimism or organisational negligence, when one considers that the region has produced 500 new doctors in the past 5 years.

Georgia’s reforms also involved the introduction of a Family Medical System

Georgia’s reforms also involved the introduction of a Family Medical System. During the Soviet period, both Georgia and Ukraine operated according to the Semashko system, in which patients relied on polyclinics staffed with specialists for their medical needs.

Under this system, healthcare was provided through hospitals, and resources were concentrated on providing the maximum number of hospital beds. Under the Family Medical System, patients instead use a family doctor as their first point of contact, who may then issue referrals, thus avoiding excessive hospitalisation.

While the aim in both cases is laudable, the devil is in the details: in order to meet the demands of the reforms, large numbers of doctors require retraining. Meanwhile, other pressing human capital issues, such as Georgia’s poor distribution of doctors outside of Tbilisi and a critical shortage of nurses, have been overlooked.

Such an overt focus on medical system organisation, rather than operation, appears again as a key theme when considering reforms regarding hospital infrastructure.

Qimiao Fan, World Bank director for Belarus, Moldova & Ukraine, at a March 2015 press conference in Kyiv concerning the loan

A second inefficiency of the Semashko system is the emphasis on high numbers of hospital beds, and thus in-patient treatment, rather than patient-specific planning. During the 1990’s, both countries undertook campaigns to reduce the number of hospital beds; however, Ukraine’s efforts were far from sufficient, and it remains one of the countries with the highest number of hospital beds in the world. Qimiao Fan, World Bank director for Belarus, Moldova & Ukraine, at a March 2015 press conference in Kyiv concerning the loan For budgetary planning and efficiency, following Georgia’s example in this case would reduce the amount of Ukrainian resources wasted on Soviet-style planning.

Yet focusing reform around budgetary concerns risks letting the more pressing issue of simple infrastructural sufficiency remain unrealised. Many of Georgia’s medical centres, especially in rural areas, lack necessary equipment, or else have significantly aged stock. As a result, a large number of clinics are not able to perform diagnostics or provide sufficient treatment. In Ukraine, the situation is equally, if not more dire: according to a 2010 report (pp. 83-84) by the European Observatory on Health Systems and Policies, 6.8% of medical facilities do not meet minimum sanitation and hygiene standards, while little over half (59.5%) have hot water.

In Ukraine, the situation is equally, if not more dire

Improvement of this aspect of the healthcare system requires a direct confrontation with the serious problem underlying reform efforts in both countries — corruption. Insufficient oversight, coupled with institutionalised systems of informal payments, means that funding put towards improvements in building quality, the purchase of better equipment, and even water availability is at risk of being used to line pockets and gain favours.

Corruption affects individual patients as well: although the informal nature of such payments means that official figures are not registered, a study by the European Observatory estimated that the informal cost to citizens in Ukraine might in fact be as high as formal expenditures.

Without seriously addressing this issue, health care reforms aimed at bolstering financial prudence cannot be considered with any degree of seriousness, while efforts to improve quality of care and patient access will necessarily fail.

Failures in practice

The most dangerous contagion from the Georgian case, however, is the degree to which the system was privatised and the effect that this has had on patient access. Georgia’s reforms were introduced in the wake of a very real economic issue: the completely unfeasible Social Health Insurance programme that was implemented during 1995-2004, in which the economically weak state government was made responsible for providing basic medical coverage to all citizens.

The predictable failure of this model opened the door for a campaign of stringent privatisation that resulted in a healthcare system which receives one of the lowest percentages of expenditure from public sources in the world. In 2009, the amount of government spending as a percentage of total spending on healthcare was only 18.4%—the lowest in the WHO European Region. This underfunding, combined with the very low rates of health insurance coverage, means that the slack must be taken up by patients themselves. In 2009, individual expenditure in the form of out-of-pocket payments accounted for 70.9% of the country’s total expenditure on health.

It is not surprising that, due to these costs, Georgians at nearly every level of society avoid seeking medical attention, even when sick, with reports of hospital avoidance in the case of illness ranging from 68-78% in all but the wealthiest socio-economic quartile.

Indeed, the national average for having visited a doctor in the last 12 months is only 26.4%, as reported by the WHO in 2008. Even for those who are able to afford a doctor’s visit, the high cost of medication due to pharmaceutical monopolies that formed during the privatisation process means that many treatments are simply unaffordable for the average citizen.

It is not surprising that, due to these costs, Georgians at nearly every level of society avoid seeking medical attention

These problems create the potential for public health catastrophes. In Georgia, diseases such as Tuberculosis and HIV are continually increasing, while more common illness such as Hepatitis A, B and C lack any official support for either prevention or treatment.

The individual and societal cost of such policies, especially after a supposedly progressive string of reforms, is enormous.

Ukrainian health reform

Ukraine has a number of advantages going into the reform process. Firstly, despite a fairly large proportion of out-of-pocket payments as a percentage of total health spending (40.2%) combined with high levels of corruption, Ukrainians do not avoid seeking medical care when sick, in the same numbers that Georgians do.

Although 38% of those surveyed, reported treating themselves with homemade remedies instead of seeking pharmaceutical treatment, and 27.8% reported not seeing a doctor when ill, a full 62% of the general population stated that they had seen a doctor in the last 12-month period.

Ukraine has a number of advantages going into the reform process

Secondly, pre-existing conditions and specific provisions in Ukraine’s reform plans mean that medicines may become increasingly affordable. As Ukraine produces many of its own medicines, generic brands can be provided domestically.

Additionally, two stipulations of the upcoming reforms will further lower medication costs. The first of these is the streamlining of the process by which medications are approved for import: drugs that have been approved in certain countries, such as the US and the EU, will not need to undergo the same rigorous process of approval in Ukraine, and instead will be automatically accepted for import and sale.

Secondly, Ukraine’s government plans to hand over responsibility for drug procurement to the UN; under the terms of this agreement, costs could be cut by as much as 30%, and there will be the opportunity to prioritise those treatments that are most needed, such as medications that treat HIV and key vaccinations. Under such conditions, Ukraine will have the means to ensure that its population can afford and access essential medication, especially those most in need.

The most important issue, however, remains the future balance of public and private expenditure, and what role each will play in Ukraine’s reformed health system.

According to the World Bank, a key feature of the new system will be greater emphasis on the private sector in healthcare provision. The plan also contains provisions for health insurance, both public and private; this requires the most careful attention. As demonstrated by Georgia’s example, full privatisation has the potential to result in high out-of-pocket payments when insurance is not well utilised.

When combined with substantial expenditure going to informal payments due to corruption, privatisation results in low uptake of medical services due to unaffordable costs. Given the potential damage to public health, not to mention the economic ramifications of a sick workforce, it is imperative that Ukraine maintains or improves accessibility based on financial means, rather than risk following Georgia’s path.

Currently, Ukraine is facing a number of crises, from military conflicts in its eastern regions to economic downturn. In violence-torn provinces, the most pressing healthcare issue is neither fiscal nor bureaucratic, but instead centres on medical staff fleeing, and destroyed hospitals.

As such, the country may need to wait for reforms to be implemented at a national level, which will bring substantial change. During this time, reformers would do well to carefully assess the future of Ukraine’s healthcare system, and perhaps consider Georgia’s pitfalls as a caution against overzealous action.

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