Healthcare Reform in the Ukraine and Investment Opportunities for the Private Sector

Since the time of the Soviet Union (USSR) and pursuant to Ukraine’s Constitution, medical care in Ukrainian public hospitals (most hospitals are public hospitals) is supposed to be “free of charge” for all citizens.  However, unlike the USSR, Ukraine is simply unable to sufficiently finance the extremely high costs associated with providing such free healthcare as well as maintain the outdated infrastructure of a number of public healthcare facilities. As a result, many patients in the Ukraine must pay for their healthcare, although these payments are often made “unofficially” (e.g., directly to doctors). Given this tension, as well as other weaknesses of Ukrainian healthcare system, many have called for its reform.

In November 2017, the Ukrainian Parliament approved a new law implementing this much awaited and needed healthcare reform.  As a result of this new law, the market in Ukraine for new pharmaceuticals is expected to grow fairly significantly due to the diversified funding for various medical services and drugs as well as a new drug reimbursement program.  Additionally, the diversified funding for healthcare in Ukraine will create a number of investment opportunities for the private sector which are expected to help grow the Ukrainian economy.  Highlights of the new law, the potential investment opportunities for the private sector, the timeline for implementation and unanswered questions and potential challenges regarding this new law are discussed in more detail below:

Highlights of the new law:

  • Diversified funding. The concept of universal and theoretically free healthcare, as inherited by Ukraine from the USSR, will now be limited. Specifically, Ukraine will annually allocate at least 5% of its GDP to guarantee full tax-funded coverage for a limited list of medical services and drugs (“guaranteed package”). Any medical services or drugs falling outside of the guaranteed package may be financed through official payments from patients, private medical insurance or other channels.
  • Service-based payments. Ukraine will directly pay providers of the guaranteed package for their services. Such payments will be based on nationwide tariffs and will be administered through agreements between providers and the National Health Service of Ukraine (“NHSU”).
  • Provider competition. Public and private healthcare providers will be equally eligible for state funding of the guaranteed package.
  • Drug reimbursement. Currently in the Ukraine, with respect to drugs, the market operates as follows:
    • the government and public healthcare institutions purchase drugs via public procurements;
    • a certain percentage of drugs are covered by an existing pharmacy-based reimbursement program; and
    • all remaining drugs are paid for by patients who purchase the drugs through pharmacies.

The new law is expected to make the market more balanced and flexible. The limits of drug coverage by the Government will be more clearly defined. Additionally, although Ukraine has implemented a pilot pharmacy-based reimbursement program for a limited number of pharmaceuticals and disease areas (such as cardiovascular diseases, diabetes and asthma), in view of the new law, this program will be significantly expanded. Specifically, beginning in 2020, drug reimbursement will automatically become a part of the guaranteed package. Moreover, the scope of pharmaceuticals subject to reimbursement will be defined based on the National Essential Medicines List and approved annually by the state budget law together with other elements of guaranteed package. Patients receiving ambulatory medical care will receive pharmaceuticals covered by the scheme through retail pharmacies based on reimbursement agreements with the NHSU.

Investment opportunities for the private sector based on the future diversified funding of healthcare in Ukraine:

  • Payment for medical services by the government and third parties will make involvement of the private sector in healthcare commercially viable.
  • National tariffs for the guaranteed package should make the economics of healthcare sector more predictable and permit longer term financial planning for service providers and investors in Ukraine.
  • Performance-based Public Private Partnership (PPP) contracts (based on the combination of availability of service-based payments and direct user charges) may be available. These PPP contracts will provide flexibility for the public and private partners in the management, control and upgrade of healthcare facilities.
  • Market practices relating to the guaranteed package will become transparent and unified. Specifically, equal payment terms and a competitive environment are expected to improve the cost-efficiency and quality of healthcare services available in the country.
  • A new drug reimbursement scheme should make the state funding of the Ukrainian pharmaceutical market more flexible and predictable, thus raising its investment attractiveness.

Timeline for implementation of the new law:

The new law will be implemented in stages, beginning on January 1, 2018 and continuing through 2024.  The key stages of implementation are provided below in more detail.

  • 2018:
    • Primary medical care (e.g., first level general consultations, diagnostics and treatment of most common diseases and conditions, preventive measures, referral for specialist care, etc.)
    • Procedures, the guaranteed package and tariffs to be approved by the Government
    • Partial financing will be available through traditional budget subsidies
  • 2018-2019:
    • Transition period for other levels of medical care (e.g., emergency, specialized, highly specialized, palliative, pregnancy and childbirth medical care, medical rehabilitation)
    • Gradual implementation of reform through pilot projects for selected regions, helathcare facilities and various types of medical services
    • Procedures, the guaranteed package and tariffs to be approved by the Government
    • Partial financing will be available through traditional budget subsidies
  • 2020:
    • All levels and types of medical care will be covered by the reform
    • Drug reimbursement becomes part of the guaranteed package
    • Guaranteed package and tariffs to be approved by the state budget law
  • 2024:
    • From 2018 through 2024, there will be a 20% limit on the scope of medical services that can be charged by public healthcare providers directly to patients

Unanswered questions and potential challenges of the new law:

  • Implementation of a new regulatory framework. Implementation of healthcare reform will require additional legislative changes and by-laws, the timing of which is currently unknown. In parallel, amendments to the PPP regulatory framework (including those involving concessions) are in the process of being developed to allow for the efficient implementation of PPP projects.
  • Constitutional concerns. The Ukrainian Constitution guarantees free medical care which is to be provided by the public healthcare institutions. It is unclear whether the new law comports with the constitutional requirements. Confirmation by the Constitutional Court of Ukraine may be required to settle this question.
  • Paying for such an extensive guaranteed package. The general scope of the guaranteed package, as described in the law, is broad and includes all types of medical care. This creates a concern as to whether the Ukrainian budget will provide sufficient resources necessary to ensure adequate coverage under the new law. More clarity is expected once the proposals by the Government are released on the specific services and drugs (including their volumes) to be included in the guaranteed package.

Continue to watch the BRIC Wall Blog for further updates on healthcare reform in Ukraine.

This post was written by Lisa Mueller and Viktoriya Podvorchanska, Roman Stepanenko and Kateryna Oliynyk of EPAP Ukraine.

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