Private medical services market segments

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.

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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. Related: Management of a pediatric unit Hesi Case Study

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. 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.