Farewell to Public Hospitals

As Georgia hands over most hospitals to private investors, some wonder if health care will suffer. From EurasiaNet. by Giorgi Lomsadze 24 June 2008 After almost a decade spent mulling over ways to overhaul Georgia’s faltering health care system, the government has moved to outsource the job to the private sector. While the decision is in keeping with the country’s overall aggressive reliance on market mechanisms to stimulate change, some observers worry about what the results will be for access to affordable health care.

Few would disagree that the government alone can sustain a bloated, Soviet-era healthcare system. Fewer than 30 percent of the country’s 16,455 hospital beds are now in use and almost all of its roughly 250 hospital facilities need renovations and technological updates, according to official figures.

“It is absolutely impossible for [a] state like Georgia to retain … 254 publicly owned hospitals and [to] finance the health care at the level we would like to provide,” Minister of Labor, Health and Social Affairs Alexander Kvitashvili said in an interview with EurasiaNet. “Therefore, private medical insurance and [a] private hospital network [are] something that we think is the only way out of the situation.”

Under a project billed 100 Hospitals, private companies, mostly real estate developers and pharmaceutical firms, are taking over public hospitals with a pledge that they will upgrade the facilities and provide better quality services. The bidders are not paying the government for these takeovers.

The program, which started officially in late 2007, includes package transfers in which an investor commits to renovate at least one hospital in a major population area out of several acquired. No requirement exists to renovate each hospital acquired. With this approach, the government plans to reduce the total number of hospitals in Georgia to 100, and to reduce the number of hospital beds by more than half to 7,800. The reform also involves a shift from specialized hospitals to general-practitioner clinics.

All but four of the hospitals have been privatized to date; the government will retain ownership of those remaining facilities.

Turning health care into a business, the government posits, will lead to greater competition, greater options for patients, and, not least, less public spending.

The state currently puts about 250 million lari (about $176 million) into Georgia’s health care system, according to Kvitashvili. The government’s total budgeted expenditures for 2008 are 5.2 billion lari, or about $4.16 billion.

Private pharmaceutical companies spend about 250 million to 300 million lari (about $176 million to $211 million) per year on health care in Georgia, he said.

Kvitashvili estimates that an additional 450 to 500 million lari is circulating within the health care system via unofficial payments to medical staff, but cannot be accessed to finance improvements. He did not elaborate about how the survey was performed.

“[T]his is the money that goes directly from [the] patient’s pocket to [the] doctor’s pocket,” he said.

Out-of-pocket payments are a holdover from Soviet times when patients paid generous tips to doctors as a hefty supplement to modest state salaries.

The practice has lived on, spinning off other types of questionable practices as well. “If you have, say, 10 patients a day, you register five and you don’t register the other five and you just collect cash from them, which is less then they would pay had it gone through the system,” Kvitashvili said.

The government believes that such concealed payments will disappear when doctors and nurses receive higher salaries from privately owned hospitals. Georgian doctors on average earn about 700 lari (about $492) per month; nurses as little as 200 lari, according to the Department of Statistics.

The Health Ministry reports that, with a 25- to 35-fold increase in hospital revenues since the privatization program began, average salaries of doctors and nursing staff have increased by 20 to 25 times.

The owner of one Tbilisi dental clinic, however, doubts that a change of ownership will reduce informal payments. “Our clinic is private. Nevertheless, we have to find ways around the system because the taxes are just way too high and patients can’t afford paying this much,” the owner, who asked to remain anonymous, said.

The Economic Development Ministry, which oversees the privatization process, counters that tax cuts will largely eliminate the problem. The corporate income tax rate will be slashed from 25 to 15 percent over the course of five years beginning in 2008. Hospitals in Georgia do not operate as non-profits, with the associated tax exemptions that are standard elsewhere.

COSTS OF PRIVATIZATION

Private insurance makes up the second part of the scheme. Insurance companies, rather than the government, will act as third-party payers for transactions between health care providers and patients.

Photos: Georgian Health Ministry

Currently, the state is providing health care coverage through private insurance companies for roughly 300,000 of Georgia’s most vulnerable population, individuals who cannot afford 15- to 20-lari ($11 to $14) monthly medical insurance premiums.

The state, however, will continue to sponsor health treatment programs for HIV/AIDS, tuberculosis, insulin-dependent diabetic newborns, dialysis and chemotherapy.

One anti-corruption watchdog, however, notes that the reform has several gray areas. Transparency International, which monitors the reform, is concerned that without a proper regulatory system in place, investors may replace many basic types of services with more financially advantageous ones.

“Consequently, rural communities may be left without a local access to many basic types of health services,” said Nina Khatiskatsi, a program director at Transparency International Georgia.

Deputy Minister of Economic Development Vakhtang Lezhava counters that the reform guarantees that 80 percent of Georgia’s population will be within a 30-minute drive from basic medical care. Only residents of a few sparsely populated rural outposts will need to travel further, he said.

But no mechanisms exist to ensure that investors provide a minimum of health care services, according to Transparency International. Under the terms of sale, buyers must operate acquired health care institutions as hospitals for seven years. After that period, however, they are free to use the building as they wish.

“After seven years the new owner is free to convert the hospital into any other type of business,” Khatiskatsi said. “Should this come to pass, investors assume no responsibility to compensate the government or the community affected.”

But Health Minister Kvitashvili believes that such an outcome goes against business logic. “If you operate a hospital for several years, why would you want to change into something else?” he asked. “If a clinic consistently lacks clientele and is making losses, it means that there is just not sufficient demand in the area and health care consumers will seek assistance elsewhere.”

As the reform attempts to harmonize real demand with excessive supply, some layoffs are expected – a phenomenon that has also occurred in other privatized Georgian companies. On 2 May, personnel at one privately owned Zugdidi clinic staged a rally to protest management’s decision to reduce staff. Some health care consumers, many of whom are convinced that government-sponsored medical care is part of the natural order, also feel uneasy about health care’s commercialization.

“Medical assistance is not just like a clothing store,” commented Nana Didebulidze, a 50-year-old Tbilisi homemaker with insulin-dependent diabetes. “You can’t just walk across the street to another store if you are unhappy with the prices or quality.”

To the government, though, that option is the target of its reform drive. In the end, competition will drive choice, Kvitashvili argues. “This way is dictated by practical, pragmatic thinking,” he said.