Georgia Healthcare Group PLC Annual Report 2018 Strategic Report Industry and market overview continued Government healthcare financing A new regulation of the Ministry of Labour, Health and Social Affairs Since the introduction of the UHC, its budget more than doubled is to increase administrative oversight on prescriptions practice, from GEL 338 million in 2014 to GEL 704 million in 2018, accounting1 1 prioritising receipt of the data electronically on the Ministry of Labour, for 65% of all state healthcare expenditure. For 2019, the UHC Health and Social Affairs’ online platform. GHG is the first to have budget is projected at GEL 754 million. Elective inpatient services1 already implemented and integrated the electronic platform into our and emergency services constitute the major part of the UHC existing software. budget, while outpatient services have a limited coverage. Medical insurance market overview The remaining 35% of 2018 state healthcare budget is During the past decade, the private medical insurance market allocated to vertical healthcare programmes, such as dialysis expanded significantly compared to the 2006 figure, when only 40,000 and cancer screening. Georgian citizens (or c.1% of the total population) had a voluntary medical insurance package, mostly provided as part of a corporate Pharma market overview benefits programme. There were c.554,000 PHI policies in force The Georgian pharmaceutical market is highly dependent on imports. by the end of September 2018. The corporate segment accounts for The share of locally-produced drugs on the market is 12% as opposed the major portion of the PHI market – 95% of all policies are acquired to only 5% in the early 2000s. There are over 90 pharmaceutical by employers and the rest (c.29,000) are purchased by self-paying importers in Georgia, but c.75% of all imports are performed by individuals. In Georgia, private health insurance is primarily intended three companies: GEPHA (c.32%), PSP (c.27%) and Aversi (c.18%). to provide value-added services in the form of more extensive Domestic production is represented by over 20 companies and is coverage or more convenience for the patient. dominated by two players with c.90% of the total production volume in the country. Diagnostics market overview The laboratory and diagnostic services market in Georgia is also highly Pharmaceutical market reforms, mainly introducing parallel import and fragmented. Along with large market players, such as Synevo Medical automatically registering medicines recognised by international control Laboratory, Cito Medical Centre and European Limbach Diagnostic bodies, such as the US Food and Drug Administration (“FDA”) and Group, there are multiple smaller service providers. Moreover, almost the European Medicines Agency (“EMA”), supported by favourable every polyclinic (outpatient clinic) and referral hospital runs its own lab regimes for setting up pharmacies – 0% VAT on medicines, absence facility. Despite such an abundance of labs, the Georgian healthcare of customs duties and no price controls – made it possible to create system suffers from a limited provision or outright shortage of certain a competitive marketplace in Georgia. laboratory services: there are no dedicated high-quality pathology laboratories in the country, the samples for complex lab tests, such as The current per capita pharmaceutical expenditure in Georgia stands oncology and molecular lab genetics, are often sent abroad, and there at US$107 (excluding parapharmacy products), which puts Georgia2 are only a few providers of morphological or bacteriological tests. in the middle among the countries in the peer group. According to a market research by Frost & Sullivan, generics account for 61% of the The newly-opened GHG Mega Lab, the largest diagnostics laboratory total market revenues, which corresponds to the EU average (c.50%). not only in Georgia but in the entire Caucasus region, will be the first The market opportunity for generics is still considerable – in the to offer a full set of clinical and pathology tests, some of which are leading economies like Germany and the UK, generics hold a being introduced in the region for the first time. For more information dominant share of more than 80% (in the reimbursed segment). about Mega Lab please read page 17. The Over the Counter (“OTC”) segment in Georgia prevailed over the last decade until 2014, when a prescription requirement was introduced for over 6,000 medicines. Now the distribution between OTC and prescription drugs is almost equal. State financing of healthcare (GEL million) Government healthcare financing 10% In 2018, the total healthcare market is estimated at 1,200 9% 9% 9% 9% • GEL 3.8 billion. 754 1,000 710 704 The country’s expenditure on healthcare – c.9% of GDP. 681 • 800 574 • C.30% of total healthcare expenditure is financed by the state. 600 • Government expenditure on healthcare as a % of GDP reached 400 c.3% from 1.6% in 2013. 357 383 393 200 281 301 • Government spending on healthcare accounts for c.9% of the total budget. 0 2015 2016 2017 2018E 2019B State healthcare State healthcare Healthcare spending as a spending – other spending – UHC % of total state spending 1 Ministry of Finance of Georgia. 2 Frost & Sullivan analysis 2017. 30