Georgia Healthcare Group PLC Annual Report 2018 Strategic Report Industry and market overview continued • Growth of hospitalisation rates. There is at least 15% growth • Demographics. The country has an ageing population, with an potential in hospitalisation rate, which is likely to depend on increasing proportion of its citizens aged over 60 (as per the latest market consolidation, the pace of introduction of new technologies UN Population Division data, the share of people aged 60+ in and development of local skills. Georgia will increase to 24% by 2025 from 20% in 2015), who will • Supportive Government healthcare policies. Since its introduction require more frequent, better and prolonged treatments. Increasing in March 2013, the UHC has made basic healthcare available to the incidence of certain lifestyle related diseases (hypertension, ischemic entire population and is expected to maintain increase in demand heart diseases, cerebrovascular diseases and diabetes) will also for medical care, particularly hospital services. The Government boost demand for medical care and medicines. In addition, healthy budget on healthcare is expected to grow in line with the country’s fertility rates will drive demand for obstetric and childcare services. nominal GDP growth rate. For 2019, UHC budget is up 7% and • Development of medical tourism in the medium to long term. total healthcare budget up to 6% y-o-y. Improving facilities and standards have the potential to develop • Growing awareness of the benefits of medical insurance health tourism by attracting the citizens of the neighbouring among the population in Georgia. This may lead to a greater countries and, conversely, retaining the Georgians currently demand for private medical insurance from employers and self-paying seeking treatment overseas in the long run. The country is also customers who seek better quality services, quicker treatment highly price competitive compared to other medical tourism or more advanced procedures than are covered within the UHC destination countries and possesses unique natural resources framework. However, the new Government initiative introduced in (climate, mineral waters). The number of tourists in Georgia 2017 – excluding individuals with annual income of over GEL 40,000 reached a record high of 4.8 million in 2018, up 16.9% y-o-y. (c.32,000 people) from the UHC coverage and granting a limited UHC Some potentially attractive segments for medical tourism coverage to middle-income citizens, i.e. those with an income of may be IVF, plastic surgery, ophthalmology, transplantology, over GEL 1,000 per month but under GEL 40,000 per year (c.400,000 orthopaedics and oncology. people) – is intended to make the UHC spending more efficient and may potentially expand the private medical insurance market. • Strong growth in healthcare expenditure. On a per capita basis, healthcare spending remains low compared to certain emerging market peers (such as Malaysia and the UAE) pointing to further growth potential. At the same time, economic growth and rising disposable incomes of Georgian citizens, including those living outside the capital city, should also lead to higher spending on pharma and healthcare services, particularly considering the potential increase of corporate medical insurance plans for employees. Universal healthcare (“UHC”) programme A Government-funded healthcare programme that provides basic Healthcare coverage of Georgia’s 3.7 million population healthcare coverage to the entire population was introduced in PMI UHC March 2013 and eventually replaced the existing two State Insurance Programmes (“SIPs”). UHC is an undertaking by the Government to reimburse healthcare providers directly for the delivery of treatment 2014 to patients. The programme is subject to certain limits and service and coverage exclusions, beyond which the patients have to fund treatment PMI SIP UHC on an out-of-pocket basis or rely on a private medical insurance coverage. The key principles of the UHC are as follows: 2013 Key principles of UHC programme PMI SIP OOP Overview • The UHC was introduced in February 2013 and replaced most of the previously existing state-funded medical insurance plans. 2012 • The main goal was to provide basic healthcare coverage to the entire population. PMI SIP OOP Financing and • UHC is fully financed by the Government. top-up ecanis • UHC doesn’t reimburse 100% of costs in most cases, leaving substantial room for out-of-pocket payments by patients. OOP Beneficiaries • UHC beneficiaries may select any healthcare and providers provider enrolled in the programme. • Actual prices charged to patients by healthcare providers are not regulated by the state. • Any provider, whether private or public, OOP, Out-of-pocket is eligible to participate in the programme. UHC, Universal Healthcare Programme SIP, State Insurance Programme PMI, Private Medical Insurance PMI, UHC, SIPinclude co-payments 32