Posted: 8 months ago

Changes and Risks to Come from the Revision of the Universal Healthcare Funding Mechanism

The government of Georgia plans to revise the universal healthcare funding mechanism.  Ekaterine Tikaradze, Minister of Health and Social Protection, noted at a meeting of three parliamentary committees that the Health Ministry plans to equalize the existing tariffs of the universal healthcare program for all clinics. 

Despite the universal healthcare program’s enforcement, each patient has to cover 20%-22% of  the total costs and the private sector’s profits exceed 35%, she noted. 

“The government has been spending significant financial resources since 2013, but these efforts are not sufficient, and patients have to cover a significant part of the costs. Over the past 7 years, the universal healthcare program has financed patients with more than 3 billion GEL. Since 2013, more than 2.4 million people have used the program’s funding and, on the whole, 6.7 million treatments were funded. Despite these efforts, patients had to cover 20%-22% of total costs, while the private sector’s profits exceeded 35%. These indicators prove that systemic changes are required. Therefore, we have taken the decision to revise the funding mechanism, and purchases from the state budget will be carried out by implementing tariffs, and the universal healthcare program’s tariffs for all clinics will be unified. This is an approved practice in pricing that ensures market regulation and quality. This system will become the joint standard all over the country,” Tikaradze noted. 

The Ministry plans to work on partial regulation of the price of  medicine, and start the partial regulation of pharmaceutical market products to help implement pricing, she noted. 

“There is no practice of regulation in the country. We plan to introduce admittance and registration of pharmaceutical products,  requirements and methodologies established in international practice, make the GMP (Good Manufacturing Principle) practice obligatory for pharmaceutical manufacturing, introduce the GDP (Good Distribution Practice) for importers and  the wholesale distributors of pharmaceutical products, license all types of pharmacies (retailers), introduce a pharmaceutical supervision system, inspect the pharmaceutical market, enhance administrative mechanisms, shape and develop pharmaceutical products quality control laboratory”, Ekaterine Tikaradze noted. 

The Caucasus Business Week (CBW) has inquired how the parliament and the private sector appraise these initiatives and whether a revision of the universal healthcare funding mechanism may generate certain risks. 

Akaki Zoidze, the head of the parliament’s Health and Social Issues Committee, noted that this initiative does not require legislative amendments. Changes are required only in government resolutions, he said. These initiatives will bring painful effects to some private clinics, he added. 

“Everybody works to make profits, but not at the expense of medical service quality and a patient’s health and quality of life. This is the argument of the authorities”, Zoidze pointed out. 

He abstained from specifying details, but noted that the 2016 pre-election program of Georgian Dream discussed at length just and impartial funding principles in a universal health program. This method exposes what resources are employed in this or that medical operation and prices are determined only after that, Zoidze said. 

“Clinics have set absolutely different prices for the same operations. The price of an appendicitis operation in one clinic was 1000 GEL,  but in another clinic – 3 000 GEL, while the operation requires the same human resources and materials. Therefore, state regulations are important when the private sector dominates. Previously, the government used to take into account existing prices, and now prices will be standardized”, Zoidze said. 

Anzor Melia, founder of GULI cardiologic clinic, welcomes the revision of  universal healthcare funding mechanisms. Clinics set different prices for the same operations. Prices should be stabilized, and this does not mean that the state’s interference in private business, Anzor Melia noted. 

‘State interference in the private sector means that when the government obliges the business sector to fulfill impossible things. For example, I have received information that a clinic must keep 900 liters of water reserved for one bed. This means that a clinic will need a 70 ton reservoir. This is impossible”, Melia said. 

If the Ministry and Parliament regulates prices, this would lead to very good practices, he added. 

“Today, the GULI clinic maintains old prices, despite everything rising in price and the GEL’s depreciation”, Melia noted. 

Kakha Okriashvili, founder of the PSP pharmaceutical company, explains that medicine prices are low in Georgia. 90% of medicines are imported from Europe, and the country pays EUR and USD for them, and therefore medicines prices in GEL become expensive for citizens of Georgia. 

Regulations promote the business sector, and ensure good prices. The country should develop domestic pharmaceutical production, and make a breakthrough in this respect, Kakha Okriashvili said. 

“For example, Belarus subsidizes its pharmaceutical market at a rate of 60%, and the prices of domestic medicines are affordable. If Georgia introduces health regulations in compliance with  the  EU’s best experience, we will only welcome”, Okriashvili noted. 

When considering that medicines in Turkey are cheaper than in Georgia, Okriashvili noted that about 70 medicines are genuinely cheaper in Turkey thanks to the domestic pharmaceutical industry, Okriasvhili noted. 

“About 10 major and very good pharmaceutical enterprises are running in Turkey. In due time, they were boosted by the government of Turkey. In about 30 years, we should also have similar breakthroughs, and this problem will be resolved forever”, Okriashvili noted. 

As for the profits of pharmaceutical companies, currently annual profits of this sector are at 4%-8%, he added. 

Irakli Margvelashvili, Executive Director of the Association of Pharmaceutical Companies, explains that state regulations of prices may bring certain risks. 

At this stage, we do not have detailed information about steps and action plan on how the government will regulate medicines prices. We should know that there are various types of price regulations, including the fixation of the supply tariff. Georgia is an importer country, and we import about 85% of our medicines from abroad, and the price depends on the GEL exchange rate against the USD and EUR. There is also regulation to determine the  margins of extra prices. This is called direct price regulation, he noted. 

At this stage, the Georgian pharmaceutical market stays liberal, and prices are not regulated, but over the previous period medicines prices rose in the GEL, and this trend has seriously affected ordinary citizens, and the issue requires due regulation, he said. 

Prices are regulated in many countries, but this regulation is not practiced in the USA, which holds 40% of the global pharmaceutical market. Consequently, when talking about other experiences, we should make comparison with countries with similar health and pharmaceutical markets, Margvelashvili said. 

“If we make comparisons to Germany, Czech Republic or other countries, this will be an unequal comparison, because they have different structure of medical insurance, and the market structure is also different. We should make comparison with neighboring countries. Prices were regulated in Russia and Azerbaijan, and they received disastrous results. Namely, a lot of medicine disappeared from their markets. These countries introduced regulations without consultations with the private sector;therefore, price regulation is a risky affair”Margvelashvili noted. 

The Georgian pharmaceutical market has a very unique structure, with some legislation that was introduced in 2009. In thissituation, each regulation needs a deep analysis to determine the results. We should appraise risks and, if it is necessary to introduce new regulations, these regulations should be applied to only a small group of medicines, namely for medicines against chronic diseases, he noted. 

“It is a very risky decision to apply new regulations to all medicines. This decision will eject certain groups of medicines from the market, and they will be replaced by low-quality analogues. Moreover, the Black Market will be activated and this is a hazardous trend in the case of medicine. When the country illegally imports products, medicines are the most sensitive items in terms of imports/storage/transportation. All these three components represent serious risks, and may seriously harm the health of patients. To prevent these risks, we should comprehensively and scrupulously explore this issue and consult on it with all participants and chains in the healthcare system”, Margvelashvili said. 

According to Russian media agencies, a catastrophic situation has arisen in Russia in terms of the supply of medicines. Namely, medicines have been disappearing from the Russian market. Doctors have already made a list with more than 700 medicines that disappeared from the market, including medicines of vital importance. 

According to Moskovski Komsomolets, the Russian authorities boast of price regulations, but domestic and foreign pharmaceutical companies have stopped imports and distribution of medicines in the country. 

Pharmacies and hospitals in Russia lack medicines. In 2019, more than 30% of state tenders failed. In the regions, people lie without insulin, anti-rabies and other necessary medicines. 

More than 4,300 tenders of a previously announced 13,000 failed in Moscow. In the case of insulin, 2,800 tenders were announced, and 628 failed. In thecase of anti-rabies vaccine – 573 state tenders were announced and 429 failed. 

DSM Group analyst Sergey Shuliak says that low prices are a precondition for the failure of tenders, because companies abstain from participating in similar tenders.


Pharmacies also face problems – various popular and vital medicines have disappeared from networks, including well-known hormonal medicine Prednizolin for AIDS patients has disappeared. 


Under the new regulations, prices may be revised insignificantly  by only several percentage points, only once a year. Consequently, the final price turns out lower, when compared to the prime cost. Over a certain period, manufacturers and importers managed to continue working in the usual way, but in vain. According to experts, about 700 key medicines have disappeared from the Russian market. 


“This is real catastrophe. At this stage, pharmacies still use the existing reserves, but in April 2020 we will have real misfortune, if nothing changes”, expert Elena Grigorenko said. 


Not only separate medicines, but whole categories and groups of medicines are disappearing from the market – in all prices, domestic, imported, analogues, and without analogues. A lot of manufactures abstain from entering the Russian market because of excessive regulations and bureaucracy, she said. 


“How long should our patients suffer from these regulations? When will the government realize that to reach an optimal norm – we should recognize registrations from the EU and the USA, and medicines sales will become available in Russia”, Ekaterina Chistikova, head of one of the charity foundations, noted. 


According to DSM Group reports, over the past few years, sales of packed medicines have also declined. The slowdown over six months of 2019 made up 3.9%. The situation worsened at once because of new regulations to result in price revisions. Namely, the new regulations call for lowering the price of generics. As a result, many companies have left the market.