Issue 4, 2011. August-September


GEORGIA'S QUEST FOR MODERN HOSPITALS, ONE BED AT A TIME is starting a new series of sector overviews to provide background, summaries and analysis of priority industries for investors in the Georgian economy. This is the final article in a series dedicated to the health industry. For more information please contact Molly Corso.

Private investment in new hospitals is spurring the government's plans to modernize the country's crumbling medical infrastructure.

Monica Ellena

Just as Rome wasn't built in a day, the transition of healthcare from the cradle-to-grave assistance of Soviet times into a private business has taken Georgia well over a decade.

In 2006 the then State Reform Minister Kakha Bendukidze said that turning the healthcare industry over to the private sector would lead to increased competition, increased patient choice and ultimately the provision of higher quality services. Today his plans are slowly becoming a reality as private companies invest in the government's hospital privatization program.

As the private insurance program is well under the way, increasing the efficiency of the hospital network remains another challenge the government faces.

According to official data, between 2000 and 2009 the number of hospitals increased from 229 to 241, but the number of beds decreased sharply from 21,200 to 13,600. Of these, only 30% are in use and in addition most of the facilities are in dire need of renovation and technological upgrade.

The process of outsourcing the job to the private sector will bring around 8,000 beds into private hands: so far investors have completed 1,600 and a further 5,600 are expected by the end of 2013. The task is to improve the efficiency of bed-use: not more beds, but beds more utilized. It is believed the number of beds will actually decline further, to around 10,000.

The policy has also helped improve access to healthcare, noted Patricio Marquez (Washington-based) Lead Health Specialist for Europe and Central Asia region for the World Bank.

The government's cooperation with insurance companies has helped to insure over one million families, he noted - now the focus should be on access to healthcare facilities.

"Efforts are needed in the future to improve the stewardship capacity of the government in the healthcare sector, particularly to ensure that people enrolled under health insurance arrangements receive quality health services, and to facilitate access to quality essential drugs," Marquez wrote in an email interview.

100 New Hospitals; maybe more.

Early in 2007 the government launched a nationwide ‘100 New Hospitals' program to transfer ownership of hospital sector restructuring; the final goal: transfer of ownership of all state-owned, privately administered hospitals in the country to the private sector by means of direct sale. That is, adding the healthcare system to the vast privatization program.

However, not all has gone according to plan. First the financial crisis and then the war with Russia led original investors to default on promises and in mid-2010 the government revised the plan.

Private insurance companies are now engaged in hospital reconstruction and rehabilitation.

Currently 114 hospitals with 5,235 beds are being constructed or rehabilitated - 23 with state budget, 91 with private investment. The latter includes both insurance companies such as GPI, Imedi International and Aldagi BCI and non-insurance investors such as Block Georgia and Ihope.

"Hospitals are scheduled to open towards the end of 2013," explains director of the Curatio International Foundation Dr. Giorgi Gotsadze, "my assessment is that the project is currently on track and being closely monitored, almost on a weekly basis, by the Ministry of Health. It seems promising although the final outcome yet remains to be seen."

Putting the development of the hospital sector in private hands definitely seems to be the way forward to alleviate pressure on the state budget. Still, money is not the only problem.

"Georgia spends 10% of its GDP on healthcare, a high figure relative to its economic development," explains Gotsadze. "The issue is the inefficiency in the system due to weak and outdated hospitals and their management, along with oversupply of doctors and undersupply of nurses."

Opportunities for investors are multiple: bringing in Western-style management and know-how to improve efficiency; establishing training schools for nurses; introducing new technology for clinical quality management like telemedicine for the network of hospitals and digital imaging so remote locations can improve the quality of diagnostics.

"What we need the most is know-how."

Going private

Investors have seen the potential of a market to be built almost from scratch. Modern facilities with state-of-the-art medical technology have been built across the region. As the 100 hospitals program fell through, the government modified and invited insurance companies to bid to build additional medical facilities. Georgian Prime Minister Nika Gilauri, illustrating the process in a Parliament hearing explained for example that having IMEDI win the tender in Telavi, Akhmeta and Kvareli regions, the company would insure all vulnerable people living there and, at the same time, it would be responsible for building a 70-bed hospital in Telavi, a 15-bed one in Akhmeta and a 15-bed hospital in Kvareli.

International organizations have also been ready to support the sector's modernization. The World Bank's Health Sector Development Project, due to end in December 2011, has been injecting $28 million into the system to improve the coverage, the use and the quality of healthcare facilities, along with strengthening the government's stewardship function in the system. The results are tangible: 103 primary healthcare facilities in mountain areas of Imereti, Adjara and Shida Kartli have been rehabilitated, equipped and staffed with trained personnel; 30% of the population are now covered with re-trained family medicine providers (compared to 0.6% at the beginning of the project); 72% of the rural population has access to a primary health clinic within 30 minutes of transportation/walking and the immunization rate of DPT3 (three doses of diphtheria, pertussis and tetanus, which the World Health Organization uses as a common measure of the availability of health services) increased by 20% to reach 98% in 2009.

"Possibilities for investors are vast," says Thomas Lubeck, Director of the International Finance Corporation (IFC) for the South Caucasus. In June IFC, part of the World Bank Group, announced its first-ever financing of a health insurance program: a $3 million investment in equity in Archimedes Health Developments to help expand access to health insurance and health services in Georgia and other emerging markets in Eastern Europe and Central Asia. IFC's investment, along with $2 million additional financing from Archimedes Global will enable the new company to establish health clinics (two are currently being built in Tsoniri and Lagodekhi). Cyprus-based Yaron Inbar, AG's Managing Director, declined to comment on the agreement to

"Health insurance is not the only area investors can look at," explains Lubeck. "Establishing clinics is another. In addition, facilities need to be managed and that requires highly skilled competencies. Management is another possible area."

Examples are out there. In March, the Washington-based American Hospital Management Company (AHMC) announced it will manage the Tbilisi State Medical University High Technology Medical Center. George Ingorokva, the facility's principal investor, stated that the highly trained staff needed "a new philosophy and new management model".