Healthcare reform has been one of the success stories of the past decade, with the government managing to unite a badly divided series of public healthcare providers to create a more robust universal system, while leaving plenty of room for the private system to flourish. The main driver for change has been the AK Party government, which has made reform of the public healthcare system one of the hallmarks of its program. For the pharmaceutical companies, the new healthcare reforms have heralded a change in strategy, as the government seeks to clamp down on medicine costs while increasing volume purchasing, thus favoring the development of a generics market.
Total healthcare expenditure almost quadrupled in US dollar terms between 2002 and 2008, according to TurkStat, increasing from $12.40 billion to $44.36 billion over that period. In terms of percentage of GDP, healthcare spending rose from 5.4% in 2002 to 6.1% in 2008, with the government accounting for 73% of all expenditure at the end of the period. As a proportion of GDP, Turkey has one of the lowest figures in the OECD, bar that of Mexico. The budget for the Ministry of Health is forecast to rise to TL17.2 billion in 2011, up 24% in year-on-year terms, indicating the seriousness with which the government is taking plans to improve the healthcare sector.
Prior to the reform of the public sector, Turkish state healthcare provision was divided between a myriad of social security and Ministry of Health sponsored schemes, none of which were able to provide universal healthcare coverage. For lower income earners, an incomplete system of healthcare coverage had been provided via the “Green Card” system since 1992, while for those who were employed or retired another system of healthcare providers existed that was mutually exclusive in their operations. Only confusing the picture more was the presence of a parallel system established by the universities and the Turkish Armed Forces, making the public system a labyrinth for patients. It was in the midst of this confusion that private providers were able to find a significant role and emerge as the only credible system able to provide consistent, high-quality care.
In late 2002, the AK Party government instituted the “Health for All” reform plan, which sought to streamline the public healthcare sector and pursue the provision of a guaranteed basic level of universal health care. Law 5502 of 2006 united all of the various public system hospital and healthcare providers under the auspices of the Ministry of Health and the Social Security Institution (SGK), ending the previous divisions. Law 5510 of 2008 brought in the concept of Universal Health Insurance (UHI), and also gave publicly insured patients access to private hospitals, with the patient paying a 30% differential or “top up” between the public and private fees. The UHI scheme covers all emergency treatment procedures at no cost, regardless of insurance status, while the “112” network of ambulances has been expanded from 613 vehicles in 2003 to 2,029 by the start of 2009, according to the Ministry of Health. The system is also bringing foreign residents under the coverage of the UHI, through the payment of a premium to the Social Security Directorate should there be no reciprocal arrangement with their home country, or should they not be covered by their country’s healthcare scheme.
In 2005, the Ministry of Health began the roll out of a “family health” clinic program, looking to refocus the burden of primary health care away from the hospital system to local health centers. The target has been to provide one family doctor for every 3,500 people, and the primary healthcare budget has risen from TL1.88 billion in 2002 to TL3.98 billion in 2008 in response. Although there have been some teething problems, the proportion of primary level consultations has risen to 51% for health centers in 2008, up from 40% in 2002. Vaccination levels for children have also seen added emphasis, with the average rising from 78% of all newborns in 2002 to 96% by 2008, and the health budget allocated for the public vaccination program has risen from TL14 million to TL161 million over the same period.
While the public sector has concentrated on providing primary and preventative healthcare services to the general population, the private sector has been left plenty of room at the top of the market to expand, and foreign investors have taken keen interest in the sector’s growth. Official statistics from TurkStat record that the number of private hospitals grew from 253 in 2004 to 365 in 2008, with the 2010 figure estimated to be more than 420 by industry sources interviewed by TBY. Although Istanbul remains the center of the private hospital sector, with more than 40% of the total, other regional centers are also gaining attention as patient spending and private health insurance rates rise.
Foreign investors are taking note, and a number of large-scale investments or take-overs of private medical providers have occurred in recent years. In 2007 and 2008, Abraaj Capital of Dubai bought a 54% stake in major private operator Acıbadem Group, which runs 19 hospitals and also features a private insurance arm, for $606 million. In 2009, the Carlyle Group, a major private equity fund, bought a 40% stake in hospital operator Medical Park, which has 15 hospitals across Turkey and employs more than 8,000 physicians. In early 2011, ADM Capital advised that it had signed a partnership agreement with Universal Hospitals Group, which has 18 hospitals in Turkey and Albania, including the landmark German Hospital near Taksim Square in Istanbul. Other foreign investors that have taken the plunge include Marfin Investment with Şafak hospitals and the National Bank of Kuwait in the Dünyagöz chain of eye hospitals.
The pharmaceuticals game has also changed following the government’s healthcare reforms. Since the introduction of the Reference Price System (RPS) in 2004, the method the state uses to reimburse and price medicines has seen an increased favoring of volumes and generic production over “wonder drugs”, while the VAT on medical products was reduced from 18% to 8%. The RPS uses the lowest price found for a drug or product in five different EU markets, and then negotiates a discount for the supply of the product from the pharmaceutical company. As a result the volume of medicines supplied more than doubled from 0.86 billion units in 2003 to 1.45 billion units in 2010, according to statistics from the Pharmaceutical Manufacturers Association of Turkey (IEIS). The value of the pharmaceuticals market rose from €3.69 billion in 2003 to €6.96 billion over the same period.
The tighter pricing policies of the government have seen a rise in the use of generic medicines. However, as the CEO of Deva Holding, Philipp Haas, told TBY, “In Turkey, the penetration rate of generic label medical products is only about 50%, while in the US it is about 90%.” This indicates that further generic production and sales have some way to go in the Turkish market. However, the new pricing policies saw a slowdown of growth for some companies, though volumes improved. GlaxoSmithKline’s General Manager in Turkey, Yiğit Gürçay, told TBY, “We expect continued volume growth and hope to see controlled price reductions.”
There are around 300 pharmaceutical firms operating in Turkey, with 13 of the 42 main manufacturing facilities owned by multinationals. Turkey remains a major importer of pharmaceuticals, however, receiving €3.33 billion in imports in 2010, while on the exports side a more moderate €421 million was seen. Turkey is still in need of a more vibrant generics industry, and the government has been using new tax breaks on R&D activities as well as the establishment of medical parks, such as Teknokent in Ankara, to encourage the growth of generic label producers. By volume, some 51.4% of pharmaceuticals sold in Turkey were generics in 2010, though by value the figure drops to just 37.1%, according to figures from the IEIS.
With a fast-growing population of 75 million, Turkey is estimated to be the sixth largest medical market in the European region, and is one the rising stars of the emerging markets. As per capita incomes grow, Turkey’s potential as a major destination for investment in the health sector is getting larger.
© The Business Year